Relationship Between Bank Innovations and Financial Inclusion Among Commercial Banks in Kenya

Abstract

Over a half of the populations in many countries are unbanked despite the benefits associated with financial inclusions (CGAP, 2010).The banking sector in Kenya has continued to embrace financial innovations especially in technology. Automated teller machines have grown a hundred fold between 2001 and 2010 while mobile phone banking transactions increased from 48,000 per annum in 2007 to over 14 million millions of transactions per annum in 2014. During this period there were massive investments by banks in technology based banking. The Central Bank of Kenya has in the recent years introduced several regulatory interventions aimed at increasing financial inclusion in Kenya. The mobile operators and financial institutions have successfully launched numerous technological innovations either to increase the convenience for existing customers or to reach out to new customers. There is evidence of more un-banked people moving into the formal financial grid and money initially circulating in informal systems can now be accounted for. Mobile money has made it much easier to receive and transfer money as well as make payments. The financial inclusion in Kenya has increased 40.5 percent in 2014 from 26.3 percent in 2003. The objective of this study therefore was to establish the relationship between bank innovations and financial inclusion among commercial banks in Kenya. Descriptive research was undertaken and a census was done on all 43 banks of Kenya as listed by the Central Bank of Kenya as at 31st December 2017. A regression model was used to test the relationship between the independent and the dependent variable. The study concluded that mobile banking and automated teller machines do have a positive correlation to financial inclusion with mobile banking innovations having a very strong and significant correlation. Therefore commercial banks need to design strategies that encourages their client to uptake mobile banking. Also, there is need for government to increase and strengthen internet connectivity across all the remote regions in Kenya. The government should also reduce tax on mobile banking as this would encourage mobile banking.