The relationship between mobile money and loans issued by commercial banks in Kenya

Abstract

Lending which may be on short, medium or long-term basis is one of the main services that commercial banks do render to their customers. According to Adedoyin and Sobodun (1991), lending is undoubtedly the heart of banking business. Therefore, its administration requires considerable skill and dexterity on the part of the bank management. Commercial banks in Kenya are fast embracing the mobile technology as a platform to operate on and increase not only their presence, but also their efficiency and general profitability. Mobile money has transformed the way people in the developing world transfer money and now it is poised to offer more sophisticated banking services which could make a real difference to commercial banks‟ lending performance. The study sought to determine the relationship between mobile money and loans issued to customers by commercial banks in Kenya. This research adopted a descriptive research design. The population of this study was all the 43 commercial banks in Kenya as at September 2015 where a census survey was adopted. Secondary data on mobile money, especially the value of transactions, was collected from the Central Bank of Kenya‟s Bank Supervision reports as well as from the online repositories. Further, data on customer deposits and loans was collected from the Bank Supervision reports. The data on number of mobile banking users was obtained from the Communication Authority of Kenya‟s annual reports. All the data was collected on annual basis from 2007 to 2014 since mobile banking was introduced in Kenya in 2007. The study revealed that the value of transactions had a positive but insignificant effect on loans and advances, p > .05. The results also showed a negative relationship between number of users and loans but the relationship was insignificant, p > .05. Further, the results showed that deposits had a positive effect on loans. The relationship was marginally significant at 5% level but significant at 10% level. Since both measures of mobile money were insignificant, the study concludes that mobile money does not influence the loans issued by commercial banks in Kenya. The study recommends that to improve on the loans and advances, banks should come up with more mobile based loan products for the customers. Secondly, the study recommends that loan products based on the mobile money platform should extend beyond the cash advanced to bank clients. In order to achieve more mobile money penetration, the study recommends that more banks should partner with the telecommunication firms by allowing them to operate mobile money loan services without the customers having to open accounts with the banks at their branches.