EFFECTS OF FINANCIAL INNOVATION ON THE FINANCIAL PERFORMANCE

OF DEPOSIT TAKING SACCOS IN NYERI TOWN

BY;

YVONNE MURUGI GITONGA

ELVIS KIMUTAI LANGAT

SARAH MUTHONI NJAMBI

A RESEARCH PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS

FOR THE AWARD OF DEGREE IN BACHELOR OF COMMERCE (FINANCE OPTION)

OCTOBER 2024
 ACKNOLEDGEMENT

First and foremost, we would like to thank God for the gift of life, health, strength and knowledge that He has
bestowed upon us and for enabling us to complete this project proposal.

Our sincere gratitude to our supervisor Dr. Ithinji and our mentor James Asumbo for their guidance and
encouragement throughout the development of this proposal. Their insight and feedback have greatly
contributed to shaping the direction and scope of this project. We are also grateful to Dedan Kimathi University
of Technology for providing the necessary resources and a conducive environment for this project.

Finally, I would like to thank my colleagues for their unwavering support and understanding during this period,
their encouragement has been a source of motivation and strength. Thank you for your contributions and
support.

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 DECLARATION

We, the undersigned, declare that the research study titled Effects of Financial Innovation on Financial
Performance of Deposit Taking SACCOs in Nyeri Town is our original work and has not been submitted in
whole or in part for any other degree or qualification. All sources of information have been duly acknowledged
and referenced.

SARAH MUTHONI NJAMBI

B010-01-0533/2021 Signature …………………Date………….

YVONNE GITONGA

B010-01-0559/2021 Signature …………………Date………….

ELVIS KIMUTAI LANGAT

B010-01-0589/2021 Signature …………………Date………….

This research proposal to be submitted for the course examination with my approval as the University
supervisor.

Dr Ithinji Signature …………………Date………….

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 TABLE OF CONTENT
ACKNOLEDGEMENT......................................................................................................................................................ii
DECLARATION................................................................................................................................................................iii
LIST OF TABLES.............................................................................................................................................................vii
LIST OF FIGURES..........................................................................................................................................................viii
LIST OF ABBREVIATIONS............................................................................................................................................ix
ABSTRACT......................................................................................................................................................................... x
CHAPTER 1........................................................................................................................................................................ 1
INTRODUCTION...............................................................................................................................................................1
1.1Background of the study............................................................................................................................................1
1.1.1Financial Innovation...............................................................................................................................................2
1.1.2 Financial Performance...........................................................................................................................................3
1.1.3 Deposit Taking SACCOs in Nyeri Town..............................................................................................................3
1.2 Statement of the problem..........................................................................................................................................4
1.3 Research Objectives..................................................................................................................................................5
1.3.1 General objective................................................................................................................................................5
1.3.2 Specific objectives...............................................................................................................................................5
1.4 Research Hypothesis.................................................................................................................................................5
1.5 Significance of the Study...........................................................................................................................................6
1.6 Scope of the Study.....................................................................................................................................................6
1.7 Limitation of the Study.............................................................................................................................................6
1.8 Assumption of the Study...........................................................................................................................................6
1.9 Definition of Key Terms............................................................................................................................................7
CHAPTER 2........................................................................................................................................................................ 8
LITERATURE REVIEW...................................................................................................................................................8
2.1 Introduction...............................................................................................................................................................8
2.2 Theoretical Review....................................................................................................................................................8
2.2.1 Theory of Financial Intermediation..................................................................................................................8
2.2.2 Innovation Diffusion Theory.............................................................................................................................9
2.2.3 Task-Technology Fit Theory (TTF)................................................................................................................10
2.3 Empirical Review....................................................................................................................................................10
2.3.1 Internet Banking...............................................................................................................................................11
2.3.2 Telephone Banking...........................................................................................................................................11
2.3.3 Agency Banking................................................................................................................................................12
2.4 Conceptual Framework..........................................................................................................................................13

