The Kenyan micro finance scene is full of varied organizations and institutions answering to the micro financing call. There are member based micro finance institutions, client based microfinance institutions, registered and the unregistered micro finance institutions.
The history of microfinance movement in Kenya goes back to two decades ago when the government pushed for establishment of small and micro enterprises to spur economic development and growth as well as provide employment to the people. These were the days of the World Bank sponsored Structural Adjustment Programme (SAPS) which among other things advocated for economic liberalization. The government in a bid to cushion the people from the shocks of the liberalization, requested for donor assistance in financial support for the micro entrepreneurs.
The donors responded well and pumped millions of dollars through their own non-governmental organizations (NGOs) which later evolved to present day financially independent micro finance institutions (MFIs). In the 1990s, these MFIs operated as monopolies controlling huge areas and registered phenomenal growth in clientele and profits.
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Microfinance is the means of providing a variety of financial services to the poor based on market driven and commercial approaches.
Going by the description above, the government reckons that there are over 130 NGOs operating as micro financing institutions. Of these, 25 operate purely as micro finance institutions based on Grameen Model, a few are banks with micro finance arms and the rest are savings and cooperative societies (Sacco's) based on membership and religious based financing organisations.
Needless to say, it's now a crowded field. Institutions now have to grapple with negative issues such as multiple funding where clients take advantage of lenders to pick several loans from different lenders at the same time, direct competition for clients, client drop outs, savings reduction, client poaching and threat to group existence among others. All this increase the risk of default and impact negatively on institutional performance.
The objectives of this paper among other things are;
To highlight the threat posed by competition in the microfinance sector
Highlight benefits which a microfinance company can enjoy at the expense of competition if it embraces knowledge management.
This paper seeks to provide answers to the following research questions:
1. What are the threats of competition in MFI sector?
2. What is knowledge management?
3. How can knowledge management make a microfinance institution more competitive?
4. What benefits can a microfinance institution draw from knowledge management?
2.0 Competition in the MFI sector and its effects
Largely due to the success registered by pioneering microfinance institutions, the Kenyan market is awash with lenders chasing after the same borrower. They read the presence of one or more in a location as existence of an opportunity.
According to Kaffu and Mutesasira (2003), MFIs have "saturated" all Kenyan towns. There is no town or city in Kenya that does not have a presence of at least five micro finance institutions who criss cross each other in search of business. One of the challenges faced by MFIs is multiple funding where a single client borrows from two or more MFIs at the same time. While multiple funding is not bad per se, studies by McIntosh, et al (2003) in Uganda, Bangladesh and India, indicate that when a multiplicity of MFI companies crowd in a viable area, their clients are bound to cross-borrow. Further, savings drop as the clients share their savings between the different lenders. Default also rises remarkably.
A report by Armendariz de Aghion and Morduch (2005) on the effects of rapid competition on multiple borrowing and defaults in Bolivia and Bangladesh, also confirms the same i.e.as the number of willing lenders increase, supply of loans increase and the existing lenders tend to borrow more. The presence of other competing lenders in a locality wrecks havoc on another MFIs strategy of threatening discontinued funding as an incentive for its clients to repay. Such clients seek funding elsewhere and the repayment rate worsens. This is with the assumption that there's no information sharing among MFIs.
Multiple funding increases the level of indebtedness in clients and is a prelude to default. Severe competition may also lead to client poaching where entrants in an area prefer clients from the incumbent MFI because they are already screened, trained and records of their credit history already exists. According to Krishnaswamy (2007), poaching is a critical and frustrating blow to the incumbent MFIs. These clients are enticed with higher loan amounts and faster graduation to higher loan levels if they switch allegiance. This usually leads to multiple funding and default.
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Client poaching also spells doom for MFIs that withhold loan to clients because of default in a group. The client moves to the next shop.
Actually client poaching, multiple funding and over indebtedness go hand in hand. Rhyne and Otero (2006) while researching on over- indebtedness in Bolivia pointed out that;
"The momentum of lending growth that propelled both the microfinance institutions and consumer lenders created a bidding war; with competitors vying for clients by offering larger loans, faster service, and lower interest rates. This momentum inflated the total amount of debt on the informal streets of the country and once the economy stalled, it quickly became evident that thousands of clients held more debt than their reduced level of economic activities would allow them to service. Over indebtedness was rampant and particularly common among the high proportion of clients who had borrowed from multiple micro lenders at the same time." 
While competition is good especially to clients, for the incumbent MFIs, it is an unwelcome phenomenon as it means a change in the way they do business and reduced income.
