Effect of Process Innovations on Financial Performance of Microfinance Banks in Kenya

Abstract

The financial success of a country's microfinance banks is essential for the stability of the banking system and the economy as a whole. Kenyan microfinance banks have continued to incur rising losses, indicating poor financial performance. These banks can enhance their financial performance by offering specialized financial services and solutions to decrease expenses and information imbalances. This research examines the impact of process innovations on the financial performance of Kenyan microfinance banks from 2014 to 2020. All fourteen approved microfinance banks in Kenya were polled using an unbalanced panel. Using a document review guide, secondary data from the financial records of these institutions was extracted using a census. For descriptive statistics, means and standard deviations were utilised, whilst panel multiple regression analysis and correlation analysis were utilized for inferential analysis. The study found that process changes had a statistically significant influence on the financial performance of Kenyan microfinance institutions. The findings indicate that process innovations negatively but significantly affect the financial performance of microfinance banks in Kenya. As a result of the study, it was suggested that microfinance bank management should only use process innovations when the costs of adoption and use is lower than the revenues generated.