Effect of Financial Inclusion on the Relationship between Innovation and Financial Performance of Commercial Banks in Kenya

Abstract

This study's main goal was to investigate the aspects that contribute to the success of Kenya's commercial banking industry with respect to innovation, financial inclusion, and overall financial performance. Three theories served as the basis for the research: the theory of transaction costs, the theory of finance and growth, and the Agency theory. The study combined quantitative and qualitative approaches, using a cross-sectional survey methodology. A total of 42 commercial banks in Kenya that were operational between 2009 and 2019 were analyzed for this report. These banks had all been licensed and registered under the Banking Act. The percentage of those that answered the survey was 83.3%. The financial inclusion composite variable has been found to have a substantial effect on the financial performance of commercial banks in Kenya. The study concluded that the age and ownership of banks is a significant factor in determining the financial performance of all banks. The adoption of mobile banking and agency banking influenced the financial performance of most commercial banks in Kenya. To increase financial inclusion and bank profitability, the research advises implementing regulatory reforms that foster financially viable innovations throughout the banking sector. Theoretically, the contribution of this study is that bank innovation in Kenya has a beneficial influence on profitability and that institutions should continuously seek and execute durable business links to accelerate the diffusion of innovations and achieve the desired economic consequences.

Keywords: Financial Inclusion, Performance, Commercial Banks