The Effect Of Social Media Usage On Financial Performance Of Deposit-Taking Micro Finance Institutions In Kenya

Abstract

The increasing plethora of social media platforms have sparked both opportunity and concern on how the use of social media affects financial performance of microfinance institutions. This study primarily sought to establish the effect of social media usage on financial performance of microfinance institutions in Kenya. The study employed both primary and secondary data. Semi- structured questionnaires were used for primary data collection and were dropped and picked later. Secondary data was garnered using statements of financial position of DTMFIs from 2014 to 2016. A multiple linear regression model was utilized to determine whether financial performance was dependent on the specific variables indicated in the study. The study showed that all the microfinance institutions have embraced social media usage on their businesses activities with Facebook being the most commonly used platform for interaction between customers and institutions. Social media provides a platform for marketing and sales of products and services, access to customer comments, needs and real-time feedback to improve on customer satisfaction. It was found that the average number of new customers acquired through social media increased from 800 in 2014 to 1570 in 2016 leading to an increase in the average loan portfolio among the microfinance institutions over the three years ranging from Kshs. 16 million in 2014 to Kshs. 24 million in 2016. Customer acquisition cost was also found to decrease to greater levels due to social media interactions. Most of the microfinance institutions were found to have social media policies which were reviewed yearly by most of the microfinance institutions while others were reviewed when necessary. Microfinance institutions were also found to experience risk management issues upon deployment of social media usage on their business activities. The major risks recorded were data and regulatory risks followed by reputational risks and lastly the operational risks. Financial performance was found to be a function of customer acquisition cost, volume sales and risk mitigation and management by a factor of 0.397, 0.381 and 0.308 respectively. The statistical significance of the variables were 0.171(customer acquisition cost), 0.327 (sales volume) and (0.206) on risk mitigation and management. The study recommends that microfinance institutions in Kenya should have an independent social media function within their administrative structures so as to increase effectiveness in harnessing benefits of social media in business operations and encourage wider participation of customers in their social media platforms which in turn will attract more customers and build up customer trust and enhanced company reputation.