The microfinance banking sector plays a pivotal role by complementing the services of commercial banks by enhancing access to financial services. The complementary role played by the microfinance banking sector aids in mitigating the negative impact of escalating incidences of poverty and unemployment and spurs economic development among the unbanked segment of society. However, evidence drawn from annual supervision reports of the Central Bank of Kenya demonstrates that the performance of this sector has been gloomy, with losses registered in the last five years reviewed in this study. This unpleasant trend has been observed in a period that is marked by sustained growth in customer deposits in the sector. In the same period, the aggregate branch network for the sector has, on average, been observed to stagnate. Other notable concerns relating to the sector include the absence of customized customer solutions, delays in credit processing, and high cost of credit. In light of this, the study examined the effect of adaptive capability on firm performance. The resource-based view of the firm provided the theoretical foundation of the study and was complemented by dynamic capabilities theory. Explanatory research design served as a basis for guiding the research strategy for resolving the research questions. A structured questionnaire was used to gather data from management employees deployed at the headquarters of Microfinance Banks. Descriptive statistics was used to aid in providing insights about the characteristics of the observed subjects in terms of percentages, frequency count, mean and standard deviation. Inferential analysis was also undertaken using a linear regression model, where the research objective was tested at ninety-five percent level of confidence. The presentation of findings was done in terms of figures and tables. The study confirmed that adaptive capability affected firm performance. Management teams should enact policies that would ensure that chosen strategic actions are sustainably synchronized in direction and magnitude with the ever-changing environment.