Effect of Lending Innovation on the Financial Performance of Listed Commercial Banks in Kenya

Abstract

Commercial banks have quickly recognized that lending innovation is a viable strategy for expanding formal financial services into the unbanked regions of the country, such as urban, rural or marginalized areas. In this regard, banks have continued to deploy huge investments in financial-based innovations and manpower training to handle the new technologies. However, despite the numerous innovations that banks have adopted, a portion of them have kept on encountering a decline in market value, causing them to merge with others. Therefore, the purpose of this study was to ascertain the effect of the lending innovation on the financial performance of listed commercial banks in Kenya. The study adopted descriptive and correlational research designs. Twelve staff members from each bank were purposefully selected. The study utilized a questionnaire to collect primary data. The study assessed the validity of the study instrument using construct validity and content validity. To measure reliability, the Cronbach's alpha technique was employed. For statistical analysis of quantitative data, SPSS software version 22 was utilized. The results revealed that lending innovation had a significant positive effect on financial performance (β1=0.138, P=0.002). The study concluded that lending innovation has a significant positive effect on financial performance. The study recommended that listed commercial banks in Kenya should prioritize investment in lending innovation to enhance financial performance. This includes adopting innovative lending practices and technologies to improve service delivery and customer experience.