KEY SUCCESS FACTORS AND COMPETITIVE ADVANTAGE OF

DEPOSIT TAKING MICROFINANCE INSTITUTIONS IN KENYA

BY; JOSEPHINE NTHENYA MWANZIA

A RESEARCH PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD OF THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION, SCHOOL OF BUSINESS UNIVERSITY OF NAIROBI

NOVEMBER 2013

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DECLARATION

This research project is my original work and has not been presented for examination in any

other university.

Signed…………………….. Date……………………..

JOSEPHINE NTHENYA MWANZIA

D61\73688\2009

This Research Project has been submitted for examination with my approval as a university

supervisor.

Signed………………………….. Date………………………….

DR. Z.B AWINO, Phd.,

SENIOR LECTURER

SCHOOL OF BUSINESS

UNIVERSITY OF NAIROBI

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ACKNOWLEDGEMENTS

My sincere gratitude to all who contributed immensely in one way or another towards the

completion of this project, Special gratitude to my supervisor Dr. ZB Awino for his guidance,

extreme patient and tremendous support throughout the cause of this project. I am also greatly

indebted to my employer Kenya commercial bank for giving me the financial and time resources

that helped me successfully complete this project

To my family: my mother, father, Laura and Amos , thank you for inspiring me, giving me all

the support I needed and understanding even when I was not there for you. I would also wish to

express my sincere appreciation to the University of Nairobi for the knowledge gained, training

they gave me in preparation for this task and availing resources inform of literature that greatly

helped shape this paper.

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DEDICATION

To my family: your support and understanding made this possible. Special dedication to my

daughter Laura: for her undying and unconditional love that cheered me all through.

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TABLE OF CONTENTS

Declaration ............................................................................................................................... ii

Acknowledgement ................................................................................................................... iii Dedication ................................................................................................................................ iv

List of Figures.......................................................................................................................... vi List of Tables ......................................................................................................................... viii

Abbreviations and Acronyms ................................................................................................. ix Abstract .....................................................................................................................................x

CHAPTER ONE: INTRODUCTION ......................................................................................1

1.1 Background of the Study ...................................................................................................1

1.1.1 Key Success Factors in Strategic Management ..........................................................2

1.1.2 Competitive Advantage .............................................................................................3

1.1.3 Key success factors and Competitive Advantage .......................................................4

1.1.4 Deposit Taking Microfinance Institutions in Kenya ...................................................5

1.2 Research Problem .............................................................................................................6

1.3 Research Objective ...........................................................................................................8

1.4 Value of the Study ............................................................................................................8

CHAPTER TWO: LITERATURE REVIEW ..........................................................................9

2.1 Introduction .................................................................................................................... 10

2.2 Theoretical Foundation of the study ................................................................................ 10

2.3 Industry and competitive analysis ................................................................................... 13

2.4 Industry Key Success Factors .......................................................................................... 16

CHAPTER THREE: RESEARCH METHODOLOGY ........................................................ 19

3.1 Introduction .................................................................................................................... 19

3.2 Research Design ............................................................................................................. 19

3.3 Population of Study ........................................................................................................ 20

3.4 Data Collection ............................................................................................................... 20

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3.5 Data Analysis.................................................................................................................. 21

CHAPTER FOUR: DATA ANALYSIS AND INTERPRETATION .................................... 22

4.1 Introduction .................................................................................................................... 22

4.2 Personal Data analysis .................................................................................................... 23

4.3 Descriptive Statistics ....................................................................................................... 25

4.4 Factor Analysis ............................................................................................................... 27

4.4.1 Communalities ........................................................................................................ 27

4.4.2 Eigen values/variance .............................................................................................. 29

4.4.3 Factor loadings ........................................................................................................ 31

CHAPTER 5: DISCUSSION, CONCLUSIONS AND RECOMMENDATIONS ................ 32

5.1 Introduction .................................................................................................................... 32

5.2 Summary of Findings ...................................................................................................... 32

5.3 Conclusion ...................................................................................................................... 35

5.4 Limitations of the Study .................................................................................................. 36

5.5 Area for Further Study .................................................................................................... 36

5.6 Implications of the Study on Theory, Policy and Practice ................................................ 37

REFERENCES ........................................................................................................................ 38

APPENDICES ........................................................................................................................... i

Appendix 1: Questionnaire ..................................................................................................... i

Appendix 2: List of DTMs .................................................................................................... vi

Appendix 3: Table 4.5 The Factor Matrix ............................................................................ vii

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LIST OF FIGURES

Figure 4.1: Years served by the respondents in the studied Institution…………………….23

Figure 4.2: Age of the institutions studied………………………………………………….24

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LIST OF TABLES

Table 4.1: Descriptive Statistics………………………………………………………………...25

Table 4.2: KMO and Berlett’s Test results ……………………………………………………..27

Table 4.3: Communalities ……………………………………………………………………....27

Table 4.4: Total variance explained by factors………………………………………………….29

Table 4.5: Appendix 3…………………………………………………………………………..Vii

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ABBREVIATION AND ACRONYMS

CSFs: Critical Success Factors

DTM: Deposit Taking Microfinance Institution

FSAs: Financial Service Associations

KSFs: Key Success Factors

KWFT: Kenya Women Finance Trust

MFIs: Microfinance Institutions

NGO: Non-Governmental Organization

RBV: Resource Based View

ROSCAS: Rotating Savings and Credit Associations

SACCO: Savings and Credit Co-operative Societies

SMEs: Small and Medium Enterprises

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ABSTRACT

Competition in the 21st century’s global economy is complex, challenging, and filled with competitive opportunities and threats. It exerts pressure on firms to be proactive and to formulate successful strategies that facilitate proactive responses to perceived and actual changes in the competitive environment. In any industry, there are certain key success factors that a business must understand in order to enhance its uniqueness and thereby create competitive advantage. These can significantly affect the overall competitive position of companies within any particular industry. The microfinance sector has elicited a lot of interests in the recent past leading to a subsector within the industry known as the deposit taking microfinance institutions. This study undertook a survey on all the 9 DTMs in the country and sought to provide an insight of the critical success factors that have contributed to the competitive advantage of these institutions. The study established that certain key success factors were crucial for the success of these institutions and were a receipt for any successful organization in the industry. Among the factors identified are strong customer service culture and group based lending model which was rated highly. The study recommended that in order for DTMs to remain profitable; they must maintain an optional level of competency on all the identified KSFs

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CHAPTER ONE: INTRODUCTION

1.1 Background of the Study

Almost all forms of strategic management research are concerned with what makes some

businesses more successful than others. Within any industry, there are usually certain variables –

Key Success Factors (KSF) that a business must understand in order to enhance its uniqueness

and thereby create competitive advantage. These are variables that can significantly affect the

overall competitive position of companies within any particular industry and are crucial to

determining a company’s ability to succeed within that industry (Wheelen and Hunger 2008).

The classic approach to strategy formulation begins with appraisal of organizations competencies

and resources (Andrews 1971). Those which are distinctive or superior relative to those of rivals

may became the basis for competitive advantage if they are matched appropriately with

environmental opportunities

The Resource Based Theory of the firm is an influential theoretical framework for understanding

how competitive advantage within firms is achieved and how that advantage may be sustainable

over time (Barney 1991; Peteraf, 1993). This theory focuses on internal organizations of firms,

and so is a complement to the traditional emphasis of strategy on industry structure and strategic

positioning within that structure as the determinant of competitive advantage (Porter, 1979).

