Effect of Digitalization on Financial Performance of Microfinance Banks in Kenya

Abstract

Digitalization impacts at a firm level include; quick response to change, facilitate access to large sets of data, proper operational market analysis, increased productivity, enhanced competitive advantage and changes in business roles. In addition, it offer new business opportunities, disrupt existing models of business and effective management. It is imperative to articulate that digitalization has an impact on the decision making through effective data analysis and forecasting, improved interaction. Additionally, digitalization is pivotal for scaling up the innovation capacities and decline the time- to- market. Moreover, it is presented as critical trend causing disruption in the business environment as well as the whole global society. Therefore, the driving force of this study was to investigate the effect of digitalization on financial performance of microfinance banks in Kenya. This examination was reinforced by causal research design expounding on the causal-effect interconnection amid digitalization and financial performance. Consequently, the data was sourced from secondary means from CBK comprising of 14 microfinance banks regulated and operating under the CBK. Hence, the correlation analysis was expedited using the Pearson correlation method to ascertain the degree of interconnection between the regressed and the regressor variables. From the computational mathematics, all the predictor variables recorded a positive correlation towards the dependent variable. In addition, R-Square was 0.684, thereby, this delineates that 68.4% of changes and variation of financial performance were as a result of Electronic Wallet, Mobile Banking, ATM Banking and Internet Banking. The remaining 34.6% of variations in the financial performance of the microfinances were as a result of factors not captured in this rigorous investigation. Additionally, ANOVA test expedited posted that 0.000 hence below the P value of 0.05, meaning that the model posted statistically significant. Empirically, when all factors were held constant the financial performance constant figure was negative 0.130. This postulates that microfinance was making losses whenever, everything was maintained unchanged. Consequently, a unitary positive adjustment on the ATM Banking resulted in a decrease in financial performance by 0.022 when other factors were held at constant. As result, a small advancement of internet banking replicated an insignificant reduction on the internet banking by 0.037 when enablers are held constant. In addition, an addition of one unit of mobile banking triggered a significant correlated increment of the financial performance by 0.19 if other factors are maintained unchanged. As a subsequent, a unitary positive adjustment of electronic wallets brought about significant increase on the financial performance by 0.535 when other determinants are held constant. In summary, this study calls for the establishment micro finance strategies that promote the development of innovation, increase financial access, enhance creativity, upgrade infrastructural development, as well as the yardstick for innovation. These are major blueprints promoting the business transformation through proper reaping from existing opportunities