HARAMBEE UNIVERSITY

School of Post graduate studies

Department of Project Management
MA Program

Cost Accounting in project

Article review for financial institution and investment management

Reviewed by: - Legese Diro

Submitted to: Abdi Dufera(PhD)

July, 2021

Adama , Ethiopia
 Article review

Dr. James Mark Ngari, PhD Senior Lecturer Faculty of Business and Communication Studies
St Paul’s university Limuru, Kenya

“Effects of Financial Innovations on the Financial Performance of Commercial

Banks in Kenya”
International Journal of Humanities and Social Science May 2014 Vol. 4, No. 7; pp. 187-200

Abstract

The financial innovations had great impact on the financial performance of the banks Kenya. In
the last ten years the commercial banking industry in Kenya, transfer from the traditional
banking to modern banking technology. The study determines internet banking and agency
banking, credit cards, are influence on financial performance of banks in Kenya. The population
study indicates forty four commercial banks and sixteen banks operating in Kenya. Sixty
questionnaires were dispatched. Secondary data was collected from the banks for the periods
2008-2012. Data Analyzed in the form of simple frequency tables of the ratio counts and graphs.
The study found that some banks in Kenya had adopted some financial innovate ions such as
credit cards, mobile, internet and agency banking.

Introduction
Financial innovations such as ATMs, phone banking, Internet banking, debit cards, credit
cards, agency banking and smartcard applications are taking place fast pace in the global
banking industry. The bank was started by a few individuals who were actually money lenders
with an aim of lending money at interest. The Bank system improvement becomes using
electronic system. Thus, reforms are hinged for Kenya to realize Vision 2030, the banking
sector‘s efficiency is a critical element that remains the cornerstone of the targeted economic
growth. Stiff competition and the compression of the interest rates, has forced banks to set up
and put into effect all necessary decision support financial innovations. The commercial banking
sector has been the backbone of every country Kenya not being an exception. The developments
in information collection, storage, processing and transmission technologies have influenced all
aspects of the banking activities in Kenya.

Statement of the problem

Banks and other financial intermediaries are the main of the world’s recent financial crisis. In
Kenya Long lines, transaction errors, queuing, insecurity and network failures have been said to
be the most frequent problems using banking services (Smith, 1999). This highly lower
customer’s perception on the quality of service offered and reduces profitability (Joseph et al.,
2003). Mobile banking and Internet banking, credit cards, and agency banking are affecting the
financial performance of the banks.

General objective
This study, investigate the relationship between financial innovations and financial performance
of commercial banks in Kenya.
Specific objective
The specific objectives of the study
 Determine the influence of internet banking, mobile banking in financial performance of
banks in Kenya;
 Determine the influence of agency banking on profitability in financial performance of
banks.
Hypotheses
To examine or investigate research variables, Hypotheses has been formulated. The study sought
to test the relationship between financial innovations and the financial performance. A positive
value indicates that the variables are positively related while a negative value indicates that the
variables are negatively related. Any of the financial innovation had a positive correlation with
the performance of the banks and the financial innovations had positive correlations among
themselves.
The significant of the study
In modern economy, a rapid rate of innovation in the bank sector has generated a fast-changing
of the bank industries. Financial innovations are used by banks become an essential means for
the bank to improve its performance and to maintain its effectiveness on the market. The study
was very essential for the bank industries to increase competitive nesses using financial
innovations such as ATMs, phone banking, Internet banking, debit cards, credit cards, agency
banking and smartcard for their organization.

Delimitation
The study delimited Effects of Financial Innovations on the Financial Performance of
Commercial Banks in Kenya. These allow the researcher to better assess the impact of financial
innovation on commercial bank’s performance in Kenya.

Research design
The research utilized descriptive research design. Descriptive research involves gathering data
that describes events and organize, tabulates, depicts and describes the data. According to
Cooper and Schindler (2000) descriptive statistics discover and measure cause and effect
relationships among variables.

Sampling
The population of the study consisted of 44 commercial banks that are currently operating in
Kenya Of the 44 banks 16 banks were used in the study that is, 3 each of foreign owned bank,
foreign owned but locally incorporated, banks with government participation, and 7 locally
owned banks. The study used Sliven’s formula to get the sample size. This indicate that the
researcher use systematic sampling
Research model
The model of research is quantitative method that express in mathematical or empirical
application or mathematical formula. It provides information on impact of an independent
variable while simultaneously controlling the effects of other independent variables. It used the
following model:
Y=βo+ β1X1+ β2X2+ β3X3+ β4X4+ €
Y= Financial performance
βo =Constant(Y-Intercept-The predicted value of Y when all of the X values equal to Zero
β1- β2 = Intercept of independent variables
X1-X2 = Independent Variables
€ = Error term
Data collection
This study was compiled data from secondary and primary source of data Questionnaires were
used for garnering primary data while Secondary data collected the annual reports from the
banks over the period of 2008-2012.
Data analysis
This study was done through Correlation and regression analysis:
Correlation Analysis: According to the correlation, the range of the output is between -1 to 1. A
positive value indicates that the variables are positively related while a negative value indicates
that the variables are negatively related. This indicates any of the financial innovation had a
positive correlation with the performance of the banks and the financial innovations had positive
correlations among themselves. This indicates that banks increased the use of the innovations
simultaneously. All the innovative features such as credit cards, mobile banking, internet
banking and the agent banks have been found to increase the profitability of the banks
Regression Analysis: Regression test to establish the effects of each of the innovations Show
that the independent variables are statistically significant in predicting the profits or affecting the
profits of the banks
Y=5.485AG +0.630CC+0.771MB+0.656IB+0.155AB
Where Y= Profit, CC= Credit Card, MB= Mobile Bank IB= Internet Banking AB= mobile
banking.AG = Agency Banking. The research model shows All the innovative features such as
credit cards, mobile banking, Internet banking and the agent banks have been found to increase
the profitability of the banks and great impact on commercial banks profitability.
Conclusion
The research concludes that use of financial innovations which include the use of credit cards,
mobile banking, internet banking and agent banking in Kenya has great impacts on the financial
performance of commercial banks in Kenya. The study is recommended that banking adopt an
electronic way of doing things in their operations or such as credit cards, mobile, and internet
banking. This is because the process is fast and is reduce human errors. The agent banks also
increased competition among the banks and have been within the reach of the customers at rural
areas. The use of agent banking is mainly clustered among the banks in Nairobi. Therefore, It is
recommended that banks increase the agent banks across the country to make available the
banking services to the people. Finally, the study established that the use of internet banking
which give them competitive advantage over the rest of the banks. So, it is recommended that
banks adopt internet banking to increase their competitiveness and service quality.