The Effect of Digital Finance on Financial Inclusion in the Banking Industry in Kenya

Abstract

more convenient compared to keeping money at home traveling with the money. However, the provision of digital finance involves the participation of different players such as banks/financial institutions, mobile network operators, financial technology providers, regulators, agents, chains of retailers and clients. Digital finance mechanisms also need improvement of infrastructures to make the services user-friendly, secure, and costeffective manner. My research aimed at determining digital finance effect digital finance on financial inclusion in banking industry in Kenya. Digital financial services consisted of agency banking, mobile banking and internet banking while financial inclusion was proxied using credit penetration. The Research designed used in the research was descriptive statistics. Target population for this study comprised 44 banking in Kenya, comprising of 43 commercial banks and 1 mortgage financial institution as at 31/12/2015. The study used a sample of 13 banking institutions in Kenya. The sample was purposively selected to represent the 13 banking institutions in Kenya, which offer all the three digital financial services. The research employed secondary data, which was analyzed using regression and correlation analysis via the SPPS Version 21. Findings of the study found an insignificant negative relationship between agency banking measured in term of the number of agents, mobile banking measured by the number of mobile banking transactions and internet banking measured in terms internet banking transactions with financial inclusion in the banking industry in Kenya. The study concluded that digital finance doesn’t have any correlation on financial inclusion in banking sector in Kenya since banking institutions adopt digital financial services to lower operating cost associated with opening and operating branches to improve their profitability and financial performance and not to foster financial inclusion. The study recommended that to ensure the usage and adoption of digital financial services bank should create more awareness of such services and offer them at lower cost to enhance the usage of digital financial services