Effect of Mobile Lending on the Level of Nonperforming Loans in the Kenyan Banking Industry

Abstract

In the Kenyan banking sector, mobile lending has been embraced by to reduce operational expenses and to enhance the volume of loans. At the same time, the number of nonperforming loans (NPLs) held by commercial banks has increased. The critical question is whether the rise in NPL results from mobile lending. Given that mobile lending has already cost Kenya billions of shillings, it is critical to investigate the link between growing NPLs and mobile lending. It is critical to keep NPLs under control so that commercial banks' financial performance is not adversely affected. An increase in NPL among commercial banks if not checked can lead to huge losses in the banking sector and the effect would be felt in the entire economy. This research sought to bring out the effect of mobile lending on the level of NPLs in the Kenyan banking sector. Inflation, unemployment rate and interest rate were used as the control variables in the model. Descriptive research design was used. Research variables data were derived from CBK and KNBS from 2011 to 2020 on a quarterly basis. Regression and correlation analysis were used to test the study hypotheses by establishing the relationship between mobile lending and NPLs. The results indicated R2 of 0.613 which implied that the selected independent variables contributed 61.3% to variations in NPLs. The study found that mobile lending (β=0.166, p=0.192) and interest rates (β=0.379, p=0.162) had a positive but not significant effect on the level of NPLs in the Kenyan banking sector. The study also found that inflation (β=0.348, p=0.021) and unemployment rate (β=0.767, p=0.000) had significant effect on the level of NPLs in the Kenyan banking sector. The study recommends that managers of commercial banks should keep offering mobile loans as this does not increase the risk of delinquent loans. Policy makers such as CBK should come up with policies and guidelines that would make it easy for banks to offer mobile loans to their clients. Further, the study recommends that policy makers should keep inflation and unemployment rate at low levels as these two adversely affects the level of NPLs.