Effect of Digital Financial Innovation on Economic Growth in Kenya

Abstract

There is scarcity in the empirical works that points out the contribution of digital financial innovation on economic development and those have been done don`t directly relate financial innovation to economic growth. Notable research conducted in regard to financial advancement seem to concentrate on banks and their impact on these financial institutions but not to the economy. This has denied the government and the investors very vital information regarding this critical area of financial innovation to economic development. The survey aimed to assess the impact of electronic financial innovation on Kenya's economic growth. The aim was to be achieved by analyzing the proxies of electronic innovation and their impact on the economy of Kenya. Such variables included the volume of mobile money transfer, the value of electronic mobile transfer and the volume of internet banking transactions. The study used descriptive structure and focussed on the information from reputable sources. Quarterly data was collected for a span of 10years, making the total number of observations to be 40. An array of approaches were used in the analysis ranging from correlation, descriptive analysis to ordinary least square regression. The model registered a 0.992 R square indicating a good fit. The model also had a 842 F value and a 0.000 P value which indicated that it could be used to generalize the population parameter. The portion slope factor for the quantity of electronic payment transactions was 0.8821, while the value of digital payment transactions was 0.217, the portion slope figure for the internet money transfer volume was 0.5431. The study concludes that all digital financial innovation variables contribute positively to Kenya's economy's expansion.This research recommends that the government should prioritize building the information, communication and technology infrastructure that would support Electronic and money wiring services among the banks in Kenya. Secondly, banks should strive to invest in efficient mobile money transfer systems and platforms. This would enable them to be competitively placed and increase their transaction volume, which will consequently spillover to the economy.