Asset liability management and financial performance of microfinance banks in Nairobi County.

Abstract

This study investigated the effect of asset liability management on the financial performance of Microfinance Banks in Nairobi County, Kenya. The study was guided by Liquidity Preference Theory. Adopting a descriptive correlational research design, the study targeted senior managers, financial analysts, credit officers, and internal audit personnel from large, medium, and small MFBs in Nairobi County. Stratified random sampling ensured representativeness across these categories, while data collection combined structured questionnaires and secondary data sheets. Analytical methods included both descriptive and inferential statistical tools, with SPSS version 29 utilized for robust data processing and hypothesis testing. The findings revealed a significant positive relationship between asset-liability management and financial performance, demonstrating the criticality of aligning assets with liabilities to mitigate risks. The study underscores the importance of tailored asset liability management for enhancing financial sustainability in the microfinance sector. The study recommended that microfinance banks strengthen asset liability using advanced tools and dynamic forecasting. Future research could investigate how incorporating machine learning and blockchain into asset management affects financial performance. Additionally, research could examine the long-term impact of macroeconomic factors (inflation, interest rates) on asset management strategies and the influence of ESG factors on these practices, considering the growing importance of sustainable finance.