Financial Inclusion and Financial Stability of Commercial Banks in Kenya

Abstract

Economies of all nation majorly are reliant on the banking sector. The health, soundness and stability of banking institutions is thus paramount to the well-being of any nation’s overall economy due to the significant role they play especially in accumulating capital, growth of organizations and economic advancement. Subsequently, banks have considered financial inclusion by innovating product lines and diverse products with the sole aim of targeting unbankable consumers. It is notable that notwithstanding these undertakings, some banking institutions have continuously encountered stability related hurdles in Kenya resulting to a few be under receivership and some closing business. Subsequently, it becomes imperative for banking firms to fully consider the interlinkages in deepening financial inclusion and its efficacy on their stability. The theories applied for this study were financial intermediation theory, banking led theory and contemporary banking theory. This study scrutinized the effect of financial inclusion on stability of banks with a targeted focus on all commercial banking institutions hailing from Kenya for a duration of time ranging between 2012 to 2019. The examined bank financial inclusion were deposit accounts, loan accounts, branch network and internet and mobile banking. The study will adopt descriptive research design with the targeted population being all the 43 commercial banking firms that were in operation in the period under consideration. Data analyzed in this study was gathered from the yearly reports of the firms and also from CBK supervisory reports. The collected data was analyzed using STATA version 13 and this basically was descriptive, correlation and regression analysis. A significant association between deposit accounts, loan accounts, branch network, internet and mobile banking and financial stability was reported from the analysis conducted. Further, bank size had a positive moderating effect. From the inferences, it was recommended that institutions of governance ought to streamline polices that are geared towards anchoring adoption of the operationalized measures relating to financial inclusion to amplify accessibility and continuous usage of financial products. A need also arises to divest in banking internal controls and management of security gaps to cushion customers against risk exposure that may arise from usage of alternative service provision channels such as mobile, internet, ATMs, agency and other online channels of banking.