Strategic Responses of Licensed Microfinance Institutions in Kenya to Environmental Changes

Abstract

The purpose of this study was to identify the strategies adopted by licensed microfinance institutions in Kenya in the light of a rapidly changing, volatile and highly competitive environment. Specifically, the study will establish the challenges MFIs face from their external environment in Kenya as well as identifying the strategic responses by MFIs to the environmental changes in Kenya. The research design was a descriptive survey to assist the researcher to identify the strategic responses used by the MFIs where the target population comprised of the six licensed deposit taking microfinance institutions in Kenya. These are Faulu Kenya, Rafiki, Uwezo, Kenya Women Finance Trust, Smep and Remu. The study collected data by use of questionnaire. The questionnaire was divided into two main sections. The first section aimed at gathering the general background information. The second section covered the strategic responses and environmental changes of microfinance institutions. The collected data was analyzed using descriptive statistics. This involved the use of frequency tables, percentages, rank ordering and mean scores. Frequency tables were used for arraying data obtained to facilitate working out percentages in order to address the objective of the study. From the study, most of microfinance institutions operate as partnerships. An organization entering into the financial industry is subject to various advantages like credit facilities from already established institutions. On the other hand however, there are many risks that come along as the organization expands for example bankruptcy, members leaving to join other upcoming institutions and even high advertisement costs due to high competition. This therefore calls for the need to operate as a limited company so that the liabilities will be ix limited or as partnership so as to share the risk when it occurs. As part of recommendation, the government should impose favourable policies to enable the microfinance institutions in the Kenya to compete effectively so that they can continue with their operation. This in turn increases employment opportunities which improve economic development. Microfinance institutions should adopt strategies that will improve their performance and enable them to compete effectively in the industry. Goals and objectives should also be set by the microfinance institutions. This will enable them asses their performance whether they are growing, stagnating or deteriorating.