The Appropriateness of Performance Measurement Systems in the Services Sector: Case Studies from the Micro Finance Sector in Kenya

Abstract

The intent of micro finance in developing countries has been to provide loans to very poor people and to help them transform their lives. This study examined micro finance institutes (MFIs) in Kenya. Of the various MFIs in Kenya, it examined three characterized as formal and client based and likely to use rational and explicit performance measures. Clients in these MFIs have been placed into self-help groups with two responsibilities: (1) provide mutual support and advice to the borrowing client, and (2) provide the MFI with a guarantee that loans of group members will be repaid. Based on a review of the performance measurement systems (PMS) literature, research questions were developed along with an interview guide. Case studies were used to administer an interview guide which was distributed prior to the face-to-face interviews. The study concludes that MFIs have relatively well developed PMS that support their particular businesses. The nature of the MFIs suggest the importance of performance measurement. The managers of the MFIs are concerned with performance measurement as expected with a bureaucracy. This is the top down demand for performance measurement. In addition, group members or clients are interested in performance measurement as each guarantees the loans of all group members who have loans with the MFI. Thus, the clients exert a bottom up demand for performance measurement.

Keywords: Performance Measurement, Non financial measures, Services Sector, Micro finance institutions, Kenya

JEL Classification: M41