The effect of financial innovation on the growth of micro-finance institutions in Kenya

Abstract

The study sought to investigate the effects of financial innovation on the growth of Micro Finance Institutions (MFIs) in Kenya. This was motivated by the need to fill-up the academic gap on financial innovation left by previous researchers. This research was done to seek answers to the two research questions namely; which financial innovations were adopted by Micro Finance Institutions (MFIs) in Kenya, and how these affected the growth of Micro Finance Institutions (MFIs) in Kenya. A survey was conducted targeting all the thirty four registered MFIs in Kenya. After data collection, the research data was analyzed in a correlation design using SPSS program. The research findings showed that most Micro Finance Institutions (MFIs) have innovated new services like mobile banking, business accounts, SME loans, school fee loans, financial trainings and partnerships. Other Micro Finance Institutions (MFIs) have networked their offices, opened new branches and innovated new products in a bid to grow their firms. Besides, there was strong positive correlation between financial growth and reason like addressing clients’ needs, clients’ retention and reducing transaction time. The research concluded that financial innovation by MFIs lead to an aggregate growth of firm in various dimensions like number of products, market share, loan sales and the overall profitability. The research findings indicated that financial innovations were a crucial growth strategy adopted by various Micro Finance Institutions. Therefore the research recommended that financial innovation should be encouraged among MFIs. Further studies can be focused on the possible effect of innovation of the stock prices and the clients’ perception on financial innovation.