Competitive Strategies and Microfinance Banks in Nairobi City County, Kenya
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Date
2023
Authors
Bii, Gregory Kiprono
Mwasiaji, Evans
Journal Title
Journal ISSN
Volume Title
Publisher
IAJEF
Abstract
Microfinance Banks globally play a critical
role of intermediation by facilitating efficient
distribution of financial resources and
achievement of monetary policy required for
social and economic growth. Given this
important function by microfinance
institutions that target people especially at the
lower levels of the economic ladder, it is
imperative for policy makers and other
stakeholders to direct real efforts towards
ensuring that the said entities remain
operational above the statutory requirement,
so as to service their financial obligations as
they fall due. In Kenya, the year 2021 Central
Bank supervisory report indicate a combined
loss before tax of Kshs. 877 million as at
December 31, 2021, compared to a loss of
Kshs.2.2 billion as at December 31, 2020.
During the period under review, the
microfinance sector closed 28 marketing
offices, thus reducing the total number to 63
from 89 in 2020. Using Return on Equity as a
metric, their profitability had previously
reduced from 27.1% in year 2015 to 25% in
2016. Using Return on Assets as an indicator,
the index reduced from 26% in 2015 to 25%
in 2016. The Banks’ market share reduced to
0.79% in year 2018, as compared to 1.05% in
2014, mostly attributed to increased
competition and poor strategic positioning in
the market. This made it necessary for
Microfinance Banks to review and adjust their
business level strategies with a view to
enhancing performance. This study therefore
sought to examine the operationalized
competitive strategies and their influence on
the performance of Microfinance Banks in
Nairobi City County, Kenya. The Balanced
Score card was used to anchor the study,
supported by the Dynamic Capabilities
theory. The unit of analysis was all the
thirteen licensed deposit taking Microfinance
Banks in Nairobi City County, while the unit
of observation was purposively selected
senior management staff in the Finance,
Operations and Marketing functions. A
structured questionnaire was used to collect
relevant data that were analyzed using
descriptive statistics, while inferential
analysis was used in examining the nature of
relationship between the variables. This study
with an 84.7% response rate, established that
Cost Leadership, Customer Focus and
Differentiation Strategies had significantly
influenced positively the performance of
Microfinance Banks, thus facilitating further
opening up of funding opportunities for the
vulnerable to improve their living standards.
The study recommends that Microfinance
Banks should undertake stakeholder
management, seek to analyze and exceed
customer expectations especially on loan
disbursement turnaround time, make their
products more attractive by raising loan sizes,
enhance loan facility maturity period, and
seek to expand their non-interest income
sources. The expected study output is
improved performance by Microfinance
Banks for economic recovery post Covid - 19.
Description
Article
Keywords
Competitive Strategies, Performance, Deposit Taking Microfinance Banks
Citation
Bii, G. K., Mwasiaji, E. (2023). Competitive strategies and microfinance banks in Nairobi City County, Kenya. International Academic Journal of Economics and Finance, 3(9), 410-425.