Financial Innovations and Levels of Risks in Commercial Banks in Kenya
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Date
2020
Authors
Abdullahi, Hassan Maalim
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
Commercial banks would find the origins of the different financial threats that arise as a
result of global changes, as they can threaten bank stability. Notwithstanding the
undisputed the importance of financial innovation in recognizing banking performance
remains underrated, the influence of innovation on risk management. Therefore, this
study aimed at establishing the effect of financial innovations on levels of risks in
commercial banks in Kenya. The specific objectives that guided the study inlude; to
determine the effect of internet banking on level of risks in commercial banks in Kenya,
to examine the impact of mobile banking on level of risks in commercial banks in Kenya,
to establish the effect of agency banking on level of risks in commercial banks in Kenya
and to determine the impact of electronic cards on level of risks in commercial banks in
Kenya. The study was guided by Silber’s Constraint Theory of Innovation, Merton’s
Market Efficiency Theory of Innovation and Diffusion of Innovation Theory. The study
adopted a descriptive cross-sectional research design. The target population was all the
42 commercial banks registered with CBK as at December 31st 2016 (CBK, 2016). The
unit of observation was the risk management managers, one from each of the 42
commercial banks. This was a census study. The study collected primary data. The
primary data was collected from the respondents through a questionnaire. Each
questionnaire was followed by a cover letter describing and assuring that all answers
were handled confidentially. Before the actual data collection, a pilot study for the
questionnaire was performed to find flaws in the concept and the instrument. The study
found out that the banks had put effective security measures to mitigate internet banking
fraud (risks), the study established that the transaction errors arising from mobile banking
exposed the customers and the banks to financial risks and that the user behavior greatly
exposed the customers to risks. The study also found out that the information of
customers transacting through agency banking was kept confidential for any fraud
activity to take place and that system malfunction exposed the bank and the customers to
risks. It also found out that technical failures on electronic cards exposed clients and
banks to financial risks and that there was high rate of electronic cards fraud in the
banking sector. The study concluded that the financial innovations in the Kenya’s
banking sector influence the level of risk in commercial banks both negatively and
positively. The study therefore recommends that the banks should create creative ways to
measure the effect of agency / mobile banking on numerous transactions and improve the
requisite contingency plans. The regulator should also track the banking sector closely
and strictly enforce conformity with the agent / mobile banking rules, whilst the banks
are constantly monitoring agents carefully.
Description
A Research Project Submitted in Partial Fulfillment of the
Requirements for the Award of the Degree of Master
of Business Administration (Finance Option), Kenyatta
University
Keywords
Financial Innovations, Commercial Banks, Risk management, Mobile banking, Agency banking, Electronic cards