Effects of Bottom of the Pyramid Strategy on Financial Performance of Commercial Banks in Kenya; A Case of Agency Banking at Equity Bank
Molonko, Brenda Nolari
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The introduction of banking technology and high competition due to the commercial banks' highly substitutable products, banks in Kenya have abandoned the traditional banking system which is very costly in terms of branch set up costs and adopted new systems which include; branchless banking, internet banking, electronic money transfer, mobile banking and currently agency banking. Further, increased competition has prompted the banks to venture into bottom of the pyramid strategy targeting the poor people to access their products. In Kenya, a number of commercial banks are reaching their customers at the bottom of the economic pyramid through agency banking. Agency banking in Kenya was institutionalized in 2010 and Commercial banks in Kenya have registered a significant performance over six years 2006-2009 before introduction of agency banking and 2010-2011 after introduction of agency banking. Equity bank was among the first banks to license Agency Banks across the Country. Despite the voluminous articles and studies on the fortune at the bottom of the pyramid, no study to the best of the researcher's knowledge has concentrated on investigating the fortune of bottom of the pyramid and its effects on financial performance of commercial banks in Kenya through agency banking. The general objective of the study was to establish the effects of bottom of the pyramid strategy on the financial performance through Agency Banking in Kenya with a focus on Equity Bank. The independent variables were cost-saving approach, innovation, business growth and new partnerships while the dependent variable were financial performance through agency banking. This study used descriptive research design. The target respondents included 161 departmental heads, assistant departmental heads ,.. and lower cadre staffs like the supervisors, accounts and finance officers from the head offices of the Bank. A sample of 30% (48 respondents) was selected using stratified random sampling technique. The study used a self administered questionnaire. Quantitative data collected were analyzed by the use of descriptive statistics using Statistical Package for Social Sciences (SPSS) and presented through percentages, means, standard deviations. and frequencies and multiple regressions. This was done by tallying up .I responses, computing percentages of variations in response as well as describing and interpreting the data in line with the study objectives and assumptions. Tables and other graphical presentations as appropriate were used to present the data collected for ease of understanding and analysis. The study revealed that Equity bank uses agency banking to target the low income market segment in rural villages and urban slums. From the findings 57.4% of the financial performance of Equity Bank is attributed to combination of the four independent factors (business growth, cost-saving approach, innovation and new partnership); with business growth indicated by 40% of the respondents, cost-saving approaches by 44%, innovation by 60% and partnerships by47%. Majority of the respondents agreed that competing in low income markets is a powerful source of learning that can translate to efficiencies in rural markets affects the financial performance of Equity. Finally this study recommends further studies to cover 43 Commercial banks, establish whether objectives of Agency banking were met by CBK and analyze the effects of agency banking in the long run.