Effect of Financial Technology on Financial Performance of Deposit-taking Savings and Credit Cooperative Societies in Nairobi County, Kenya

Abstract

The adoption of fintech among Deposit Taking Savings and Credit Cooperatives in Kenya is still in its early phases. “Some DT SACCOs have implemented fundamental fintech technologies, such as automated loan processing and underwriting systems, mobile and online banking platforms, and electronic payment systems. However, DT SACCOs vary significantly in their complexity and adoption levels, and many of the smaller and less well-funded SACCOs have trouble acquiring and deploying cutting-edge fintech technologies. The current study sought to investigate how financial technology influences the financial performance among DT SACCOs in Nairobi City County, Kenya. The independent variables for the research was fintech as measured by value of transactions through fintech solutions. Credit risk, liquidity, capital adequacy and DT SACCO size were the control variables while the dependent variable was financial performance measured as ROA. The study was guided by digital divide theory, inclusion financial theory, and technology diffusion theory. Descriptive research design was utilized in this research. The 43 DT SACCOs in Nairobi City County, Kenya as at December 2022 served as target population. The study collected secondary data for five years (2018-2022) on an annual basis from SASRA and individual DT SACCOs annual reports. Descriptive, correlation as well as regression analysis were undertaken and outcomes offered in tables followed by pertinent interpretation and discussion. The research conclusions yielded a 0.530 R square value implying that 53% of changes in DT SACCOs ROA can be described by the five variables chosen for this research. The multivariate regression analysis further revealed that individually, fintech has a positive and significant effect on ROA of DT SACCOs (β=0.162, p=0.001). Capital adequacy and liquidity exhibited a positive but not statistically significant influence on ROA. Credit risk had a negative effect on ROA of DT SACCOs as shown by (β=-0.157, p=0.000). Firm size exhibited a positive and significant ROA influence as shown by (β=0.293, p=0.000). The study concludes that fintech plays a significant role on financial performance of DT SACCOs. The study recommends the need for policymakers to encourage and support the adoption of fintech solutions within the cooperative sector. The study further recommends that DT SACCOs should implement robust credit risk assessment models, diversify their loan portfolios, and set appropriate risk tolerance levels. Future research ought to focus on other financial institutions in Kenya to corroborate or refute the conclusions of this research.”