FINANCIAL DUE DILIGENCE AND PERFORMANCE OF MICROFINANCE BANKS IN KENYA

Abstract

The primary aim of this study was to examine the impact of financial due diligence on the success of microfinance banks in Kenya. Specifically, the study sought to: assess the influence of financial management review on the financial performance of microfinance banks in Kenya; analyze the effect of governance structure on their financial performance; evaluate the impact of risk management on their financial performance; and determine the moderating role of firm size in the relationship between financial due diligence and financial performance. The agency theory and the risk management theory were the driving forces for the study. The study used a causal research approach, which investigated the links between causes and effects. The research was conducted with each of Kenya's 13 microfinance banks in mind. The sampling strategy used was based on a census. We utilized secondary data for the years 2018-2022 that came from Central Bank of Kenya and the websites of various companies. The analysis of the data included both descriptive and inferential statistical methods. The data were summarized via the use of descriptive statistical analysis, which included frequencies, percentages, means, and standard deviations. The results of the analysis were laid out in tables, charts, and graphs. The researchers used a series of statistical techniques, including simple linear regression, multiple linear regression, and hierarchical regression, in a sequential manner. These methods were applied to assess the extent to which an independent variable affects a dependent variable, the cumulative influence of many independent variables, and the moderating effect of firm size. Furthermore, the study also examined the collective impact and the moderating role of company size. Results from multiple linear regression revealed that 51.45% (R2=0.5145, P=0.0063) of variation in performance of microfinance banks in Kenya is accounted for by financial due diligence. Based on the results, the regression coefficient (β1) for financial management review was found to be significant 0.15894, P=0.001. The regression coefficient (β2) for governance structure was found to be insignificant 0.82654, P=0.128 and β3 for risk management was found to be significant 1.597834, P=0.014. Interaction between financial due diligence and firm size as a moderator produced a final R square of 0.7693, P=0.000 implying that, firm size has a significant moderating effect on the relationship between financial due diligence and performance. The study concluded that increasing scope of financial management review and good risk management have a positive influence on performance. However, the financial performance of the corporation is unaffected by changes in board composition or the number of audit committees on the board. When looking at the correlation between financial due diligence and financial performance, the effect of business size becomes more apparent. Shareholders should emphasize the participation of persons from different professional backgrounds throughout the process of selecting board members, according to the advice obtained from this data. Many different viewpoints on different topics are expected to be expressed in this piece. Moreover, it is recommended that microfinance banks in Kenya prioritize the enhancement of directors' competence and experience by frequently holding induction programs and evaluating their performance in fulfilling their tasks.