An Analysis of Financial Innovations in the Kenyan Banking Sector

Abstract

The business environment has changed and it has been characterized by stiff competition among the players and the banking industry in Kenya is no exception. Competition amongst the commercial banks has pushed the banks towards becoming more innovative. This study therefore sought o carry out an analysis of financial innovation in the Kenyan banking sector. The objectives of the study were to analyze financial innovations in the Kenyan banking sector and to determine the motivations, benefits and challenges of financial innovations in the Kenyan banking sector. This was a census survey of financial innovation in the Kenyan banking sector, motivation, benefits and challenges of the innovations in the last 15 years. The study used primary data collected by use of a questionnaire designed and administered through “drop and pick technique” The findings of the study indicated that most of the large and medium sized banks innovated regularly while small sized banks were split between innovating regularly and on rare occasions. In terms of ownership, banks with government participation were lead in terms of innovating regularly followed by privately owned domestic banks, then foreign public owned banks while foreign owned, private banks were on the bottom of the list in terms of innovating regularly. In terms of length of operation, those that been operating in Kenya for 5 to 15 years 100% of them undertook financial innovation regularly. Most of the innovations were introduced in the period 2006-2009. These include ATMS, SMS banking, internet banking, youth oriented accounts, women oriented banking and children accounts. There are a number of products that had yet to be introduced by many banks, these include, credit cards, risk management, and agent banking. Improved customer service and increase in bank revenue were the benefits that most of the respondents were in agreement with, brought about by financial innovation. There are various challenges that banks faced in adoption of financial innovation. On top of that list is introduction of similar products by competitors and customers poor response to innovative products.