The relationship between financial innovation and efficiency of Saccos in Kenya
Financial innovation is the act of creating and then popularizing new financial instruments as well as new financial technologies, institutions and markets. The ability to provide a specified volume and quality of service with the lowest level of resources capable of meeting that specification, performance measures and or indicators is required. Most of the innovations that have occurred have been occasioned by new distribution channel systems such as automatic teller machines (ATMs) and debit card technologies, which have allowed banks to diversify the way in which customers transfer funds, pay bills and buy goods and services without using cash or cheques. SACCOs today are experiencing a reduction in their member numbers since established banking institutions are taking the challenge by investing in faster and more efficient systems that can satisfy their customers’ needs. The objective of the study was to establish the effect of financial innovation on efficiency of SACCOs in Kenya. The research problem was studied by use of a descriptive research design. The population consisted of the 130 SACCOs licensed by Sacco Societies Regulatory Authority (SASRA) as at 31st of December 2013. Secondary data was used in this study. The data collected was analyzed in order to determine the relationship between efficiency and determinants of efficiency. the study concluded that management quality, size, credit risk and capital had varying degrees of impact on the efficiency of SACCOs in Kenya in the period under study. This study concludes that management quality and size influenced efficiency positively but the two variables were statistically insignificant and thus their overall contribution was negligible. This study recommends the adoption of innovation strategies by the various SACCOs operating in Kenya so as to enhance efficiency in operations, boost profitability and attract more public attention. SACCOs need to invest more capital so as to guarantee the going concern aspect and thus win the confidence of potential clients. This study recommends that all SACCOs should highly embrace research and development to foresee new and innovative ideas to boost efficiency in internal operations, increase customer base and subsequently increase profitability.