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The Mediating Effect of Financial Inclusion on the Relationship between Branchless Banking Strategy and Performance of Commercial Banks in an Emerging market Context: The Case of Kenya

Author

Listed:
  • Gift Kimonge Dzombo
  • James Kilika
  • James Maingi

Abstract

Since 1990 to date, a lot of banking innovation has taken place in order to improve commercial banks financial performance. Branchless banking which involves the use of agency banking and electronic banking channels in the distribution of banking products and services is one such innovation. This study investigated the role of financial inclusion on the relationship between branchless banking strategy and financial performance of commercial banks in Kenya. The specific objectives of the study were to analyze the effect of agency banking and electronic banking channels on the financial performance of commercial banks in Kenya. The study also aimed at determining the mediating effect of financial inclusion on the relationship between branchless banking and financial performance of commercial banks in Kenya. The study adopted a correlational research design. A survey of all the 42 licensed commercial banks in Kenya was done. Both primary and secondary data on branchless banking and financial performance of banks was obtained from the commercial banks and Central Bank of Kenya banking annual supervision reports respectively. Return on Assets (ROA) was used as the main indicator of commercial banks financial performance. The amount of investment in agency and electronic banking was used as indicators for agency and electronic banking. Data analysis was done using SPSS and STATA statistical software. Study findings indicated that when used in isolation; both agency and electronic banking had a significant negative effect on the financial performance of commercial banks. However when agency and electronic banking channels were used together as a multichannel strategy, the effect on bank¡¯s financial performance was found to be positive and significant at the 95 percent significance level. Study findings also indicate that the strength of the relationship between branchless banking strategy and financial performance of commercial banks in Kenya depends on the level of financial inclusion. The study recommends that for positive returns, commercial banks should invest in both agency and electronic banking as a multichannel strategy since these channels are complimentary to each other and calls on the government to come up with policies to foster financial inclusion within the banking industry in order for the industry to achieve maximum returns from branchless banking strategies.

Suggested Citation

  • Gift Kimonge Dzombo & James Kilika & James Maingi, 2018. "The Mediating Effect of Financial Inclusion on the Relationship between Branchless Banking Strategy and Performance of Commercial Banks in an Emerging market Context: The Case of Kenya," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 10(7), pages 161-161, July.
    • Handle: RePEc:ibn:ijefaa:v:10:y:2018:i:7:p:161
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    References listed on IDEAS

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    1. Josiah Aduda & Nancy Kingoo, 2012. "The Relationship between Electronic Banking and Financial Performance among Commercial Banks in Kenya," Journal of Finance and Investment Analysis, SCIENPRESS Ltd, vol. 1(3), pages 1-6.
    2. Hannah Siedek, 2008. "Extending Financial Services with Banking Agents," World Bank Publications - Reports 9523, The World Bank Group.
    3. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(3), pages 393-414.
    4. G. M.P. Swann, 2009. "The Economics of Innovation," Books, Edward Elgar Publishing, number 13211, June.
    5. Vincent Okoth Ongore & Gemechu Berhanu Kusa, 2013. "Determinants of Financial Performance of Commercial Banks in Kenya," International Journal of Economics and Financial Issues, Econjournals, vol. 3(1), pages 237-252.
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    Cited by:

    1. Guillaume Edou Tchidi & Wei Zhang, 2025. "Mediating effect of financial inclusion on FinTech innovations and economic development in West Africa: Evidence from the Benin Republic," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 30(2), pages 1032-1048, April.
    2. Abdikarin Ahmed Abdi & Fatima Mohamed Hussein & Dr. Hanita Binti Kadir, 2022. "Effect Of Electronic Banking On Financial Inclusion Among Commercial Banks In Somalia," International Journal of Finance and Accounting, IPRJB, vol. 7(2), pages 43-54.

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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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