Response strategies to the changes in interest rates by institutions in the mortgage industry in Kenya

Abstract

Organisations do not exist in a vacuum. They are surrounded by various factors within the external environment that affect their strategic direction. Managers must, therefore, scan the macroenvironment with a view to developing appropriate response strategies to these challenges thus ensuring that the organisation remains focused on achieving its strategic goals and objectives. In Kenya, interest rate is one key challenge apparent in the mortgage industry’s remote environment. The study sought out to document the extent of interest rate changes within the mortgage industry in Kenya as well as to identify the response strategies adopted by institutions operating within the industry to these interest changes. The researcher conducted the study using available information over an eight-year period from 2005 to 2012 which was considered relevant as far as the topic under study is concerned. The researcher employed the use of a structured questionnaire to collect data from a total of 20 respondents comprising of various managers within mortgage institutions as listed at the end of this report. Secondary data was obtained mainly from existing publications by such institutions as well as the Central Bank of Kenya (CBK). The data collected was then analysed and appropriate inferences and conclusions derived from the findings thereof. The study found out that interest rate is a key concern for most institutions within the mortgage industry and actually has a direct impact on the firm’s strategies. Interest rates on mortgages were found to be generally increasing over the study period. Increased interest rates had the greatest impact on default rate and attrition rates than on profitability, market share and xi reputation. Reduced interest rates, on the other hand, had considerable impact on the loan book and profitability as per the findings of the study. Institutions surveyed revealed that restructuring and marketing were the most employed strategies especially among the institutions that have been in the mortgage business longer. The relatively newer entrants employed more of off-shore borrowing, strategic partnerships, mergers and acquisitions.