EFFECT OF EQUITY FINANCING ON LIQUIDITY POSITION OF MICROFINANCE BANKS IN KENYA

Abstract

The liquidity position of microfinance banks (MFBs) plays a pivotal role in their financial stability and ability to fulfill their mission of promoting financial inclusion and alleviating poverty in Kenya. Equity financing is a significant source of funding for MFBs, yet its impact on the liquidity position of MFBs remains unclear as documented in empirical evidence. Hence, this study investigates the impact of equity financing on the liquidity position of microfinance banks (MFBs) in Kenya and provides recommendations for policy and practice. Using panel data analysis covering the period from 2012 to 2021, the study examines the relationship between equity financing and liquidity position. The study findings indicate a significant link between equity financing and liquidity, with higher levels of equity contributing to enhanced liquidity positions within MFBs. Recommendations for policy makers include enhancing the regulatory framework governing MFBs to ensure prudent management of equity financing and promoting transparency and disclosure in financial reporting practices. For practitioners, the study recommends diversifying funding sources, investing in capacity building initiatives, and integrating equity financing considerations into strategic planning processes. In overall, the study underscores the importance of equity financing in supporting the liquidity position of MFBs in Kenya and offers actionable insights for policymakers and practitioners to enhance financial stability, resilience, and the promotion of financial inclusion.