The effect of financial innovation on the financial performance of micro-finance institutions in Kenya

Abstract

Microfinance institutions play a vital role in the economic development of many developing countries through the provision of a wide range of financial products and services to the poor, low-income households and micro and small enterprises. This study investigated the factors that influence financial innovation in MFI's and its impact on financial performance in micro finance institutions in Kenya. The study focused on testing the effects of Financial Innovation on the Financial Performance of MFIs for the period 2008-2012. Primary data was collected through a questionnaire administered to the MFI's. An analytical model was developed to determine the strength of the relationship between variables. Analysis of the data showed that new technology, expenditure in ICT, number of transactions in mobile banking and branch networks, had the greatest importance in influencing MFI innovation. Therefore, financial innovation and financial performance is positively related.