Effect Of Technological Financial Innovations On Financial Performance Of Microfinance Institutions In Kenya

Abstract

Being innovative can potentially establish a competitive edge for financial institutions such as MFIs. This is because, innovative MFIs can expand their market through establishment of new channels of product distribution, new products and new markets. Theobjective1of1this1study1was1to1assess1the1effect1of1financial1innovations1on1financial performance of microfinance institutions in Kenya. This study was based on three theories: The1Financial1Intermediation1Theory, 1Innovation Diffusion1Theory and 1transaction 1cost 1innovation 1theory. The target1 population1 for1 this1 study1 was1 all microfinance1 institutions1 in 1Kenya. Secondary data was collected from 2014 to 2018. Data1 was1 collected1 for1 a1 period1 of1 51 years. This study adopted descriptive statistics where data was analysed using descriptive1 statistics1 such1 as1 mean1 and1 standard1 deviation. The study also used inferential1 statistics1 in which a multiple regression model was developed in order to assess the effect of technological financial innovation on financial performance of the microfinance institution institutions. The study concludes that financial innovation and firm size have a strong and significant1 relationship1 with 1ROA. Liquidity showed a positive1 relationship1 with1 ROA, although the relationship was weak. On1 the1 other1 hand, a negative1 relationship was established between credit risk and financial performance of MFI’s