Dynamic Capabilities and Financial Performance: A study on Microfinance Institutions in Uganda

Abstract

Purpose: Financial performance explains an organisation’s ability to achieve its financial goals and continue surviving, however of late many microfinance institutions (MFIs)’s financial status has not been good. This study was conducted to examine the extent of dynamic capabilities’ effect on financial performance of MFIs in Uganda. Methodology: This study on MFIs adopted a pragmatism paradigm which allows for triangulation of methods thus adopted a mixed methods approach and collected cross-sectional data using questionnaires and interview guide. The unit of analysis were Tier IV UMRA licenced MFIs and unit of inquiry were senior managers (i.e., General Managers, Accountants, Credit Managers, Internal Auditors and Human Resource Managers) of Tier IV UMRA-licensed MFIs in Uganda for the quantitative study and MFIs' board chairmen for the qualitative design. After data collection which was preceeded by instrument piloting and validation, data was subjected to various tests including testing its compliance to parametric assumptions, and later analysed using regression techniques. Findings: This study confirmed a positive relationship between dynamic capabilities and financial performance of MFIs in Uganda (Beta =.714, p < .01). This finding specifically reveal that sensing, seizing and reconfiguration capabilities of a firm have a great potential in improving its financial performance. Business entities are consequently advised to attentively sense, seize and reconfigurate their capabilities if they are to better their financial performance. Recommendations: In view of the affirmation that dynamic capabilities influence financial performance, authors call upon organisations to allocate sufficient resources towards enhancement of their various internal and external capabilities. Theoretical Implications:The power of dynamic capability theory in explaining dynamic capabilities-financial performance relationship has been exhibited in the microfinance industry. A related call is made by this study for practitioners to put much attention on sensing and seizing market and technological opportunities and reconfiguring their financial services in line with global trends