Effect of Lending Strategies on Organizational Performance: A Case of Agricultural Finance Corporation, Kapsabet Branch, Kenya

Phyllis Osodo¹, Lucy Jepchoge Rono²
(1. Mount Kenya University, Thika, Kenya; 2. Moi University, Eldoret, Kenya)

Abstract: The purpose of this study was to assess the impact of Agricultural Finance Corporation (AFC) lending strategies on organizational performance. The need for this study arose due to existing competition between agricultural finance institutions as well as mainstream banks to attract customers. The objectives were; to establish the effect of cost strategies on organizational performance, to determine the impact of product diversity on organizational performance, to determine the effects of flexible repayment terms on organizational performance and to establish the effect of non-collateral based lending strategy on organizational performance. The study utilized a causal design using the explanatory survey method to obtain in depth information from the respondents. The target population comprised of 700 customers sampled through regional stratification. The sample size of the customers is 38% of the targeted customer population thus the study sample population had (264) respondents. The research instruments that were used in data collection were a questionnaire, document analysis and an interview schedule. Descriptive statistics was used to analyze the demographic data. Correlation was used to test hypothesis. Most clients are loyal to the company. Cost strategies accounted for 27% (β = 0.268) positive influence on organizational performance. The influence however, was not statistically (p = 0.140) significant, hence failure to reject the null hypothesis at p =≥ 0.05. Product diversification strategies accounted for 13% (β = -0.131) negative influence on organizational performance. The influence however, was not statistically (p = 0.463) significant, hence failure to reject the null hypothesis at p =≥ 0.05. Non collateral based lending strategies accounted for 20% (β = -0.196) negative influence on organizational performance. The influence however, was not statistically (p = 0.253) significant, hence failure to reject the null hypothesis at p =≥ 0.05. Flexible repayment terms as strategies accounted for 4% (β = -0.043) negative influence on organizational performance. The influence however, was statistically (p = 0.030) significant, hence the null hypothesis was rejected at p =≥ 0.05. There is need for the company to enforce relevant customer satisfaction strategies so as to cushion itself against client migration. Generally, the lending strategies, owing to the below par influence on performance, ought to be tailored to suit the contemporary demands of clients, strengthened and rebranded so as to realize optimal organizational performance as per its performance target.

Key words: lending strategies; cost and performance

JEL codes: M2