STRATEGIC RISK MANAGEMENT STRATEGIES AND THE GROWTH OF MICROFINANCE SECTOR IN KENYA
DOI:
https://doi.org/10.47941/jbsm.119Keywords:
board, organizational structure, strategic risk management practices, growth, MFIsAbstract
Purpose: The purpose of this study was to establish how strategic risk management strategies contribute to growth of MFI sector in Kenya
Methodology: The study adopted a correlation survey research design. The population of this study was fifty seven (57) MFIs. The sampling frame was the list of MFIs provided in the AMFI website www.amfikenya.com. A sample of thirteen (17) MFIs was selected using the random sampling approach. A questionnaire and an interview schedule were the main data collection tools. Qualitative data was analyzed using content analysis whereas the quantitative data was analysed using Statistical Package for Social Sciences (SPSS) where descriptive and regression analysis were conducted to determine the relationship between enterprise risk management strategies and growth of MFIs.
Findings: The findings indicated that there were several strategic management measures that had been put in place by MFI to promote growth. These included the existence of a board with the skills and ability to lead the MFI strategically. In addition, the board members roles extended beyond governance and into management of the MFI and the board had policies stipulating term limits and rotation for its members. Results further indicated that the board had adequate independent directors who agreed on the MFIs mission and strategic direction. The results revealed that the MFI had guidelines for preventing conflicts of interest among board members and the MFI guidelines prohibited related-party (insider) lending, required full disclosure of all conflicts of interest, and required arm’s length business transactions. Findings further indicated that the MFI’s organizational structure ensured staff accountability and enhanced MFI’s efficiency and productivity. Overall, regression results indicated that there was a positive relationship between strategic risk management strategies and MFI growth.
Unique contribution to theory, practice and policy: Following the study results, it was recommended that the MFIs need to enhance effectiveness of strategic risk management practices such as adherence to best practices on corporate governance. In addition, the MFIs need to enhance the skills of the board members as doing so would improve the level of strategic risk management practice. The study recommended that those MFIs that had not implemented the guidelines for preventing conflicts of interest among board members are advised to do so as this may have an impact on the level of growth. It is recommended that MFIs need to put in place guidelines prohibiting related party (insider trading) and also require full disclosure of all conflicts of interest as doing so would improve the growth of the MFI. Furthermore, MFIs need to increase the number of independent directors in their boards as doing so would improve the growth of the MFIs.
Downloads
References
Arkolakis C. (2011). A unified theory of firm selection and growth. Yale University, NBER & CESifo.
Asian Development Bank. (2003). Sharing information on microfinance. .A quarterly newsletter of the focal point for microfinance. December 2003.Vol.4 No. 4.
Babbie, E. R. (2004). The practice of social research. Belmont C.A. Wadsworth
Barkham, R., Gudgin, G. H., & Havey, E. (1996). The determinants of small firm growth. Jessica Kingsley Publishers.
Berenbach, S., & Guzman, D. (1994). The solidarity group experience worldwide,” in the New World of Microenterprise Finance, edited by M. Oteroand E. Rhyne. Kumarian Press, West Hartford CT: 119-139.
CBK. (2010). Risk management survey for the banking sector. Year book, 7(1-20), 17.
CGAP (2009). Operational risk management for microfinance institutions, www.cgap.org
Christen, R. P., Elisabeth, R., & Robert, V. (1995). Maximizing the outreach of microenterprise finance: The emerging lessons of successful programs. USAID Program and Operations Assessment Report No. 10.
Churchill, C. F. (1997). Managing growth: The organizational architecture of microfinance institutions. USAID’s Microenterprise Best Practices Project. Bethesda, MD: Development Alternatives, Inc. Website: www.mip.org.
Cornell, B., & Shapiro, A. C. (1987). Corporate stakeholders and corporate finance. Financial Management, 16, 5-14.
Cortright J. (2001). New growth theory, technology and learning: A practitioners guide, Portland, OR: Impresa, Inc.
Delmar, F. (1998). Taxonomy of high growth firms: Entrepreneurship and small business. Research Institute (ESBRI).Sweden
Desender, K. (2007). On the determinants of enterprise risk management implementation. Teaching cases collection, advancing the concepts & practices of information Resources Management in Modern Organizations.
Early, T. (1993). Sustainable measures: Indicators of sustainability (website accessed 15/08/2011) http://www.sustainablemeasures.com/Indicators/ChecklistItself.html
Ekka, P., Chaundry, S., & Sinha, R. (2011). Risk management: Integrating SPM into microfinance capacity building. Guidance Note. Accessed 12th September 2011).
