Influence of adoption of financial innovations on performance of savings and credit cooperatives, in Kiambu county, Kenya

Abstract

Performance of Deposit Taking Saccos in Kiambu County is deteriorating with reports that 44% of the Saccos are not meeting the regulator’s requirements. The Saccos recorded reduced return on assets of 8% against expectation of 10%, there was low deposit of 5.4% against the recommended 8% (2014). Performance further dropped in 2015 where deposit was 5% while return on assets was 7.5%. Additionally, Kiambu County Saccos such as Ekeza, UNES, Orient and Jitegemee were placed under SASRA management as a result of lack of payment of dividend and loans to their members due to poor performance. Financial innovation has revolutionized how financial institutions conduct business so as to make a niche in a highly competitive environment. Savings and Credit Cooperative Societies (SACCOs) have been considered slow in embracing innovation due to their model. The aim of the research was to investigate the influence of financial innovation adoption on financial performance of SACCOs in Kiambu County. The study specific objectives were:to find out the effect of automated teller machine adoption on financial performance, to establish the effect of Real Time Gross Settlement, to determine the effect of internet banking, to examine the effect of mobile banking and to examine the moderating effect of SACCO size on the relationship between financial innovation adoption and financial performance of SACCOs in Kiambu County, Kenya. The theory of transaction cost, diffusion of innovation and agency theories were employed in this research. The study utilized descriptive research design that targeted all 14 Deposit Taking Cooperatives in Kiambu County. Purposive sampling technique enabled the identification of three management employees and three members from all the 14 SACCOs in Kiambu County. Semi structured questionnaire was applied in data collection. Six SACCOs in Nyeri County were selected randomly for pre-testing to assess the instrument's validity and reliability. Descriptive and multiple regression assisted in analysis. The findings showed that ATM had a positive and significant effect on financial performance. On the second objective, Real time gross settlement was found to be positive and insignificant to financial performance. The third objective results demonstrated that internet banking had positive and significant effect to financial performance. The study revealed that mobile banking had positive and significant effect on financial performance of Deposit Taking Saccos in Kiambu County. SACCO size was found to have a significant moderating effect when combined with ATM and RTGS. However, there was no significant moderating effect in the interaction of SACCO size with internet banking and mobile banking. The study concluded that automated teller machine, internet and mobile banking have positive and significant effect while real time gross settlement did not demonstrate any significant effect on financial performance of Kiambu County Saccos. It was concluded that SACCO size significantly moderates the relationship between financial innovation and financial performance when RTGS and ATM are included in the model. A recommendation was made that Kiambu County Saccos should embrace partnership with Cooperative Bank to expand the reach of ATM to the members. It is recommended that security of internet banking be reinforced to deter any cybercrime and enhance member education. The study recommends enhancement of mobile banking services, regular updates and introduction of new innovative transaction services to meet the growing and emerging member needs thus enhance financial performance. Future research may target non-withdrawable deposit taking Saccos in Kiambu County and exclusive involvement of the members or employees for in-depth analysis.