OPERATIONAL STRATEGIES AND PERFORMANCE OF MICROFINANCE INSTITUTIONS IN KENYA
OPERATIONAL STRATEGIES AND PERFORMANCE OF MICROFINANCE INSTITUTIONS IN KENYA
Henry Ouma Tambo - Jomo Kenyatta University of Agriculture and Technology, Kenya
Dr. S. Wamwayi - Jomo Kenyatta University of Agriculture and Technology, Kenya
ABSTRACT
Microfinance institutions are key providers of financial information to the economy. In Kenya, MFIs operate in a very competitive environment and these institutions are struggling to survive. This indicates that for most of them to remain relevant in the market they must come up with operational strategies to enable them to be competitive and grow against their main competitors, commercial banks. Failure to adopt operational strategies has led to the loss of income from loans due to processing errors, undetailed information of clients, non-compliance with loan policies and excessive concentration of credit risks, and unskilled employees. It was against this background that the study sought to investigate the effect of operational strategies on Performance of Microfinance Institutions in Kenya. The study specifically aimed to establish the effect of human resource strategies, financial strategies, marketing Strategies and procurement Strategies on the Performance of Microfinance Institutions in Kenya. The paper was anchored on resource-based theory and supported by dynamic capability theory, human capital theory and transaction cost economics theory. The study used an explanatory cross-sectional design. The target population for this study was 48 MFIs in Kenya registered by CBK as of 2020. The respondents comprising 381 senior and middle level managers. A Sample Size of 195 respondents was selected using stratified random sampling technique. A questionnaire was used to collect primary data. Data was analyzed using Statistical Package for Social Sciences (SPSS Version 27.0). All the questionnaires received were referenced and items in the questionnaire were coded to facilitate data entry. After data cleaning which entailed checking for errors in entry, descriptive statistics such as frequencies, percentages, mean score, standard deviation and coefficient of variation was estimated for all the quantitative variables and information presented in form of tables. Inferential statistics was done using linear regression analysis and Pearson’s correlation analysis. The study found that the employees are routinely administered with attitude surveys to identify and correct employee work performance problems. Further, the research established that however they were uncertain on whether the organization completes its projects as per set budget limits, meets its financial targets, and all cost elements are clearly documented. Further, the study found that it was uncertain whether special offer of the products tend to improve the performance of firms, and the retail store ensures that quality and reliability of the product offerings gain importance. The research established that it was uncertain whether the system allows for adjustment on system design, and the procurement department is adequately staffed. The research concluded that human resource strategies had the greatest effect on the performance of microfinance institutions in Kenya, followed by procurement strategies, then marketing strategies while financial strategies had the least effect to the performance of microfinance institutions in Kenya. The study recommends that MFIs should prioritize the training and development of their staff, particularly loan officers. The study recommended that microfinance institutions should consider automating most of their processes so as to meet the changing customer demands as well as to be able to offer their services within the allowable time and standards. Moreover, given the observed decline in total assets, MFIs should focus on bolstering asset management strategies. Implementing more robust credit risk assessment procedures and diversifying their loan portfolios can contribute to a more resilient asset base.
