The Effect of Electronic Banking on the Financial Performance of Deposit Taking Microfinance Institutions in Kenya

Abstract

The impact of IT investments in banking is not always positive but heterogeneous. It’s also noted that a DTMFIs adoption of e-banking strategy may have an impact on an organization based on whether it is software or hardware based, whether it’s in-house or outsourced. The main aim of this research was to establish the effect of electronic banking on financial performance of DTMFIs in Kenya. The study examined the adoption of automated teller machines, mobile banking, and the use of personal computers and how they affect the fiscal efficiency of DTMFIs in Kenya. Financial performance was assessed using Return on Assets. The study assumed a descriptive design where inferential statistics were used in analysing the data. The study population as composed of thirteen registered DTMFIs in Kenya as at August 2016. The primary data was collected through the management of questionnaires to the staff of these DTMFIs. Both descriptive and inferential statistics including mean and frequencies was used and data was analysed using linear regression model. The study established that microfinance institutions that take deposits had embraced e-banking technologies and that there is an optimistic link amongst electric banking and fiscal performance of DTMFIs in Kenya. The study concludes that DTMFs performance as measured by performance determinants namely Management efficiency mean, capital adequacy, profitability, liquidity management, asset quality, market share of DTMFI and while macro-economic factors is explained by investment in ICT and internet banking. The study endorses that DTMFIs in Kenya should adopt the utilization of mobile banking in their activities due to the sum of people who own mobile devices is increasing significantly. Additionally, the union of mobile phones and microfinance institutions in Kenya that take deposits has revolutionized the microfinance institutions operations.