RBV theory assumes that firms can be conceptualized as bundles of resources that if rare,

valuable, inimitable and non-substitutable, they can achieve sustainable competitive advantage

by implementing fresh value creating strategies that cannot be easily duplicated by competing

firms (Wernerfelt, 1995). However; in a rapidly changing and unpredictable market where the

competitive landscape is shifting, the dynamic capabilities by which firms managers integrate ,

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build and reconfigure internal and external competencies to address rapidly changing

environments becomes the source of sustainable competitive advantage (Teece et al., 1997).

Dynamic capabilities therefore are the antecedent organizational and strategic routines by which

managers alter their resource base, acquire and shed resources, integrate them together and

recombine them to generate new value creating strategies (Grant, 1996).

The microfinance industry has elicited a lot of interest among researchers. It has been described

as having played a major role towards poverty reduction, employment creation and economic

development. Currently, interests and knowledge about microfinance industry has grown

substantially. The focus of the institutions has gradually changed from emphasis of the very poor

to the enterprise as the demand of those institutions to become financially sustainable has

gradually changed. MFI are important actors in the financial sector and they are well positioned

to grow and reach the millions of potential clients who currently do not have main stream

financial services, (Gichana 2010). It is therefore important to understand what constitutes their

success and growth.

1.1.1 Key Success Factors in Strategic Management

An industry’s key success factors (KSFs) are those competitive factors that most affect industry

members ability to prosper in the market place-the particular strategy elements, product

attributes, resources, competencies, competitive capabilities and market achievements that spell

the difference between being a strong competitor and a weak competitor-and sometimes between

profit and loss, (Thompson et al., 2007). Key success factors (KSFs) are the major determinants

of financial and competitive success in a particular industry. Key success factors highlight the

specific outcomes crucial to success in the market place and the competences and capabilities

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with the most bearing on profitability. Identifying KSFs in light of prevailing and anticipated

industry and competitive conditions is important for a company that seeks to develop wining

strategies in the market place; besides an in-depth understanding of these critical factors help the

company meet the needs and expectations of particular group of target customers (Thompson et

al., 2007). An industry key success factors can be deduced through environmental scanning.

Wheelen and Hunger (2008), defines environmental scanning as the monitoring, evaluation and

dissemination, of information from the external and internal environment with the aim of

identifying strategic factors for the organizations future success. Sound strategy incorporates

efforts to be competent on all key industry success factors and to excel on at least one factor.

1.1.2 Competitive Advantage

Firms throughout the world face stiff competition and other environmental variables and the only

sure way to succeed in the market place is to develop superior sustainable competitive

advantage. In addition; a major determinant of any companies continued successes is the extent

to which it can relate functionally to the external environment and finding its place in a

competitive situation (Pearce & Robinson, 2002)

Porters concept of strategy is that strategy is about achieving competitive advantage through

being different– delivering a unique value added to the customer, having a clear and exactable

view of how to position yourself uniquely in your industry. He suggested that a firm can achieve

competitive advantage if it possesses ‘capabilities’ that allow it to create not only positive value

but as well additional total value than its competitors. To be sustainable, a business must perform

unique activities that impact on the customer purchasing criteria (Porter, 1985).

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A competitive advantage exists when a firm is able to deliver the same benefits as competitors

but at a lower cost, or deliver benefits that exceeds those of competing products (Porter,1985).

Porter emphasized that businesses must focus on areas of capability where they have distinct

advantage relative to competitors in their target market. A competitive advantage enables the

firm to create superior value for its customers and superior profits for itself. Porter suggested

three main generic business strategies that could be adopted in order to again competitive

advantage namely cost leadership strategy, differentiation strategy and focus strategy.

A business gains competitive advantage by performing its activities either more cheaply than its

competitors or in a unique way that creates superior customer value and commands a price

premium (Sanchez & Heene, 2004). Competitive advantage is therefore at the heart of a firm’s

performance in competitive market. Hence, if a company wishes to achieve a competitive

strategy, it must encompass every aspect of the business so that every manager and employee

knows what the objectives of this strategy are and as a result every decision and action is

consistent with it and serves to put it in practice.

1.1.3 Key success factors and Competitive Advantage

Key success factors are the few areas where satisfactory results will ensure successful

competitive performance for the individual department or organization. Businesses must align

their strategy, skills and resources with the KSFs in order to achieve success. According to

Bullen and Rockart (1981), no organization can afford to develop a strategy which fails to

provide adequate attention to the principal factors which underlie success in the industry.

Identifying KSF is important as it allows firms to focus their efforts on building their capabilities

to meet the key success factors, or even allow firms to decide if they have the capability to build

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the requirements necessary to meet Critical Success Factors. In any organization certain factors

will be critical to the success of that organization, in the sense that, if objectives associated with

the factors are not achieved, the organization will fail. Correctly diagnosing an industry KSFs

raises a company’s chances of crafting sound strategy and thereby enhancing its competitiveness.

A company must develop competencies on its industry key success factors if it has to remain

successful. KSFs by their very nature are so important to future competitive success that all firms

in the industry must pay close attention to them or risk becoming an industry also-ran. How well

a company’s product offering, resources, and capabilities measure up against an industry’s KSFs

determines just how financially and competitively successful that company will be. Identifying

KSFs in light of the prevailing and anticipated industry and competitive conditions is therefore

always a top priority analytical and strategy-making consideration. Company strategists need to

understand the industry landscape well enough to separate the factors most important to

competitive success from those that are less important (Thompson et al., 2010).

1.1.4 Deposit Taking Microfinance Institutions in Kenya

The World Bank defines Microfinance Institutions (MFIs) as institutions that engage in relatively

small financial transactions using various methodologies to serve low income households, micro

enterprises, small scale farmers and others who lack access to traditional banking services. It is

the providing of loans and banking services to the low income small and micro entrepreneurs to

help them engage in productive activities to better organize their financial lives as well as expand

their businesses (Chu and Michael, 1998).

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The Central Bank has broadly categorized MFIs into credit non-deposit taking (credit-only) and

deposit-taking microfinance institutions (DTMs). Deposit-taking microfinance institutions are

licensed and regulated by the Central Bank of Kenya through the Microfinance Act 2006 and are

permitted to mobilize and intermediate (or lend) deposits from the general public.

Micro Finance has been recognized as one of the most important tools for poverty alleviation

(KWFT PILLAR 2005). The potential of using micro- credit and other financial services for

poverty alleviation in Kenya is quite significant. About 18 million people, or 60% of the

population, are poor and mostly out of the scope of formal banking services. According to the

National Micro and Small Enterprise Baseline Survey of 1999, there are close to 1.3 million

MSEs employing nearly 2.3 million people or 20% of the country’s total employment and

contributing 18% of overall GDP and 25% of non-agricultural GDP. The formal banking sector

in Kenya over the years has regarded the informal sector as risky and not commercially viable.

Kenyans today are faced by increased poverty, unemployment and insecurity of the AIDS

pandemic, scarcity of food and rural urban migration among others. MFIs address the above

problems by accessing small loans at affordable repayment rates and other financial services for

Micro and Small Enterprises (SMES). These take the form of self-help projects and individual

enterprises.

