organisational factors influencing microfinance institution transformation strategy to formal banking: a survey of microfinance institutions in Kenya

Abstract

Microfinance transformation generally refers to institutional process whereby micro finance creates or converts into a share-capital company and becomes a regulated financial institution to carry out banking business or just become a credit institution. In this study, the definition of microfinance transformation is "a process of a credit-focused MFI creating or becoming a bank" will be adopted. The study was guided by four objectives which include: to find out the influence of regulatory framework on MFI transformation strategy to formal banking in Kenya, to determine the effect of efficient Management Information Systems on MFI transformation strategy to formal banking in Kenya, to establish the influence of ownership and governance on MFI transformation strategy to formal banking in Kenya and to investigate the role of capital requirements in influencing MFI transformation strategy to formal banking in Kenya. This study adopted a descriptive design. It is descriptive because the bulk of the study tries to explain what the situation is and why the situation is as it is. The target population comprised of employees from Faulu Kenya and Kenya Women Finance Trust (KWFT). A sample of 223 employees, representing 30% of the population was used. Data analysis for this research was largely quantitative. SPSS statistics version 19.0 was used for descriptive statistics such as creating frequency tables, cross-tabulation, means and standard deviations, correlations, regression and nonparametric tests. Based on the study results, majority of the sampled employees of KWFT and Faulu bank responded in the affirmative as evidenced by a mean of 4.11 and a standard deviation of 0.82. According to the analysis of the study results, it was revealed that efficient management information system plays an important role in MFI transformation to formal banking as supported by the sampled employees with a mean of 4.02 and a standard deviation of 1.15. From the analysis of the study results, it was further established that Ownership and governance affects MFI transformation strategy to formal banking given the high rating with a mean of 4.26. From the findings, the respondents attested to the fact that MFI's transformation to formal banking is indeed influenced by capital requirements as embedded in the regulations with a mean of 4.30 and a standard deviation of 1.004. Drawing on Faulu and KWFT experiences, the study makes the following recommendations for successful transformation in Kenya.

It is preferable to undertake a progressive transformation, in several phases, leaving time for adjustment at each phase, transformations are very costly in terms of time, finances and human resources. The process is often long and full of obstacles. Before considering a transformation, it is important to plan adequately and commit the required resources. These include a full-time transformation manager who has a good understanding of the institutional culture, and preferably several good external consultants with a track record in banking and microfinance and that a successful transformation will need the development of new expertise within the organization, especially in the area of deposit-taking.