Effects of financial innovation on the financial perfomance of deposit taking saccos in Nairobi County

Abstract

Financial performance is a subjective measure of how well a firm can use assets from its primary mode of business and generate revenues. In recent times Sacco’s are facing cut throat competition stemming from the new players that have entered the market for financial services. This study therefore gives a clear insight on the financial benefits enjoyed by Saccos in the event they adopt various financial innovations and the entire benefits accrued in terms of the organisational profitability and sustainability. These financial innovations bring about an efficient customer services system and reduction in operational costs. The objectives of the study were to establish the relationship between financial innovation and financial performance of Deposit taking SACCOs in Nairobi County. The population of interest was all the 44 deposit taking Sacco’s in Nairobi County. Secondary data on performance was sourced from the Sacco’s annual financial reports and Sacco Societies Regulatory Authority (SASRA) supervisory reports. The data covered the period 2008 to 2012. Data analysis involved reducing accumulated data to manageable levels, developing summaries, looking for patterns and applying statistical techniques. This Study established that Saccos have started embracing the use of money transfer services such as M-pesa, Zap, Orange Money and Yu cash, but they were yet to link them with their back office financial databases. The study also established that Saccos were slowly adopting internet banking. This has brought about the usage of information technology, Internet, ICT infrastructure, websites, and computer technology, in addition to Internet connectivity technology. This study therefore recommended that SACCO must keep abreast with new trends in the financial market. Such areas include ATMs and other technology driven products. The management of these Saccos should approve the ICT budgets to acquire new software to fully automate its operations which will then form a platform from where new products will be served.