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What Drives Financial Innovations in Kenya’s Commercial Banks? An Empirical Study on Firm and Macro-Level Drivers of Branchless Banking

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  • Moses Mwenda Muthinja
  • Chimwemwe Chipeta

Abstract

This paper examines the firm- and macro-level drivers of financial innovations in Kenya’s commercial banks. We focus on branchless banking innovations, namely: mobile banking, agency banking, internet banking and automated teller machines. These financial innovations represent a departure from traditional branch based banking. We conduct an empirical analysis of the four financial innovations using Koyck distributed lag models, estimated using dynamic panel estimation with System Generalized Method of Moments. We use 10-year panel data from 42 out of 43 commercial banks in Kenya covering the years 2004–2013. We provide empirical evidence that at the firm level, branchless banking is driven by firm size, transaction cost, agency costs, technological developments at the firm level and firm constraints. In addition, at the macro level, regulation, technological developments at the macro level, incompleteness in financial markets and globalization are important drivers of branchless banking.

Suggested Citation

  • Moses Mwenda Muthinja & Chimwemwe Chipeta, 2018. "What Drives Financial Innovations in Kenya’s Commercial Banks? An Empirical Study on Firm and Macro-Level Drivers of Branchless Banking," Journal of African Business, Taylor & Francis Journals, vol. 19(3), pages 385-408, July.
    • Handle: RePEc:taf:wjabxx:v:19:y:2018:i:3:p:385-408
    DOI: 10.1080/15228916.2017.1405705
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