1.2 Research Problem

KSFs are the few key areas where 'things must go right' for the business to flourish (Bullen and

Rockart, 1981). Correctly diagnosing an industry KSFs raises company chances of crafting

sound strategy. The goal of company strategists should be to design a strategy aimed at stacking

up well on all of the industry’s future KSFs and trying to be distinctively better than rivals on

one (or possibly two) of the KSFs. Indeed, companies that stand out or excel on a particular KSF

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are likely to enjoy a stronger market position- being distinctively better than rivals on one or two

key success factors tend to translate into competitive advantage. Hence, using the KSFs as a

cornerstone for the company’s strategy and trying to gain sustainable competitive advantage by

excelling at one particular KSF is a fruitful competitive strategy approach, (Thompson et al.,

2007) Microfinance institutions in Kenya have continued to play a key role in economic

development. Traditionally, they were considered as the only major source of financing for

SMEs and the poor since commercial banking concentrated on large enterprises with sufficient

collateral to secure credit facilities. This left the microfinance sector with limited competition in

providing financial services to their target clientele-the SMES. Currently, competition has

intensified in provision of financing to the SME sector. Commercial banks are now coming up

with strategies and products tailor made for this sector which they once considered risky and

unenviable.

The Kenyan government has introduced initiatives aimed at growing this important sector such

as the youth enterprise fund and women enterprise fund. The 2013/2014 Kenyan Budget

allocated 6 Billion Kenya shilling to the youth to help grow their enterprises. Despite the

increase in competition from commercial banks and subsidized loans from the Government, the

microfinance sector still remains significant and popular among many Kenyans. This raises a

fundamental question as to what constitutes their rapid growth to the point of challenging

commercial banks in the art of deposit mobilization.

Several studies have tried to explain the value of understanding KSFs in strategic management.

In the international setting, Al-Mashari and Zairi, (1999) studied the importance of key success

factors in implementation of BPR projects and explained how those factors can influence success

or failure of such projects Kiweu (2009) investigated critical success factors for commercializing

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microfinance institutions in Africa. Gates (2010) investigated the importance of critical success

factors in strategic planning and emphasized on integrated information framework for strategic

planning that can help organizations understand the broad range of interrelated elements that

influence strategy development.

Locally, Mulandi (2010) explored the factors determining profitability of microfinance

institutions in Kenya, Kinyua (2010) sort to determine competitive strategies adopted by MFI

while Macharia (2011) did a survey on overall sustainability of microfinance institutions. These

studies did not analyze industry specific key success factors for competitive advantage of DTM

institutions in Kenya. This study sought to answer the question; what are the Key Success

Factors for competitive advantage of DTM microfinance institutions in Kenya?

1.3 Research Objective

The objective of this study was to determine key success factors for competitive advantage of

DTM microfinance institutions in Kenya

1.4 Value of the Study

The research findings add to existing theories such as the resource based theory by pointing out

that DTMs continued success and superior performance is attributable to unique cluster of

resources, skills and competencies that this industry members possesses. The study defined

superior skills in terms of employee’s competency, sound relationship management and good

governance which the firms leveraged on to achieve sustainable competitive advantage. Further,

the study also highlighted the importance of reconfiguring resources and capabilities to maintain

competitiveness in the face of changing environment by defining dynamic capabilities in the

DTMs industry that the other competitors did not possess.

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Results from this analysis will be useful as a benchmark for building a competitive environment

for performance standards and excellence in DTMs, how well individual firms perform in the

competitive arena is directly proportional to the extent to which the identified success factors are

incorporated in strategy formulation.

The empirical findings add to the understanding of industry key success factors in the

microfinance industry and thereby aid in industry and competitive analysis of players in this

sector. Besides providing insight into factors associated with successful DTMs, Identified factors

will form the springboard for strategy formulation and overall competitive position of

organizations.

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CHAPTER TWO: LITERATURE REVIEW

2.1 Introduction

This chapter presents a review of literature pertinent to the study as presented by various

researchers. The literature is comprised of the theoretical foundations of competitiveness as

discussed by several scholar and in details explore the resource based theory of firms and the

dynamic capability theory which explains how firms achieves sustainable competitive advantage

by leveraging on their resources. This section also covers key success factors in relation to

competitive advantage of deposit taking microfinance institutions in Kenya

.

2.2 Theoretical Foundation of the study

Competitiveness of a company is the ability to provide products and services as or more

effectively and efficiently than the relevant competitors. Several theories have tried to explain

how firms can achieve and sustain their competitive advantage. The resource-based theory of

strategic management postulates that superior firm performance is attributable to endowment

with superior resources. Such resources need to be valuable and rare (Barney, 1991) and must be

difficult for other firms to replicate or substitute (Peteraf, 1993), and that firms need to manage,

adapt, and deploy them in product markets in order to create value (Hitt, & Ireland, 2007). Porter

(1980) argues that it is the industry structure within which organizations compete and how they

position themselves against the industry structure which determines how competitive they will be

(Porters five forces model). The resource based theory in contrast points not to industry structure

but to unique cluster of resources and capabilities that each organization possesses

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According to RBV logic, firms acquire (Barney,1986) or develop (Dierickx & Cool, 1989)

resources that gives them a position of competitive advantage. The resource based view of

competition draws upon the resources and capabilities that reside within an organization or that

an organization may want to develop in order to achieve a sustainable competitive advantage.

Where organizations in an industry have same buddle of resources but difference in performance

can therefore be explained by the extent to which the specific institution has identified and

integrated its buddle of resources in strategy formulation.

Day and Wensley (1988) argue that competitive methods consist of skills and resources that are

available for use by firms in a competitive industry. They define superior skills in terms of staff

capability, systems, or marketing skills not possessed by a competitor. A superior resource is

defined in terms of physical resources that are available to help strategic implementation.

Examples include operating scale, location, comprehensiveness of a distribution system, brand

equity, or manufacturing or processing assets. They concluded that establishing a generic

strategy based on positional advantage in the marketplace will provide a firm with superior

performance.

Bharadwaj (1993) suggested that a competitive advantage can be developed from particular

resources and capabilities that the firm possesses that are not available to competitors. However;

In a rapidly changing and unpredictable market where the competitive landscape is shifting, the

dynamic capabilities by which firms managers integrate , build and reconfigure internal and

external competencies to address rapidly changing environments becomes the source of

sustainable competitive advantage (Teece et al., 1997). This forms the basis for the dynamic

capability theory. Teece et al. (1997) argued that dynamic capabilities enable organizations to

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integrate, build, and reconfigure their resources and competencies and thus maintain

performance in the face of changing business environments. He recognized that while

operational capabilities help sustain an organization’s technical fitness by ensuring its day-to-day

operational efficiency, dynamic Capabilities help sustain a firm’s evolutionary fitness by

enabling the creation, extension and modification of its resource base thereby creating long-run

competitive success.

Collis (1994) distinguished between lower-order operational capabilities which are described as

the purposive combinations of resources that enable an organization to perform functional

activities such as logistics, marketing and sales or manufacturing, and higher-order dynamic

capabilities which deal with change. Winter (2003) also distinguish dynamic capabilities from

operational or ordinary capabilities. Operational capabilities enable firms to perform their

everyday living and while dynamic capabilities are used to maintain the status quo.

Porters’ model of competitive advantage is that a competitive advantage exists when a firm is

able to deliver the same benefits as competitors but at a lower cost, or deliver benefits that

exceeds those of competing products (Porter 1985). Porter emphasized that businesses must

focus on areas of capability where they have distinct advantage relative to competitors in their

target market. He suggested three main generic business strategies that could be adopted in order

to again competitive advantage namely cost leadership strategy, differentiation strategy and

focus strategy. A business gains competitive advantage by performing its activities either more

cheaply than its competitors or in a unique way that creates superior customer value and

commands a price premium.

