Influence of internal control system on financial sustainability of fintech companies in Nairobi County, Kenya

Abstract

The financial technology (Fintech) sector in Kenya has experienced significant growth with Nairobi County being the hub of many Fintech companies. However, many Fintech companies have faced cyber threats to their financial sustainability attributed to weak or inadequate internal control systems. The primary goal of this study is to examine the influence of internal control systems on financial sustainability of Fintech companies in Nairobi County. The study specifically aimed to assess the impacts of control environment, real-time financial reporting systems, monitoring systems and Internal Fraud Detection Algorithms and Tools and on the financial sustainability of Fintechs. The research is supported by stakeholder Theory, Resource Based View, Systems Theory, and Agency Theory. The research used quantitative research approach utilizing a descriptive research design. Data was collected through structured questionnaires to ensure representativeness; stratified random sampling was used to select respondents from key staff categories (executives, finance officers, IT security managers, compliance officers, and operations staff) across the 91 registered Fintechs from the central bank report 2024. The total target population for the study was 623 respondents. The sample size was 244 respondents determined by Yamane Formula. The data collected was analyzed through descriptive statistics, correlation, and multiple regression analysis with the aid of SPSS software. This study discussed the impact of internal control systems (ICS) on financial sustainability of Fintech businesses in Nairobi County. The data were collected using stratified random sampling of 198 respondents and analyzed by descriptive, factor analysis and regression methods. Findings demonstrated that the control environment, real-time financial reporting, monitoring systems, and fraud detection significantly contributed to financial sustainability. The study finds that ICS is statistically significant in enhancing governance, compliance, and sustainability within Fintechs. It aims to enhance administrative systems, provide real-time reporting, and invest in fraud detection mechanisms. The study recommends that Fintech companies enhance their governance architecture, adopt real-time reporting, and use advanced fraud detection and monitoring technologies. Regulators should establish robust internal control mechanisms while management invests in personnel training and technology to attain financial sustainability.