Effect of Financial Technology on Financial Inclusion in Kenya

Abstract

Fintech has the potential to both promote financial inclusion or lead to financial exclusion depending on various factors. Arguments in favor of fintech promoting financial inclusion holds that Fintech provides access to financial services, such as mobile banking and digital payments, to people who were previously excluded or underserved by traditional financial institutions. Fintech can increase competition in the financial sector, which can lead to better prices, better services, and increased access to financial services for everyone. The objective of this research was to determine the effect of financial technology on Kenya’s financial inclusion. The study was anchored on technology diffusion theory and supported by inclusion financial theory as well as the digital divide theory. The independent variable was financial technology measured using the number of transactions through Mpesa, mobile banking, internet banking and agency banking while the control variables were interest rate, and economic growth rate. The dependent variable that the research attempted to explain was the financial inclusion in Kenya measured using financial inclusion index. The data was collected on a quarterly basis over a period of 10 years (from January 2013 to December 2022). A causal 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 0.787, indicating that the chosen independent variables could explain 78.7 percent of the variance in Kenya’s financial inclusion, while the other 21.3 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 financial inclusion in Kenya. Further, the findings demonstrated that Mpesa, mobile banking and economic growth had a significant positive effect on financial inclusion as indicated by positive coefficients and p values less than 0.05 while internet banking, agency banking and interest 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 financial technologies while at the same time ensuring the safety of the existing ones as this contributes to a rise in financial inclusion. The study also recommends the need for policymakers to encourage private and public sector collaborations to invest in critical sectors, such as agriculture, technology, and infrastructure, that have the potential to drive economic growth. The study recommends the need for future researchers to conduct a study on the effect of fintech on the different sectors of the economy such as small and medium enterprises.