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2.3 Industry and competitive analysis

Industries differ widely in their economic characteristics, competitive situations, and future

outlooks. The pace of technological change can range from fast to slow, capital requirements can

be big or small and the market can be worldwide or local. Sellers' products can be standardized

or highly differentiated and competitive forces can be strong or weak. Industry and competitive

analysis utilizes a toolkit of concepts and techniques to get a clear fix on changing industry

conditions and on the nature and strength of competitive forces. It is a way of thinking

strategically about an industry's overall situation and drawing conclusions about whether the

industry is an attractive investment for company funds.

Thinking strategically about a company’s industry and competitive environment entails using

some well-defined Concepts and analytical tools to get clear answers to the following seven

questions (Thompson et al., 2007), namely: What are the industry’s dominant economic

features? What kinds of competitive forces are industry members facing, and how strong is each

force? What forces are driving industry changes and what impact will these changes have on

competitive intensity and industry profitability? What market positions do industry rivals

occupy—who is strongly positioned and who is not? What strategic moves are rivals likely to

make next? What are the key success factors for future competitive success? And does the

outlook for the industry offer the company a good opportunity to earn attractive profits?

Because industries differ significantly in their basic character and structure, industry and

competitive analysis begins with an overview of the industry's dominant economic features and

gaining an accurate and insightful view of the industry landscape. An industry’s dominant

economic features are defined by such factors as market size and growth rate, the number and

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sizes of buyers and sellers, the geographic boundaries of the market, whether sellers products are

virtually identical or highly differentiated, the pace of technological change and the extent of

vertical integration (Thompson et al., 2007), identifying an industry dominant economic features

helps managers understand the kinds of strategic moves that industry members are likely to

employ.

The competitive environment, also known as the market structure, is the dynamic system within

which the business competes According to Porter (1980) there are five forces that affect the level

of competition in an industry. Porter identified the five forces as the threat of new entrants,

bargaining power of suppliers, bargaining power of buyers, threat of substitute products and

services and rivalry among the existing firms. Scrutinizing each of the five competitive forces

one by one provides a powerful diagnosis of the state of competition in a given market.

The collective impact of these forces determines what competition is like in a given market. As a

rule, the stronger competitive forces are, the lower the collective profitability of participating

firms. (Thompson et al., 2010), The "ideal" competitive environment from a profit-making

perspective is one in which both suppliers and customers are in a weak bargaining position, there

are no good substitutes, entry barriers are relatively high, and rivalry among present sellers is

only moderate .

In coping with competitive forces, successful strategists craft competitive approaches that will;

insulate the firm as much as possible from the five competitive forces, influence the industry's

competitive rules in the company's favor and provide a strong, secure position of advantage

from which to "play the game" of competition as it unfolds in the industry (Thompson et al.,

2010).

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Industry analysis also involves trying to understand forces driving change in and industry.

According to Thompson, Gamble and Strickland (2010), Industry conditions change because

important forces are driving industry participants (competitors, customers, or suppliers) to alter

their actions. They further asserted that the real value of doing driving forces analysis is to gain

better understanding of what strategy adjustments will be needed to cope with the drivers of

industry change and the impacts they are likely to have on market demand, competitive intensity,

and industry profitability. In short, the strategy- making challenge that flows from driving-forces

analysis is what to do to prepare for the industry and competitive changes being wrought by the

driving forces. Indeed, without understanding the forces driving industry change and the impacts

these forces will have on the character of the industry environment and on the company’s

business over the next one to three years, managers are ill-prepared to craft a strategy tightly

matched to emerging conditions (Thompson et al., 2010),

The final step in evaluating the industry and competitive environment is to review the overall

Industry situation and develop reasoned conclusions about the relative attractiveness or

unattractiveness of the industry, both near-term and long-term. As a general proposition, if an

industry’s overall profit prospects are above average, the industry environment is basically

attractive; if industry profit prospects are below average, conditions are unattractive. However, it

is a mistake to think of a particular industry as being equally attractive or unattractive to all

industry participants and all potential entrants. (Thompson et al., 2007), When a company

decides an industry is fundamentally attractive and presents good opportunities, a strong case can

be made that it should invest aggressively to capture the opportunities it sees and to improve its

long-term competitive position in the business.

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2.4 Industry Key Success Factors

Key Success Factors are those functions, activities or business practices defined by the market

and as viewed by the customers that are critical to the vendor/customer relationship. Pouliot

(2004) defines Key Success Factors by the market and by the customer. They revolve around

skills, processes and systems and it is outstanding performance in those areas that results in to

success. According to Parasuraman & Varadarakan, (1988), key success factors are hence

regarded as those skills and resources which have the highest leverage on value and costs.

Competitive advantage and indirectly business performance can therefore be related to how the

business scores with regard to these skills and resources which can be regarded as the actual

determinants of different performances. How the business scores on these characteristics will in

turn depend on whether the business has adopted a strategy which implies investing into these

skills and resource and this will depend on the perceptions of the decision-makers of the

perceived determinants of differences in performance and also of the perceived skills and

resources in the business.

Key success factors can be distinguished on two dimensions which have implications for the

attainment of competitive advantage. These are their changeability and whether they are

conjunctive or compensatory. Conjunctive key success factors refer to skills and resources which

are necessary conditions for superior performance in a market. The performance of a business

will always be related to the degree to which it has these skills and resources and a lack of skills

and resources here cannot be compensated for by superior skills and resources in other areas

(Boynton & Zmud, 1984).

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Compensatory key success factors refer to a set of skills and resources, where businesses can

choose to emphasize one or several of these. Lower scores with regard to some of these factors

can be compensated for by higher scores on other factors (Jemison, 1981). Businesses which

have decided to build the same set of compensatory key success factors, compete with each

other, based on the same set of skills and resources, and can be considered a strategic group.

Changeability refers to how fast it is possible for a business to acquire the skill or resource in

question. The lower the changeability, the more permanent will be the competitive advantage for

the business having that skill or resource. When the changeability of a compensatory key success

factor is low, entry barriers with regard to the corresponding strategic group will be high

(Galbraith & Schendel, 1983).

Rockart's concept of critical success factors is clearly inspired by the issue of optimum match

between environmental conditions and business characteristics. The surrounding environment is

assumed to possess certain fundamental requirements and limitations, threats and opportunities,

to which businesses must align their strategy, skills and resources in order to achieve success. No

organization, according to Rockart, can afford to develop a strategy which fails to provide

adequate attention to the principal factors which underlie success in the industry. (Bullen &

Rockart, 1981)

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Rockart distinguishes between five sources of critical success factors namely: industry CSFs

such as demand characteristics, technology employed, product characteristics among others;

Competitive strategy and industry position of the business in question which is determined by the

history and competitive positioning in the industry; environmental factors which are the

macroeconomic influences that affect all competitors within an industry and over which the

competitors have little or no influence, such demographics, economic and government

legislative policies; temporal factors, which are areas within a business causing a time-limited

distress to the implementation of a chosen strategy and managerial CSFs.

