Effect Of Financial Innovation On Performance Of Deposit Taking Micro Finance Institution In Thika Town, Kenya

Abstract

Financial innovation is considered to be a critical requirement for the growth and profitability of organizations. One of the ways to achieving growth and sustaining performance is to encourage and foster financial innovative practices and creativity internally within the institution. Microfinance institutions (MFIs) play a vital role in the economic development of many developing countries like Kenya. This study investigated on the effect of financial innovation on financial performance of Deposit Taking Micro Financial Institution. This study took on a descriptive survey research design. The study targeted seventy four (74) respondents from four (4) deposit taking microfinance institutions in Thika Town; Faulu deposit taking, Kenya Women Finance Trust DTM, REMU deposit taking, Rafiki deposit taking microfinance institution. Data was collected by using questionnaires administered to the respondents and therefore summarized using descriptive and inferential statistics. Through the use of SPSS software primary data was analyzed with descriptive statistics summarizing and tabulating information. The variables were also regressed to formulate a model that described the effect of financial innovations on financial performance of DTMFIs in Kenya. The research findings indicated that the level of financial innovations adopted by Deposit Taking Micro Finance Institutions in Kenya is a key determinant of financial performance. This study examined the effect of financial innovations on financial performance of deposit taking microfinance institutions in Thika. Results indicate that there have been a number of innovations in this sector which has impacted positively in the performance of microfinance institutions in Kenya. From inferential statistics, there exists a positive relationship between financial performance and the two innovation variables, Product Innovation and organizational innovation. Based on the conclusion, the study recommends that it is imperative for deposit taking micro finance institutions to be involved in continuous research and development not only to offer new products but also products that gratify the consumer. Continuous innovation will provide MFIs an ideal platform upon which they can grow their revenues and hence growth from being micro enterprises to fully pledged financial institutions.