Digital banking services, C.E.O. experience and the Operational efficiency of microfinance banks in Kenya

Abstract

Microfinance banks plays a crucial role in the economy globally. In Kenya, the microfinance banks contribute 18% to the economy’s GDP offering employment to 20% of the population. The primary goal of this study was to evaluate the relationship between the digital banking services and the operational efficiency of Microfinance banks in Kenya. Furthermore, even though the CEO experience moderating role in the relationship between the digital banking services and the operational efficiency has been signified, there is insufficiency on the empirical evidence. The specific objectives of the study were: To investigate the effect of Internet banking, mobile banking and electronic fund transfer on the operational efficiency of microfinance banks in Kenya and to ascertain the moderating effect of CEO experience on the relationship between Digital Banking Services and Operational Efficiency of Microfinance Banks in Kenya. Grounded on the Technology Acceptance, Diffusion of Innovation and Upper Echelons Theory. The study adopted a descriptive research design. The target population for this study was all the 14 Microfinance Banks in Kenya onto which a census was undertaken. Secondary data was collected using a systematic review of the firm’s documents and financial reports for a period of five years from 2020 to 2024. A multiple linear regression analysis was adopted in this study. STATA Software version 16 was used to analyze the data collected. Tables and figures was used to present the results from the data analysis. The results indicated that internet banking had a p value of p=0.001<0.005, mobile banking had p=0.028<0.05 and electronic fund transfer p=0.003<0.05. Hence, the digital banking services were statistically significant and influences the operational efficiency. The study also found out the CEO experience as a moderator also significantly affects and influences the operational efficiency. Therefore, the recommendation from the study is that it is very crucial for the microfinance banks to embrace and adopt digital banking services and on the other hand take into consideration on the top management traits as they both influence operational efficiency of microfinance banks in Kenya.