The relationship between financial innovation and financial performance among savings and credit co-operative societies in Mombasa county Kenya
Muteke, Simon M
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Financial innovation is defined as the creation or designing of new financial products, better process, efficient systems and institution alliances. It also entails the constant improvement of the existing products and activities of financial institutions in order to meet the emerging needs of the stakeholders. All financial innovation strategies are implemented using a few basic techniques such as increasing or reducing risk, pooling risk, swapping income streams, splitting income streams and converting long-term obligations into short-term ones. Innovation strategy is a determinant of SACCO financial performance and provides additional insight into the indirect contribution of the individual dimensions of innovation strategies to SACCO performance. The objective of this study was to determine the relationship between financial innovation and financial performance among SACCOs in Mombasa County Kenya. The study aimed at establishing whether institutional innovation, process innovation and product innovation influence the financial performance of SACCOs in Mombasa County. The study used a descriptive research design. This study aimed at collecting and analyzing data on the influence of financial innovation variables on the financial performance of SACCOs in Mombasa County. The population of the study was 165 SACCOs based in Mombasa County. The study used a random sample of 36 SACCOs. Data was collected from both primary and secondary sources. The primary data was collected using a semi-structured questionnaire while secondary data was collected from the SACCOs annual reports. Primary data collected was mainly on the extent to which the SACCOs applied financial innovation while the secondary data collected was on the financial performance. The data was analyzed using a multivariate regression analysis with the help of SPSS version 21. The results indicated that there was a positive relationship between financial innovation and financial performance of the SACCOs in Mombasa County. The regression analysis revealed that all financial innovation variables had a positive effect on the financial performance of the SACCOs in Mombasa County. The most influential variable was product innovation followed by process innovation and lastly institutional innovation. The coefficient of determination (R2) showed that that 23.2% of the financial performance of SACCOs in Mombasa County was influenced by financial innovation. The study concluded that financial innovation is a predictor of financial performance of SACCOs in Mombasa County. The SACCOs in Mombasa County employed all the three types of financial innovation to a great extent and all had a positive effect on the financial performance. The study recommended that the SACCO management boards should apply more product innovation as this had the greatest impact on financial performance followed by process innovation. The study further recommended that the government should pass legislation that will support the SACCOs to adopt more innovation in order to improve performance. This will help them move from the traditional products to more innovative products that are tailored to meet members‟ needs.
University of Nairobi