Financial Accountability and Sustainability of Microfinance Institutions in West Pokot County, Kenya

Linus Lokira; Lucy Wamugo

doi:10.35942/ijcfa.v4i2.255

Linus Lokira
Lucy Wamugo

DOI: https://doi.org/10.35942/ijcfa.v4i2.255

Keywords: Audit, Financial accountability, Financial Reporting, Financial regulation, Fraud detection, Micro Finance Institution, Sustainability

Abstract

In the recent past, there has been a constant demand for timely accountability reports due to increased awareness, devolution of funds and establishment of various new institutions. Financial sustainability of microfinance institutions in West Pokot County in Kenya has been highlighted as a major concern. The main purpose of the study determined the effects of financial accountability on the sustainability of the microfinance institutions in the West Pokot County. The specific objectives were to: determine the effect of audit efficiency on the sustainability of Micro Finance Institutions (MFIs) in West Pokot County; establish the effect of fraud detection on the sustainability of microfinance institutions in West Pokot County; determine the effect of financial reporting on the sustainability of microfinance institutions in West Pokot County; and determine the effect of financial regulation on the sustainability of microfinance institutions in West Pokot County. The study was based on Agency theory, stakeholder theory, and stewardship theory. The study applied explanatory research design. The target population was the 6 MFIs in West Pokot County. A census was taken since the population is small. The researcher used a semi-structured questionnaire administered to each member of the respondents to collect the data. The collected data was analyzed using descriptive statistics and regression and correlation analysis by the help of SPSS. The results were presented in tables, pie charts and bar charts. From the findings, when financial accountability factors are held at zero, sustainability of microfinance institution will be negative (-0.257). At the same time, an increase in audit efficiency, fraud detection, financial reporting, and financial regulations each by one unit leads to an increase in sustainability of microfinance institutions by 0.276, 0.313, 0.453, and 0.036 units respectively the p-values were also less than 0.05 (that is 0.025 for audit efficiency, fraud detection (0.002), financial reporting (0.005) and financial regulations (0.038). This implies that all financial accountability factors considered in this study have a positive relationship with sustainability. The study concludes that financial accountability is to a great extent observed in MFIs particularly through audit efficiency, fraud detection, financial reporting, and financial regulations. The study recommends that the government through the relevant agents should ensure existing financial accountability regulatory framework is adhered to ensure sustainability of microfinance institutions. Microfinance institutions also should ensure they pay focus on audit efficiency, fraud detection, financial reporting, and financial regulations.

Author Biographies

Linus Lokira

Student, Masters in Business Administration (Finance), Department of Accounting and Finance, Kenyatta University, Kenya

Lucy Wamugo

Lecturer, Department of Accounting and Finance, Kenyatta University, Kenya

References

Ado, A. B., Rashid, N., Mustapha, U. A. & Ademola, L. S. (2020). The impact of audit quality on the financial performance of listed companies Nigeria. Journal of Critical Reviews, 7(9), 37-42
Al-Dmour, A., Abbod, M. & Al Qadi, N. S. (2018). The impact of the quality of financial reporting on non-financial business performance and the role of organizations demographic' attributes (type, size and experience). Academy of Accounting and Financial Studies Journal, 22(1), 1-18.
Ali, S. I. (2017). The effect of internal audit on financial performance of microfinance institutions in Kenya. Unpublished Master Thesis, University of Nairobi. Nairobi, Kenya.
Bilal, Z. O., Twafik, O. I. & Bakhit, A. K. (2018). The influence of internal auditing on effective corporate governance in the banking sector in Oman. European Scientific Journal, 14(7), 257-271.
Cantu, I., Haiyan, Zhou & Lai, Liu (2004) Continuous Auditing, University of Texas-Pan American, Information Systems Education Journal, Vol. 2, No. 14.http://isedj.org/2/14. pp. 1-12.
CBK (2020). Bank supervision annual report 2020. Nairobi: CBK.
Chemtai, F., Okumu, F. O. & Kimutai, G. K. (2021). Using demographics of microfinance institutions’ customers to predict financial inclusion among marginalized communities in Kenya. International Journals of Academics & Research (IJARKE): IJARKE Business & Management Journal, 3(4), 64-71.
David, J. K. & Muendo, D. (2018). Effect of Central Bank of Kenya regulations on the financial performance of microfinance banks. The Strategic Journal of Business & Change Management, 5(1), 584-623.
Hayes, R. M. (2014). Discussion of “Audit committee financial expertise and earnings management: The role of status” by Badolato, Donelson, and Ege (2014). Journal of Accounting and Economics, 58(2-3), 231-239.
IFIU (2015). Effects of inside controls and sustainability of projects. Journal Financial Economics, 3, 305-360.
Kanana, K. B. (2018). Effect of fraud risk management on financial performance of non-governmental organizations in Nairobi County. Unpublished Master Thesis, University of Nairobi. Nairobi, Kenya.
Kathomi, A., Kimani, E. M., & Kariuki, S. (2017). Interest rate regulation and sustainability of microfinance institutions in Nairobi County, Kenya. International Academic Journal of Human Resource and Business Administration, 2(3), 150-165.
Kipesha, E. F., & Zhang, X. (2013). Sustainability, profitability and outreach tradeoffs: Evidences from microfinance Institutions in East Africa. European Journal of Business and Management, 5(8), 136-148.
Martinez-Ferrero, J., Sanchez, I. M. & Cuadrado-Ballesteros, B. (2015). Effect of financial reporting quality on sustainability information disclosure. Corporate Social Responsibility and Environmental Management, 22(1), 45-64.
Mohamed, M. M. & Jagongo, A. (2018). Financial accountability and sustainability of micro finance institutions in Garissa County, Kenya. International Journal of Research in Business, Economics and Management, 2(6), 18-37.
Morduch, J., & Armendariz, B. (2004). Microfinance: Where do we stand?. In Financial development and economic growth: explaining the links. Palgrave Macmillan.
Moruf O (2013) Evaluation of the Nigerian Microfinance banks credit administration on small and medium scale enterprises operation. International Review of Management and Business Research 2: 505-517
Mungala, D. & Kumari, P. (2017). Auditors’ perceptions of the effectiveness of fraud prevention and detection methods. Indian Journal of Corporate Governance, 10(2), 118–142
Quartey, J. A. & Kotey, B. (2019). Effect of regulation on outreach of microfinance institutions. Retrieved from: https://www.researchgate.net/publication/331327576_Effect_of_Regulation_on_Outreach_of_Microfinance_Institutions_in_Ghana (Accessed 02 June 2021).
Turner, Lynn (1999). Speech by SEC Staff: Panel on Audit Effectiveness. U.S. Securities and Exchange Commission v. 6, n. 3, p. 1-24.
Usman, I. C. & Jimoh, I. S. (2013). Financial accountability and prudent management of funds in Nigeria: The way out in the 21th Century. Research Journal of Finance and Accounting, 4(13), 20-24.
Whetman, L. L. (2017). The impact of sustainability reporting on firm profitability. Undergraduate Economic Review, 14(1), 4.
Woller, G. M., & Woodworth, W. (2001). Microcredit and third world development policy. Policy Studies Journal, 29(2), 265-265.
Yadav, R.K. (2014). Significance of microfinance institutions in rural India. International letters of social humanities sciences ISSN:2300-2697, 21, 84-90.