DIGITAL INNOVATIONS ADOPTION AND FINANCIAL PERFORMANCE OF MICROFINANCE BANKS IN KENYA

Abstract

This research examined the effect of digital innovations adoption on financial performance of microfinance banks in Kenya. The specific objectives of the research were: to evaluate the effect of agency banking innovation, mobile banking innovation, ATM innovation, and EFT innovation adoption on the financial performance of microfinance banks in Kenya. The study was supported by the Financial Intermediation Theory, The Principal-agent Theory, Bank Focused Theory, and Economic Value-Added Theory. Descriptive as well as explanatory research design were exerted. The population under study was fourteen (14) microfinance banks licensed and operating in Kenya. The census method was employed as it allows studying all the units of observation and the data obtained was accurate and highly reliable. The study utilized secondary data collected using the panel data analysis method. Descriptive statistics, mean, mode, median, and inferential statistics like the multi-linear regression method were utilized for data analysis after which a normality, multicollinearity and heteroscedasticity tests were administered as a diagnosis to assert that the classical linear regression model the assumptions were violated to avoid bias, inefficient and inconsistent results. Frequency distribution tables were applied to present the result. The findings indicated that ATMs’ innovations undoubtedly and notably affect financial performance; mobile banking positively but insignificantly affects financial performance; agency banking innovation significantly in a manner that positively affect financial performance; while electronic fund transfer positively affected financial performance of the MFBs in a significant manner. The research advocated that more automated teller machines outlets should be opened to allow raised patronage by customers, thus boosting the profitability of the banks. Management should device a means through which customers can transact on mobile banking platforms even without sophisticated phones in order to grow the number of mobile banking users. Through agency banking innovations, more point of sales outlets should be put up to boost the number of transactions by the MFBs in Kenya and lastly the microfinance banks should endeavor to strengthen their signals to allow free flow of transactions through the internet thus bringing in convenience consequently boosting the volume of transactions done per second hence high income.

Key Words: Agency Banking Innovation, Mobile Banking Innovation, ATM Innovation, EFT innovation

CITATION: Omar, A., S., & Theuri, J. (2023). Digital innovations adoption and financial performance of microfinance banks in Kenya. The Strategic Journal of Business & Change Management, 10 (3), 472 – 489.