Financial Inclusion Strategies and Profitability of Microfinance Banks in Nairobi City County, Kenya
DOI:
https://doi.org/10.47604/ijfa.3564Keywords:
Financial Inclusion, Profitability, Digital Financial Services, Group Lending Models, Financial LiteracyAbstract
Purpose: The study examined the effect of financial inclusion strategies on the profitability of microfinance banks (MFBs) in Nairobi City County, Kenya. Specifically, it analyzed how digital financial services, group lending models, and financial literacy programs influence profitability among licensed microfinance banks.
Methodology: The research design used was explanatory with a focus on 168 management staff members chosen randomly from finance, credit, and operation departments in 14 licensed microfinance banks in Nairobi City County. A census method was used to involve all institutions. Data was collected using structured questionnaires alongside secondary data derived from financial statements between 2016-2024. The data was validated to ensure reliability using the Cronbach alpha statistic (α = 0.872), which exceeded 0.7. Data analysis was performed using STATA version 16. Secondary data derived from financial statements was used to validate results obtained.
Findings: The analysis showed that all three financial inclusion strategies, that is, digital financial services, group lending model, and financial literacy program, positively influenced the profitability of microfinance banks in Nairobi City County. The results showed a high positive association between financial inclusion strategies and profitability. The digital financial services recorded a high association (r = 0.712, p <0.001), compared to the group lending approach (r = 0.648, p <0.001), which was higher compared to financial literacy education (r = 0.603, p<0.001). The regression analysis results verified that both had a joint positive influence on increasing profitability, while determining digital financial services to be highly influential (β = 0.328, p<0.01). The overall model was significant (R² =0.691, F(3.164)=47.08, p<0.001), signifying that financial inclusion strategies accounted for 69.1 percent variation in determining profitability.
Unique Contribution to Theory, Practice, and Policy: The study’s contribution to the Resource-Based View theory rests on its ability to demonstrate that financial inclusion strategies serve as internal resources or organizational capacities that enhance profitability when well-aligned with institutional structures. In a practical sense, for example, access to online financial services mitigates business expenditures and extends outreach to clients, whereas group loans and financial skills development raise borrowers’ repayment capacities. These findings can inform regulators in creating an enabling environment that enhances inclusion-related profitability in microfinance banks in Kenya.
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Copyright (c) 2025 Christine Bukokhe Cheteka, Dr. Lucy Wamugo
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