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 2.5 Operational Framework.........................................................................................................................................13
2.6 Research Gap...........................................................................................................................................................14
CHAPTER 3......................................................................................................................................................................16
RESEARCH METHODOLOGY.....................................................................................................................................16
3.1 Introduction.............................................................................................................................................................16
3.2 Research design.......................................................................................................................................................16
3.3 Target population....................................................................................................................................................16
3.4 Sampling Technique and Sample Size...................................................................................................................17
3.5 Data collection instrument......................................................................................................................................17
3.5.1 Data Validity and Reliability...........................................................................................................................17
3.6 Data Collection Procedure......................................................................................................................................18
3.7 Data analysis and presentation...............................................................................................................................18
3.8 Ethical consideration...............................................................................................................................................18
CHAPTER 4......................................................................................................................................................................19
DATA ANALYSIS AND PRESENTATION...................................................................................................................19
4.1 Introduction.............................................................................................................................................................19
4.2 Response rate...........................................................................................................................................................19
4.3 Pre-testing Results for Research Instruments.......................................................................................................20
4.3.1 Reliability of the Research Instruments..........................................................................................................20
4.3.2 Validity of the Research Instruments..............................................................................................................21
4.4 General and demographic information.................................................................................................................21
4.4.1 Name of institution...........................................................................................................................................21
4.4.2 Gender of the respondent.................................................................................................................................22
4.4.4 Distribution of Respondents by Academic Qualifications.............................................................................24
4.4.5 Distribution of SACCOs by Years of Operation............................................................................................25
4.5 Descriptive Statistics...............................................................................................................................................26
4.5.1 Effect of telephone banking on Financial Performance.................................................................................26
4.5.2 Effect of internet banking on Financial Performance....................................................................................27
4.5.3 Effect of agency banking on Financial Performance.....................................................................................28
4.5.4 Overall Effects of Financial Innovation on Financial Performance.............................................................29
4.6 Inferential Statistics................................................................................................................................................30
4.6.1 Effects of Telephone Banking and Financial Performance...............................................................................30
4.6.2 Effects of Internet Banking and Financial Performance...................................................................................33
4.6.3 Effects of Agency Banking and Financial Performance....................................................................................38
4.6.4 Effects of Overall Financial Innovation and Financial Performance...............................................................41

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CHAPTER FIVE...............................................................................................................................................................43
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS...........................................................43
5.1 Introduction.............................................................................................................................................................43
5.2 Summary of Findings..............................................................................................................................................43
5.2.1. Telephone Banking and Financial Performance...........................................................................................43
5.2.2. Internet Banking and Financial Performance...............................................................................................44
5.2.3. Agency Banking and Financial Performance................................................................................................44
5.2.4. Financial innovation and Financial Performance.........................................................................................44
5.3. Conclusion...............................................................................................................................................................44
5.3.1. Telephone Banking and Financial Performance...........................................................................................45
5.3.2. Internet Banking and Financial Performance...............................................................................................45
5.3.3. Agency Banking and Financial Performance................................................................................................45
5.4 Recommendations...................................................................................................................................................45
5.4.1 Internet banking...............................................................................................................................................46
5.4.2 Telephone banking...........................................................................................................................................46
5.4.3 Agency banking................................................................................................................................................46
5.5 Limitations...............................................................................................................................................................46
5.6 Area of further study..............................................................................................................................................46
REFERENCES.................................................................................................................................................................. 46
APPENDICES................................................................................................................................................................... 51
APPENDIX 1................................................................................................................................................................. 52
APPENDIX 2:................................................................................................................................................................53
APPENDIX 3................................................................................................................................................................. 59
APPENDIX 4................................................................................................................................................................. 60
APPENDIX 5................................................................................................................................................................. 61

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 LIST OF TABLES
Table 3. 1 Registered deposit taking SACCOs in Nyeri Town.............................................................................16
Table 3. 2 SACCOs’ Staff of the Registered DT SACCOs in Nyeri Town..........................................................17
Table 4.1 Response Rate........................................................................................................................................21
Table 4.2: Cronbach Alpha for Reliability Assessments.......................................................................................22
Table 4.3 Name of institution................................................................................................................................23
Table 4.4 Gender of the respondent.......................................................................................................................23
Table 4.5 Distribution by age................................................................................................................................24
Table 4.6 Distribution of Respondents by Academic Qualifications....................................................................25
Table 4.7 Distribution of SACCOs by Years of Operation...................................................................................26
Table 4.8 Effect of telephone banking on Financial Performance........................................................................28
Table 4.9 Effect of internet banking on Financial Performance............................................................................29
Table 4.10 Effect of agency banking on Financial Performance...........................................................................29
Table 4.11 Overall Effects of Financial Innovation on Financial Performance....................................................30

