Effect of organizational capabilities on the perceived performance of microfinance institutions in Kenya

Mbithe, Maryalice Muema
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Strathmore University
In the Kenyan market, the microfinance industry has faced increased competitive pressure arising from the growth of Saccos, Mobile Money systems and the mainstream commercial banks, which have resulted in low market share, poor profitability, lack of customer retention and high incidences of microfinance institutions failures. Despite this, there has been minimal empirical evidence examining how various organizational capabilities predict the perceived performance of microfinance institutions in Kenya. The research specifically reviewed the effect of marketing, managerial, technological and resource capabilities influence on the perceived performance of microfinance institutions. The scope of the study was focussed on the registered microfinance institutions operating within Nairobi County. Theoretically, the study was grounded on the dynamic capabilities theory with a quantitative approach being applied in the research. The target population for the study was three-senior level managers from the 52 registered microfinance institutions in Kenya. The study adopted a census sampling of the 156 respondents. The survey relied on a structured research questionnaire in the data collection process. The study instrument was pretested among 13 participants who were not considered in the final survey sample. The collected data was analyzed using quantitative techniques such as descriptive, correlation and regression tests. The survey was able to garner a 73% response rate from the sample participants. The study showed there was a moderate positive effect of marketing and managerial capabilities while technological and resource capabilities had a strong effect on the perceived performance of microfinance institutions. The regression indicated that 61.3% of the perceived performance of microfinance institutions was predicted by the organization capabilities. The study concluded that apart from marketing capabilities, the other three predictor variables had a positive and significant effect on the perceived performance of the microfinance institutions. The research thus concluded that managerial, technology and resource capabilities were satisfactory determinants of the perceived performance of microfinance institutions. It was recommended that microfinance institutions should improve their integration of new marketing tools to improve the perceived performance. More so, the microfinance institutions can continuously delegate, train and support employees to drive better perceived performance. Further, microfinance institutions should continuously innovate and adopt new technologies to ensure they offer top-notch services and can serve a larger network. Lastly, microfinance institutions should seek collaborations to enhance their resource base, which can significantly lead to better performance.
A Thesis submitted in partial fulfillment of the requirements for the award of the Degree of Masters of Business Administration at Strathmore University Business School
Organizational capabilities, Performance, Microfinance institutions_Kenya