Effects of Financial Literacy Delivery Channels and Central Bank Regulations on Financial Inclusion of Commercial Banks in Kenya

Abstract

Kenya features a high financial services availability and accessibility. However, the usage of those services is low and remains a challenge for the full-service banks who are the suppliers and the main players for inclusion within the financial markets. Against this backdrop, the study evaluated financial literacy delivery channels and CBK regulations on financial inclusion of banks involved in commercial activities in Kenya. The predictor variables were financial education partnership, digital financial platforms, consumer awareness, and financial advisory services while the response variable was financial inclusion. The moderating variable was central bank regulations. The study was guided by resource-based theory, diffusion of innovation theory, motivation-needs theory, Prospect theory, and institutional theory to hypothesize the connection between the selected variables. The research adopted a descriptive survey design and the 10,717-management staff of the 40 banks engaged in commercial activities in Kenya was the study population. The sample size was 384 respondents obtained using the Cochran model. The study adopted stratified probability sampling to get a sample of 384 respondents comprising 199 from large banks, 120 from medium-size banks, and 65 from small banks. The study collected and analyzed primary data using semi-structured questionnaires. For data analysis, descriptive statistics were utilized to compute means, frequencies, and standard deviation while inferential statistics involved regression and correlation was applied to work out the connection between the study variables using advanced SPSS computer software version 23. The results of the multivariate analysis showed that financial education partnership, digital financial platforms, consumer awareness, and financial advisory services as delivery channels of financial literacy had a positive effect on financial inclusion. The findings further showed that CBK regulations significantly moderated the relationship between digital platforms, financial advisory services, and financial inclusion. The moderating effect of CBK regulations on the connection between financial education partnership, consumer awareness, and financial inclusion was found to be insignificant. The study concluded that financial literacy activities significantly influence financial inclusion of commercial banks, but due to low financial education partnership among the banks to sponsor financial education schemes and low financial advisory services the usage of monetary products and services by financial consumers remains low and this has reduced the general performance of financial inclusion. Additionally, the influence of the existence CBK regulations on the adoption of the financial literacy delivery channels was low which also affected the low usage of financial services. Based on these findings the study recommends that Central Bank of Kenya, the Kenya Bankers Association, and the full-service banks management work collaboratively to formulate policies that will help the banks improve their financial literacy delivery channels for the users of monetary services, which might, in turn, enhance financial inclusion already constrained by low usage of monetary products, and services. The study recommends that further studies should concentrate on other financial literacy delivery channels not factored in this study to bridge the conceptual gaps.