  Microfinance provides strength to boost the economic activities of low-income
earners and thus contributes to eradication of poverty. However, microfinance
institutions face stringent competition from commercial banks; the growth of
microloan activities of commercial banks may confront microfinance institutions
with increased competition for borrowers. In Kenya, the micro finance sector
has extremely high competition indicated by the shifting market share and
profitability. This study sought to examine the determinants of financial
performance of Microfinance banks in Kenya. The study adopted a descriptive
research design and used secondary data from 7 Microfinance banks for a period
of 5 years from 2011 to 2015. The data collected was analyzed using correlation
and regression analysis. The study found a positive and statistically
significant relationship between operational efficiency, capital adequacy, firm
size and financial performance of microfinance banks in Kenya. However, the
study found an insignificant negative relationship between liquidity risk,
credit risk and financial performance of microfinance banks in Kenya. The study
concluded that there is direct relationship between operational efficiency,
capital adequacy, firm size and financial performance of microfinance banks in
Kenya.
