Effect Of Financial Innovation On Financial Performance Of Deposit Taking Savings And Credit Cooperative Societies In Kenya

Abstract

The Savings and Credit Cooperative Societies (SACCO) in Kenya are today facing stiff competition emanating from the mainstream banks, microcredit institutions, and recently, digital credit, due to the modern-day technology, stringent regulatory requirements and the dynamic customer demands. These have caused the declining membership in majority of the cooperatives. Despite boasting of huge membership, their earnings cannot be compared to those of commercial banks which post credible profits at the end on financial years. Cooperative societies have therefore devised innovative ways in their operations to enhance their competitiveness. The aim of this study was to investigate the effect of financial innovation on the financial performance of cooperative societies in Kenya. The specific objectives of the study were to examine the effect of product innovation on the financial performance of cooperative societies in Kenya, assess the effect of service innovation on the financial performance of cooperative societies in Kenya and to determine the effect of process innovation on the financial performance of cooperatives in Kenya. The study adopted a descriptive research design in which the population will be the 175 licensed deposit taking cooperatives by Sacco Society Regulatory Authority in Kenya. The study samples 120 cooperative societies using simple random sampling and thereafter the general managers from each of the selected cooperatives were selected purposively. The study targeted the general managers of the cooperatives. Both primary and secondary data were collected. Prior to actual data collection, the questionnaires were piloted for validity and reliability. Data was analyzed using descriptive statistics namely percentages, measures of central tendencies and frequency distribution. The researcher also used multiple regression analysis to determine the relationship between the dependent and the independent variables. The findings were presented in figures and tables. The study found that all the contracts of financial innovation positively influenced the financial performance of the SACCOs. The study found that the service innovation had the strongest influence followed by process innovation. Among the innovations were the electronic funds transfer, new deposit accounts, mobile banking, internet banking, automatic teller machines and the front office service activity among others. The study therefore concludes that financial innovation have positive effect on the financial performance of the cooperative societies. The study recommended that the management of cooperatives should adopt more product innovation, service innovation and process innovation to enhance the financial performance of the societies. The study also recommended that the regulator should formulate policies that will enhance use of financial innovation by the cooperative societies such as use of incentives to encourage innovation or tax waiver on technology that purchased by the societies for the purposes on enhancing their operations. Further, the regulator should develop its surveillance structure to incorporate the adoption of financial innovation by the societies particularly those struggling financially so as to boost their efficiency and hence financial performance.