Economics and Business
ISSN 2775-9237 (Online)
Published: 25 May 2022
The Mediating Effect of Psychological Empowerment on the Relationship between Transformational Leadership and Staff Retention in Microfinance Institutions in Kenya
Josphat K. Kariuki, Eunice N. Wandiga, Wilson O. Odiyo
Pan Africa Christian University, Kenya
Download Full-Text Pdf
Keywords: Transformational Leadership, Psychological Empowerment, Staff Retention, Microfinance
Retention of the desired staff in microfinance institutions has remained a major challenge as depicted from extant literature. It is often associated with inappropriate leadership deployed in these institutions among other antecedents. The current study, therefore, set out to establish the effect of transformational leadership on staff retention in microfinance institutions in Nairobi City County, Kenya, as well as the mediating effect psychological empowerment on the relationship between transformational leadership and staff retention in microfinance institutions in Nairobi City County, Kenya. The study was guided by Transformational Leadership Theory, Leader-Member Exchange Theory, Social Exchange Theory, and Resource-Based View Theory and founded on the positivism philosophy. Descriptive and explanatory research designs were adopted to guide the study. A sample of 298 respondents was obtained from 12 microfinance institutions in the Nairobi City County, Kenya, through census method for data collection. The unit of analysis was the head offices of the 12 microfinance institutions, while the unit of observation was the senior management level, middle management level and lower management level. Data was collected using structured questionnaires and analysed using descriptive and inferential statistics. The hypotheses were tested at the 5% significance level. The study established that transformational leadership was a significant predictor of staff retention, and that this relationship was partially mediated by the psychological empowerment. The study recommends that the microfinance institutions management should align transformational leadership practices with the strategic goals set for staff retention and emphasize on psychologically empowering strategies for their staff.
Adero, F. A., & Odiyo, W. O. (2020). Leadership theories and the desired competencies of the 21st century organization leader. International Journal of Business Management, Entrepreneurship and Innovation, 2(3), 16–35. https://doi.org/10.35942/jbmed.v2i3.115
Al Harbi, J. A., Alarifi, S., & Mosbah, A. (2019). Transformation leadership and creativity: Effects of employees pyschological empowerment and intrinsic motivation. Personnel Review, 48(5), 1082–1099. https://doi.org/10.1108/PR-11-2017-0354
AlKindy, A., & Magd, H. (2021). The influence of transformational leadership on psychological empowerment of Omani Civil Service Agencies’ employees: A conceptual model. Global Business and Management Research: An International Journal, 13(3), 258–282.
Almas, S., Chacón-Fuertes, F., & Pérez-Muñoz, A. (2020). Direct and indirect effects of transformational leadership on volunteers’ intention to remain at non-profit organizations. Psychosocial Intervention, 29(3), 125–132. https://doi.org/10.5093/PI2020A17
Ambad, S. N. A., Kalimin, K. M., Ag Damit, D. H. D., & Andrew, J. V. (2021). The mediating effect of psychological empowerment on leadership styles and task performance of academic staff. Leadership and Organization Development Journal, 42(5), 763–782. https://doi.org/10.1108/LODJ-05-2020-0197
Amjad, M. S., Rafique, M. Z., Rahman, M. N. A., Zaheer, M. A., & Haider, S. M. (2020). Research aspects for methodology design. International Journal of Recent Technology and Engineering, 8(5), 1987–1991. https://doi.org/10.35940/ijrte.e6014.018520
Armstrong, M. (2014). Armstrong’s handbook of human resource management practice(13th ed.). Kogan Page Limited.
Babbie, E. (2010). The practice of social research. Cengage Learning.
Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99–120.
Baron, R. M., & Kenny, D. A. (1986). The moderator-mediator variable distinction in social psychological research: Conceptual, strategic, and statistical considerations. Journal of Personality and Social Psychology, 51(6), 1173–1182. https://doi.org/10.1037//0022-3518.104.22.1683
Bharadwaja, M., & Tripathi, N. (2021). Linking empowering leadership and job attitudes: The role of psychological empowerment. Journal of Asia Business Studies, 15(1), 110–127. https://doi.org/10.1108/JABS-03-2020-0098
Bouraoui, K., Bensemmane, S., Ohana, M., & Russo, M. (2019). Corporate social responsibility and employees’ affective commitment: A multiple mediation model. Management Decision, 57(1), 152–167. https://doi.org/10.1108/MD-10-2017-1015
Bryman, A. (2012). Social research methods (4th ed.). Oxford University Press.