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CHAPTER THREE: RESEARCH METHODOLOGY

3.1 Introduction

The objective of this study was to determine key success factors and competitive advantage of

DTMs microfinance institutions in Kenya. This chapter provided a road map on how this

objective was achieved. A detailed description of the study design of choice was provided as

well as justification for selecting the method. Cross-sectional survey technique was selected for

this research.

Methods of data collection were discussed in this chapter. The study used questionnaires to

collect qualitative data. Data was then analyzed through a combination of factor analysis

technique and descriptive statistic techniques. The section also sought to justify why the

particular methodology was selected

3.2 Research Design

The research design used was descriptive Cross-sectional survey since this was a descriptive

study. Survey research involves acquiring information about one or more groups of people –

perhaps about their characteristics, opinions, attitudes, or previous experiences by asking them

questions and tabulating their answers. The ultimate goal is to learn about a large population by

surveying a sample of that population.

This study was aimed at identifying key success factors for competitive advantage of DTM

microfinance institutions in Kenya. Descriptive survey was deemed to be most appropriate in the

study because it describes what exists at the moment with respect to situational variables and

looks at the relationship between variables. All the institutions in the DTM industry were studied

with the exception of KWFT who declined to participate.

20

3.3 Population of Study

The population of interest in this study consisted of all DTM microfinance institutions in Kenya.

According to CBK, there were 9 DTM in Kenya by 31st May 2013, after licensing of U & I

microfinance Ltd. These 9 institutions (see appendix 2) formed the population for the study.

A study population is a well-defined set of people, services, elements, events, groups, things or

households that are being investigated (Ngechu, 2004). It is generally a large collection of

individuals or objects that are the main focus of study. Target population is the entire group of

individuals or objects to which researchers are interested in generalizing the conclusions.

3.4 Data Collection

Data was collected using self-administered questionnaires. The respondents were the CEO/

directors as well as senior customer service managers of the microfinance institution under study.

These subjects were chosen mainly because they had firsthand information about customer needs

and preferences and also because of their responsibilities in making and implementing strategic

decisions.

The study targeted all 9 DTMs and total of 18 respondents. The questionnaire contained three

sections. Section one sought to establish general information about the respondents, section two

contained closed ended questions whereby respondents were required to select answers that best

reflected their opinion from given alternatives and the last part contained open ended questions.

The raw data used in formulation of the questionnaire was obtained from the researcher’s

detailed analysis of the work of various authors in prescription and conception of potential

success factors for micro finance institutions.

21

3.5 Data Analysis

After receiving the questionnaires, data was edited for completeness and consistency. It was then

coded and analyzed using factor analysis technique. Factor analysis aims to summarize

information requirements and unearth underlying factors that illustrate relationships among a set

of interrelated items. This statistical approach was selected because of its ability to identify a

small number of factors that are critically linked to the domain of interest and to group similar

structures together.

Factor analysis enabled the researcher to find factors among observed variables with similar

characteristics if data contains many variables thus enabling one to produce a small number of

factors from a large number of variables. Descriptive statistics methods such as mean, mode and

standard deviation were also used to summarize the data.

22

CHAPTER FOUR: DATA ANALYSIS AND INTERPRETATION

4.1 Introduction

This chapter represents data findings and analysis on the study to investigate key success factors

and competitive advantage of DTM institution in Kenya. The study targeted all 9 DTM and a

total of 18 respondents. 7 DTMs participated in the study and 17 respondents filled and returned

the questionnaire thus constituting 94% response rate. Data was then analyzed using factor

analysis.This method was employed to identify factors that contribute to competitive advantage

of deposit taking microfinance institutions in Kenya.

Factor analysis (more properly exploratory factor analysis) is concerned with whether the

covariance or correlations between a set of observed variables can be explained in terms of a

smaller number of unobservable constructs known either as latent variables or common factors.

Explanation here means that the correlation between each pair of measured (manifest) variables

arises because of their mutual association with the common factors. Consequently, the partial

correlations between any pair of observed variables, given the values of the common factors,

should be approximately zero. As results, the original data is reduced into factors. The reduction

might be by discovering that a particular linear combination of our variables accounts for a large

percentage of the total variability in the data or by discovering that several of the variables reflect

another ‘latent variable’.

23

4.2 Personal Data analysis

Determination of the age of the institution and the experience in terms of years served by the

respondents to the MFI institutions was vital in order to establish if they had appropriate

experience in dealing with customers and thus knowledgeable enough to respond to questions

seeking to determine the success factors for the institutions. Figure 4.1 shows the numbers of

years the respondents served in the institutions and majority (76%) had a less than two years’

experience.

Figure 4.1: Years served in the institutions

24

The researcher also sought to determine the number of years the institutions under study had

been operational. This was important in order to determine if the key success factors identified

by this study could stand the dynamic environment in which organizations operated in. it was

found that 47% of those studies had been operating in a period less than 5years. Figure 4.2 shows

the number of years the institutions had been operational.

Figure 4.2 age of institutions

25

4.3 Descriptive Statistics

The Table 4:1 below simply shows the means, standard deviations and sample size for each

variable. It appears that the average score for all the tests is very similar and all have a similar

spread.

Table 4: 1 Descriptive Statistics

VARIABLES Mean Std. Deviation

Analysis N

Products and services tailor made for each specific group of our customers 4.6 0.737 15 Regularly introduce new products depending on market requirements 3.93 1.033 15 Have a product development team 3.33 1.633 15 Offer a wide range of products to our customers 4.73 0.594 15 Mobilize deposit from our customers 4.8 0.561 15 We provide financing to investment groups 4.13 0.834 15 ‘Chamas’ form important part of our customer base 4.13 0.834 15 We support community based projects 3.8 1.014 15 We encourage our customers to form ‘chamas’ 3.8 1.146 15 Have products tailor made for persons in investment groups and ‘chamas’ 3.67 1.234 15 Our interest rate is relatively low for group members as opposed to individual borrowers 3.53 1.302 15 Have a customer service department with efficient employees 3.93 1.28 15 Regularly contact customer satisfaction surveys 3.47 1.187 15 Emphasize on providing what the our customers need and have a strong customer service culture 4.47 0.743 15 We know all most of our customers by, their names, the products they prefer or by other important details 3.73 1.223 15 Follow up on customers whose accounts are dormant 4.4 1.056 15 Respond to our customers complains and queries within 24 hours. 4.47 1.125 15 Provide personalized service to our customers 4.67 0.617 15 Customers know our products and therefore advertising is unnecessary 2.67 1.633 15 Inform our customers whenever we launch a new product 4.47 1.246 15 Emphasize on continuous advertisement through media houses and posters 4.07 1.223 15 Current information is available within our branches 3.4 1.121 15

26

Table 4: 1 Descriptive Statistics……………………………………………….continued

Send current updates on our products to customers through mobile phone text messaging

3.53 1.302 15

Know the institutions vision and mission 4.8 0.414 15 Emphasize on strong work ethics and due diligence in our service delivery 4.87 0.516 15 Institution has a competitive process of selecting the best employees 4.6 0.828 15 Am aware of all products and services offered by my institution 4.93 0.258 15 Managers are highly qualified and capable of executing the institutions objectives 4.73 0.458 15 Customers are given enough time to repay their credit facilities 4.33 0.816 15 Customers are required to pay any loan facility within 60 months 2.8 1.821 15 Repayment periods depend on the type of facility advanced 4.8 0.775 15 Repayment period are tailor made for different types of products and customers 4.8 0.414 15 We provide flexible repayment options for our loan facilities 4.8 0.561 15 Have outsourced a professional agent who sells our services on our behalf. 1.47 0.834 15 Employees in my organization are tasked with the responsibility of service delivery 4.8 0.414 15 Employees go to the field to create more awareness on our products and recruit new customers 4.13 1.552 15 Make follow up on development projects we finance 3.93 1.335 15 Have opened branches at strategic locations near our customers 3.93 1.163 15

.

