Business Process Improvement and Operational Efficiency of Microfinance Institutions in Kenya

Abstract

Unlike the financial institutions in the financial sector, the large majority of MFIs globally have not been sustainable. They have depended on donor funding, subsidies, and gifts from governments, to remain in operation because they were unable to cover their costs, and were not self-sufficient. One study exposed that 30 percent of local microfinance schemes working in 2011 were either no more extended in operation or were no longer loaning capital two years after the fact. Microfinance institutions in Kenya face a myriad of challenges that greatly affect their performance. These are the high cost of giving out Micro-loans; the cost of processing so many micro-loans; institutional inefficiencies; poor distribution system of Microfinance institutions and lack of customized solutions for the poor thus some MFIs grope in the dark as they try to understand the varied needs of micro entrepreneurs. The objective of the study was to determine effect of business process improvement practices on operational efficiency of microfinance institutions in Kenya. A descriptive research design was used in this study. The target population for this study included the 12 microfinance institutions who are members of Association of Microfinance Institutions and registered with CBK as at December 2015. The researcher utilized a survey questionnaire to collect data which was analysed using descriptive statistics. In addition, multiple regressions were used to measure the strength of the relationship between the dependent and independent variables. Tables and other graphical presentations as suitable were utilized to introduce the data gathered for simplicity of analysis. Based on the research findings, the study concludes that organizational strategy realignment affects operation efficiency of microfinance institutions in Kenya. The study concludes that microfinance organizations usually review strategies in order to enhance operational efficiency within all departments. Research also concludes that technology adoption affects operational efficiency of the microfinance institutions in Kenya. The study further revealed that employee empowerment influences the operation efficiency of the microfinance institutions. Majority of microfinance institutions have embraces personal performance review and incentive bonuses which have been proved for empowering staffs in the organization are more efficient. The research finally concludes that organization restructuring affect operation efficiency of microfinance institutions in Kenya. It was again concluded that management staffs in microfinance institutions don’t consider increasing the number of resource, when capacity is not sufficient. Basing on the finding and conclusions, the study also recommends that managers of microfinance institutions should improve their operations by adopting new and advanced technology in the organization operation. This study further recommends to managers of microfinance institutions to consider staff training and development in their institutions in order to strengthen some attitudes that add to efficient service. Management staffs of microfinance institutions should also consider increasing the number of resource, when capacity is not sufficient in their organization.