Burns, J. M. (1978). Leadership. Open Road Integrated Media.
Burvill, S. M., Jones-Evans, D., & Rowlands, H. (2018). Reconceptualising the principles of Penrose’s (1959) theory and the resource based view of the firm: The generation of a new conceptual framework. Journal of Small Business and Enterprise Development, 25(6), 930–959. https://doi.org/10.1108/JSBED-11-2017-0361
Central Bank of Kenya. (2020). Directory of licenced microfinance banks.
Chiu, W., Won, D., & Bae, J. (2020). Internal marketing, organizational commitment, and job performance in sport and leisure services. Sport, Business and Management: An International Journal, 10(2), 105–123. https://doi.org/10.1108/SBM-09-2018-0066
Creswell, J. W. (2012). Educational research. Planning, conducting and evaluating quantitative and qualitative research (4th ed.). Pearson Education, Inc.
Devi, S. (2020). Recent trends in employee retention and attrition rate in the new generation private banks in India. Journal of Xi’an University of Architecture & Technology, XII(III), 5167–5181.
Edirisooriya, W. A. (2020). The impact of transformational leadership on talent retention: With special reference to information communication technology industry in Sri Lanka. Sri Lanka Journal of Management Studies, 2(1), 120–136.
Enriquez de la O, J. F. (2015). Resource-based view and dynamic capabilities: Achieving competitive advantage through internal resources and competences. Vezetéstudomány / Budapest Management Review, 11(11), 50–61. https://doi.org/10.14267/veztud.2015.11.05
Fahim, M. G. A. (2018). Strategic human resource management and public employee retention. Review of Economics and Political Science, 3(2), 20–39. https://doi.org/10.1108/reps-07-2018-002
Gan, J. L., & Yusof, H. M. (2019). The relationship between training and employees’ retention: Review paper. International Journal of Entrepreneurship and Management Practices, 2(5), 16–24.
Gathondu, P. G., Nyambegera, S. M., & Kirubi, M. (2018a). Influence of staff satisfaction as a transformational leadership outcome on the performance of microfinance institutions’ staff in Kenya. Journal of Human Resource & Leadership, 2(2), 1–17.
Gathondu, P. G., Nyambegera, S. M., & Kirubi, M. (2018b). Influence of trust as a transformational leadership outcome on performance of staff in the microfinance institutions in Kenya. Journal of Entrepreneurship & Project Management, 2(1), 32–50.
Giang, H. T. T., & Dung, L. T. (2021). Transformational leadership and non-family employee intrapreneurial behaviour in family-owned firms: The mediating role of adaptive culture and psychological empowerment. Leadership and Organization Development Journal, 42(8), 1185–1205. https://doi.org/10.1108/LODJ-03-2021-0116
Hair, J. F., Black, W. C., Babin, B. J., & Anderson, R. E. (2019). Multivariate data analysis (8th ed.). Cengage Learning EMEA.
Javeed, A., Khan, M. Y., Rehman, M., & Khurshid, A. (2021). Tracking sustainable development goals – a case study of Pakistan. Journal of Cultural Heritage Management and Sustainable Development, ahead-of-p(ahead-of-print). https://doi.org/10.1108/jchmsd-04-2020-0052
Judeh, M., & Abou-moghli, A. A. (2019). Transformational leadership and employee intent to stay: Mediating effect of employee self-efficacy. International Journal of Academic Research Business and Social Sciences, 9(12), 301–314. https://doi.org/10.6007/IJARBSS/v9-i12/6725
Kanake, M. K., & Kemboi, A. (2020). Employee empowerment and innovative work behavior: The moderating role of leader-member exchange. SEISENSE Journal of Management, 3(5), 13–23. https://doi.org/10.33215/sjom.v3i5.421
Kariuki, J. K. (2020). The effect of self-efficacy on leader–member exchange (LMX) formation in leadership effectiveness. International Leadership Journal, 12(3), 17–37.
Kariuki, J. K., Wandiga, E. N., & Odiyo, W. O. (2022). An empirical survey of the relationship between transformational leadership and staff retention in the context of microfinance institutions in Kenya. Economics and Business Quarterly Reviews, 5(2), 51–69. https://doi.org/10.31014/aior.1992.05.02.413
Kasımoğlu, M., & Ammari, D. (2020). Transformational leadership and employee creativity across cultures. Journal of Management Development, 39(4), 475–498. https://doi.org/10.1108/JMD-05-2019-0153
Kayembe, H., Lin, Y., Munthali, G. N. C., Wu, X., Banda, L. O. L., Dzimbiri, M. N. W., & Mbughi, C. (2021). Factors affecting the sustainability of microfinance institutions: A case of Malawi microfinance institutions. Journal of Financial Risk Management, 10, 117–134. https://doi.org/10.4236/jfrm.2021.102007
Khalid, K., Hilman, H., & Kumar, D. (2012). Get along with quantitative research process. International Journal of Research in Management, 2(2), 15–29.