27

4.4 Factor Analysis

Table 4: 2 gives the sampling adequacy test and significance of the data for factor analysis. For

data to qualify for factor analysis, KMO measure of sampling adequacy must be greater than 0.5

and Barlett’s test must be very small. This data meets the criteria in that KMO is O.606 whereas

Bartlett’s test is 0.002. as shown below

Table 4: 2 KMO and Barlett’s Test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .606

Bartlett's Test of Sphericity

Approx. Chi-Square 36.077 Df 15 Sig. .002

4.4.1 Communalities

Table 4:3 shows the estimated communalities which represent the estimates of that part of the

variability (variance) in each variable that is shared with others, and which is not due to

measurement error or latent variable influence on the observed variable.

Table: 4.3 Communalities

VARIABLES COMMUNALITIES Initial Extraction Products and services tailor made for each specific group of our customers 1 0.932 Regularly introduce new products depending on market requirements 1 0.925 Have a product development team 1 0.926 Offer a wide range of products to our customers 1 0.919 Mobilize deposit from our customers 1 0.995 We provide financing to investment groups 1 0.945 ‘Chamas’ form important part of our customer base 1 0.92 We support community based projects 1 0.937 We encourage our customers to form ‘chamas’ 1 0.976 Have products tailor made for persons in investment groups and ‘chamas’ 1 0.894

28

Table: 4.3 Communalities……………………………continued

Our interest rate is relatively low for group members as opposed to individual borrowers

1 0.923

Have a customer service department with efficient employees 1 0.954 Regularly contact customer satisfaction surveys 1 0.875 Emphasize on providing what the our customers need and have a strong customer service culture

1 0.954

We know all most of our customers by, their names, the products they prefer or by other important details

1 0.791

Follow up calls and visits on customers whose accounts are dormant 1 0.988 Respond to our customers complains and queries within 24 hours. 1 0.949 Provide personalized service to our customers 1 0.948 Customers know our products and therefore advertising is unnecessary 1 0.939 Inform our customers whenever we launch a new product 1 0.973 Emphasize on continuous advertisement through media houses and posters 1 0.879 Current information is available within our branches 1 0.918 Send current updates on our products to customers through mobile phone text messaging

1 0.926

Know the institutions vision and mission 1 0.959 Emphasize on strong work ethics and due diligence in our service delivery 1 0.965 Institution has a competitive process of selecting the best employees 1 0.969 Am aware of all products and services offered by my institution 1 0.972 Managers are highly qualified and capable of executing the institutions objectives

1 0.84

Customers are given enough time to repay their credit facilities 1 0.984 Customers are required to pay any loan facility within 60 months 1 0.926 Repayment periods depend on the type of facility advanced 1 0.945 Repayment period are tailor made for different types of products and customers

1 0.985

We provide flexible repayment options for our loan facilities 1 0.988 Have outsourced a professional agent who sells our services on our behalf. 1 0.978 Employees in my organization are tasked with the responsibility of service delivery

1 0.749

Employees go to the field to create more awareness on our products and recruit new customers

1 0.882

Make follow up on development projects we finance 1 0.953 Have opened branches at strategic locations near our customers 1 0.96

29

4.4.2 Eigen values/variance

Table 4:4 shows the importance of each of the 38 factors which are essentially as results of 38

variables. Only the first 10 have Eigen values over 1.00, and together these explain over 93% of

the total variability in the data. This leads us to the conclusion that a ten factor solution will

probably be adequate. Therefore, the 38 variables in the questionnaire are now reduced into

factors with minimal loss of information.

Table: 4. 4 Total variance explained by factors

variables Initial Eigenvalues Extraction Sums of Squared Loadings

Rotation Sums of Squared Loadings

Component

Total

% of Variance

Cumulative %

Total

% of Variance

Cumulative %

Total

% of Variance

Cumulative %

1 10.30

27.09 27.09 10.30

27.09 27.09 7.79 20.50 20.50

2 5.31 13.96 41.05 5.31 13.96 41.05 4.57 12.03 32.53 3 4.13 10.87 51.92 4.13 10.87 51.92 4.04 10.63 43.16 4 3.68 9.70 61.62 3.68 9.70 61.62 3.30 8.69 51.85 5 3.42 8.99 70.61 3.42 8.99 70.61 3.25 8.55 60.40 6 2.35 6.19 76.80 2.35 6.19 76.80 3.18 8.38 68.78 7 1.84 4.83 81.63 1.84 4.83 81.63 2.92 7.69 76.47 8 1.78 4.69 86.31 1.78 4.69 86.31 2.31 6.07 82.53 9 1.45 3.82 90.13 1.45 3.82 90.13 2.07 5.44 87.98 10 1.19 3.13 93.26 1.19 3.13 93.26 2.01 5.28 93.26 11 0.96 2.52 95.77 12 0.70 1.84 97.61 13 0.55 1.46 99.07 14 0.36 0.93 100.00 15

0.00

0.00

100

16

0.00

0.00

100

17

0.00

0.00

100

18

0.00

0.00

100

19

0.00

0.00

100

30

Table: 4. 4 Total variance explained by factors……………….continued

20

0.00

0.00

100

21

0.00

0.00

100

22

0.00

0.00

100

23

0.00

0.00

100

24 0.00

0.00

100

25 0.00

0.00

100

26

0.00

0.00

100

27

0.00

0.00

100

28

0.00

0.00

100

29

0.00

0.00

100

30

0.00

0.00

100

31

0.00

0.00

100

32

0.00

0.00

100

33

0.00

0.00

100

34

0.00

0.00

100

35

0.00

0.00

100

36

0.00

0.00

100

37

0.00

0.00

100

38

0.00

0.00

100

Extraction Method: Principal Component Analysis.

31

4.4.3 Factor loadings

The formal model linking manifest (original variables) and latent variables (factors) is simply

that of multiple regressions, with each observed variable being regressed on the common factors.

The regression coefficients in the model are known in this context as the factor loadings and the

random error terms as specific variants since they now represent that part of an observed variable

not accounted for by the common factors. However, for ease of interpretation, factor loadings

that fell below 0.3 were excluded to achieve a clear picture on which original variable are

represented in each factor.

The rotation of the factor aids in putting together variables that can be represented into one factor

in this case Factor 1 comprise of variables: 1 up to 12, factor 2 comprises of variables 13 to 18,

factor 3 comprises of variables 14 to 22 and so on. This is based on factor loadings above 0.4.

Table 4.5 ( appendix 3) shows the ten factors extracted .

32

CHAPTER 5: DISCUSSION CONCLUSIONS AND RECOMMENDATIONS

5.1 Introduction

The objective of this study was to determine key success factors for competitive advantage of

DTM institutions in Kenya. This chapter seeks to determine if the objective was meant as well as

answer the research question formulated in chapter 1 of this study A preliminary analysis

performed to determine how the respondents rated the 38 variables indicated that a number of

them were important for competitive advantage. The importance rating of individual items is

listed in Table 4.1. The mean scores were tabulated for each variable to determine its individual

importance. A variable with the highest mean score is considered as the most important factor.

