The Impact of Liquidity on the Financial Performance of Microfinance Institutions: Evidence from Mombasa Town, Kenya

Abstract

Microfinance institutions have encountered by difficulty determining the prime point or the level at which they can uphold its liquidity so that to augment its profitability. The difficulty becomes further distinct as good records of institutions particularly microfinance institutions are engaged with profit maximization hence they incline to disregard the significance of liquidity management. Near this end, the study tried to found the effect of liquidity on the financial performance of microfinance institutions in Mombasa town, Kenya. The study embraced descriptive research design. A regression model was used to determine the relationship between the financial performance and independent variables which included debtors, creditors and cash flow. The outcome shown that the correlation between liquidity and financial performance is strong with an A R2 of 54%. The research summarissed that liquidity management is a major contributor of the microfinance financial performance. However, it is significant for a firm to understand the effect of liquidity mechanisms on the microfinances financial performance and also commence deliberate measures to augment its liquidity level. In addition the research recommendend a further study on the role of liquidity on a microfinance financial performance by incorporating more liquidity variables.