Kivuva, A. K., Pepela, A. W., & Nzioka, A. M. (2019). Guest house supervisors’ meaning cognition and its influence on job satisfaction in the context of Mombasa County, Kenya. African Journal of Hospitality, Tourism and Leisure, 8(3), 1–10. http//: www.ajhtl.com
Komakech, E., Obici, G., & Mwesigwa, D. (2021). Efficacy of inspirational motivation on the performance of public health workers in mid-north of Uganda. Annals of Human Resource Management Research, 1(2), 85–97. https://doi.org/10.35912/ahrmr.v1i2.509
Kothari, C. R. (2004). Research methodology. Methods and techniques (2nd ed.). New Age International Publishers.
Kumar, P., & Divya. (2021). Relationship between microfinance, Mudra, women entrepreneurship, socioeconomic development and women empowerment: A review based study. International Journal of Multidisciplinary, 6(2), 48–58. https://doi.org/10.31305/rrijm.2020.v06.i02.010
Lan, P. (2018). A review of advantages and disadvantages of three paradigms: Positivism , interpretivism and critical inquiry. The University of ADELAIDE, 1–8. https://doi.org/10.13140/RG.2.2.13995.54569
Lu, Y., Li, G., Luo, Z., Anwar, M., & Zhang, Y. (2021). Does intellectual capital spur sustainable competitive advantage and sustainable growth?: A study of Chinese and Pakistani firms. SAGE Open, 11(1), 1–18. https://doi.org/10.1177/2158244021996702
Luna-Arocas, R., Danvila-Del Valle, I., & Lara, F. J. (2020). Talent management and organizational commitment: The partial mediating role of pay satisfaction. Employee Relations: The International Journal, 42(4), 863–881. https://doi.org/10.1108/ER-11-2019-0429
Ma, X., Jiang, W., Wang, L., & Xiong, J. (2020). A curvilinear relationship between leadership transformational leadership and employee creativity. Management Decision, 58(7), 1355–1373. https://doi.org/10.1108/MD-07-2017-0653
Miles, M. B., Huberman, A. M., & Saldana, J. (2014). Qualitative data analysis. A methods sourcebook. (3rd ed.). SAGE Publications, Inc.
Minai, M. H., Jauhari, H., Kumar, M., & Singh, S. (2020). Unpacking transformational leadership: Dimensional analysis with psychological empowerment. Personnel Review, 49(7), 1419–1434. https://doi.org/10.1108/PR-10-2019-0580
Mugenda, O. M., & Mugenda, A. G. (2019). Research methods: Quantitative, qualitative & mixed approaches. (3rd ed.). Centre for Innovative Leadership and Governance.
Mugizi, W., Tumuhaise, G., Samanya, B., & Dafiewhare, A. O. (2019). Leadership styles and retention of teachers in private primary schools in Bushenyi-Ishaka Municipality, Uganda. Open Journal of Leadership, 8(4), 167–187. https://doi.org/10.4236/ojl.2019.84009
Muldoon, J., Liguori, E. W., Bendickson, J., & Bauman, A. (2018). Revisiting perspectives on George Homans: Correcting misconceptions. Journal of Management History, 24(1), 57–75. https://doi.org/10.1108/JMH-06-2017-0027
Mwesigwa, R., Tusiime, I., & Ssekiziyivu, B. (2020). Leadership styles, job satisfaction and organizational commitment among academic staff in public universities. Journal of Management Development, 39(2), 253–268. https://doi.org/10.1108/JMD-02-2018-0055
Northouse, P. (2016). Leadership: Theory and practice (7th ed.). SAGE Publications, Inc.
Nuo, L. S., & Hee, O. C. (2020). Linking leadership styles and affective commitment to turnover intention : A conceptual study. International Journal of Academic Research in Business and Social Sciences, 10(8), 244–257. https://doi.org/10.6007/ijarbss/v10-i8/7529
Nyasunda, O. F., & Atambo, W. N. (2020). Influence of reward management on employee turnover in microfinance institutions in Kisii county, Kenya. International Journal of Social Sciences and Information Technology, V(I), 1–8.