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 LIST OF FIGURES
Figure 2. 1 Conceptual framework........................................................................................................................13
Figure 2. 2 Operational framework .................................................................................................................14
Figure 4.1 A pie chart showing the distribution of the respondents by gender.....................................................24
Figure 4. 2 A bar graph showing the distribution of the respondents by age........................................................25
Figure 4. 3 A bar graph showing the distribution of respondents by academic qualifications..............................26
Figure 4. 4 A pie chart showing the distribution of saccos by years of operation.................................................27

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 LIST OF ABBREVIATIONS
SACCOs Savings and Credit Cooperative Organizations

DT SACCOs Deposit Taking Savings and Credit Cooperative Organization

SASRA Sacco Societies Regulatory Authority

SPSS Statistical Package for Social sciences

ROA Return on Asset

SAPs Service Access Points

ANOVA Analysis of Variance

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 ABSTRACT
SACCOs are of great importance since they inject capital to the economy through various individuals and
institutions to pay back at a later date at an agreed interest. Therefore, this study examined the effects of
financial innovation on the financial performance of deposit taking SACCOs in Nyeri Town, Kenya. The
specific objectives of the study were telephone banking, internet banking agency banking and the overall effects
of financial innovation on performance of DT SACCOs in Nyeri Town. The study was guided by three theories
which are theory of Financial Intermediation, Innovation Diffusion theory and Task-Technology Fit theory. The
study used descriptive research design utilizing quantitative data collected through closed-ended questionnaires.
The target population was 8 registered deposit taking SACCOs that had been in operation for a minimum of 5
years. The study collected primary data through the use of questionnaires which were administered to branch
managers, tellers and credit managers of each DT SACCO. SPSS software was used to analyze and generate
various statistical summary whereby the study examined the questionnaires and generated descriptive statistics
such as frequency, mean and standard deviation. The findings of the study revealed that financial innovation
had a positive impact on financial performance of DT SACCOs in Nyeri Town. SACCOs should therefore
embrace financial innovation which include telephone banking, internet banking and agency banking in order to
improve their financial performance. SACCOs should continue to introduce new deposit accounts in order to
increase the number of deposits. The Saccos should also introduce credit and debit cards in order to increase
their revenue. They should also continue to automate their operations in order to enhance efficiency and
effectiveness. In addition, mobile banking, cashless and paperless services should continue to be introduced in
order to reduce operation costs. The firms should also change their management systems and come up with
policies that will facilitate restructuring of their operations in order to improve service delivery to their
customers. SACCOs should Implement advanced security protocols such as SSL encryption, multi-factor
authentication (MFA), and regular security audits. To embrace telephone banking, various SACCOs should
design a telephone banking system that is easy to use, with clear instructions and minimal steps to complete
transactions and ensure that the telephone banking service is available 24/7 to allow members to access their
accounts at any time. In order to ensure efficiency in their operations, SACCOs should Implement strong
security 6protocols for agency banking, including secure transaction methods and regular monitoring of agents
and establish a wide network of agents in both urban and rural areas to ensure easy access for all members.

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 CHAPTER 1

INTRODUCTION

1.1Background of the study

Globally, when deposit taking SACCOs in America apply financial innovations in their operations, there has
been creation of approaches to increase their asset base (Jillo, 2023). In addition, deposit taking SACCOs in
Europe and China have increased the gross profits from the high number transactions they receive within certain
timeframe (Deloitte, 2020). There has been reduced expenses since deposit taking SACCOs keep on advancing
and introducing new financial innovative products in Sweden (Ngure, 2017).

