The Effect of Capital Structure on Profitability of Microfinance Institutions in Kenya

Abstract

The challenges faced by microfinance institutions in their capital structure satisfied the conduct of this study, which assessed the impact of capital structure on the profitability ofMFls in Kenya. 11 has closely examined the impact of equity and debt on the profitability of MFls. The study adopted a cross-sectional design for survey research. The study used research questionnaires.to collect data. The instrument was pre-tested to collect data. To facilitate data analysis, the software package Statistical Package for Social Sciences was used. Both descriptive and inferential statistics formed a data analysis. The null hypotheses were tested at a confidence level of95%. The results of the analysis were presented in tables. The study found that equity did not materially affect the profitability of MFls. However, leverage had a significant impact on reported profitability. In addition, it has been shown that the capital structure generally has a significant impact on the profitability of MFls. The study concluded that the equity ratio ofMFls is increasing. The study concluded that leverage is the last funding option for MFls. The study recommended that owners of MF!s contribute more capital in emergency situations or that the source of funding is available only through capital injection. The study also recommended that more debt be used to finance the activities of MFls.