3.0 Knowledge Management
Businesses have long recognized the importance of managing their intangible assets. The development of brands, stakeholder relationships, reputation and the culture of the organization is readily viewed as providing sustainable sources of business advantage (Chong, Holden, Wilhelmij and Schmidt 2000).
The development and practice of knowledge management (KM) is continuously and dramatically increasing in organizations. And due to improvements in knowledge management, the race for seeking a competitive edge through knowledge increases at an even faster rate (Hofer-Alfeis 2003). By embracing knowledge management an organization aims at achieving a breakthrough in business performance through the synergy of people, processes, and technology. This is done through knowledge creation, sharing and application to create and or sustain organizational value and competitive advantage (Liew, 2007). The world today has moved from the industrially-centered economy to an information-based economy. Now more than ever, knowledge holds the key to the success of an organization especially given the fast pace at which the business environment is changing.
In this millennium, the key source of wealth is knowledge, and not labor, land, or financial capital. It is the intangible, intellectual assets that must be managed and harnessed to bear on business challenges. Today, the paradigm "knowledge is power", holds more than ever and firms must find a way of managing this crucial resource that is different from the way they manage their other resources. This is because knowledge, unlike other resources, increases when it is shared.
3.1 Understanding Knowledge
In defining knowledge, it will be paramount to define the building blocks of knowledge i.e. the concepts data and information-'the knowledge hierarchy". Hicks et al (2007), argues that in this paradigm each level in the hierarchy builds on the one below it. Thus data are required to create information which in turn is required to create knowledge. The knowledge hierarchy depicts the conventional concept of knowledge transformations where data is transformed into information and information is in turn transformed into knowledge as the final product. Neil Fleming (1996), made the following observations as food for thought in relation to knowledge:
A collection of information is not knowledge.
A collection of knowledge is not wisdom.
A collection of wisdom is not truth.
Data is a meaningless number, word or letter without context. I t can also be as a point in space or time, without reference to either space or time. Being out of context here implies that, it is without a meaningful relation to anything else (Bellinger 2008). A collection of data is not information unless we can understand the relationship between the different pieces of the data or between the collection of data and other information. This understanding of relation is what is referred to as context.
Bellinger (2008) posits that, Information entails an understanding of the relations between data and does not provide a foundation for why the data is what it is, nor an indication as to how the data is likely to change over time. Simply, Information is a relationship between data and relies heavily on context for its meaning and with little implication for the future.
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According to Bateson (1988), beyond the relation between data, there is the pattern which is simply a relation of relations. Pattern embodies both a consistency and completeness of relations which, to an extent, creates its own context. Pattern implies repeatability and predictability.
3.1.1 Knowledge definition
This pattern between information represents knowledge. These patterns are highly dynamic over time even though if thoroughly understood, the form the patterns will take in future can be reliably predicted. In short, we can say that; Thus knowledge can be defined as Knowledge part of the hierarchy made up of data, information and knowledge. For the purposes of this paper, Knowledge is information with guidance for action based upon insight and experience. (Zack 1999).
Fig. 1.0 Conceptual progression from Data to Knowledge
Source: Uriarte F.Jr (2008) ASEAN
3.1.2 Types of Knowledge
In this era where knowledge has gained prominence over land labor or capital in importance, an organization must be able to call on all its knowledge resources; stored in the heads of its employees, stored in books and papers and the knowledge stored in its electronic database to bear on the challenges facing the organization. Generally, there are 2 types of knowledge:
a). Explicit knowledge-This is open knowledge and is usually stored in books, databases etc. Some examples are; Specifications, manuals, formulas, memos among others. Explicit knowledge can be readily transmitted formally and systematically across from one individual to another. According to Bellinger (2008), explicit knowledge represents an accumulation of the Organization's experience kept in a form that can be readily accessed by interested parties and replicated if desired. In many organizations these Knowledge assets are stored with the help of computers and information technology.
b). Tacit knowledge is highly personal. It is stored in the peoples mind and is difficult to formalize or measure. It accumulates through study and experience. Such knowledge is difficult to codify as it relies more on the ability and willingness of the person to share. Examples include intuition, hunches, know-how, insight etc. Tacit knowledge is unique to an individual and is responsible for the person being able to excel in tasks in an organisation. Therefore an organisation must identify and tap the tacit knowledge as an "unreplicable secret weapon" against its competitors.