The financial innovations in SACCOs are of much importance more so to Africa in its fight against poverty as
enshrined in sustainable development goals. Africa contribute to 48 percent of poverty level worldwide
(Omilola, 2019). South African government has provided policies to deposit taking SACCOs that have
portrayed potential in high tax returns thereby increasing their chances of making even more revenue (Srinivaas,
2024). In Nigeria, there has been two provisions of employment opportunities to the public so as to create
awareness of the new financial products introduced in the SACCO (O.J Njideka,Dr. Arinze & Dr. Uchechukwu,
2024). Clients in Ghana have also gotten alternative financial products and services that they can choose from
hence diversifying their wealth (M., YuSheng, & Ibrahim, 2019).

Kenya has classified micro financial institutions into 3 major categories; Large (market share of above 5%),
medium (market share between 1% and 5%) and small (market share of below 1%). These institutions have
adopted various financial innovations over the years to aid in their operations. Such innovations have been
fueled by the rapid adoption of Information System technology to usher in a digital age of banking (Sang,
2020). The Kenyan financial sector has experienced remarkable changes where advanced technology has totally
reformed the banking philosophy. Challenges experienced within the banking system have led to creation of
new innovations including: telephone banking, internet banking and agency banking. Deposit taking SACCOs
have increased their clientele portfolio worth through engaging in financial innovation products and services.
There have been increased loan disbursement since borrowers have access to different types of loans that have
been re-engineered to suit their needs (Wanyonyi, Kizito & Ngaba, Dominic, 2021).
1.1.1Financial Innovation

In early days, deposit taking SACCOs used manual processes in most of their banking activities which would
normally cause inefficiencies and limit their reach. The introduction of innovative financial tools has sparked a
revolution in the provision of financial services, opening new ways for SACCOs to grow and interact with more
clients. These innovations specifically affect the organization’s revenue and risk by either increasing or
reducing them thus affecting the overall performance of the organization (Sang, 2020) Telephone banking,
internet banking, and agency banking are among the fundamental changes that have redefined the functioning of
SACCOS and impacted upon their financial performances.

Telephone banking is one of the innovations in deposit taking SACCOs. There is a positive impact of telephone
banking on enhancing customer engagement, reducing transaction costs, and improving financial inclusion
(Smith, 2019). It allows customers to process banking transactions even without the need of to the physical
branch. Customers are able to deposit and withdraw cash, check their balances, pay bills, transfer funds or even
top up airtime from the comfort of their home or workplace. This innovation has enhanced the accessibility of
banking services especially to individuals in the remote areas. They have also allowed financial institutions to
carry out transactions within the required time and provided a secure means of banking for individuals using
security protocols to prevent unauthorized access of information.

Internet banking is also another financial innovation. With internet banking, customers are able to perform tasks
like managing their accounts, fund transfer, loan application and buying of shares from anywhere as long as
they are connected to the internet. This innovation has improved customer experience as well as simplified
operations for SACCOs by eliminating manual processes and physical structures. Internet banking adoption is
positively associated with SACCOs' financial performance, including increased revenues, cost savings, and
customer retention. (Chen, Wang, & Li, 2019)

Agency banking comprises of agents and principals (customers). These agents are licensed and authorized by
the respective banks and operate on given localities. The essence of banking agents is to decentralize essential
banking services closer to the people as way of enhancing availability, accessibility and reliability of banking
services. According to (Nyagadza, 2019), modern world is dictating the essence of reliable and accessible
banking services where people can obtain key banking services closer to them and when they need them. This
means that for the commercial banks to be competitive and aligned to customers’ changing needs, they ought to
integrate a banking mode that enhances accessibility of banking services to all customers.

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1.1.2 Financial Performance

A well-functioned financial sector looks for continuous adaptation, evolvement, and the diffusion of innovative
financial assets, institution, and services along with easy access to financial services, and readily available for
the population (Qamruzzaman, Md & Wei, 2019). The role of financial innovation in the financial system assist
in improving financial institutions performance (Chipeta, Chimwemwe & Muthinja, Moses., 2018). Financial
performance measures the financial health of an organization at a particular point in time.

Financial innovation has a profound impact on the financial performance of deposit-taking Savings and Credit
Cooperative Societies (SACCOs) in Nyeri Town, especially through measures like profitability. The financial
ratio indicates company performance in the future and shows the level of corporate health and
improved efficiency of the business (Wijaya & Yustina, 2019). Profitability, assessed by metrics such as return
on assets (ROA) and net profit margin, gauges how effectively SACCOs generates income from their assets and
shareholder investments.

