Effects of Financial Technology on Operation Costs of Microfinance Institutions in Nairobi County
Abstract
The general objective of the study was to determine the effect of FinTech on the operational costs of microfinance institutions in Nairobi County, Kenya. Specific objectives included examining the effect of process innovation, internet banking agency banking, and mobile banking on operation cost of microfinance institutions. The study was anchored on Demand and Supply Theory of Innovation, Theory of Innovation Diffusion, Transaction Cost Innovation Theory, and Technology Acceptance Theory. Correlational research design was used in this study and target population comprised of managers working with 10 MFIs in Nairobi County, Kenya registered with AMF-Kenya. The primary data was collected using questionnaire, while secondary data was obtained from bank supervision report. Data processing and analysis was facilitated by the use of the Statistical Package for Social Sciences. Descriptive statistics was used to calculate frequencies, percentages, and measures of central tendency and dispersion from the collected data. Again, inferential statistics was adopted to establish the kind of relationship that exists between the study variables using the regression analysis model. The findings revealed that process innovation, internet banking, agency banking and mobile banking were satisfactory variables in explaining the operational costs of MFIs in Nairobi County. The study also found that process innovation had a negative and significant influence on operation costs (? =-0.136, p=.007<.05), internet banking had a significant negative influence on operation costs (? =-0.194, p=.000<.05), agency banking and a negative and insignificant influence on operation costs (? =-0.880, p=.312>.05) and finally mobile banking had a significant negative influence on operation costs of the MFIs (? =-0.420, p=.000<.05). The study concluded that the implementation of technologies such as process innovation, internet banking, agency banking and mobile banking have negative effects on the operation costs of MFIs in Nairobi County. The study thus recommended that managements of MFIs in Nairobi County should strive to fully and properly adopt and implement the use of financial technology in their operations and that innovations can be a source of competitive advantage if a firm understands customer needs, competitors’ actions and technological development and act accordingly to stay at par with rivals, therefore such institutions should take the advantage of fully adopting financial technologies in their operations.
Keywords: Technology, Operation, Cost, Microfinance, Process, Internet, Banking, Agency, Mobile Innovation.
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