Abstract:
Growth of Microfinance Sector (MFIs) in Kenya is exposed to various risks which originate from both the
internal and external environment. Financial risks which threaten their financial viability and long-term
sustainability. The purpose of this study was to establish the effect of financial risk management strategies on
the growth of microfinance sector in Kenya. A sample of seventeen (17) MFIs was selected using the random
sampling using the random sampling approach from the population of fifty seven (57). The study adopted a
correlation survey research design. A questionnaire and an interview schedule were the main data collection
tools. The preferred statistical tool for quantitative data analysis was Statistical Package for Social Sciences
(SPSS) computer software. Qualitative data was analyzed using content analysis. The study utilized descriptive
and regression analysis to determine the relationship between financial risk management strategies and growth
of MFI. The study results were that financial risk management strategies were a significant determinant of
growth in MFIs. The findings indicated that MFI had effective financial risk management strategies. This finding
was informed by results which indicated that MFIs had put in place effective credit risk management practices,
liquidity risk management practices, interest risk management practices and price risk management practices.
The study recommended that the MFIs to continue practicing effective financial management practices such as
hedging (options and forwards), loan size limits, standardized (simple) loan terms, zero tolerance on
delinquency, group-based lending, maintain detailed estimates of projected cash flows for the next weeks or
months so that net cash requirements can be identified unexpected increases in cash needs and maintaining
investment accounts that can be easily liquated into cash or lines of credit with local banks to meet unexpected
needs
