The Effect of Financial Innovation on Financial Performance of Deposit Taking Micro-finance Institutions in Kenya

Abstract

Innovation by firms is an important determinant of financial performance and growth. Locally, some researchers have concentrated on financial innovation and financial performance of banks as a topic but overlooked the effect of financial innovation on the financial performance of DTMs. The study thus sought to establish the effect of financial innovation on the financial performance of DTMs in Kenya. The study targeted all DTMs in Kenya. Data was analyzed by applying both descriptive and inferential statistics. Descriptive statistics was used to summarize qualitative data and the results presented in tables. The SPSS Version 17 was used to analyze primary data collected by using questionnaire administered to the respondents. Through regression analysis, the researcher was able to formulate an analytical model that shows the effect of financial innovation on financial performance of DTMs. Results from descriptive statistics shows that the full potential of financial innovation in loan appraisal is yet to be fully realized; innovation is yet to be fully integrated into product development among the DTMs; financial innovation is of positive influence to staff performance and that the cost of loan recovery has been substantially reduced with financial innovation as indicated by the high means. The study concludes that financial innovations have positive effect of financial performance of DTMs in Kenya. The researcher recommends financial literacy and capability initiatives as measures for stimulating rapid financial innovations among DTMs in Kenya and should be part of their comprehensive strategy for responsible and innovative financing to borrowers in Kenya.