Ellis, A., Cutura, J. N., Dione, I., Gillson, C., & Thongori, J. M. (2007). Gender and economic growth in Kenya: Unleashing the power of women, The International Bank for Reconstruction and Development/World Bank, Washington DC
Freeman, R. E. (1984). Strategic management: A stakeholder approach, Prentice-Hall, Englewood Cliffs, NJ.
Gilbert C. (2007). Enterprise risk management techniques and practices. Incisive Media Investments Limited.
Gonzalez, A. (2011). Defining responsible financial performance: How to think about growth. Annual meeting of the Social Performance Task Force, June 19-24 in Den Bosch, Netherlands.
Gonzalez-Vega, C., Mark, S., Richard, L. M., Jorge, R., & Navajas, S. (1997). BancoSol: The challenge of growth for microfinance organizations," in Hartmut Schneider (ed.), Microfinance for the Poor? Paris: Organization for Economic Cooperation and Development, pp. 129-170.
Jensen, M., & Meckling, W. (1976). Theory of the firm: Managerial behavior, agency costs, and ownership structure. Journal of Financial Economics, 3(4), 305-360.
Jovanovic, B. (2000). Growth theory. Working paper. NBER series.
Klimczak, K. M. (2005). Corporate risk management from stakeholders' perspective. TRANS’ 05, SGH, Warszawa, Poland, pp. 371-380.
Kombo, A., Wesonga, J., Murumba, N., & Makworo, E. (2011). An evaluation of the impact of risk management strategies on micro-finance institutions’ financial sustainability: A case of selected micro finance institutions in Kisii Municipality, Kenya. Educational Research (ISSN: 2141-5161) Vol. 2(5) pp. 1149-1153 May 2011.Available online@ http://www.interesjournals.org/ER
Ledgerwood, J. (1999). Microfinance handbook: An institutional and financial perspective. Sustainable Banking with the Poor. Washington D.C.: World Bank.
Mango, D. (2007). An introduction to insurer strategic risk. Guy Carpenter & Co., LLC. Originally published in a modified format in Enterprise Risk Analysis. Guy Carpenter & Company, LLC, pp. 144-172.
Mayers, D., & Smith, C. W. (1987). Corporate Insurance and the Underinvestment Problem. The Journal of Risk and Insurance, 54(1), 45-54.
McKelvie, A., & Wiklund, J. (2010). Advancing firm growth research: a focus on growth mode instead of growth rate. Entrepreneurship: Theory and Practice Journal.
Mokoro, J. M., Nyaoga, R. B., Magutu, P. O., Khoya, O. M., & Onsongo, C. O. (2010). The transition from micro-financing into formal banking among the micro finance institutions in Kenya. AIBUMA Publishing African Journal of Business & Management (AJBUMA) http://www.aibuma.org/journal/index.htm. Vol. 1.
Mugenda, Olive M. and Mugenda, Abel G. (2003). Research methods: Quantitative and qualitative approaches, Acts Press, Nairobi-Kenya
Omino G. (2005). Regulation and supervision of Microfinance Institutions in Kenya. Central bank of Kenya.
Penrose, E. T. (1959). The theory of the growth of the firm. New York: Oxford University Press. Publishing Company.
Penrose, E. T. (1985). The theory of the growth of the firm: Twenty five years after. Acta Universitatis Upsaliensis: Studia Oeconomicae Negotiorum (Upsala Lectures in Business) 20: 1–16.
Rosenbaum F. (1993). Sustainable measures: Indicators of sustainability (website accessed 15/08/2011) http://www. Sustainable measures.com / Indicators / Check list Itself.html
Smith, C. W., & Stulz, R. M. (1985). The determinants of firm's hedging policies. Journal of Finance and Quantitative Analysis, 20(4), 391-405.
The Grameen Bank (2000a). Models of micro finance. http://www.grameen-info.org/annualreport/annualreport2000/index.html
Tseng, C. (2007). Internal control, enterprise risk management, and firm performance. (Unpublished PhD Dissertation, Department of Accounting and Information Assurance. Robert H. Smith School of Business).
Vieira, P. (1993). Sustainable measures: Indicators of sustainability (website accessed 15/08/2011) http://www.sustainablemeasures.com/Indicators/ChecklistItself.htm
Downloads
Published
How to Cite
Issue
Section
License
Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution (CC-BY) 4.0 License that allows others to share the work with an acknowledgment of the work’s authorship and initial publication in this journal.
