Relationship Between Financial Innovation and Financial Performance of Microfinance Institution in Kenya

Abstract

The study sought to determine the relationship between financial innovations and financial performance of MFIs in Kenya. Despite the increasing number of financial innovations, the impact of innovation on financial performance is still a hard to and misunderstood. The research used a descriptive research design of the licensed and regulated microfinance institutions in Kenya by CBK. The population of this study comprised 9 licensed out of 13 the regulated and licensed by Central bank of Kenya as at 2017. The sample of study conducted on 9 MFIs. The study used secondary data which was obtained from audited financial statement of CBK 2017 report. The regressions were conducted using SPSS version 24. The study established that there is a weak positive and significant relationship between financial innovation and financial performance (ROA). The relationship between financial innovation capital adequacy financial performance was found to be positively weak and significant. Interest on loans was found to have a very strong positive relationship with financial performance since it’s the main source of revenue. Firm size had a very weak adverse association with financial performance. Based on the study findings, the study also concluded that the relationship between financial innovation, capital adequacy interest on loan and financial performance is positive and significant. But a negative effect on firm size and financial performance. The study concludes that the adoption of financial innovations by MFIs in Kenya has resulted in improved performance over the years.