The Effect of Electronic Banking on Financial Performance of Savings and Credit Cooperative Societies in Nairobi County

Abstract

SACCOs in Kenya have developed rapidly in terms of size, structure and variety of product and services. They have transformed gradually from manual system of operations to a more open, effective and competitive system which has led many SACCOs to automate their services and therefore adopt innovative channels for service delivery. An assumption of research in operations improvement and operations learning is that technological innovation has a direct bearing on organizational performance improvement. Though studies have looked at electronic banking and financial performance of financial institutions in Kenya, Less has been researched on e-banking effect on financial performance of SACCOs. This correlational research study sought to determine the effect of electronic banking on financial performance of SACCOs in Kenya. Secondary data was collected from published financial statements for a five year period (2010 to 2015) on return on assets, capital adequacy, liquidity, size, earnings ability and electronic banking. Regression analysis results establish that 6.2 percent of variations in financial performance are explained by variations in these factors. The study documents statistically significant positive relationships between electronic banking and financial performance of the SACCOs as well as between size and financial performance. It therefore recommends that SACCOs should invest in innovative electronic service provision channels to enhance their competitiveness and subsequently financial performance. Further smaller SACCOs should be encouraged and supported to be competitive in an environment where size influence performance. Further studies should focus on classifying the financial institutions as early or late adopters and investigations should incorporate other variables like costs of electronic banking implementation, training and outreach.