Responses of mortgage companies in Kenya to threats of new entrants: the case study of savings and loan (Keny a) limited

Abstract

The mortgage market has in the recent past experienced exponential growth with commercial banks and insurance companies treading on grounds hitherto the preserve of mortgage companies. As the cost of rent pushes up with inflation, more and more people are seeing the logic in paying a monthly mortgage fee instead of rent. The property market has never been more 'vibrant, and so is the competition between the mortgage companies. The bid to have more people sign up for the mortgage schemes has seen the mortgage companies turn to unconventional, creative ways of marketing to reach clients. The main players in the mortgage industry namely: Housing Finance, Savings and Loan (K) Limited and East Africa Building Society have in the past three years found themselves being bombarded by an influx of new players in the market. This study seeks to investigate the strategic as well as operational responses by these companies to threats of new entrants in the industry. It is based on a case study of Savings and Loan (K) Limited, the oldest and second leading mortgage company in Kenya. The two objectives of the study were to identify the challenges that faced SavLngs and Loan (K) Limited in the context of new entrants in the mortgage industry and to determine the responses the company adopted to counter these threats.

In order to meet these objectives pertinent primary and secondary data was obtained through personal interviews with respondents who were responsible for developing the strategic and operational responses to these threats. The interviewees have been overseeing the implementation of these responses. Secondary data was collected mainly from The Cascade, the KCB Newsletter. The data was thereafter analysed qualitatively. The changing competitive environment in which the mortgage industry operates has presented some challenges to Savings and Loan. These challenges arose from the changes in the business environment in terms of legislative changes, liberalization, technological advancements and increasing levels of education. The forces of threats of new entrants, bargaining power of buyers, bargaining power of sellers, threats of substitute products have made these changes the more difficult. Porter (1980) Savings and Loan, according to the research findings has addressed its changing competitive situation through restructuring, marketing, Information Technology and culture changes among other responses. These have made Savings and Loan more competitive and able to deal with the threats of new entrants but have not adequately enabled the company to fully deal with these threats. It was felt that savings and Loan should undertake a more proactive rather than reactive responses in dealing with the intense competition in the mortgage market brought about by new entrants into the industry. Generally, however, the findings indicate

that Savings and Loan does possess the necessary capability to adopt strategies that can enable it to compete effectively with the new entrants into the industry. The company, being a subsidiary of Kenya Commercial Bank has the added advantage of a wide branch network and a large customer base. The company therefore needs to maximize on this competitive strength by developing strategies based on the already existing advantages.