The Effect of Electronic Banking on Growth of Customer Deposits of Microfinance Banks in Kenya

Abstract

To meet the growing needs of customers, firms have successfully adopted e-banking to enhance the quality of their services and products and become flexible enough to quickly respond to their customer request and market change. The Kenyan banking sector today provides a wide array of products to increase to financial services. Low income customers can borrow and access small loans through mobile banking channels for example Mshwari through Mpesa. ICT-based products and services used by commercial banks include use of SMS banking and pre-paid cards. The study sought to determine the effect of electronic banking on growth of customer deposits of microfinance banks in Kenya. The study used a descriptive survey to establish the relationship between electronic banking and growth in customer deposits. The study used microfinance banks because of the rapid adoption and use of electronic banking services and products as tools for enhancing their level of competitiveness and growth in customer deposits. The study involved a census survey of nine (9) microfinance banks that had been in operation for five years (2010-2014). The study used secondary sources of data that was obtained from central bank of Kenya audited reports of the nine microfinance banks. Data analysis involved descriptive statistics, correlation analysis and regression analysis. The descriptive results observed that there was an increase in ATMs of microfinance banks which was is an indication of increased use of electronic banking. The mean score was 6%. The findings therefore conclude that use of electronic banking led to an increase in customer deposits. The study found that there was a strong correlation between the increase in automated teller machines and growth in customer deposits. Increase in ATMs was found to be statistically significant in the model. This is because its p-value was less than 5%. The regression results concluded that effective lending; firm size and operating efficiency were found to be statistically insignificant because their probability (p)-values was above 5%. Further, the study concludes that there was a strong correlation between the increase in automated teller machines and growth in customer deposits. This implies that most customers used electronic banking platforms like mobile phones to deposit their money in their in the bank account. The study was limited to microfinance banks only, the findings obtained herein cannot be used to make generalization in the banking industry. The study recommends that central bank of Kenya should set policies that promote microfinance banks to adopt and use electronic banking as a platform for increasing access to financial services by providing affordable banking services to low income earners who could not afford banking services previously. The study also recommends that microfinance banks should invest in modern technologies as a tool to enhance their competitive abilities against their competitors this will enable them to attract more customers and retain existing ones and thus lead to increased sales and profitability. A comparative study should be conducted to investigate the effect of electronic banking in growth in customer deposits after a period of five years. This is because technology keeps on changing therefore the study recommends that a similar study should be conducted after a period of 5-10 years then findings may be compared upon which reliable conclusion can be drawn.