FINANCIAL INNOVATION AND BANK EFFICIENCY OF MICROFINANCE BANKS IN KENYA
FINANCIAL INNOVATION AND BANK EFFICIENCY OF MICROFINANCE BANKS IN KENYA
Mohamed Adan Sheikh - Department of Accounting and Finance, Kenyatta University, Kenya
Salome Musau - Department of Accounting and Finance, Kenyatta University, Kenya
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.
