EFFECTS OF BANKING SECTOR INNOVATION ON FINANCIAL INCLUSION IN KENYA BY WINFRED WANGARI WANJUI A RESEARCH PROJECT PRESENTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF DEGREE OF MASTERS OF BUSINESS AMINISTRATION, SCHOOL OF BUSINESS, UNIVERSITY OF NAIROBI. NOVEMBER 2020 DECLARATION I declare that this Research Project is my original work and has not been presented in any learning institution for the award of any degree or for other considerations. Signed……………………………………… Date ……08/10/2020……. WINFRED WANGARI WANJUI REG. NO D61/62884/2010 This research project has been presented for examination under my authority as a university supervisor Signed……………………………………… Date ………………………….8/12/2020 DR. DUNCAN ELLY OCHIENG (PhD, CIFA) Lecturer Department of Finance and Accounting ii ACKNOWLEDGEMENT I wish to acknowledge God for giving me health and resources needed to undertake this project. I also want to give a special appreciation to my supervisor, Dr. Duncan Elly Ochieng’, for his guidance and support during the entire period of this project. Finally, many thanks to the academic and administrative staff of the Department of Business Administration, University of Nairobi for their support. Feel appreciated. iii DEDICATION This research project is dedicated to my family for the continued support they granted me throughout this course. iv TABLE OF CONTENT DECLARATION........................................................................................................................... ii ACKNOWLEDGEMENT ........................................................................................................... iii DEDICATION.............................................................................................................................. iv TABLE OF CONTENT ................................................................................................................ v LIST OF TABLES ...................................................................................................................... vii LIST OF FIGURES ................................................................................................................... viii ABBREVIATIONS AND ACRONYMS .................................................................................... ix ABSTRACT ................................................................................................................................... x CHAPTER ONE: INTRODUCTION ......................................................................................... 1 1.1 Background of the Study ....................................................................................................... 1 1.1.1 Banking Sector Innovations............................................................................................ 2 1.1.2 Financial Inclusion ......................................................................................................... 3 1.1.3 Banking Sector Innovations and Financial Inclusion ..................................................... 4 1.1.4 The Banking Sector in Kenya ......................................................................................... 5 1.2 Research Problem ............................................................................................................. 7 1.3 Research Objectives .............................................................................................................. 9 1.4 Value of the Study ................................................................................................................. 9 CHAPTER TWO: LITERATURE REVIEW .......................................................................... 11 2.1 Introduction ......................................................................................................................... 11 2.2 Theoretical Review ............................................................................................................. 11 2.2.1 Diffusion of Innovation Theory .................................................................................... 11 2.2.2 The Schumpeter Theory of Innovation ......................................................................... 12 2.2.3 Task Technology Fit Theory ........................................................................................ 14 2.3 Determinants of Financial Inclusion ................................................................................... 15 2.4 Empirical Studies ................................................................................................................ 17 2.5 Conceptual Framework ....................................................................................................... 20 2.6 Summary of the Literature Review ..................................................................................... 21 CHAPTER THREE: RESEARCH METHODOLOGY ......................................................... 24 v 3.1 Introduction ......................................................................................................................... 24 3.2 Research Design .................................................................................................................. 24 3.3 Population............................................................................................................................ 24 3.4 Data Collection .................................................................................................................... 24 3.5 Data Analysis ...................................................................................................................... 25 3.5.1 Diagnostic Tests ........................................................................................................... 26 CHAPTER FOUR: DATA ANALYSIS AND DISCUSSION ................................................. 27 4.1 Introduction ......................................................................................................................... 27 4.2 Response Rate ..................................................................................................................... 27 4.3 Descriptive Statistics ........................................................................................................... 27 4.4 Diagnostic Tests .................................................................................................................. 28 4.4.1 Autocorrelation Test ..................................................................................................... 29 4.4.2 Multicollinearity Test ................................................................................................... 29 4.4.3 Normality Test .............................................................................................................. 30 4.5 Inferential Statistics ............................................................................................................. 31 4.5.1 Relationship between Banking Sector Innovations and Financial Inclusion ............... 31 4.5.2 Regression Results showing Effects of Banking Sector Innovations on Financial Inclusion ................................................................................................................................ 32 4.6 Interpretation and Discussion of Findings .......................................................................... 35 CHAPTER FIVE: CONCLUSIONS AND RECOMMENDATIONS ................................... 37 5.1 Introduction ......................................................................................................................... 37 5.2 Conclusions ......................................................................................................................... 37 5.3 Recommendations of the Study .......................................................................................... 37 5.4 Limitations of the Study ...................................................................................................... 38 5.5 Suggestions for Further Research ....................................................................................... 38 REFERENCE .............................................................................................................................. 39 APPENDICES ............................................................................................................................. 44 Appendix I: List of Commercial Banks in Kenya ..................................................................... 44 Appendix II: Data Collection Sheet .......................................................................................... 45 Appendix III: Secondary Data Collected .................................................................................. 46 vi LIST OF TABLES Table 2.1: Summary of the Literature Review .............................................................................. 21 Table 4.1: Means and Standard Deviation .................................................................................... 27 Table 4.2: Autocorrelation Test .................................................................................................... 29 Table 4.3: Multicollniearity Test .................................................................................................. 29 Table 4.4: Correlation Matrix ....................................................................................................... 31 Table 4.5: Model Summary .........................................................................................................