Asian Basic and Applied Research Journal

Microfinance banks in Kenya play a vital role in promoting financial inclusion and economic development, but persistent profitability challenges have raised concerns about their governance and sustainability. The study sought to examine the effect of board characteristics and capital regulations on the profitability of microfinance banks in Kenya. More particularly, the investigation explored the effect of board age, board education, and board activity on the profitability of microfinance banks in Kenya. Moreover, the study explored the effect of capital regulations on the relationship that exists between board characteristics and profitability in the microfinance banking sector in Kenya. The theoretical foundation of the study was based on agency theory, capital buffer theory, and stakeholder theory. A descriptive approach formed the basis of the methodological approach of the investigation. The study targeted a sample of 14 microfinance banks that were operational in Kenya from 2019 to 2024. Panel regression formed the basis of the data analysis approach. The findings of the proposed investigation indicate that board age has a negative and statistically insignificant impact on profitability. Board education has a negative and statistically insignificant impact on profitability. Board activity has a positive and statistically significant impact on profitability. Moreover, capital regulations have an insignificant yet positive impact on the relationship that exists between board characteristics and profitability. The study recommends that shareholders and boards of microfinance banks ought to officially enhance the minimum number of board activity annually and have it well structured, documented, and fairly concentrated on strategic control, risk management, and performance assessment as this was the only attribute that greatly enhanced profitability.