EFFECT OF SELECTED FINANCIAL RISK MANAGEMENT PRACTICES ON FINANCIAL PERFORMANCE OF MOBILE-BASED LENDERS IN NAKURU COUNTY, KENYA

Abstract

This study analyzed the quick rise of mobile-based lending in Kenya, which have introduced a variety of financial risks that might have an influence on lenders' financial performance. The study sought to bridge this knowledge gap by determining the effect of credit risk management, liquidity risk management, and operational risk management on the financial performance of mobile-based lenders in Nakuru County. The measures of financial performance were both Return on Asset and Return on Equity. The following theories were used to guide this study; credit risk theory, liquidity preference theory, and modern portfolio theory to investigate the link between risk management techniques and financial performance in the context of mobile-based lending. A quantitative cross-sectional research design was used in this study. A total of 64 respondents, including General Managers, credit officers, and debt collectors from mobile-based lenders in Nakuru County, were targeted by the researcher. The study employed census design whereby all the targeted respondents were involved in the study. Structured questionnaires with categorical and Likert-based questions were used to collect data. A pilot study was conducted at Vooma, KCB Eldoret branch involving 10% of its population. Validity checks included face and content validity, utilizing Law she's methodology for content validity ratio. A reliability test was conducted to ensure robust research instruments. Internal consistency was assessed via Cronbach's alpha which ranged from 0.736 to 0.803, surpassing the 0.7 threshold. The study prioritized ethics, ensuring participant welfare, confidentiality, informed consent, voluntary participation, secure data handling, and regulatory approvals. Using SPSS software, data was analyzed using descriptive statistics, correlation, and regression approaches. The findings showed that financial performance of mobile-based lenders was greatly affected by financial risk management practices. As per the regression analysis results, the model summary shows a correlation coefficient (R) of 0.854 with a coefficient of determination (R2) of 0.729. This suggests a statistically significant relationship, explaining 72.9% of the variation in financial performance. The beta coefficients for credit, liquidity, and operational risk management practices were (β=0.139; p=0.022), (β=0.255; p=0.000), and (β=0.499; p=0.000) respectively. This implies that a significant relationship existed between all the financial risk management practices and mobile-based lenders’ financial performance. Theresults of this study emphasize the significance of developing effective risk management measures for mobile-based lenders to achieve better financial outcomes. Policymakers and regulators are urged to give recommendations and assistance in promoting appropriate risk management procedures in the mobile-based lending business, this will contribute to its stability and consumer protection. Future research opportunities include exploring the impact of other risk management practices performing comparative research across various locations and conducting longitudinal studies to measure the long-term effects of risk management techniques on financial performance