Odumeru, J., & Ifeanyi, G. O. (2013). Transformational vs. transactional leadership theories: Evidence in literature. International Review of Management and Business Research, 2(2), 355–361.
Okoth, U. A. (2018). Transformational leadership practices in curriculum implementation (environmental education) in secondary schools in Siaya County, Kenya. European Scientific Journal, ESJ, 14(10), 320–331. https://doi.org/10.19044/esj.2018.v14n10p320
Otieno, C. D., Linge, T., & Sikalieh, D. (2019). Influence of idealized influence on employee engagement in parastatals in the energy sector in Kenya. International Journal of Research in Business and Social Science, 8(5), 123–135. https://doi.org/10.20525/ijrbs.v8i5.476
Owan, V. J., Bassey, B. A., Mbon, U. F., Okon, A. E., Egbula, E. O., Ekaette, S. O., Ojong, C. O., & Ekpe, M. B. (2020). Validation of an instrument and measurement of employee work-life policies, psychological empowerment, and job commitment of academic staff in universities. Mediterranean Journal of Social Sciences, 11(2), 86–100. https://doi.org/10.36941/mjss-2020-0022
Owuor, O. M., Nyagol, M., & Abuga, V. M. (2020). Influence of microfinance services on the performance of microfinance institutions in Siaya County, Kenya. International Journal of Social Sciences and Information Technology, 5(4), 1–11.
Panda, A., & Sahoo, C. K. (2021). Work–life balance, retention of professionals and psychological empowerment: An empirical validation. European Journal of Management Studies, 26(2/3), 103–123. https://doi.org/10.1108/ejms-12-2020-0003
Parveen, M., & Adeinat, I. (2019). Transformational leadership: does it really decrease work-related stress? Leadership and Organization Development Journal, 40(8), 860–876. https://doi.org/10.1108/LODJ-01-2019-0023
Pattnaik, S. C., & Sahoo, R. (2021). Transformational leadership and organizational citizenship behaviour: The role of job autonomy and supportive management. Management Research Review, ahead-of-p(ahead-of-print). https://doi.org/10.1108/mrr-06-2020-0371
Pradhan, R. K., Panda, M., & Jena, L. K. (2017). Transformational leadership and psychological empowerment: The mediating effect of organizational culture in Indian retail industry. Journal of Enterprise Information Management, 30(1), 82–95. https://doi.org/10.1108/JEIM-01-2016-0026
Rasel, M. A., & Win, S. (2020). Microfinance governance: A systematic review and future research directions. Journal of Economic Studies, 47(7), 1811–1847. https://doi.org/10.1108/JES-03-2019-0109
Ravitch, S. M., & Riggan, M. (2017). Reason & Rigor. How conceptual frameworks guide research (2nd ed.). SAGE Publications, Inc.
Ronald, M. O., Aisha, N. L., & Babu, M. J. (2016). Analysis of the effect of leadership styles on staff retention in selected private hospitals in Kampala district, Uganda. European Journal of Business and Management, 8(9), 141–150.
Safari, A., Adelpanah, A., Soleimani, R., Aqagoli, P. H., Eidizadeh, R., & Salehzadeh, R. (2020). The effect of psychological empowerment on job burnout and competitive advantage: The mediating role of organizational commitment and creativity. Management Research, 18(1), 47–71. https://doi.org/10.1108/MRJIAM-06-2019-0935
Saira, S., Mansoor, S., & Ali, M. (2021). Transformational leadership and employee outcomes: The mediating role of psychological empowerment. Leadership and Organization Development Journal, 42(1), 130–143. https://doi.org/10.1108/LODJ-05-2020-0189
Sammut, R., Briffa, B., & Curtis, E. A. (2021). Distributed leadership and nurses’ job satisfaction: A survey. Leadership in Health Services, 34(1), 37–51. https://doi.org/10.1108/LHS-07-2020-0052
Samuel, O. M., & Engelbrecht, A. S. (2021). How transformational leadership, psychological contract violation, empowerment and affective commitment influence employee’s intention to quit an organisation. South African Journal of Business Management, 52(1), 1–12. https://doi.org/10.4102/ sajbm.v52i1.2278
Saunders, M., Lewis, P., & Thornhill, A. (2007). Research methods for business students (4th ed.). Pearson Education Limited.
Sekaran, U. (2003). Research methods for business: A skill building approach.(4th ed.). John Wiley & Sons, Inc.
