Effects of Financial Innovations on Efficiency of Savings and Credit Cooperative Organizations in Meru County

Abstract

In the wake of the 21st century, businesses are faced with a wide range of dynamics most of which affect their performance and sustainability. To counter such dynamics, innovation has been upheld as one of the major and most effective measures that business leaders adopt across the globe. Through innovation, firms are able to come up with new ways of doing things as well as new products and services out of which they enhance their competitiveness and performance. SACCOs are among the critical financial institutions in Kenya that play a significant role in the economic growth and development. However, despite their contribution to the economy through job creation, provision of business financing and contribution to the taxes, their performance has been vulnerable with most of these firms suffering competition from already established financial institutions and unfavourable operating environment. Financial innovation as a driver of efficiency is not well understood. This study sought to fill the existing knowledge gap by establishing the effects of financial innovation on efficiency of SACCOs in Meru County, Kenya. The study sought to answer the question; what are the effects of financial innovation on the efficiency of SACCOs in Meru County? The study targeted a total of 181 SACCOs operating in Meru County. A sample of eleven SACCOs was selected and secondary data was collected from this sample. Regression and correlation analysis was undertaken using the Statistical Package for Social Sciences (SPSS) to analyze the collected data. The study found that mobile banking, internet banking and management skills significantly explained efficiency of SACCOs as shown by R2 of 0.557 and P-value of 0.000. The correlation coefficients on the other hand revealed that credit risks had a significant and positive effect on efficiency of SACCOs with a Beta coefficient of 0.032 and a P-value of 0.000. On the other hand, management quality, mobile banking and internet banking had positive but insignificant effect on efficiency of SACCOs with positive beta coefficients and P-values above 0.05. The literature revealed that mobile banking and internet banking were crucial in enhancing the efficiency in an organization and this compares with the findings from the study. The study concluded that firm efficiency was enhanced by focusing on financial innovation. The study suggests that a different study should be carried out to establish the effect of financial innovation on performance by focusing other contexts, or considering other variables that impact firm efficiency.