Effect of Financial Technology on Economic Growth in Kenya

Abstract

Financial technology has significantly affected the operation of financial firms and created the foundation for the financial institutions to differentiate between their products and their competitors. Fintech is essential for directing money to efficient purposes and allocation of risk to people who can utilize them, and this boosts economic growth. The objective of this research was to determine the effect of financial technology on Kenya’s economic growth. The study was based on disruptive innovation theory, diffusion of innovation theory and Schumpeterian theory. The independent variable was financial technology measured using the number of transactions through mobile banking, internet banking, agency banking and Mpesa while the control variables were unemployment rate and inflation. The dependent variable that the research attempted to explain was the economic growth in Kenya. The data was collected on a quarterly basis over a period of 10 years (from January 2012 to December 2021). A descriptive research approach was employed in the research, with a multivariate regression model used to examine the connection between the study variables. The study's findings yielded an R-square value of 0.995, indicating that the chosen independent variables could explain 99.5 percent of the variance in Kenya’s economic growth, while the other 0.5 percent was due to other factors not investigated in this study. The F statistic was significant at a 5% level with a p=0.000. This suggests that the model was adequate for explaining economic growth in Kenya. Further, the findings demonstrated that mobile banking; internet banking and Mpesa had a significant positive impact on economic growth as indicated by positive coefficients and p values less than 0.05. Inflation was established to possess negative and considerable outcome on economic growth, as shown from the negative coefficient and a p value less than 0.05 while agency banking and unemployment rate were found not to have a significant effect. The research recommends the need for policy makers to create a conducive environment for development of more fintech innovations while at the same time ensuring the safety of the existing ones as this contributes to a rise in economic growth. The study also recommends that there is need to come up with effective measures of managing inflation levels as high inflation has an adverse effect on economic growth. The study recommends the need for future researchers to conduct a study for a longer period of time to capture the effects of economic cycles.