Budgetary Controls and Financial Performance of Micro Finance Institutions (MFIs) in Kenya

Abstract

Micro financing institutions in Kenya showed a high growth rate since they were established in 1997 and legislation passed in 2006 with the micro finance Act which became active in 2008. The research sought to determine exactly how budget controls influence financial performance of micro finance organizations (MFIs) in Kenya. The objectives of the study were to establish the effect of budget planning on the performance of MFIs; to figure out the impact of budget control on the performance of MFIs in Kenya; to establish the impact of budget plan analysis on the economic efficiency of MFIs and to assess the impact of budget coverage on the financial performance of MFIs in Kenya. The research study was anchored on the Priority Based Budgeting Theory, Goal-setting theory as well as the Accountancy theory. The study adopted the descriptive research design. The target population was 713 employees of the 14 MFIs in Kenya. Purposive sampling was adopted to select a sample size of 70 top and mid-level managers. Data was obtained via structured questionnaires as well as an interview schedule. Descriptive and inferential statistics were used to analyze the data with the help of SPSS. The study used a multiple regression model to show the relationship between the study variables. The findings revealed an R squared of 0.872 which means that the independent variables contribute up to 87.2% of the changes in the dependent variable and adjusted R squared of 0.864 at 95% significance level, implying that the budgetary controls adopted in this study (Reporting, Planning, Evaluation, Coordination) jointly explained 87.2 percent of the variation in performance of the MFIs in Kenya. The study also found that budget planning as an aspect of budgetary control had a positive and significant effect on the performance of MFIs in Kenya (β =105, p=.016<.05), budget coordination as an aspect of budgetary control had a positive and significant effect on the performance of MFIs in Kenya (β =.162, p=.005<.05), budget evaluation as an aspect of budgetary control had a positive and significant effect on the performance of MFIs in Kenya (β =.240, p=.005<.05), and finally that budget reporting had a positive and significant effect on the performance of MFIs in Kenya (β =.398, p=.000<.05). The study concluded that budgetary control practices adopted had positive and significant effect on the performance of MFIs in Kenya. The study thus recommended that recommends that the microfinance institutions should consider enhancing the budgetary control measures such as budget planning, budget coordination, budget evaluation and budget reporting as ways of enhancing their performance. Keywords: Budgetary Controls, Financial Performance, Microfinance Institutions

Capital Structure and Financial Performance of Micro-Finance Institutions in Mombasa County, Kenya

“…The findings are consistent with the results Kim et al (2023) that indicated that capital structure has a positive and significant effect on the profitability performance of firms. Additionally, the results are in harmony with the results of Kwena et al (2023) which indicated that shareholders equity financing has a statistically significant influence on financial performance of MFIs. Additionally, the results are consistent with the results of previous studies (Shikumou, 2023;Shikumoet al, 2023) which revealed that share capital has a positive and significant effect on financial growth measured by growth in market capitalization.…”

“…In the Kenyan context, Kwena et al (2023) examined the influence of capital structure on financial performance of MFIs in Kenya. The results showed that retained earnings financing had a statistically significant influence on financial performance of MFIs.…”

Effect of Budgetary Control Measures on Financial Performance of the County Government of Kajiado

“…The likelihood of budget planning positively effecting financial performance diminishes if budgets are predominantly used for control purposes. The budgetary control process involves authorization, preparation, implementation and evaluation (Kemunto & Cheluget, 2022). This process is instrumental in corporate financial planning, as it provides a framework for monitoring and regulating financial activities within the organization.…”

Effect of Financial Ratio on Corporate Financial Performance of Listed Deposit Money Banks in Nigeria

“…Financial ratio analysis is a critical tool that enables firms to evaluate their financial health by identifying strengths and weaknesses in their financial performance [10]. In addition to assessing the current financial position of the firm, ratio analysis also helps to identify trends by comparing the firm's current performance with past periods [28]. Moreover, financial ratio analysis is also useful for inter-industry comparisons, allowing firms to benchmark their financial performance against competitors in the same industry [24].…”