5.2 Summary of Findings

Factor analysis was performed on the 38 variables that represented factors for competitiveness of

DTM institutions in Kenya and resulted in extraction of ten factor solutions based on Varimax

with Kaiser Normalization rotation method as shown on table 4.5. Factor 1 collects 12 variables

which were grouped together due to their high loading with respect to factor 1. These were

mobilization of deposit from customers, products ranges, short dispute resolution time frames,

emphasize on provision of customers need and strong customer service culture, highly qualified

managers capable of executing the institutions objectives, emphasis on strong work ethics and

due diligence in service delivery, credit repayment period, follow up on customers, knowledge of

the institutions vision and mission and provision of personalized service to customers.

33

All this variables seem to revolve around customer issues and therefore it seems reasonable to

tentatively identify the first rotated factor as “customer service culture’’ this agreed with

Parasuraman & Varadarakan, (1988), observation that customers are where the money comes

from, so in many ways this is the most important success factor.

Factor 2 was loaded onto by six variables that focused on microfinance outreach innovations

namely: group based lending, availability of a customer service department with efficient

employees, service delivery, products and services tailor made for each specific group of

customers, support on community based projects, and product development. Factor 2 was named

‘service delivery and innovations’ in the said microfinance institutions because the entire

variable seemed to measure how services were delivered to the customers and degree of

innovation in the institutions

Factor 3 consisted of four variables relating to employee professionalism. They captured the

people aspect of the organizations and were identified as products knowledge, employee

recruitment and selection as well as outsourcing of professionals to sell and market the

institutions products on their behalf. Factor 3 was therefore named as ‘employee competency and

appropriate management team’

According to table 4.5, factor 4 was loaded by four variables namely: provision of financing to

investment groups, Chamas forming important part of DTMs customer base, employees outreach

responsibilities to groups and having products tailor made for persons in investment groups.

These variables described group based lending practices that were identified as one of the key

34

success factors in DTM institutions. The four were collectively termed as ‘investment group

financing’. This agrees with earlier scholars who agreed that this was vital. Ghatak (2000) as

well as Tassel (1999) showed that group lending achieves self-selection of borrowers and act as a

screening device.

Factor 5 contains four variables. This factor consists of statements which relate to the

management of the DTMs business and its effective leadership. For this reason, they were

termed as Sound relationship management and good governance. They included the following:

making follow up on development projects financed by the institutions, having branches at

strategic locations, market scanning and contacting market intelligence and allowing customers

enough time to repay their credit facilities.

Factor 6 loaded only two variables. The two reflect on how information is made available to

customers. Due to their small capital base, it was established that most of the DTMs do not

venture in to aggressive advertisement; rather Current information is availed to customers within

the institutions branch network. Factor 6 was labeled as product awareness.

Factor 7 was defined by three variables namely: Emphasis on continuous advertisement,

contacting customer satisfaction surveys and knowledge of customers, their likes and

preferences. Emphasis on these variables was mainly on how the microfinance institutions make

follow ups on customers and their products. Factor 7 was therefore named as monitoring and

evaluation practices within the micro finance institutions.

35

Factors 8, 9 and 10 were each described by one factor. These were labeled as communication,

credit repayment period and cost of service respectively. These factors were considered to be of

minor importance because they were loaded by a few variables and also scored less mean score.

The researcher therefore considered factor 1 to 7 to be the most important success factors for

competitive advantage of DTMs in Kenya.

5.3 Conclusion

Using factor analysis and from the above discussion, the study identified seven major key

success factors for competitive advantage of DTMs in Kenya that answered the research question

proposed in chapter one of this project. These factors were labeled as follows: Superior

Customer service culture, Service delivery and innovations, Employee competency and

appropriate management, Investment group financing, Sound Relationship Management and

Good Governance, Product awareness and Monitoring and Evaluation Practices.

The findings above agree to these of other researchers, for instance; a study by IFAD 2007 on

customer satisfaction in rural micro-finance institutions in Uganda, Kenya and Tanzania

suggested that surveyed customers were all satisfied with institutions exhibiting a Customer

Satisfaction Index of 81%. Thus good customer service was identified as a key success factor.

Hamel, (1996), suggested that MFIFs must have a clear commercial orientation for the

scalability of the MFIs per se and for micro-finance as a whole which requires a high degree of

professionalism while other researchers ascertained that Group-based models locally known as

‘Chama’s’ have built impressive portfolios in rural market for DTMIs in Kenya. From the above

findings, the study recommends that in order for DTMs to remain profitable, they must maintain

36

an optional level of competency in both internal and external elements that define the difference

between a strong competitor and a week competitor. Successful DTMs should put more

emphasis on the factors identified above that were found to be the key success factors for those

institutions.

5.4 Limitations of the Study

From figure 4.2, most of the institutions studied had only been in operation for 5 years or less.

This means that most of them lacked appropriate experience and thus data collected was

applicable for young institutions. Since competition in the external environment is highly

dynamic, one cannot therefore conclude with certainty that the identified factors have over years

been the only key success factors for DTMs. In addition, the researcher observed that the rate of

staff turnover in the studied institutions was very high with most management staff being only

two years old in the institutions or less

Most of the respondents were also reluctant to reveal their success strategies in fear that the

information may leak to their competitors and compromise their competitive moves which may

have resulted to withholding of vital information. Further the most experienced DTM of the nine

did not participate in the study thereby the key success factors of the oldest DTM in the market

could not be established.

5.5 Area for Further Study

This study focused on success factors for DTM institutions only. Emerging questions from this

study are for instances why a client would seek for services of microfinance institutions as

opposed to banks and other financial institutions which offer similar products at an affordable

rate yet the level of technology investment and expertise in the banks is highly significant. Future

37

Researchers can critique this question further and perhaps attempt to compare key success

factors for competitive advantage in the DTM industry as opposed to the banking sector.

5.6 Implications of the Study on Theory, Policy and Practice

The research findings include identification of critical success factors that drive sustainable

competitive advantage of deposit taking microfinance institutions in Kenya. The empirical

findings add to the understanding of industry key success factors in the microfinance industry

and thereby aid in industry and competitive analysis of players in this sector and other

competitors in the market

Besides providing insight into factors associated with successful DTMs, Identified factors forms

the springboard for strategy formulation and overall competitive position of organizations.

Policy makers can use the findings of this study in formulation of relevant governing laws.

Further, this study will help the governing bodies design strategies aimed at promoting the

growth of the sector.

Results from this analysis will be useful as a benchmark for building a competitive environment

for performance standards and excellence in DTMs, how well individual firms perform in the

competitive arena is directly proportional to the extent to which the identified success factors are

incorporated in strategy formulation Further the seven key success factors identified by this

research are crucial for proactive management to focus on especially on areas perceived by

customers to be important that if perfected can help build loyalty and thereby defending the

company against competitive forces.

38

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i

APPENDICES

Appendix 1: Questionnaire

SECTION A; PERSONAL DETAILS

1. Name of your institution ------------------------------------

2. How many years have you served in this institution

0-2 [ ]

3-5 [ ]

6-10 [ ]

Above 10 years [ ]

3. How long has your organization been in operation

0-5 [ ]

5-10 [ ]

10-15 [ ]

15-20 [ ]

Above 20 years [ ]

SECTION B. SUCCESS FACTORS

I. In a scale of 1-5, where 1 is strongly disagree and 5 strongly agree, to what extend do you

agree with the following statements that relate to group based lending as practiced by

your institution. Tick appropriately.

