Effect of Competitive Strategies on Performance of Micro-Finance Institutions in Kenya.

The background circumstances presently confronting Micro Financial Institutions are diverse from those of previous periods. They have experienced incredible high-tech fluctuations, economic uncertainty, stiff rivalry, swift societal variations and administrative rules. These variations in the commercial setting decide the accomplishment and effectiveness of Micro Financial Institutions. Statistics reveal that the stiff competition in Kenyan financial industry has seen the involvement of the industry to the gross domestic product in terms of their assets reduce and that the highly volatile financial environment has led to an upsurge in non-repayment of debts in the financial sector. With the control of the interest rates, the focus of the borrowers has shifted from the Micro Financial Institutions, which charge high interest rates to commercial banks, which charge below fourteen percent. As a result, the Micro Financial Institutions are facing a challenge and to survive, there is a need to adopt competitive tactics. This study wanted to evaluate the effect of competitive strategies on performance of Micro Financial Institutions. Precisely, the study pursued to establish the effect of cost leadership strategy on performance of Micro-Finance Institutions in Kenya following Interest Rate Cap, to determine the effect of differentiation strategy on performance of Micro-Finance Institutions in Kenya following Interest Rate Cap, to examine the effect of focus strategy on performance of Micro-Finance Institutions in Kenya following Interest Rate Cap and to establish the effect of innovation strategy on performance of MicroFinance Institutions in Kenya following Interest Rate Cap. This study used the Porter’s Competitive Advantage Theory, the Resource Based Theory of competitive advantage and Roger’s diffusion theory of innova tion to explain the relationship between the study variable. The study collected primary data using questionnaires. A descriptive was heads of corporate banking, Information Technology, Retail banking, Marketing and strategic unit of each MFI. The total target was therefore 65 respondents. Information assembled was scrutinized by aid of descriptive and inferential statistics ranging from frequencies, percentages, correlation and regression. Statistical Package for Social Sciences version 22 was used for Data Analysis. The study found out the Cost leadership strategy, Differentiation strategy, Focus strategy and Innovation Strategy significantly and positively affected the performance of Microfinance institutions in Kenya. The study recommends that cost leadership strategy is an important strategy embraced by MFIs to enable them survive competition in the market. Secondly, MFIs need to understand how to differentiate their products in the market. Third, MFIs need to focus in a given market and provide excellent products to be able to grow. Lastly, MFIs need to embrace innovation as a strategy to drive their competitiveness in the financial markets. It is suggested that another study be done using SACCOs in order to develop a broader perspective of Performance using the same objectives. In addition, another study can be undertaken on commercial banks in Kenya to find out the effect of competitive strategies on their performance.