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

Abstract

Innovation is normally defined as the introduction of a new product to a market or the production of an existing one in a new manner. Financial innovation represents something new that reduces costs, reduces risks, or provides an improved product/service/instrument that better satisfies participants' demands. This research paper looked at looked at financial innovation as an independent variable that affects financial performance of Deposit Taking Microfinance Institutions. The objective of the study was to establish the effect of financial innovation on the performance of Deposit Taking Microfinance Institutions in Kenya. The paper explores the. theoretical and empirical review of financial innovation and performance. Further, it looked at measures of financial innovation and financial performance. A descriptive survey design was adopted for the study. The population comprised all Deposit Taking Microfinance Institutions in Kenya. The study relied on primary data where structured questionnaire was used to collect data from respondents of each DTM. Quantitative data was coded and entered into Statistical Package for Social Scientists. Qualitative data was analyzed based on content validity of the responses. Based on the study findings the study concluded that product diversification and product development are the key success factors in product innovation strategies. Likewise, Improved and radically changed products are regarded as particularly important for long term DTM growth and that products at the DTM have been updated and completely renewed for retaining strong market presence. Further, the study conclude that most organizations have adopted process innovation while process innovation is used mostly on increasing profit, enhancing quality personnel, saving of costs and increasing competitiveness. However, the study recommended that organization must recognize marketing innovation to reach more customers. Also the study recommended that prior measures to be adopted such as IT appliances to enhance organization performance.