Factor- group based lending Ratings

I. We provide financing to investment groups

1 2 3 4 5

II. ‘Chamas’ form important part of our customer base

III. We support community based projects

IV. We encourage our customers to form ‘chamas’ in order to

enjoy a wide range of our products

ii

V. We have products tailor made for persons in investment groups

and ‘chamas’

VI. Our interest rate is relatively low for group members as

opposed to individual borrowers

2. In a scale of 1-5, where 1 is strongly disagree and 5 strongly agree, to what extend do you

agree with the following statements that relate how the way your institution relates to its

customers

Factor- customer relations ratings

I. We have a customer service department with efficient

employees

1 2 3 4 5

II. We regularly contact customer satisfaction surveys

III. We emphasize on providing what the our customers need and

have a strong customer service culture

IV. We know all most of our customers by, their names, the

products they prefer or by other important details

V. We make follow up calls and visits on customers whose

accounts are dormant

VI. We respond to our customers complains and queries within 24

hours.

VII. We provide personalized service to our customers

iii

3. In a scale of 1-5, where 1 is strongly disagree and 5 strongly agree, to what extend do you

agree with the following statements that relate to your range of products

Factor- product ranges ratings

I. we have products and services tailor made for each specific

group of our customers

1 2 3 4 5

II. we regularly introduce new products depending on marker

requirements

III. we have a product development team

IV. We offer a wide range of products to our customers

V. We mobilize deposit from our customers

4. In a scale of 1-5, where 1 is strongly disagree and 5 strongly agree, to what extend do you

agree with the following statements that relate to how your institution creates awareness on

its products and services

Factor- marketing and communication ratings

I. Our customers know our products and therefore advertising is

unnecessary

1 2 3 4 5

II. We inform our customers whenever we launch a new product

III. We emphasize on continuous advertisement through media

houses and posters

IV. Current information is available within our branches and

therefore it is assumed that the customers will see it once in the

halls

V. we send current updates on our products to customers through

mobile phone text messaging

iv

5. In a scale of 1-5, where 1 is strongly disagree and 5 strongly agree, to what extend do you

agree with the following statements that relate to service provision in your institution

Factor- professionalism ratings

I. I know the institutions vision and mission

1 2 3 4 5

II. We emphasize on strong work ethics and due diligence in our

service delivery

III. My institution has a competitive process of selecting the best

employees

IV. I am aware of all products and services offered by my

institution

V. Our managers are highly qualified and capable of executing the

institutions objectives

6. In a scale of 1-5, where 1 is strongly disagree and 5 strongly agree, to what extend do you

agree with the following statements that relate to cost of service in your institution

Factor- Flexible Credit repayment arrangements ratings

I. Customers are given enough time to repay their credit facilities

1 2 3 4 5

II. All customers are required to pay any loan facility within 60

months

III. Repayment periods depend on the type of facility advanced

IV. Repayment period are tailor made for different types of

products and customers

V. We provide flexible repayment options for our loan facilities

v

7. In a scale of 1-5, where 1 is strongly disagree and 5 strongly agree, to what extend do you

agree with the following statements that relate to how services are delivered to your

customers.

Factor- distribution capabilities ratings

I. We have outsourced a professional agent who sells our

services on our behalf.

1 2 3 4 5

II. Employees in my organization are tasked with the

responsibility of service delivery

III. Occasionally our employees go to the field to create more

awareness on our products and recruit new customers

IV. We make follow up on development projects we finance

V. We have opened branches at strategic locations near our

customers

SECTION C

8. Name any other factors apart from the ones above that you feel have helped your institution

achieve success and substantial growth

___________________________________________________________________________

___________________________________________________________________________

___________________________________________________________________________

THE END!

Thank you for your time.

vi

Appendix 2: List of DTMs

Deposit Taking microfinances

1. Kenya Women Finance Trust-DTM

2. Rafiki Deposit taking Microfinance Ltd

3. Faulu Kenya DTM

4. SMEP DTM

5. Remu DTM Ltd

6. Uwezo DTM Ltd

7. Century DTM Ltd

8. Sumac Credit DTM Ltd

9. U&I Microfinance Ltd

Source http://www.centralbank.go.ke/financialsystem/microfinance/deposittaking.aspx

vii

APPENDIX 3: Table 4.5 The Factor Matrix

Variables F 1 F 2 F 3 F 4 F 5 F 6 F 7 F 8 F 9 F 10 1 mobilize deposit from

our customers 0.92

2 offer a wide range of products to our customers

0.90

3 Respond to our customers complains and queries within 24 hours.

0.89 0.32

4 emphasize on providing what the our customers need and have a strong customer service culture

0.86 -0.34

5 managers are highly qualified and capable of executing the institutions objectives

0.77

6 emphasize on strong work ethics and due diligence in our service delivery

0.74 0.36

7 Repayment period are tailor made for different types of products and customers

0.71 0.58

8 follow up calls and visits on customers whose accounts are dormant

0.68 0.31 0.34 0.48

9 know the institutions vision and mission

0.67 0.64

10 provide personalized service to our customers

0.61 0.41 0.32 -0.37

11 Repayment periods depend on the type of

0.52 0.38 -0.31 -0.33 -0.40

viii

facility advanced

Table 4.5 The Factor Matrix……………………………………………….continued

12 send current updates on our products to customers through mobile phone text messaging

0.50 0.31 0.45 0.41

13 We encourage our customers to form ‘chamas’

0.83 0.35

14 have a customer service department with efficient employees

0.82 -0.30

15 Employees in my organization are tasked with the responsibility of service delivery

0.68 -0.45

16 products and services tailor made for each specific group of our customers

0.47 0.65 0.42

17 We support community based projects

0.58 0.43 0.31

18 have a product development team

0.48 0.47 0.42

19 We provide flexible repayment options for our loan facilities

0.94

20 am aware of all products and services offered by my institution

0.89

21 institution has a competitive process of selecting the best employees

0.35 0.72

22 have outsourced a professional agent who sells our services

-0.65 -0.45 0.34 -0.42

ix

on our behalf. 23 We provide financing

to investment groups 0.88

Table 4.5 The Factor Matrix……………………………………………….continued

24 ‘Chamas’ form important part of our customer base

0.32 0.56 0.63

25 employees go to the field to create more awareness on our products and recruit new customers

0.57 0.36 0.41

26 Have products tailor made for persons in investment groups and ‘chamas’

0.56 -0.53 0.31

27 make follow up on development projects we finance

0.87

28 have opened branches at strategic locations near our customers

0.46 0.82

29 regularly introduce new products depending on market requirements

0.54 0.65

30 Customers are given enough time to repay their credit facilities

0.35 0.62 -0.40

31 customers know our products and therefore advertising is unnecessary

0.93

32 Current information is available within our branches

0.78 -0.45

33 emphasize on continuous advertisement through media houses and posters

0.82

34 regularly contact 0.32 0.76

x

customer satisfaction surveys

Table 4.5 The Factor Matrix……………………………………………….continued

35 We know all most of our customers by, their names, the products they prefer or by other important details

0.49 0.63

36 inform our customers whenever we launch a new product

0.90

37 customers are required to pay any loan facility within 60 months

0.89

38 Our interest rate is relatively low for group members as opposed to individual borrowers

-0.90