Effects of Banking Sector Innovation on Financial Inclusion in Kenya

Abstract

The banking sector innovations are bringing millions of new customers and especially millions of people who are unbanked and have access to the mobile phone are increasingly getting banking services. However, it is also important to acknowledge1 that the increase in the financial innovations has not directly translated to the1effective use of the banks. The present study sought to establish the relationship and effect of banking sector innovations and financial inclusion in Kenya. The study adopted descriptive survey design targeting 43 commercial banks where census was used. Secondary1data was collected over a five-year period (2015-2019) and the analysis1 was done using descriptive and inferential statistics. The findings of1the first objective indicated that banking sector innovations had strong and positive1relationship with financial inclusion. For the second objective, the study noted that only mobile and internet banking (p<0.05) had significant effect on financial inclusion after controlling for the size of commercial banks. The study concluded1that banking sector1innovations drive financial inclusion among Kenyan commercial1banks. The1study recommended that the Central1Bank1of 1Kenya should formulate sound prudential guidelines and regulations that would promote uptake of innovations in the banking sector. The innovations launched or proposed by the commercial banks in Kenya should readily be approved by the CBK. Based on their sizes (large, medium and small) also referred to as the tier system of classification, the management of the commercial banks should give more weight on mobile and internet banking as this would significantly drive financial inclusion of the commercial banks