Strategic planning practices and the financial performance of microfinance institutions in Kilifi county, Kenya

Abstract

Microfinance institutions often struggle with high default rates on loans, which impact their financial stability, and face challenges in managing operational costs and regulatory compliance. Additionally, they frequently encounter issues related to limited access to capital and resources, hindering their ability to expand and innovate. This study investigated how strategic planning practices affect the financial performance of microfinance institutions in Kilifi County. It aimed at achieve four objective: examining the impact of strategic product differentiation, innovation, marketing, and human resource planning on these institutions' financial outcomes. The open innovation theory, market based theory and program theory served as the study's guiding theories. The study employed descriptive research design. This research will target 28 operational microfinance institutions in Kilifi County. The study targeted 4 microfinance staff from each institution. These will included branch managers, financial analysts, marketing managers and operations managers. Both open ended and close ended questionnaires will be used in the study. Qualitative data will be converted into quantitative representations. The quantitative data analysis was conducted using SPSS version 22 software. Simple linear regression will be used to assess the relationship between variables. The study findings showed that the correlation results from the study revealed significant positive relationships between the strategic planning variables and the financial performance of microfinance institutions (MFIs) in Kilifi County. Specifically, product differentiation had a strong positive correlation (r = 0.693). Similarly, marketing planning (r = 0.677) and human resource planning (r = 0.717) also showed strong positive associations with financial performance. Innovation planning had a moderate positive correlation (r = 0.530), suggesting that while important, it had a slightly lesser influence compared to the other variables. Overall, the strategic planning practices were all positively linked to enhancing the financial performance of MFIs in Kilifi County. The study recommended that microfinance institutions should implement regular financial health assessments to identify and address profitability concerns while developing strategies for revenue growth. The marketing team should create targeted campaigns that clearly communicate the unique value propositions of differentiated products. Additionally, businesses should strengthen their digital marketing efforts to broaden reach through enhanced online campaigns. Lastly, organizations are encouraged to develop succession planning frameworks to identify and prepare high-potential employees for leadership roles, ensuring sustained growth and effective leadership in the future.