Understanding the Scope of the Institutional Transformation within the Microfinance Sector: Evidence from Sidian Bank in Kenya

Abstract

This article investigates the impact of the change in the legal status of a microfinance institution on its social and financial performance. It uses a case study with a strong emphasis on both quantitative and qualitative approaches to understand the stakeholders’ perceived value of transformation. The results from the study reveal that transformation significantly improves the profitability and the efficiency of Sidian Bank, and in addition, improves the quality of its portfolio. However, we found that transformation has altered significantly the social objectives of Sidian Bank by decreasing its breadth and depth of social outreach. Insights from the qualitative approach reveal that the average loan size widely used to proxy mission drift is a biased indicator since clients grow over time and always favor bigger loans. The stakeholders’ perceived value of transformation differs in terms of risks, breadth, and financial results.