Relationship Between Financial Inclusion Strategies and Profitability of Commercial Banks in Kenya

Abstract

Commercial banks are crippling with challenges in respect to their profitability. Ideally, the government of Kenya is leveraging on these banks to finance the ambitious Big-Four Agenda. However, consistent posting of losses of these banks creates doubts on whether the government will achieve the aforementioned Big-Four Agenda. This study established the relationship between agency banking and mobile banking with profitability of commercial banks in Kenya. The study was guided by the financial intermediation theory, the modern portfolio theory, the agency theory and the technology acceptance model theory. An explanatory descriptive research design was adopted targeting 41 commercial banks in Kenya. Secondary data was collected from central bank reports and publications as well as the respective banks over a period of 2016-2020. The study collected data on number of mobile banking agents, volume of transactions through mobile banking, the value of net income and the total equity from the respective commercial banks. Data was analyzed descriptively and inferentially prior to the diagnostic tests. Statistical Package of Social Sciences was used to analyze data while findings were presented using tables and figures. The study established that mobile banking (β=.261, p<0.05) had significant effect on return on equity among commercial banks in Kenya and this is significantly moderated by bank size. The study concluded that the relationship between financial inclusion strategies and profitability of commercial banks in Kenya is significant. The study recommended that business development managers, regional marketing managers working in commercial banks in Kenya should increase the agency network while creating awareness among customers on us of bank agents to carry out transactions like payment of bills. The management team should borrow experience of the Kenya Commercial Bank by slashing all the transaction costs of mobile banking.