EFFECT OF FINANCIAL INSTITUTION INNOVATION ON FINANCIAL PERFORMANCE IN COMMERCIAL BANKS IN KENYA

Abstract

The main objective of this study was to establish the effect of financial innovation on financial performance of commercial banks in Kenya. The specific objectives were: to determine the effect of financial process innovation on the financial performance of commercial banks in Kenya; to evaluate the effect of financial market innovation on the financial performance of commercial banks in Kenya; to assess the effect of financial product innovation on the financial performance of commercial banks in Kenya and to ascertain the effect of financial institution innovation on the financial performance of commercial banks in Kenya. Descriptive survey was used while a questionnaire was used for the collection of primary data. Secondary data were used to verify the communicative and pragmatic validity of primary data. The target study units for this research were 126 randomly selected commercial bank senior management staff. Descriptive statistics, Pearson correlation and multiple regression analysis approaches were used. Statistical analysis was carried out with the aid of the IBM SPSS Statistics for Windows, version 23. The study findings revealed that financial institution innovation had a significant positive effect on financial performance of commercial banks in Mombasa County. Additionally, financial product innovation had a significant positive effect on financial performance of commercial banks in Mombasa County. The findings indicated that financial process innovation and financial market innovation also had significant effect on financial performance of commercial banks in Mombasa County. Through the findings of this study, the Government of Kenya would be able to assess which areas of innovation will support the banking sector by either waiving taxes or other non-monetary incentives. The findings of the study would also help banks determine the value of financial innovation in their success in terms of improving profitability. Commercial banks in Africa would also learn from this study in Kenya and understand the innovations they can replicate in their businesses in order to improve their performance. For scholars and researchers, the study adds value to the existing body of knowledge as it proposed ways to improve financial performance by exploiting technology innovations. This study served as a stepping stone for newer studies into financial innovation. Key