Relationship between Financial Inclusion Strategies and profitability of Commercial Banks in Kenya

Abstract

Commercial banks are grappling with profitability challenges. Yet, the government of Kenya is leveraging on these banks to finance the ambitious Big-Four Agenda. Consistent posting of losses of commercial banks creates doubts on whether the government will achieve the aforementioned Big-Four Agenda. This study sought to establish the relationship between agency banking and mobile banking with profitability of commercial banks in Kenya. The study was guided by the financial intermediation theory, the modern portfolio theory, the agency theory and the technology acceptance model theory. An explanatory descriptive research design was adopted, targeting 41 commercial banks in Kenya. Secondary data was collected from central bank reports and publications, as well as the respective banks between years 2016-2020. The study collected data on a number of mobile banking agents, volume of transactions through mobile banking, the value of net income and the total equity from the respective commercial banks. Data was analyzed descriptively and inferentially prior to the diagnostic tests. Statistical Package for Social Sciences was used to analyze data, while findings were presented using tables and figures. The study established that mobile banking (β=.261, p<0.05) had significant effect on return on equity among commercial banks in Kenya and this is significantly moderated by bank size. The study concluded that the relationship between financial inclusion strategies and profitability of commercial banks in Kenya is significant. The study recommends that business development managers, and regional marketing managers working in commercial banks in Kenya should increase the agency network, while creating awareness among customers on use of bank agents to carry out transactions like payment of bills. The management team should borrow experience of the Kenya Commercial Bank by slashing all the transaction costs of mobile banking.