The Effect of Financial Innovation on Financial Inclusion in Kenya
Abstract
Over 39% of the world population is excluded from formal financial system. In third
world countries, more than half of the population do not have an account with a
financial institution and the situation is particularly acute in Sub-Saharan Africa.
Financial inclusion is a key component of an all-inclusive social, political and
economic development in any country since exclusion from the formal financial
system has been identified as one of the major bottleneck to a world without poverty.
Consequently, the importance of an all-inclusive financial system is widely
recognised in the policy circle and has become a key consideration in financial policy
formulation in many countries including Kenya. The objective of this research was to
establish the effect of financial innovation on financial inclusion in Kenya. The study
adopted a descriptive statistics and used secondary data from the Central Bank of
Kenya. The data on number of deposit accounts, number of automated teller
machines, number of registered bank agents, number of mobile money transactions
and number of licensed deposit taking micro finance institutions was collected for the
period between 2008 to 2017 on quarterly basis. The data collected was analysed
using descriptive and inferential statistics. Descriptive statistics included trend
analysis of the variables over the period of the study. Inferential statistics used include
Pearson correlation and regression analysis. The data was analysed by use of
Statistical Package for Social Sciences version 25 to determine the correlation and
regression analysis between financial inclusion and the various variables of financial
innovation. The correlation results showed that the association between number of
bank agents, number of mobile money transactions, number of automated teller
machines, number of deposit taking micro finance institutions and the number of
deposit accounts was strong and positive. Regression results showed that number of
deposit taking micro finance institutions and number of mobile money transactions
had a positive effect on financial inclusion while agency banking had a negative effect
on financial inclusion. Overall, the regression model showed that financial innovation
was a good predictor of financial inclusion. The study concluded that financial
innovation has a significant effect on the level of financial inclusion. The researcher
recommends that all player in the financial inclusion space need to have an
understanding of the financial lives of the financially excluded population including
how they acquire and utilise their finances. This way, they will be able to design
relevant frameworks and financial product and services, which meet their needs.
Another study including other forms of financial innovations such as Shariah
compliant products and credit reference bureaus as independent variables can be done
to assess if they have an effect on the level of financial inclusion in the country.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
The following license files are associated with this item: