Dynamic Capabilities and Firm Innovation of Tier IV Microfinance Institutions in Uganda
DOI:
https://doi.org/10.47672/ajf.2953Keywords:
Firm Innovation, Dynamic Capabilities, Microfinance Institutions, Uganda Microfinance Regulatory AuthorityAbstract
Purpose: The financial services sector has undergone significant transformation due to technological advancement, regulatory changes, increased competition and evolving customer expectations. In Uganda, Tier IV microfinance institutions (MFIs) regulated by Uganda Microfinance Regulatory Authority (UMRA) play a critical role in promoting financial inclusion by serving low income populations and micro enterprises. To remain competitive and sustainable in a rapidly changing environment, these institutions must continuously innovate their products, processes and service delivery mechanisms. This study was conducted to establish the relationship between dynamic capabilities and firm innovation of Tier IV UMRA licensed MFIs in Uganda.
Methodology: the study was guided by pragmatism research paradigm that advocates for objective and subjective view of reality if conclusive decisions are to be reached. Consequently, both dynamic capabilities and firm innovation are semi structured, the study therefore used structure questionnaires and interview guides to seek responses from the target population. Qualitative data was collected from Human Resource Managers, General Managers, Credit Managers, Internal Auditors and Accountants and 17 board chairpersons took part in qualitative interviews. These take key management decisions in microfinance institutions and were selected purposively. The study employed stratified proportionate simple random sampling for the unit of analysis and inquiry. A total sample of 139 MFIs were reached for data collection out of the target sample of 151. The study used Pearson correlation to establish the relationship between the variables.
Findings: Study results revealed a significant positive relationship between dynamic capabilities and firm innovation (r = .603, p < .01). The findings suggest that an improvement in dynamic capabilities is associated with an improvement in firm innovation.
Recommendations: The study recommends that: 1) MFIs develop capabilities to monitor and sense new opportunities and threats within the environment, and develop new or improve on products, processes, or marketing strategies to improve their financial performance in order to survive. 2) Tier IV MFIs have to reconsider and transform their business models to achieve better financial outcomes.
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Copyright (c) 2026 Grace Mary Mbabazi, Nixon Kamukama, Frederick Nsambu Kijjambu, John Rwakihembo
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