EFFECT OF FINANCIAL INNOVATION ON FINANCIAL INCLUSION AMONG SMALL MEDIUM ENTERPRISES IN KAKAMEGA COUNTY, KENYA

Abstract

Despite the noble duty of SMEs of promoting economic development in the economy, financial inclusion is yet to be achieved. As at the end the year 2023, financial inclusivity was still not yet fully achieved. The general objective was to establish the effect of financial innovation on financial Inclusion among SMEs in Kakamega County, Kenya. Specifically, the study determined the effect of mobile banking, agency banking and internet banking on financial inclusion among SMEs in Kakamega County. The study established the moderating effect of firm size on the association between financial innovation and financial inclusion among SMEs in Kakamega County, Kenya. This study was guided by diffusion innovation theory, financial intermediation theory, agency theory and markets imperfection theory. Descriptive and causal design were adopted for a target of 9116 SMEs, of which 369 SMEs owners were sampled and used questionnaires for data collection. Reliability was tested using Cronbach alpha whereas validity through content analysis of the expert opinion. Analysis of the data was based on inferential as well as descriptive statistics. The study established that financial innovation parameters; mobile banking (p=0.003 at P<.005), Agency banking (p=0.002 at P<.005), and Internet banking (p=0.000 at P<.005) had a positive correlation coefficient. Lastly, the size of business had a moderating positive correlation coefficient (p=0.000 at P<.005). The results also showed that the financial innovation variables had a significant relationship to financial inclusion, hence SMEs should increase the uptake of mobile banking, internet banking, and agency banking services available and accessible to enable convenient operations and transacting hence financial inclusion. Finally, the study findings showed that the size of business was of significance on financial innovation and financial inclusion, hence business owners should make an effort to grow their businesses. Research results may be of help to SMEs in assessing the significance of financial innovation towards accessing timely and affordable financial facilities. As a result, this may enable SMEs to access financial products and services such as loans more conveniently and cheaply, thereby increasing their financial muscle and improving their operations, hence yielding more profits.