Paper Title
ROLE OF STAKEHOLDER MANAGEMENT IN TRANSFORMATION OF MICROFINANCE INSTITUTIONS INTO MICROFINANCE BANKS IN KENYA

Abstract
The Microfinance Act of 2006 offered Microfinance Institutions (MFIs) in Kenya a legal framework for transforming into microfinance banks in efforts to deepen financial inclusion. Evidence from other countries suggests stakeholder management as a challenge to MFI transformation but the available information is not conclusive on the specific stakeholder management challenges. This study sought to determine the role of stakeholder management in the transformation of MFIs in Kenya. The specific objectives were to establish the extent to which stakeholder management is a challenge in the transformation of MFIs and to make recommendations. The target population was 48 member institutions of Association of Microfinance Institutions (AMFI). The sampling frame was the list of AMFI members. Purposive sampling was used to select 25 MFIs, from which 100 respondents were selected using simple random sampling. Data was collected using a questionnaire and analysed using descriptive, factor and inferential statistics. The findings showed that MFIs faced challenges in managing staff and clients, creating appropriate governance structures and attracting private shareholders. However, there was no significant association between stakeholder management and successful MFI transformation. The full model was not statistically significant, χ2 (3, N=47) = 2.466, P=0.48. It explained only between 5.1% (Cox and Snell R square) and 6.8% (Nagelkerke R square) of the variance in transformation. The study concluded that stakeholder management does not play a significant role in MFI transformation. The study recommends that transforming MFIs should beware staff and clients, governance structures and private shareholders as sources of mild challenges; and further research on impact of MFI transformation on financial inclusion. Keywords - Microfinance bank, Microfinance institution, Transformation, Stakeholder management, Financial inclusion.