This can be done by taking advantage of the fact that personal knowledge (tacit) can be converted into explicit organizational knowledge because tacit and explicit knowledge is not totally separate from each other but are rather mutually complementary to each other. Therefore as an organization, unless it is able to convert the abundant tacit knowledge prevailing to explicit knowledge, it cannot truly understand it or make it weigh-in against the organization's challenges. We can only share what we know and thus personal knowledge must be made explicit knowledge and hence organizational knowledge. This is what constitutes a sustainable competitive advantage in an organization. In view of this, an organization is better off encouraging its individual members to develop more new knowledge through their experiences as it will eventually add to the organizations intellectual capital.
According to Nonaka (1996), this interaction between the two types of knowledge brings about what is called the four modes of knowledge conversion:-Socialization (from individual tacit knowledge to group tacit knowledge), Externalization (from individual's tacit knowledge to explicit knowledge), and Combination (from separate explicit knowledge to systemic explicit knowledge), and Internalization (from explicit knowledge to tacit knowledge). To Nonaka, the process of knowledge creation is based on a double spiral movement between (a) tacit and explicit knowledge and (b) individual-group-divisional and corporate-wide levels.
Table 1.0 The interaction between tacit & explicit knowledge
To tacit knowledge
To explicit knowledge
From tacit knowledge
From explicit Knowledge
Source: Nonaka I. (1996) Dialogue on Leadership.
Socialization is the process of creating common tacit knowledge through shared experiences. In this process, a "field" of interaction is built and individuals are encouraged to share experiences and space simultaneously. In the end, common unarticulated beliefs and/ or embodied skills are created and developed. An example is a herbalist showing medicinal plants to his apprentice in teaching him to become a herbalist. Externalization is a process of articulating tacit knowledge into such explicit knowledge as concepts and/or diagrams, often using metaphors, analogies, and/or sketches. This mode is triggered by a dialogue intended to create concepts from tacit knowledge. In this mode, the tacit personal knowledge stored in the brains of experts is articulated and brought out as explicit concepts and/or diagrams that can be studied and built on.
Combination is the process of assembling new and existing explicit knowledge into a systemic knowledge, such as a set of specifications for a prototype of a new product. Often, a newly created concept should be combined with existing knowledge to materialize it into something tangible. Internalization is the process of learning explicit knowledge which becomes tacit in an individual and comes out as operational knowledge such as know-how. This mode is triggered by "learning by doing or using."
3.2 Defining knowledge management
Building on the above, Knowledge management can be defined as the conversion of tacit knowledge into explicit knowledge and sharing it within the organization and vice versa. Many experts have put forward many different definitions of Knowledge management and it has been said that "there are as many definitions of knowledge management (KM) as there are ways to use it". 
But all definitions revolve around the following action points as developed and summarized by V. Richard Benjamins.
Table 2.0 KM definitions
To have the right knowledge at the right place at the right time in the right format
The systematic management of process by which knowledge is identified, created, gathered, shared and applied
Business intelligence + collaboration +search engines+ Intelligent Agents
Source: Benjamins (2001).
For the purposes of this study;
"Knowledge management is the practice of harnessing and exploiting intellectual capital to gain competitive advantage and customer commitment through efficiency, innovation and faster and more effective decision making".  (Barth 2000).
4.0 Knowledge management and competitive advantage
According to Porter (1985), Competitive advantage is the ability of an organization to earn returns on investment persistently above the average for the industry. Ever since organizations discovered that knowledge management presented an opportunity to build a sustainable competitive advantage, many organizations have acquired dedicated information technology and human resources accordingly. Of late, a rapid growth of KM for purposes of performance excellence and competitive advantage have been demonstrated by researchers who proposed methodologies for capturing and representing organizational management (Kim et al., 2003).
Kim et al. (2003, p. 44) argues that: "Maintaining knowledge is more difficult than creating knowledge; promotion of knowledge sharing culture is indispensable; top management support on knowledge management project is inevitable; reward system is clearly declared to enhance knowledge sharing; knowledge management system should satisfy knowledge requirements". Top management executives strongly believe that sustainable competitive advantage relies heavily on the capacity to generate and utilize new knowledge. But the approach chosen in instituting a KM strategy must be closely aligned with the organization's strategic and operational form in order reap the said benefits. (Franken and Braganza - (2006 p18).
