|dc.description.abstract||Banks traditionally found the poor and rural clientele risky and expensive to serve. Some banks
chose to ignore them altogether, resulting in low penetration of financial services in Kenya.
While some microfinance institutions (MFIs) served the rural and urban poor, their profitability,
self-sufficiency, and sustainability in the long term remained questionable.
It is for this reason that this study sought to establish the specific factors within the operations of
MFIs that would enable them to be profitable while serving the poor. There were three main
research objectives: firstly, to find out the structure of the MFI industry in Kenya; secondly, to
establish whether banks could be profitable while serving the poor in Kenya; and finally, to
investigate the key success factors for profitability within the operations of MFIs.
Available literature revealed that studies on the profitability and sustainability of MFIs were
mostly undertaken in Indonesia, Bangladesh, and India. It was evident that while parallels may
be drawn, the success of MFls was context specific and as a result, a gap existed in the study of
the performance of MFIs in Kenya. Further, research carried out in Kenya did not take into
consideration some of the success factors that had been identified in other countries, and were
from a non-governmental (NGO) perspective.
A case study of Equity Bank was used. Equity Bank was selected as it was found to be the most
profitable MFI in Kenya. It had also transformed the banking industry, making banking
affordable and accessible to the poor and rural communities. The theorised critical success
factors were: adequate delinquency management, low cost of funds, adequate information
management systems, shared mission, vision and values, employee motivation, decentralisation,
and quality leadership. Quantitative data was collected for a financial period of eleven years
from 1999 to 2009. Qualitative data was also used through questionnaires and interviews.
The results revealed that it is possible to profitably bank the poor and also confirmed that five
out of the seven theorised critical success factors would be required for a firm to grow in
profitability. Contrary to what was expected, asset and liability management and employee
motivation did not have a significant relationship with profitability. Based on these results,
specific and actionable recommendations were made that would benefit Equity Bank and other
micro finance institutions operating in Kenya.||en_US