James MuturiOtigo, Bob2022-03-312022-03-312021http://ir-library.ku.ac.ke/handle/123456789/23444A Research Project Submitted in Partial Fulfilment of the Requirements for the Award of the Degree of Master of Business Administration (Finance Option) of Kenyatta University, 2020The adoption of financial innovation by commercial banks has been a strategic move aimed at expanding the market share of most commercial banks. The adoption of agency banking service by most commercial banks has assisted banks to render effective services to its consumers and businesses. Despite most of the studies on agency banking adoption indicating that the aim is to reduce the cost of operations, there remains a gap on studies seeking to establish whether agency banking has had a statistically significant effect on operating costs of the bank such as cost of labor, rental charges, cost of depreciation charge on plant and equipment, cost of utilities and marketing costs hence the motivation for this research. This study sought to evaluate the relationship between adoption of agency banking and operational costs by commercial banks in Kenya. Specifically, the study sought to address the following objectives; to assess the relationship between availability of financial services and operational costs by commercial banks in Kenya, to analyze the relationship between financial inclusion and operational costs by commercial banks in Kenya, to determine the relationship between accessibility to financial services and operational costs by commercial banks in Kenya. The study was anchored on three theories that is; Agency theory, Bank -lead theory and diffusion of innovation theory. The study adopted the cross sectional design in analyzing data from various commercial banks over a period of time. The target population of the study constituted all the 11 commercial banks that have adopted agency banking by 2014 since its authorization in the year 2010. All the 11 banks were considered for the study indicating that a census was appropriate. A research window of four years before and after the adoption and 4 years after the adoption was considered. The data collection was done using a secondary data capture tool where various costs were extracted from the financial statements of the 11 banks between 2006 and 2014. The results were analyzed using descriptive statistics of mean and standard deviations and inferential statics of correlation, simple and multiple regression and t- test to test the significance of the change. The research considered all ethical considerations and norms regarding researches in Kenya and Kenyatta University. The results have indicated that operating costs reduced for those banks that had adopted agency banking since the mean difference before adoption was much more than the difference after the adoption. This was attributed to the fact that financial services were more available to the customers there was increased financial inclusion and also increase in access to financial services by the customers. The results showed that the mean difference measured by the t statistic in the three independent variables (availability, financial inclusion and accessibility) significantly contributed to the reduction in the operational costs among commercial banks that had adopted agency banking in Kenya. The results further indicated that the mean difference of availability, financial inclusion, accessibility and operating costs of commercial banks that had adopted agency banking by 2014 was statistically significance. The study concluded that agency banking adoption has had a very significant effect on the reduction of operational costs. The study recommends that commercial banks need to expand their services offered by agencies in order to reduce the cost incurred at the branch and make their financial services available and accessible to more unbanked customers. The results are expected to benefit the management of the commercial banks, and other stakeholders in the sector as it provided an insight to the agency banking in relation to operational costs.enAdoptionAgency BankingOperational CostCommercial BanksKenyaThesis