ROA measure the ratio of income to its total asset and it is used to indicate the profitability of a firm (Khrawish,
2014). It measures the ability of an organizations to generate income by utilizing assets entrusted to the
management. Net Profit margin measures the amount of net income generated from the total sales. The
introduction of financial innovations like internet banking, telephone banking, and agency banking can
significantly enhance profitability by reducing operational costs, attracting a broader customer base, and
improving service efficiency.

1.1.3 Deposit Taking SACCOs in Nyeri Town

DT SACCOs in Kenya play a significant role in financial inclusion and economic development, particularly in
rural and semi-urban areas. They are registered under the SACCO Societies Act (2008) and are authorized to
mobilize savings from their members, provide credit facilities, and offer other financial services (SASRA,
2021). They cater to a diverse membership base, including small business owners, farmers, and salaried workers
(Gitau, Ndirangu & Kariuki, 2019). Nyeri Town, situated in central Kenya, serves as a focal point for SACCO
activities, serving a diverse membership base ranging from small business owners to agricultural producers and
urban employees. Financial innovations within these SACCOs, such as digital banking platforms, mobile
money integration, and alternative credit scoring methods, are of particular interest. These innovations are
expected to influence various aspects of financial performance, including profitability, asset quality, and growth
trajectories. (Gathogo & Murungi, 2021)
3
1.2 Statement of the problem

Deposit taking Saccos are financial institutions that are registered and regulated by Sacco Societies Regulatory
Authority into accepting deposits and offering loans to qualified borrowers ( SASRA, 2022). These institutions
add capital to the economy by lending it to different people, firms, and other organizations who are supposed to
repay back later at an agreed interest rate. Moreover, they offer access to financial advice from experts on
investment at a price which has to be paid. As they strongly contribute to the economic system, it is necessary to
assess their financial status in the view of going concern.

On the other hand, Saccos have been declining in profitability as seen in Kenya ( SASRA, 2022). In the
Financial year 2021/2022, the deposits from deposit taking SACCOs dropped from Ksh. 114.59 billion to Ksh.
83.78 billion in the year 2021/2022 which is approximately 26.89% hence raising a matter of concern. The
profitability has partially been associated with the low rate of the implementations of innovations like telephone
banking, internet banking and agency banking of the SACCOs. This has led to a clash between the clients and
the SACCOs in that they have not been presenting the services that the clients want. Nevertheless, the
persistence of this distortion has compelled the customers to switch to the commercial banks which have been
offering the similar services with some touch of innovations.

In Nyeri Town, where the economic environment is shaped by a range of influencing elements such as
population dynamics, urbanization trends and different consumer behaviors, SACCOs are faced with the need to
adapt to these shifts to become competitive and sustainable. According to (Odero, Jackline & Egessa,
Robert ,Oseno&Ben, 2020) the research generally dwelt on innovation and the overall performance of deposit
taking SACCOs in Kenya hence calling the need to conduct a local study specifically in Nyeri Town and also
discuss the effects of financial innovation itself and the financial performance of deposit taking SACCOs.
(Muriuki, Nahashon & Kiiru, David, 2019) Studied the innovative strategies and the performance of SACCOs
in Nyeri County, however it was conducted in the organizational or firm industry leaving a gap in the financial
industry. Therefore, this study sought to fill the knowledge gap by establishing the financial innovations and the
financial performance of deposit taking SACCOs in Nyeri Town, Kenya. From the above discussion, it is
evident that a number of studies have been conducted on innovation and performance of deposit taking
SACCOs. However, the focus of these studies was limited on the innovative strategies, contrasting factors as
well as regions where the deposit taking SACCOs were based. There has been growth of the current financial
innovations that SACCOs may adapt hence this study aimed to fill this gap by assessing the effects of financial
innovation on financial performance of deposit taking SACCOs in Nyeri Town.

4
1.3 Research Objectives

1.3.1 General objective

The general objective of this study was to assess the Effect of Financial Innovations on the Financial
Performance of Deposit Taking SACCOs in Nyeri Town.

