INFLUENCE OF MOBILE-BASED LENDING ON THE FINANCIAL PERFORMANCE OF MICROFINANCE BANKS IN NAIROBI COUNTY, KENYA

Abstract

The microfinance banks play a critical role in the economic development of diverse countries across the world especially amongst the developing countries. Microfinance banks offer financial services to those members of populations that are excluded from accessing these services from conventional financial systems. Therefore microfinance banks are critical in improving access to the financial services of the poor since the banks do not require high collaterals for its customers. However, the microfinance banks continue to face challenges in their financial performance which include profitability, loan processing costs and number of non-performing loans. This study sought to examine the influence of loan disbursement, loan appraisal process, loan repayment terms and convenience associated with mobile-based lending on the financial performance of microfinance banks. The study used Agency Costs of Free Cash Flow Theory, Asymmetric Information Theory, Adverse Selection Theory and Technology Acceptance Model. The study adopted descriptive research design to guide the study in meeting its objectives. The target population for the study was employees working in the department of finance from the 13 registered microfinance banks in Kenya. The target population of the study is 130 employees. Using a target population of 130 people and error margin of 0.05, a sample size of 98 respondents is achieved. The respondents were selected using stratified random sampling; whereby the microfinance at which the respondent works, formed the basis for stratification. The study constructed research questionnaires in line with the study objectives. The results found that loan disbursement had a regression coefficient of 0.202. This indicated that a unit increase in the loan disbursement led to 0.202 increases in financial performance of microfinance banks in Nairobi county Kenya with the other variables kept constant. The study concluded that there was a statistically significant influence of loan disbursement through mobile-based lending on financial performance at 5% level of significance. The study found that loan appraisal process had a regression coefficient of 0.227. This indicated that a unit increase in the loan appraisal process led to 0.227 increases in financial performance of microfinance banks in Nairobi county Kenya with the other variables kept constant. The study concluded that there was a statistically significant influence of loan appraisal process through mobile-based lending on financial performance at 5% level of significance. The results found that loan repayment terms of mobile banking had a regression coefficient of 0.205. This indicated that a unit increase in the loan repayment terms led to 0.205 increases in financial performance of microfinance banks in Nairobi county Kenya with the other variables kept constant. The study concluded that there was a statistically significant influence of loan repayment terms of mobile-based lending on financial performance at 5% level of significance. The results found that convenience associated with mobile-based lending had a regression coefficient of 0.167. The study concluded that there was a statistically significant influence of convenience associated with mobile-based lending on financial performance at 5% level of significance. The study recommends that the management of the microfinance bank should put an emphasis on the mobile based lending as it was found to have an influence of the financial performance of microfinance banks in Nairobi County, Kenya. Thus the management should place an emphasis on loan appraisal system through mobile based lending, loan repayment terms of mobile based lending, loan disbursement through mobile based lending and convenience associated with mobile based lending.