Sekaran, U., & Bougie, R. (2016). Research methods for business. A skill-building approach (7th ed.). John Wiley & Sons Ltd.
Shah, T. A., Khattak, M. N., Zolin, R., & Shah, S. Z. A. (2019). Psychological empowerment and employee attitudinal outcomes: The pivotal role of psychological capital. Management Research Review, 42(7), 797–817. https://doi.org/10.1108/MRR-05-2018-0194
Shahzad, M., Qu, Y., Zafar, A. U., Rehman, S. U., & Islam, T. (2020). Exploring the influence of knowledge management process on corporate sustainable performance through green innovation. Journal of Knowledge Management, 24(9), 2079–2106. https://doi.org/10.1108/JKM-11-2019-0624
Sharanya, T., & Himabindu, P. (2017). Impact of transactional and transformational leadership: A study on employees perception towards employee retention in IT sector. International Journal of Current Engineering and Scientific Research, 4(9), 64–69.
Sikawa, G. Y., Waiganjo, E., & Otieno, R. O. (2018). Influence of working conditions strategy on employee retention in rural public secondary schools in Tanzania. International Journal of Economics, Commerce and Management, VI(12), 299–328.
Spreitzer, G. M. (1995). Psychological empowerment in the workplace: Dimensions, measurement, and validation. Academy of Management, 38(5), 1442–1465.
Stanescu, D. F., Zbuchea, A., & Pinzaru, F. (2020). Transformational leadership and innovative work behaviour: The mediating role of psychological empowerment. Kybernetes, 50(5), 1041–1057. https://doi.org/10.1108/K-07-2019-0491
Tayal, R., Upadhyay, R. K., & Singh, R. (2021). Transformational leadership: An antecedent for organizational effectiveness in Indian banks. VINE Journal of Information and Knowledge Management Systems, ahead-of-p(ahead-of-print). https://doi.org/10.1108/VJIKMS-09-2020-0165
Thuan, L. C. (2020). Motivating follower creativity by offering intellectual stimulation. International Journal of Organizational Analysis, 28(4), 817–829. https://doi.org/10.1108/IJOA-06-2019-1799
Tian, H., Iqbal, S., Akhtar, S., Qalati, S. A., Anwar, F., & Khan, M. A. S. (2020). The impact of transformational leadership on employee retention: Mediation and moderation through organizational citizenship behavior and communication. Frontiers in Psychology, 11(314), 1–11. https://doi.org/10.3389/fpsyg.2020.00314
Turnipseed, D. L., & VandeWaa, E. A. (2020). The little engine that could: The impact of psychological empowerment on organizational citizenship behavior. International Journal of Organization Theory and Behavior, 23(4), 281–296. https://doi.org/10.1108/IJOTB-06-2019-0077
Vu, H. M., & Nwachukwu, C. E. (2020). Strategic human resource management, organizational culture and academic staff retention: Literature review. Economics Management Innovation, 12(2), 5–13.
Wakabi, B. M. (2016). Leadership style and staff retention in organisations. International Journal of Science and Research (IJSR), 5(1), 412–416. https://doi.org/10.21275/v5i1.nov152642
Walumbwa, F. O., Avolio, B. J., & Zhu, W. (2008). How transformational leadership weaves its influence on individual job performance: The role of identification and efficacy beliefs. Personnel Psychology, 61(4), 793–825. https://doi.org/10.1111/j.1744-6570.2008.00131.x
Wambede, I., & Bisaso, S. M. (2020). Remuneration and staff retention in private secondary schools in Mbale. Interdisciplinary Journal of Education, 3(1), 78–93.
Whatmore, C., & Wiklef, M. (2020). Staff retention realities at Zimbabwe Revenue Authority (Zinara) Manicaland region, Zimbabwe. European Journal of Research and Reflection in Management Sciences, 8(1), 34–52.
Whittemore, R., & Melkus, G. (2008). Design decisions in research. E-Source - Behavioural & Social Sciences Research, 1–31.
Yukl, G. (2010). Leadership in Organizations (7th ed.). Pearson Education, Inc.
Zadrozny, J., Mcclure, C., Lee, J., & Jo, I. (2016). Designs, Techniques, and Reporting Strategies in Geography Education: A Review of Research Methods. Review of International Geographical Education Online, 6(3), 216–233.
Zubac, A., Hubbard, G., & Johnson, L. W. (2010). The RBV and value creation: A managerial perspective. European Business Review, 22(5), 515–538. https://doi.org/10.1108/09555341011068921