1.3.2 Specific objectives

The specific objectives include:

i. To determine the effects of telephone banking and financial performance of deposit taking SACCO’s in
Nyeri Town.
ii. To identify the effects of internet banking and financial performance of deposit taking SACCO’s in
Nyeri Town.
iii. To examine the effects of agency banking and financial performance of deposit taking SACCO’s in
Nyeri Town.
iv. To measure the overall effects of financial innovations on the financial performance of deposit taking
SACCOS in Nyeri Town.

1.4 Research Hypothesis

The study was tested using the following research hypothesis;

i. H0: Telephone banking has no statistical significant effect on the financial performance of deposit taking
SACCO’s in Nyeri Town.
ii. H0: Internet banking has no statistical significant effect on the financial performance of deposit taking
SACCO’s in Nyeri Town.
iii. H0: Agency banking has no statistical significant effect on the financial performance of deposit taking
SACCO’s in Nyeri Town.
iv. H0: Financial innovations has no statistical significant effect on financial performance of deposit taking
SACCOS in Nyeri Town.

5
1.5 Significance of the Study
Since SASRA's primary objective is to regulate and supervise SACCOs to ensure their stability and soundness,
this study will allow SASRA to adapt regulations, promote financial inclusion, safeguard depositor interests,
and foster competitiveness and efficiency within the SACCO industry.

This study will also be an instrument that will assist Sacco’s managers in coming up with unique projects that
suit the customer preference. Managers will be able to know the top innovations in their field and spare some
tailoring them according to their customers.

In addition, this study is essential to customers in that it determines the quality, availability, cost, and range of
financial products. Thus, customers can make conscious decisions about where deposit their money and get
credit, thinking of their financial health.

The study will assist scholars in their quest to monitor the degree of change financial innovation has brought to
the deposit taking SACCOs over the past few years. The study will assist researchers identify commonly used
financial innovations over time and monitor their effects.

1.6 Scope of the Study

The scope of this study mainly focused on deposit-taking SACCO’s operating within Nyeri Town, Kenya. The
study examined the various types of financial innovations being adopted which included telephone banking,
internet banking, agency banking and their impact on key financial performance indicator profitability that is,
R.O.A and net profit. For the purpose of this study the target population for registered deposit taking SACCOs
in Nyeri Town was 8 which had been in operation for a minimum of 5 years.

1.7 Limitation of the Study

The study faced challenges in the collection of data. Respondents needed constant reassurance that their data
would only be used for research purposes to persuade them not to withhold any information. The study was also
limited to the workforce of the SACCOs to allow the researcher to gain accurate data on the effects each
innovation had on the institution’s client.

1.8 Assumption of the Study

The study assumed that:

i. All the deposit taking SACCOs within Nyeri Town had different management structures but all of
them were under one regulatory authority, SASRA.

6
 ii. All the deposit taking SACCOs within Nyeri Town aimed to maximize their financial performance
within the constraints of their regulatory environment.
iii. The availability of data in all the deposit taking SACCOs within Nyeri Town was sufficient and
reliable for analysis including their financial statements.
iv. All deposit taking SACCOs in Nyeri Town used telephone, internet and agency banking.

1.9 Definition of Key Terms

Financial Innovation

Financial innovation can be defined as the development and dissemination of new financial instruments,
financial technologies, institutions, and markets in the financial system in order to overcome the system’s
deficiencies. (Lerner, 2011)

Agency banking

Is a banking strategy where banks establish agents who are authorized to undertake specific banking functions
such as cash withdrawals, deposits and account balance checking (Mwaiwa, Kwasira, Boit and Chelule, 2022)

Financial Performance

Refers to the ability of a SACCO to fully utilize the shareholder’s resources it has control over to make profits
by competitively offering various innovative products and services ( SASRA, 2022).

Internet banking

It is defined as banking applications that allow customers to perform financial transactions through the use of
World Wide Web wherever Internet is available, at anytime, anywhere (Shih, 2004).

It is also defined as a new type of information system that uses innovative resources of the Internet, through
which customers can use an increasing number of banking services. (Сh, 2020).

