Operational risk and financial performance of microfinance banks in Kenya
View/ Open
Date
2022-02Author
Ishmail, Daniel Mwasa
Memba, Florence
Muriithi, Jane
Metadata
Show full item recordAbstract
The aim of the study was to explore the
effect of operational risk on financial
performance of Microfinance banks in
Kenya. The target population was MFBs
regulated by Central Bank of Kenya
(CBK). The study employed census
method. Secondary data for thirteen (13)
MFBs was collected from published annual
reports for the period 2011-2019. The study
employed explanatory research design.
Unbalanced panel regression model was
employed to examine the impact of
independent variables on dependent
variable using unbalanced panel data. The
dependent variable, financial performance
was measured by Return on Equity (ROE).
The indicators of operational risk were
Management Expense Ratio, Operational
Expense Ratio, Ratio of Overheads to Total
Earning and Cost Income Ratio
The finding established that operational
risk had significant and strong negative
relationship financial performance of
microfinance banks measured gauged with
ROA. Similarly, the results revealed an
insignificant weak relationship between
operational risk and ROE. The model F
statistics indicated operational risk had
negative and significant influence ROA of
Microfinance Banks in Kenya at 5% level
of significance. In conclusion, the negative
and significant relationship between
operational risk and financial performance
(ROA) implying that staff cost incurred in
managing the organization has adverse
effect on the profitability of MFBs. The
study recommends MFBs should adopt and
upgrade to information and communication
technologies and management systems that
minimize staff expense and overheads.