Effect of Mobile Lending on Financial Performance of Deposit Taking Micro-finance Institutions in Kenya

Abstract

Financial players have taken a leading role to leverage the opportunities that information technology has brought to introduce digital solution in their operations with the ultimate aim to positively influence their financial performance and customer satisfaction. Mobile lending has now become a favorite platform for offering financial services because it is convenient to the users which in turn translates to improved financial performance. Study’s goal was to determine the effect of mobile lending on financial performance of deposit taking micro-finance institutions in Kenya. Total mobile loans and total mobile applicants were the main parameters of mobile lending while return on assets indicated financial performance. Capital adequacy and size were included as control variables. Collection of data was from 2018 to 2022 by aid of a data sheet. This research utilized descriptive research design with aid of STATA software. As revealed by R square, explanatory variables studied explained variations of 0.236 in financial performance. It means that, factors outside the model account for 76.4% of the variability in financial performance, while four variables considered contribute 23.6% of the variations. Analysis of Variance revealed the p value of 0.001, which is significant implying that the model was fit for drawing study conclusions. Further, analysis revealed that, loan applicants has a positive and significant effect on financial performance (β=0.008, p=0.024). Total loans has a negative link with financial performance and the association is significant (β=-0.004, p=0.000). Capital adequacy revealed a positive association with financial performance. However, the association is not significant (β=0.016, p=0.340). Finally, research confirmed size has a positive association with financial performance. However, the association is not significant (β=0.002, p=0.710). Study recommends that, deposit taking microfinance institutions establishes proactive strategies of loan collection, strengthening of due diligence processes which are key in thorough assessment of the creditworthiness and financial capacity of the borrowers and implementation of early warning systems aimed at identification of loan default. Further, deposit taking microfinance institutions must ensure a supportive and a clear mobile lending platform is established with the focus of addressing issues of responsible lending, data privacy and consumer protection.