www.tjprc.org editor@tjprc.org DETERMINANTS OF FINANCIAL PERFORMANCE OF MICROFINANCE INSTITUTIONS IN KENYA: A CASE OF MICROFINANCE INSTITUTIONS IN NAKURU TOWN BIWOTT JAPHETH KIPKOECH 1 & WILLY MUTURI 2 1 Jomo Kenyatta University of Agriculture and Technology, Nakuru CBD Campus, Nakuru, Kenya 2 Jomo Kenyatta University of Agriculture and Technology, Nairobi, Kenya ABSTRACT Microfinance basically relates to all financial intermediation services such as savings, credit, funds transfers, insurance, pension and remittances among others by financial institution in both rural and urban areas to low income earners. As the MFIs continue to blossom around the world spreading the concept of microfinance in all the continents, researchers are interested to study whether microfinance institutions can be sustainable over time through their performance. The purpose of this study therefore was to establish some of the factors that influence the performance of microfinance. It was hypothesized that capital structure, capital adequacy, number of borrowers and branch network influence performance of MFIs in Kenya. The study sought to establish the relationship between these factors and performance of microfinance institutions. Financial performance was mainly focused on return on assets. The study was conducted using both quantitative and qualitative approaches using descriptive research design. Data was collected using questionnaires targeting managers and finance-related employees. The study sampled 52 respondents from selected microfinance institutions in Nakuru Town. The study used descriptive statistics specifically employing measures of central tendency and dispersion to analyze data and the results will be presented in tables. Further, the study employed regression analysis to infer their relationships. It was found that number of borrowers, capital adequacy and branch network had the greatest influence on the performance of microfinance institution. The multiple regression analysis indicated the variables explained 63.7% of the independent variable which indicate that they significantly explain the variation in the dependent variable. KEYWORDS: Financial Performance, Sustainability and Capital Adequacy 1. INTRODUCTION Microfinance basically relates to all financial intermediation services such as savings, credit, funds transfers, insurance, pension and remittances among others by financial institution in both rural and urban areas to low income earners (Robinson, 2003). An institution that provides the aforementioned financial intermediation services and is regulated and governed by the key tenets proposed and endorsed by the Consultative Group to Assist the Poorest (CGAP) and its 28 member donors is referred to as a microfinance institution (Adongo & Stork, 2005). While most literary works interchangeably use the term microfinance and microcredit, these are actually two different terms with different connotations. Microcredit is limited to small loans while microfinance to all financial intermediary services. Microcredit is just but one of the many components of microfinance. The origins of the microfinance institutions and services can be traced back to 1976 when Muhammad Yunus set up the Grameen Bank in Bangladesh (Hassan, 2002). This bank was experimental in nature and its core purpose was to provide collateral free loans to poor rural households at full-cost interest International Journal of Accounting and Financial Management Research (IJAFMR) ISSN(P): 2249-6882; ISSN(E): 2249-7994 Vol. 4, Issue 6, Dec 2014, 1-16 © TJPRC Pvt. Ltd.