Microfinance employees in Kenya and indeed worldwide, carry in their minds a huge quantity of knowledge that is deemed useful to the organizations they work for but then which is not stated in the organizations' procedures, policies and databases. According to Crawford (2005), tacit knowledge is unstated knowledge in a person's head that is habitually not easy to explain and convey and includes lessons learned, know-how, judgment, rules of thumb and intuition. Studies conducted a few years ago reveal that tacit knowledge constitutes 42 percent of all corporate organizational knowledge (Clarke and Rollo, 2001). This means that an organization must have a well structured knowledge management system that taps tacit knowledge so as to build a competitive advantage. In this light, "Employees are seen as assets and not expenses or liabilities. As a matter of fact employees are sustainability centres."  The micro finance institutions in Kenya are usually made up of the senior management, support staff and the field officers. Here, only the field officers deal directly with customers. Thus they are directly in the "battlefield" competing for clients with the competition.
These Microfinance organizations in Kenya being in the service industry, need the employees to build the competitive edge over their competitors since in the minds of these employees lie such competitive capabilities such as experience, intuition, insights and stimulation. Also, lie the capacity to make sense of past experiences and, to connect patterns from the past, present and the future; which drives the innovation process. Actually, the inspiration necessary for innovation derives not only from evident and noticeable expertise, but from the hidden supply of experience. Tacit knowledge is unrevealed to competitors and thus is a sure competitive edge. Therefore a viable knowledge management strategy in any micro finance institution must therefore first of all address the employees and, secondly the loan process. The employees need to perform at optimal levels and deliver a high level of customer service. These employees therefore must have the required information at hand. (Teh, 2008).Customer retention highly depends on speed of delivery. For the strategy to succeed, it should focus on;
Documenting organizational knowledge(tacit and explicit)
Enhancing internal communication and,
According to Teh (2008), this will ensure all knowledge in the organization is accessed and stored in a way that ensures it can be referred to later without necessarily contacting the source person. This knowledge can also be quickly availed at the point where it is needed. Experiences, intelligence, feedback etc can also be tapped fast within the organization to help come up with the right solution to a problem. This constitutes a competitive advantage.
The talent to capture and exploit corporate knowledge has become vital for firms as they seek to adjust to changes in the business environment. Whether it be learning from past successes or failures, identifying opportunities to improve customer profitability, or simply enabling teams to become more productive, knowledge management lies at the heart of any well-managed organization. (Hamza 2008). A study published by the Economist Intelligence Unit and sponsored by Tata Consultancy Services (The Economist, 2005, p. 2) reported the following findings confirming the relation of knowledge management to competitive advantage:
"Consolidating information and providing consistent performance indicators are regarded as the most important steps firms can take to improve the speed and quality of decision-making,"
"Firms are looking for IT tools that allow employees to prioritize information, and to extract valuable insights from an ocean of data. For most managers, having information that they can quickly interpret and analyze is much more important than, for example, having information on the move. There is also growing demand for smarter management information systems, with tools like digital dashboards enabling executives to track their firms' key performance indicators on an almost real-time basis,"
"Companies have demonstrated how customer analytics can support initiatives to increase customer loyalty and expand markets share, much to the embarrassment of their competitors,"
"Understanding who knows what, and how people use different types of information as part of their work, is just as important a part of good knowledge management as having the latest business intelligence technology".
But having knowledge itself does not constitute a competitive advantage per se Malhotra (2003) posits that Knowledge is the ultimate competitive advantage only if understood from an action-oriented perspective. To him, all information technologies and data cannot assure competitive advantage in the long run. Information must be acted upon to ensure a competitive advantage.  In other words, knowledge lies in action. That is having an effective utilization of data and information resources for actionable decisions and, above all, their execution. As a source of sustainable competitive advantage, the organizational knowledge ought to be valuable, rare, imperfectly imitable and non-substitutable/imperfectively substitutable.
Microfinance organizations compete for good clients and qualified staff. Resources such as finances and savings do not count much as none gets donor money but must rely on banks for loans which are accessible to all. Competing for client savings is a "zero sum game"  as they end up sharing the client savings. Though banks may lower interest rates according to the reputation of the microfinance company, in competing, each tries to outdo each other and have a better reputation. Understanding knowledge management as identifying and leveraging the collective knowledge within an organization in such a way as to help the organization compete (Alavi and Leidner 2001), the competitive advantage comes when the microfinance comes up with an innovative loan product that matches customer needs. This translates to higher sales and hence higher revenue.
5.0 Benefits of Knowledge management to an MFI
A micro finance organization that will pursue a Knowledge management strategy will succeed in acquiring and retaining good and happy clients as well as retaining talented employees within its fold. To begin with, studies by North and Tina (2002) indicated that knowledge management accelerates the business process, reduces errors and avoids redundancies by using internal knowledge. It also saves time in doing routine work.
