Effect of Process Innovations on Financial Performance of Microfinance Institutions in Nairobi County, Kenya

Abstract

Micro-Finance Institutions in Nairobi County have experienced intense pressure to adapt to new developments during the past ten years because of market rivalry, advancements in computer technologies, and varying employee demographics. Micro-Finance Institutions that do not innovate run the risk of being surpassed by rivals. The financial sector has been affected by globalization and technological advancement. Locally in Kenya the performance of MFIs has declined. The study's objective was to define the process innovation effects on the financial performance of microfinance institutions in Nairobi County, Kenya. The process innovation variables used were remote data processing, digital cards, point-of-sale terminals, real-time gross settlement, and their effects on the financial performance of MFIs. Task-technology fit theory, diffusion of innovation theory, and theory of financial innovation are the theories on which the study is based. Cross-sectional survey research approach was em`1ployed. The current study concentrated on the head employees of finance, information technology, operations, and credit control from 12 MFIs in Nairobi County that are registered with AMFI. Stratified random sample technique was used. An initial sample of 44 individuals was selected using the Yamane statistical technique. Structured questionnaires were used to gather in-depth data. Pre-testing was conducted to assess validity and reliability of the data collection techniques. Version 26 of the SPSS was used to evaluate the data and guarantee its accuracy. Mean and standard deviation were used to determine descriptive analysis, whereas model brief, ANOVA, and coefficients of regression were used to determine regression analysis. According to the correlation analysis, real-time gross settlement, digital cards, point-of-sale terminals, and remote data processing were all positively correlated with financial performance. The outcomes of the regression showed that every predictor had a favourable, significant effect on financial success. The research concluded that the processes of the MFI have been automated to improve MFIs operations. The study concludes that digital cards introduction in to the Microfinance institutions has attracted more retail depositors to the MFIs. Also the Microfinance institution offers debit cards to its customers. Further, it is concluded that the MFI has sufficient POS infrastructure and the MFIs have put in place security measures on point of sale transactions. The study concludes that the Microfinance institution uses Real time gross settlement to minimize risk related to high value payment settlements. The findings of the study endorsed that in addition to automating core processes, the Microfinance institutions should make it possible for the clients to open and operate accounts remotely. In order to ensure maximum benefits through digital cards use, the Microfinance institution should encourage their customers to use digital cards.