An Empirical Survey of the Relationship between Transformational Leadership and Staff Retention in the Context of Microfinance Institutions in Kenya

Abstract

Retention of the desired staff is a key determinant of success in microfinance institutions in the modern competitive world. Notably, these institutions experience poor staff retention due to inappropriate leadership. Investigations on the effect of transformational leadership on staff retention have largely considered transformational leadership as a unidimensional construct than its respective dimensions of idealized influence, inspirational motivation, intellectual stimulation and individualized consideration. This study therefore investigated the effect of transformational leadership on staff retention in microfinance institutions in Nairobi City County, Kenya, specifically the effect of idealized influence, inspirational motivation, intellectual stimulation and individual consideration on staff retention. The underpinning theories were Transformational Leadership Theory, Leader-Member Exchange Theory, Social Exchange Theory, and Resource-Based View Theory. The study was guided by the positivism philosophy and descriptive and explanatory research designs. A total of 298 respondents was obtained through census sampling from the 12 accessible microfinance institutions licenced by the Central Bank of Kenya in Nairobi City County. Primary data was collected from senior, middle and lower-level management staff in the headquarters of these institutions, using structured questionnaires. The data were analysed using descriptive and inferential statistics, while hypotheses were tested at 5% significance level using regression analysis. The study established that transformational leadership significantly predicts staff retention through idealized influence, intellectual stimulation and individualized consideration. The study recommends that the policy makers in the microfinance institutions should align transformational leadership practices with the staff retention strategies for the success of these institutions.