To a micro finance organization, the speed at which the loan is processed; from appraisal, loan processing, to disbursement is very crucial to client retention. An example is curio dealer in Mombasa expects loan to re-stock his business just before tourist high season so that when tourists arrive he/she has stock to sell. Tourists are the main curio buyers and constitute 90-95% of all customers. A finance institution must deliver loans in time to ensure trouble free repayment. A late loan is an invitation to default since chances of loan diversion are very high. Having this knowledge together with up to date client records, will ensure a speedy delivery of the loan. "Default is created by the lender" is a phrase well known to microfinance and one way they say; is loan delay.
An organization is also bound to register increased customer satisfaction in respect to a better response time for customer enquiries, improvements in product and service quality. This will result in a better and informative customer communication and ultimately to customer retention. A better flow of information within an organization also leads to an improvement in the quality of the organization's products and services. When the different departments of a microfinance act as a team to deliver services to their clients and stop competing or otherwise, products and service quality improve.
Knowledge Management in an organization assures employee satisfaction through fostering team work among employees, increased motivation, and development of competence and enhancement of personal knowledge. "Employees are seen as assets and not expenses or liabilities. As a matter of fact employees are sustainability centres."  The employee feels appreciated and valued .The employees are empowered. Such employees commit to the organization for long reducing loss of intellectual capital through people leaving the organization. The organization is also able to produce more innovative and engaging products and services that respond to customer needs. This in turn leads to increased sales and hence more revenue to the organization. Engaging the field officers and clients by micro finance organizations in product development is likely to result in popular products to clients. On the other hand, employees "own these products" and market them hard. Such employees commit for long and are unlikely to be enticed away.
The innovativeness in the microfinance becomes a direct derivative of sound relationships and on-going mindshare with the customers. Knowledge management helps an organization improve decision making especially In dealing with crisis and future business challenges.Decisions are more sound and response to challenges, quicker. Knowledge management increases productivity by making knowledge available more quickly and easily and at the required point. Knowledge management affords the employees with a more democratic place to work by allowing everyone access to knowledge. This ensures harmony and unity of purpose between the different departments/individuals in the organization.
Knowledge management also helps the organization to build a culture within it that is future-oriented and always seeking for newer and better ways to do things. In other words it strengthens the research and development function.
Knowledge management also helps an organization reduce costs by cutting out the possibility of duplication of tasks and also by sharing tools such as computer software, databases etc, a lot of money can be saved. Knowledge management is the only tool that can guarantee business survival in the 21st century where markets have become more competitive than ever with organizations the world over facing competition at their doorsteps from international companies. The rate of innovation is also very high and organizations must stay ahead and deliver to their clients (both domestic and international) goods and services that more than meet their expectations. An organization that holds a certain distinct knowledge has in its hands; a sure competitive advantage. Knowledge management is very crucial for an organization's survival in today's business world.
6.0 Conclusion and Recommendation
In appreciating that knowledge management is very important to an organization in regard to building a competitive advantage, the procedure or how to go about instituting the knowledge management in an organization is not very clear to many organizations. Many think that having an up-to-date IT system is enough. Likewise having knowledge does not translate to a competitive advantage unless the knowledge is implemented.
Also, people are very important in the knowledge management process as they are the ones that hold the knowledge. These same people must be willing to share their knowledge with others in the organization. It is up to the organization to provide a conducive atmosphere for sharing knowledge and the incentives to do so to its employees.
The organization must also put in place a learning culture and encourage individuals to learn and share what they learn. Individuals should not feel threatened by redundancy if they share their knowledge with others.
Many micro finance organizations have discovered that to grow, stay competitive and survive, they have to constantly change their strategies to meet new and the ever changing demands of the business world. It is clear that conservative organizations that do not want to change with the times are not only losing their competitive advantage, but are also facing huge financial losses. In addition, they are losing key knowledge as a result of key employees' departure and hence loss in relationship with key clients or supplier or a sponsor.
Several studies done indicate Knowledge Management frameworks and models help organizations improve their performance and gain a competitive advantage. These models and frameworks point at two kinds of knowledge: explicit knowledge and tacit knowledge. They also tackle the enabler factors and the process such as: technology, leadership, strategy and organizational culture. The process is a life cycle of capture, organize, share, use and re-use knowledge to improve organizational performance and to gain competitive advantage. Thus having an IT system is not enough in building a sustainable competitive advantage for micro finance organizations in Kenya.