dc.description.abstract | Financial innovations are increasingly publicized as one of the most successful tools for banking
system with the ability to positively affect its participant's. The importance of the financial
innovation and financial system is not only to banking industry, but also well understood to overall
economic development. This project analyzes the current state of financial innovation and
discusses its effect on the financial performance of the banks in Kenya. Census study was adopted
for this study to achieve the set objective. The population of the study consisted of all 43
commercial banks in Kenya.
The primary data for the study was collected from the majority of commercial banks in Kenya i.e.
32 banks responded the questionnaires well and secondary data was collected by using publication,
annual financial statement reports of commercial banks on the website and the bank supervision
annual report from 2006 - 2012 which was organized by Central Bank of Kenya. Multiple
regression models with SPPS-20 used and descriptive statistics such as means, standard deviation
and regression analysis was applied to analyze the data. The actual effect of financial innovation
on financial performance was measured by regressing ROA and ROE against 12 financial
innovations.
The main findings ofthe study were financial innovations such as number of ATM cards, number
of credit cards issued to customers, number of debit cards issued to customers, number of
Minors/Children account, number of Special deposit account, number of Youth oriented account,
number of customer registered for e-banking, number of customer registered for SMS, number of
customer registered for mobile banking and number of agency banking had improved ROA of the
banks studied by a factor of .021, .004, .008, .03, .022, .005, .015, .014, .009, and .003 respectively,
except unsecured loan and rating customer process for risk management with - .003 and - .009.
Further, the study found out that financial innovations improved the earnings in the commercial
banks that reflected on ROE. Majority of the commercial banks studied revealed that there was
growth of financial performance from the year 2006 to 2012.
The study recommends that, however; financial innovation is yet shows significant positive effect
on the performance of banks, it needs for future investigation beyond financial measures used in
the study as technology continues to penetrate market. The policy maker should response in
formulating policies aimed at to reduce the challenges of banks to adopt financial innovations
easily and ensure that the regulations that exist over the innovation and infrastructure should
helpful to reduce any gap. All the stakeholders need to be involved in the financial innovation
implementation process and practice that will facilitate performance of the banks. | en_US |