Relationship Between Asset Quality and Liquidity- Evidence From Microfinance Banks in Kenya

The dynamism of the microfinance sector has benefited banks, resulting in significant transformation number users served as well diversity products and services offered. However, numerous banks have ended up with a liquidity ratio that is much lower than required limit. Consequently, MFB deposits are dwindling, loan books reducing, profits declining, all which an impact on MFBs' intermediation role. This study therefore sought to assess relationship between asset quality Kenya. Efficient Structure Theory Preference theory Liquidity informed study. employed causal research design adopted positivism philosophy. population included 13 micro finance institutions, were operations Kenya 2012 2018. census approach by focusing MFBs found Asset had positive effect recommends management Microfinance bank managers should capitalize periods high demand offering attractive lending rates attract more clients maintain stable position. it important ensure moderate avoid accumulating losses if not repaid accordance agreed-upon contract. Keywords: Quality, Liquidity, Efficiency Theory, Banks DOI: 10.7176/EJBM/15-10-06 Publication date: May 31 st 2023