Effects of Financial Innovations on Profitability for Deposit Taking Microfinancing Institutions in Kenya 

Martin Khoya Odipo 
(Department of Finance and Accounting, School of Business, University of Nairobi, Kenya)

Abstract: Recent studies have documented that innovations improve profitability of firms. This article documents that deposit taking micro financial institutions that have adopted financial innovations have increased their profitability. The study covered five years between 2009-2013. Both primary and secondary data were used in the study. Primary data was obtained through administration of drop and pick questionnaires to selected employees of the institutions. Secondary data was obtained from financial statements and management reports of these deposit taking microfinance institutions.

Data was analyzed using descriptive statistics, return on asset and multi-liner regression model to determine the effect of each financial innovation applied on profitability on the micro-financial institution. The results showed that most deposit taking microfinance institutions adopted these financial innovations in their current operations. There was strong positive relationship between individual innovations and profitability. In line with profitability ROA also showed improvement each year after the adoption of these financial innovations.

Key words: financial innovations; profitability; deposit taking micro financing institution

JEL codes: D