Effect of Managerial Capability on Growth of Micro-Finance Finance Banks in Kenya

Abstract

Microfinance banks play a significant role in the Kenyan economy, contributing to increased
financial inclusion, particularly among low-income populations and underserved small
businesses. However, despite their importance, microfinance banks in Kenya continue to face
persistent growth challenges. According to the Central Bank of Kenya, the number of licensed
microfinance banks declined from 13 in 2018 to 9 in 2022, with several banks either merging,
converting into credit-only institutions, or being liquidated due to operational inefficiencies and
capital constraints. In response to these challenges, the study sought to assess the effect of
managerial capability on the growth of microfinance banks in Kenya. The study was anchored on
institutional theory and adopted a positivist research philosophy, employing both descriptive and
explanatory research designs. The target population comprised 14 licensed Microfinance banks
in Kenya. Given the relatively small and manageable size of the target population, the study
employed a census technique, allowing data to be collected from the entire population of 183
respondents without the need for sampling. Data was collected using semi-structured
questionnaires, which were distributed through the drop-and-pick-later method. The analysis
involved the use of both descriptive and inferential statistics to summarize, interpret, and draw
conclusions from the data with multiple linear regression models employed to assess relationships
among variables. Diagnostic tests included linearity, normality, homoscedascity and
multicollinearity. Based on the findings, the study concluded that managerial capability has a
statistically significant effect on the growth of Microfinance Banks in Kenya. In light of the
findings, the study recommends that microfinance banks in Kenya prioritize the development and
enhancement of managerial capability as a strategic lever for growth. Specifically, Microfinance
Banks should invest in continuous professional development programs for both executive
leadership and board members.