The use of performance measures: case studies from the microfinance sector in Kenya

Abstract

Purpose -The intent of microfinance institutes (MFIs) in developing countries is to provide loans to very poor people in order to help them transform their lives. MFIs tend to receive subsidies; sustainability is being sought to free MFIs from non-market dependencies. Sustainability is expected to be achieved with "best practices," of which management with performance measures is a component. The purpose of this paper is to examine the use of performance measures by three Kenyan MFIs, which are classified as formal and client based, and likely to use rational and explicit performance measures. Clients in these MFIs are placed into self-help groups with two responsibilities: to provide mutual support and advice to the borrowing client; and to provide the MFI with a guarantee that loans of group members will be repaid. Design/methodology/approach -Based on a review of the economics and performance measurement systems literatures, research questions were developed along with an interview guide. Case studies were used to administer an interview guide which was distributed to the respondents prior to the face-to-face interviews. Findings -The study concludes that MFIs have relatively well-developed performance measures that support their particular businesses. There was a good balance between the use of financial and non-financial performance measures. However, output measures were more commonly used than process measures. The nature of the MFIs suggests the importance of performance measurement. The managers of the MFIs are concerned with performance measurement, as expected within a bureaucracy, and a top-down demand is present. In addition, group members or clients are interested in performance measurement as each member guarantees the loans of all fellow group members who have loans with the MFI. Thus, the customers exert a bottom-up demand for performance measurement. Originality/value -The findings support the view that performance measures are a means for managing MFIs and are a likely requirement for sustainability. Furthermore, the findings have identified performance measures (similar to those at banks) that are appropriate for the three MFIs in Kenya. The findings are important since the identified performance measures may be adopted by other evolving MFIs in this relatively new sector. In addition, the findings contribute to a better understanding of the genesis of the less popular results and determinants performance measurement framework of Fitzgerald et al.

Effect of Process Innovations on Financial Performance of Commercial Banks in Kenya

“…Some studies have interrogated the effect of technology on bank risks. For example, in a study to evaluate the financial innovations effects on commercial banks' risk management in Kenya Waweru and Spraakman (2012) conclude that savings accounts, trading system which are automated at the stock exchange, credit reference bureaus and current accounts were positively correlated to the entire commercial banks' risk management framework.…”

“…In addition, internet banking is posed with the challenge of societal expansion rising from a small population to a multitude of people accessing the data from the internet (Soludo 2005). Further, Waweru and Spraakman (2012) found out that internet banking was negatively correlated with risk management framework and conclude that financial innovations have led to commercial banks in Kenya be exposed to various risks including country risk, credit risk, interest rate risks, compliance risk, liquidity risk, strategic risk, and reputational risk all which form part of the overall institutional risk management framework through an index factor which was realistic. In assessing the impacts of ICT on banks performance, Kimingi (2010) found positive results and further highlight that banks with high financial performance were those which incorporated ICT in their activities.…”

The Law and Economics of Microfinance

“…Unlike traditional banks, MFIs do not generally acquire capital in a traditional sense, such as from capital markets, but rather acquire it from low interest loans or donations. 186 Most MFIs are not publicly listed and are funded primarily from donor funds, 187 with the exception of MFIs in Peru, Bolivia, and Pakistan where they are also funded by deposits and equity partnerships. 188 This means that equity from shareholders is not a reliable source of capital to use to lend to the poor.…”

“…There are a range of factors integral to the focus and motivation of MFIs, and there are other factors which are deemed important by external observers or those seeking long-term success. 225 Thus, depending on the perspective from which microfinance is viewed, benchmarks for success may be developed differently. For the purposes of the current research, it is the regulatory success or failure which is of most relevance.…”

TQM and Performance Linkage in the Microfinance Institutions: The Mediating Role of IT Capability

“…21;2015 It is suitable to use balance scorecard, the most popular performance measurement model? The fact that many scholars use a balance scorecard to assess performance, for example Koveos and Randhawa (2004), Waweru (2010), Waweru and Spraakman (2012), and Kipesha (2013) show that such measurement can be used to measure MFIs performance with a variety of assessment measures rather than traditional financial system. This model is being adopted in the study identifying the aspects of (i) financing, (ii) customers, (iii) internal process, (iv) learning and growth, and (v) social perspective for measuring the MFIs performance.…”