Effect of Mobile Lending on Non-performing Loans Among Commercial Banks in Kenya

Abstract

Commercial banks have increased their digitization, putting mobile lending at the frontline, in order to enhance their network base, reduce personnel costs, compete favorably with their peers, as well as improve their financial performance. Nevertheless, with all of this increased digitization, some banks have shown a decline in performance, others have been placed under statutory management, and still others have been completely closed. One of the explanations for this trend is the fact that the increase in mobile lending has also been followed by increases in the level of NPLs. This research aimed at finding the effect of mobile lending on the level of NPLs among commercial banks in Kenya. Bank size, capital adequacy and interest rate were used as the control variables in the model. Descriptive research design was used. The 38 commercial banks in Kenya were the target population. Research variables data were derived from CBK and annual financial statements from 2016 to 2020 for all the 38 banks. Regression as well as correlation analysis were utilized to test the research hypotheses by establishing the correlation between mobile lending and NPLs. The study found that mobile lending (β=0.166, p=0.192) and interest rates (β=0.379, p=0.162) had a positive but not significant effect on the level of NPLs among banks in Kenya. The study also found that bank size (β=-0.348, p=0.021) and capital adequacy (β=2.141, p=0.028) had significant effect on the level of NPLs among banks in Kenya. The results also indicated R2 of 0.299 which implied that the selected independent variables contributed 29.9% to variations in NPLs. The research recommends that managers of commercial banks ought to keep offering mobile loans as this does not increase the risk of delinquent loans. Policy makers such as CBK ought to develop policies and guidelines that would make it easy for banks to offer mobile loans to their clients. Further, the research suggests that banks in Kenya should strive on growing their asset base as bigger banks are able to enjoy economies of scale and have better structures that help them in managing and monitoring NPLs compared to small banks.