Financial Innovation and Bank Efficiency of Microfinance Banks in Kenya
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Date
2023-11
Authors
Sheikh, Mohamed Adan
Musau, Salome
Journal Title
Journal ISSN
Volume Title
Publisher
IAJEF
Abstract
Microfinance banks are important financial
intermediaries given their ability to provide
credit to the unbanked populace. The bank
efficiency of microfinance banks contributes
to the economic development of the financial
sector as well as the overall economy.
Nonetheless, this bank efficiency might be
jeopardized, resulting to its upward trend
because of not being innovative. Therefore, in
light of this context, the study aimed at
evaluating the effect of financial innovations
on the bank efficiency of microfinance banks
in Kenya. The target audience was 14
registered and regulated microfinance banks
in Kenya. The study employed census survey
since the population is small. The time scope
of the study was five years from year 2017 to
the year 2021. Primary data and Secondary
data of audited financial reports of
microfinance banks was collected from
MFB’S website, CMA and CBK reports using
a data abstraction tool. Descriptive statistics
was used to analyze data in terms of means
and standard deviation, and inferential
statistics was analyzed using Ordinary least
square linear regression model to ascertain the
connection between financial innovations and
bank efficiency of MFBs in Kenya. The study
revealed that financial product innovation,
financial process innovation and financial
institutional innovation all individually had a
statistically significant effect on bank
efficiency and therefore rejected. On product
innovation, the study recommends that
MFB’s should employ strategies of opening
new deposit accounts for their customers and
encouraging customers to utilize the use of
credit cards, debit cards and prepaid cards
services to enhance bank efficiency of
MFB’s. On process innovation, the study
recommends the adoption of digitalization,
office automation, process innovation and
automated clearinghouse to increase
efficiency and reduce operational costs and
thus improving to bank efficiency of MFB’s.
Finally, on institutional innovation the study
recommends the adoption of mobile money
transactions, ATM withdrawals and internet
banking that contribute to improved bank
efficiency of MFB’s.
Description
Article
Keywords
Financial Innovation, Bank Efficiency, Financial Process, Financial Product