This particular research wanted to determine effect of COVID-19 pandemic on financial performance of deposit-taking microfinance institutions in Kenya. It was anchored the on real options, diffusion of innovation, and Crisis management theories. The research adopted a descriptive research design. The research targeted thirteen (13) deposit-taking microfinance institutions in Kenya between July 2018 and December 2021. The research used quarterly secondary data for seven quarters before COVID-19 (July 2018 to March 2020) and seven during COVID-19 (April 2020 to December 2021). Data was sourced from firm financial reports sourced from the Central Bank of Kenya. The data was collected using a data collection sheet. STATA 14 was deployed to generate descriptive and inferential statistics for analysis. The research deployed a logit regression model. The descriptive statistics exhibited a negative average return on assets between July 2018 and December 2021. Thus, the research concludes that deposit-taking microfinance institutions in Kenya are making losses, as shown by negative return on assets. The research found that 64.86% of the change in financial performance was due to changes in the COVID-19 pandemic, capital adequacy, asset quality, firm size and liquidity. This study concludes that the COVID-19 pandemic, capital adequacy, asset quality, firm size and liquidity are the major factors influencing financial performance of deposit-taking microfinance institutions in Kenya. From the regression analysis, the COVID-19 pandemic does not affect financial performance of deposit-taking microfinance institutions in Kenya. Deposit-taking microfinance institutions had low capital adequacy. Regression analysis exhibited that capital adequacy possessed significant direct regression coefficient against financial performance. This leads to the conclusion that capital adequacy directly affects financial performance of deposit-taking microfinance institutions in Kenya. The research concludes that deposit-taking microfinance institutions in Kenya have poor asset quality. Regression analysis exhibited that the NPL ratio as a measure of asset quality possessed negative and insignificant regression coefficient against financial performance. This leads to the conclusion that asset quality does not affect financial performance of deposit-taking microfinance institutions in Kenya. The regression analysis findings exhibited that firm size possessed significant direct regression coefficient with financial performance. Hence, we can conclude that firm size in terms of assets directly affects financial performance of deposit-taking microfinance institutions in Kenya. From the descriptive statistics, the selected firms exhibited a liquidity ratio of less than 1; hence, the deposit-taking microfinance institutions in Kenya have low levels of liquidity. From the regression analysis, liquidity exhibited a direct significant coefficient with financial performance. This leads to the conclusion that liquidity directly affects financial performance of deposit-taking microfinance institutions in Kenya. This indicates that if the deposit-taking microfinance institutions in Kenya increase their liquidity levels, they will experience increased financial performance levels in terms of increased return on assets. The research recommends that deposit-taking microfinance institutions in Kenya increase the quality of their assets, capital adequacy, firm size, and liquidity to enhance their financial performance. The research also recommends further research based on other variables, primary data, a longer period, and annual and semi-annual data.

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