Onyinkwa Steve Omare


Abstract: Most DTMFIs in Kenya started off as NGOs and had built significant supply side competencies, as such, funding structure had no relevance. However, with growth and commercialization, MFIs are spinned off to become fully independent, the puzzle of funding structure that will ensure sustainability and profitability becomes relevant. The main objective of this study was to investigate on the effect of capital structure on the performance of microfinance institutions with a case of taking microfinance institutions. The study also sought to determine the effect of debt to equity ratio, debt to asset ratio, total debt ratio and customer deposits on the performance of microfinance institutions in Kenya. This study used a descriptive research design. The target population for this study constituted of 8 Deposit Taking Microfinance institutions in Kenya. Census method was used to select all the 8 DTMs in Kenya. This study used cross-sectional data, where all the MFIs were observed at the same point of time (2010-2014). The research concentrated on secondary data using annual reports of the relevant Deposit Taking Microfinance institutions. The study made use of both descriptive and inferential statistics. In relation to descriptive statistics the study used frequency distributions, percentages, measures of central tendency (mean) and measures dispersion (Standard deviation) to summarize the data. The study also used correlation and multivariate regression analysis to examine the magnitude of the influence of the independent variable on the respective dependent variables. From the results, the study found that there is a positive relationship between debt to equity ratio and the performance of microfinance institutions in Kenya. The study also established that debt to asset ratio, total debt and customer deposits and the performance of microfinance institutions in Kenya. The study also found portfolio at risk influences the performance of microfinance institutions negatively. The study recommends the development of appropriate policies to enable MFIs to have access to debt to enhance their operations. In addition, the Nairobi Security Exchange should have a look at their listing requirements and work towards designing mechanisms that would enable MFIs to get listed and to offer them the opportunity to access equity capital.

Full Text:




Abor, J. (2005). The effect of capital structure on profitability: an empirical analysis of listed firms in Ghana. Risk Finance, 6(5), 16-30.

AMFI (2012). 2012 Annual Report on Microfinance Sector in Kenya. Retrieved from http://www.amfikenya.com

Ayayi, A. G. (2012). Microfinance: A Time to Deliberate. Asian Economic and Financial Review, 2(3), 445-447.

Boateng, A. (2004). Determinants of capital structure. Evidence from international joint ventures in Ghana. International Journal of Social Economics, 31(2), 56-66.

CGAP (2009). Microfinance Investment Vehicles (MIV) survey, market data and peer group analysis, Washington D.C: CGAP.

Graham, J.R., and Harvey, C. (2001), The theory and practice of corporate finance: evidence from the field. Journal of Financial Economics, 60, 187-243.

Gupta, P., Srivastava, A. & Sharma, D. (2011). Capital Structure and Financial Performance: Evidence from India. Journal of finance, 39, 857-880

Hall, G.C., Hutchinson, P.J. & Michael, N. (2000), Industry effects on the determinants of unquoted SMEs' capital structure, International Journal of the Economics of Business, 7(3), 297-312.

Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: managerial behaviour, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360.

Kar, A.K. (2012). Does capital and financing structure have any relevance to the performance of microfinance institutions? International Review of Applied Economics, 26(3), 23-29

Kimando, L.N. & Kihoro, J.M. (2012). Factors Influencing the Sustainability of Micro-Finance Institutions in Murang’a Municipality. International Journal of Business and Commerce, 1(10), 21-28

Kisgen, D. J. (2006). Credit ratings and capital structure, Journal of Finance, 61, 1035–1072.

Kyereboah-Coleman, A. (2007). The determinants of capital structure of microfinance institutions in Ghana. SAJEMS, 10(2), 270-281.

Kyereboah-Coleman, A. (2011). The impact of capital structure on the performance of microfinance institutions. The Journal of Risk Finance, 1(8), 56-71.

Lafourcade, A., Isern, J., Mwangi, P. & Brown, M. (2005). Overview of the Outreach and Financial Performance of Microfinance Institutions in Africa. Retrieved from http://afraca.org/

Leon, S.A (2013). The impact of Capital Structure on Financial Performance of the listed manufacturing firms in Sri Lanka. Global .Journal of Commerce & Management Perspective, 2(5), 56-62

Magiri, M. (2002) Relationship between credit models used by mfis in Kenya and the attainment of outreach. Focal Point for Microfinance, 2(1), 4-6.


  • There are currently no refbacks.