Digital Credit and Financial Performance of Selected Commercial Banks In Kenya
Masolo, Verah Faridah
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With the dynamism being experienced in the business environment globally, performance is a major factor in the survival of a business entity. Businesses have adopted strategies to enhance their performance. In Kenya the financial sector has endeavored to introduce and embrace technology in order to realize and sustain performance through credit offering. The players within the financial sectors with the role of of offering credit facilities include commercial banks, microfinance and digital lenders among others. In order to increase credit penetration and acquisition, most of these players have introduced digital credit as one of those technological interventions whose potential is to increase credit penetration and acquisition within the market. With this technological advancement, there has been mixed reactions and outcomes with different consequences to commercial bank performance. The research intention was to determine the impact of digital credit on banking financial performance, with a focus on Kenyan commercial banks. The specific objective was to determine the impact of mobile network based loans, website based loans and app based loans on the financial performance of selected commercial banks and to investigate the moderating role of bank size on the association between digital credit and financial performance. This research was based on the financial intermediation theory, which was supported by finance growth theory and information asymmetry theory. The theory of positivism was used, as well as longitudinal and explanatory non-experimental study designs. The study’s target population was 10 of Kenya’s 38 commercial banks that had adopted from 2012 their own digital credit solutions. The sample size was the 5 largest banks in relation to digitization. Secondary data for this research was gathered from Kenyan commercial bank’s financial statements, the Kenya Central Bank, as well as reports of economic assessment. Descriptive statistics and panel multiple regression analysis was used in analyzing the results. The correlation results revealed a positive and significant relationship between the independent variables mobile network operator based loans and website based loans was positive and significant. The regression analysis also revealed a positive significant relationship between mobile network operator based loans, website based loans and financial performance while app based loans did not have a significant relationship. Ban size was however found to negatively and insignificantly moderate the relationship between digital credit and financial performance. The study recommended commercial banks to come up with strategies that will see an increased use of mobile network operator loans and website based loans. More so the central bank was recommended to formulate policies that will help commercial bans realize the benefits of digital credit and improved financial performance.