Effect of Operational Alignment on the Organizational Performance of Microfinance Banks in Kenya

Microfinance banks play a key role in complementing banks in providing financial services, especially to the poor population that lacks access to commercial banks. The performance of Microfinance banks has been on the decline in Kenya due to slow processing time, lack of new products, low number of customers and lack of staff retention. Microfinance banks offer financial services to a population that cannot get the same services from commercial banks due to the high costs. Microfinance banks in Kenya have been performing poorly in the last few years, occasioned by the closure of some of the branches of the microfinance banks, while some, like Century microfinance banks, have been acquired by other Fintech companies. These microfinance banks need to leverage and reconfigure all the resources they have to achieve and maintain sustainable competitiveness. This study sought to investigate the effect of operational alignment on the performance of Microfinance banks in Kenya. This study adopted a cross-sectional descriptive and explanatory research design to explain the phenomenon under study. Structured closed-ended questionnaires were issued to 181 respondents, with 171 responses. Both descriptive and inferential statistics were employed for analysis and the model tested at 95% confidence levels. The results indicate that operational alignment had an aggregate mean of 4.42 and a standard deviation of 0.65. The inferential analysis indicates that the correlation coefficient value of 0.584 indicates that there is a strong relationship between operational alignment and performance in microfinance banks in Kenya. The adjusted R squared value of 0.338 implies that the operational alignment influences 33.8% of the performance of microfinance banks in Kenya. The study contributes to knowledge by bringing out the need for the configuration of resources in business and information technology as having the most effect on the performance of microfinance banks in Kenya. Information technology infrastructures are costly investments; thus, they need to be well aligned with the business infrastructure and business strategies in place. This contributes to the body of knowledge in terms of highlighting the importance of infrastructures that are well aligned with the business strategies of an organization.