Digital Financial Services and Profitability of Microfinance Banks in Kenya: A Theoretical Review
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Date
2026-02
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Globeedu Group
Abstract
Microfinance banks play a crucial role in promoting financial inclusion in Kenya by serving low-income households and informal sector businesses. The profitability of microfinance banks in Kenya has fluctuated over the past few years, raising concerns about the sector’s financial sustainability. Return on assets increased slightly from 1.2% in 2021 to 1.4% in 2022, and further rose to 3.7% in 2023, indicating a gradual recovery in profitability. In 2024, the sector recorded a significant decline in return on assets, reporting a negative return of 6.1%, reflecting losses. The general objective of the study is to investigate the effect of digital financial services on the profitability of microfinance banks in Kenya. The specific objectives of this study are to determine the effect of mobile banking, internet banking, and agency banking services on the profitability of Kenyan microfinance banks. The research study also aims to establish the moderating effect of the regulatory framework on the relationship between digital financial services and the profitability of Kenyan microfinance banks. The study was anchored on the technology acceptance theory and supported by financial intermediation theory, financial innovation theory, and institutional theory. An empirical literature study was also incorporated.
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