Effect of Mobile-based lending on loan default rate among Commercial Banks in Kenya

Abstract

Mobile based lending has acquired significant concern among Kenya’s commercial banks because of its importance. Commercial banks’ performance has greatly improved after the introduction of mobile based lending. Despite the benefits introduced by the increased use of mobile based lending, evidence shows that mobile based lending has contributed to exposure to risks. The focus of this study was determining the effect of mobile-based lending on loan default rate among commercial banks in Kenya. This study was anchored on bank focused theory, innovation diffusion theory and financial intermediation theories. Descriptive research design was adopted. The study targeted commercial banks in Kenya. The target population was 42 commercial banks and therefore, the study used census approach to select a sample size. Secondary data on loan default rate, mobile based lending, bank size, interest rate and risk exposure was collected from financial year 2015 to 2019. The data collected from the field was analysed by use of SPSS version 22.0 and presentation of research findings was done in figures and tables to enhance its efficiency and effectiveness in interpretation. This study used the regression model to determine the effects of mobile-based lending on default rate among commercial banks in Kenya. Mobile based lending was found to positively and significantly affect (β=0.414, p = 0.004) loan default rate among commercial banks in Kenya. The study also found that interest rate has a positive and significant (β=0.482, p=0.002) influence on loan default rate among commercial banks in Kenya. From the findings, the study found that bank size has a positive and significant influence (β=0.364, p=0.012) on loan default rate among commercial banks in Kenya. The study also established that the influence of risk exposure on loan default rate among commercial banks was significant (β=0.271, p=0.025). It is therefore important for commercial banks to embrace comprehensive process for loans appraisals-processes that are being dispersed via mobiles; this will help to improve assessment of borrowers that are credit worthy. It is also important for them to make sure that the appraisal process involves examining the credit history of the borrower, their flow of cash, capital, income levels, and also how frequent they are in borrowing.