The Effects of Financial Inclusion on the Financial Performance of Commercial Banks in Kenya

Abstract

Financial inclusion refers to a process that ensures the ease of access, availability and usage of the formal financial system for all members of an economy. The importance of an inclusive financial system is recognized in the policy because of its several merits. Financial performance is a subjective measure of how well an organization can use assets from its primary mode of business and generate revenues. The objective of the study was to determine the effects of financial inclusion on financial performance of commercial banks in Kenya. The study was guided by three theories namely; financial intermediation theory, modern economics theory and market power theory. The study adopted descriptive research design. The study used secondary data collected from various sources. Data on financial inclusion and financial performance of commercial banks was collected from the Central Bank of Kenya. The study used Statistical Package for Social Sciences Version 20.0 to aid in data analysis. The paired t-test, a non-parametric test of differences was used in this study as a test of significance. The study established there is a positive relationship between financial performance of commercial banks as measured by ROA and the internet banking. The study also established that 61.80% of changes in the Return on Assets are attributed to the three independent variables. This study concluded that there is a positive relationship between financial performances of commercial banks in Kenya as measured by ROA and the amount transacted through Branch networks in the Country, the value transacted through agency banking units and the amount transacted through internet banking across the Country. The study shows that financial inclusion had great effects on the financial performance of commercial banks in Kenya, as it was revealed that there was a greater variation on financial performance of commercial banks in Kenya through the branch networks in the country, the value transacted through agency banking units and the amounts transacted through internet banking across the country. This was inferred from significance values which were above 0.05.