Strategies Adopted by Commercial Banks in Kenya in Response to the Law Capping Interest Rates

Abstract

The ability of an organization to adjust its operation in light of the evolving changes in their operating environment determines the sustainability of the business unit in both the short and long term. The objective of the study was to determine the response strategies adopted by Kenyan commercial banks in response to the interest capping laws. A descriptive cross-sectional design was used. The population of the study was 42 commercial banks operating in Kenya. Primary data was collected using a questionnaire that was both closed and open ended. Data was analysed using the descriptive statistics. The study found that banks have employed adaptation strategies through working with other partners in the banking sector to leverage their synergy and concentrate on areas that enhance competitive advantage. The research findings also reinforced the need for the banks to work together as a sector and attempt and change the laws that inhibit their operations through lobby groups in parliament and other forums. The study also show that there exists a link between firms‟ strategic activities and their strategic responses and therefore, bank managers should diversify their product range especially to the youth who are apt in using the mobile technology to access services and improve the bank level of efficiency and effectiveness in their operations. The study recommends that the commercial banks ought to conform to the regulations to attract customers while the Central Bank as a regulator should likewise be sensitive to the operating environment and should be flexible in setting the rules in order to attract investment and support the growth in the banking industry. The Interest capping law is still at its infancy stage in Kenya and thus there is room for further research as the full impact of the law is realized in the long term.