The Effect Of Financial Innovations On Growth Of Commercial Banks In Kenya

Abstract

The purpose of the study was to establish effects of financial innovations on growth of commercial banks in Kenya. Specifically the study sought to establish the effects of mobile banking, online banking, automated cheques clearing and agency banking on growth of commercial banks in Kenya. This study adopted descriptive design. The population of study consisted of all the licensed commercial banks that were registered with Central Bank of Kenya by December 2012. The study adopted a census study approach since the population was small and the institutions were easily assessable to be reached, hence the sample size was all commercial banks. The study collected secondary data only; these data included past and immediate income statements, statements of the financial position, cash flow statements, budget records, books and other publications in relation to banking industry in Kenya. Data collected was from financial year 2007 to 2012. A multiple regression model was adopted to establish the form of relationship between growth and the financial innovations. The study found out that majority of the banks had adopted mobile banking and online banking while a number of banks had adopted automated cheques clearing and agency banking which have been one of the recent innovations among commercial banks in Kenya. Financial innovation lowers the transaction cost of transferring funds. It was concluded that adoption of the financial innovations had improved commercial banks growth and improved their operations and earnings. Financial innovations not only increased their market coverage but also improved their liquidity and also enabled them to remain competitive in the market especially in the current turbulent business environment. The study recommends that there is need for commercial banks to adopt new financial innovations since this has provided the benefit of constant access to certain core services without necessarily visiting the banking hall. There is also need to adopt financial innovations to improve liquidity in banks. The study had shown that commercial banks that had adopted financial innovations had improved their liquidity. Adoption of financial innovations enables operational efficiency of commercial banks through making financial services more available and at reduced costs.