Effect of Transformational Leadership on Performance of Microfinance Banks in Kenya

Abstract

Microfinance banks in Kenya were established to primarily focus on providing financial services to low-income clients, including micro-entrepreneurs and small business owners who typically cannot access traditional bank loans. According to central bank of Kenya, annual report and financial statements 2019 to 2020 and bank supervision annual report 2020, the microfinance banks recorded a combined loss before tax of KSh 1.0 billion in the year ended June 2020. The purpose of this study was to assess the effect of transformational leadership on performance of microfinance banks in Kenya. The study was anchored on transformational leadership theory and stakeholder theories. The study adopted positivism research philosophy and applied cross-sectional survey design. The study’s target population was the 14 microfinance banks as listed by the central bank of Kenya as of 31st December 2020. The study applied stratified proportionate random sampling and questionnaires were used to collect data from 366 respondents. Primary data was analysed using inferentially analysis. The results revealed: strong positive correlation (R=0.684) between transformational leadership and performance of microfinance banks in Kenya. The study recommends microfinance banks should adopt transformational leadership to achieve high organisational performance through individual consideration and intellectual stimulation through helping the employees develop themselves career wise and getting the employees to think and generate new ideas and new ways of doing things and business.