Stakeholder Management Challenges Faced By Microfinance Institutions In Transforming Into Regulated Deposit Taking Financial Institutions In Kenya

Abstract

The Microfinance Act of 2006 provided Microfinance Institutions (MFIs) in Kenya with a legal framework within which to transform into regulated deposit taking microfinance institutions (DTMs). Whereas evidence from other countries indicates stakeholder management as one of the challenges faced by transforming MFIs, the information is not conclusive on the specific challenges and significance of stakeholder management in successful transformation. This study thus sought to determine the stakeholder management challenges faced in the transformation of microfinance institutions in Kenya. The specific objectives were to establish the extent to which stakeholder management is a challenge in the transformation of microfinance institutions into regulated DTMs and to make recommendations for successful transformation. The target population was 48 member institutions of the Association of Microfinance Institutions. Using purposive sampling, the study selected 25 MFIs from which 100 respondents were selected using simple random sampling. Data was first explored for the underlying factor structure through factor analysis before descriptive and inferential statistical analyses. The study established that MFIs faced managing staff and clients, creating appropriate governance structures and attracting private shareholders stakeholder management challenges. The study found no significant association between stakeholder management and successful MFI transformation in Kenya and concluded that stakeholder management was not a significant challenge. The study recommends that MFIs in Kenya wishing to transform should have the confidence that managing their stakeholders will not be difficult. It also recommends further research to determine the impact of MFI transformation on financial inclusion.