Bank Financial Innovations on Lending to Small and Medium Enterprises by Selected Commercial Banks in Kenya
ulius, Denise Wandia J
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This study explored the effect of bank financial innovations on lending to small and medium enterprises (SMEs) by selected commercial banks in Kenya. Commercial banks in Kenya continued to deploy huge investments towards financial innovations and therefore this study sought to examine the presence of a significant relation linking financial innovations and lending to SME. Independent variables for the study included product innovations (business savings account and business loan account), Process innovations (Real time gross settlement and Automated clearing house), Channel innovations (Mobile banking and Agency banking), Institutional innovations (SME only branches/departments and extended banking hours,).Lending to small and medium enterprises by selected commercial banks in Kenya was the general objective for the study while specific objectives included, examination of the effect of product innovation, process innovation, channel innovation and institutional innovation by commercial banks in Kenya on lending to SMEs. Theoretical review included Schumpeter theory of innovation, financial intermediation theory, Credit rationing theory, Diffusion of innovations theory and Constraints induced financial innovation theory. Empirical literature review was gathered from previous studies conducted by other researchers regarding financial innovations. The study methodology adopted a descriptive research design. The population was commercial banks in Kenya that had their head office within Nairobi Central Business. Descriptive statistics and inferential statistics were analyzed with the help of SPSS version 21. Five year data beginning year 2015-2019 that related to 33 commercial banks was analyzed. Ethical considerations were upheld by providing research approval letters from NACOSTI and Kenyatta University as an assurance to respondents that the research was meant only for academic purpose. The data that was analyzed established that all the bank financial innovations adopted by the commercial banks in the study (Product p -value =0.032, Process p-value= 0.0035, Channel p- value= 0.0000, Institutional p- value= 0.0452) had significant effect on lending to SMEs since they reached P VALUE less than the 0.05 significance level. The Pearson correlation coefficient for Product innovation =0.593, Process innovation = 0.559, Channel innovation =0.548 and institutional innovation= 0.558 showed a moderate positive liner relationship between all the bank financial innovations and lending to small and medium enterprises by the selected commercial banks in Kenya. The study concluded that product, process, channel and institutional innovation were significant in explaining lending to small and medium enterprises by studied commercial banks. In addition, regulatory framework had a mediating impact on the relationship linking financial innovation and lending to SME’s.