Deposit Taking Saccos

These are financial institutions that are registered and regulated by Sacco Societies Regulatory Authority into
accepting deposits and offering loans to qualified borrowers ( SASRA, 2022).

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 CHAPTER 2

LITERATURE REVIEW

2.1 Introduction
A literature review is a logical, categorical and reproducible scheme for ascertaining, gauging and construing
the existing frame of recorded work produced by other researchers, scholars and practitioners (Braidotti, 2019).
This chapter outlines the literature to be reviewed on effects of financial innovation on financial performance of
deposit taking SACCOs in Nyeri Town. It summarizes the information gathered from other researchers who
have conducted the same type of research in the same field of study or other fields but with the same approach.
It entails theoretical review, empirical review, operational framework, conceptual framework and research gap.
The review of literature informs the approach of the current study.

2.2 Theoretical Review

2.2.1 Theory of Financial Intermediation

The theory regarding financial intermediation was developed in the 60’s, the starting point being the work of
Gurley and Shaw in 1960. The financial intermediation theory is based on the theory of informational
asymmetry and the agency theory. In principle, the existence of financial intermediaries is explained by the
existence of the following attributable factors: high cost of transaction, inadequate information in useful time;
and the method of regulation. The unique factor in the studies regarding financial intermediation is constituted
by the argument regarding informational asymmetry.

This asymmetry can be of type: exalted generating the so-called problem of adverse selection; concomitant
generating the moral hazard (principal and agent relationship); or ex post leading to the need of applying
some costly verification and auditing procedures or even the forced execution of the debtor. The
informational asymmetry generates imperfections of the market, deviations from the theory of perfect
markets in an Arrow -Debreu (1954) sense. Arrow-Debreu perfect markets synopsis of a near heaven, which
depicts that if they is an heaven, then the financial intermediaries would not be useful in the economy at
large, but since we are still on earth, it is certain that there will be imperfection and incomplete
information which serve has a benefit-cost effect for intermediaries and market. (Allen & Santomero, August,
1996)

Deposit-taking SACCOs in Nyeri Town serve as key financial intermediaries by collecting deposits from
members and then lending these funds to borrowers. By leveraging financial innovation, SACCOs attract more

8
deposits, improve loan origination processes, mitigate risks, and enhance overall financial performance. For
instance, innovations like telephone banking, internet banking and agency banking can streamline lending
operations, reducing costs and improving profitability. These innovations can broaden the reach of SACCOs,
attracting new members and increasing deposit inflows. Thus, financial innovation plays a crucial role in
optimizing the financial intermediation process of SACCOs in Nyeri Town, ultimately contributing to their
financial performance.

2.2.2 Innovation Diffusion Theory

Introduced in 1962, the Innovation Diffusion theory was fine-tuned by Rogers. Innovation diffusion theory
focuses on understanding how, why and at what rate innovative ideas and technologies spread in a social system
(Rogers, 1962). In terms of the theories of change, Innovation Diffusion theory takes a contrary approach to
study changes. Instead of focusing on persuading individuals to change, it sees change as being primarily about
the evolution or “reinvention” of products and behaviors so they become better fits for the needs of individuals
and groups. In diffusion of innovations, it is not people who change, but the innovations themselves (Les
Robinson, 2009).

On the other hand, diffusion is the process by which an innovation is communicated through certain channels
over time among the members of a social system (Rogers, 2003). Fichman (2000) defines diffusion as the
process by which a technology spreads across a population of organizations. The concept of diffusion of
innovations usually refers to the spread of ideas from one society to another or from a focus or institution within
a society to other parts of that society (Rogers, 1962).

Innovation diffusion theory plays a pivotal role in shaping the financial performance of Deposit-Taking
SACCOs in Nyeri Town. As SACCOs navigate the dynamic landscape of financial services, their ability to
adopt and integrate innovative practices directly impacts their competitiveness and economic viability. Those
SACCOs at the forefront of adopting financial innovations such as telephone banking, internet banking or
agency banking often experience enhanced efficiency and reduced operational costs. Moreover, by quickly
embracing these innovations, SACCOs attract and retain members, thus expanding their market reach and
increasing their deposit base. This expanded market penetration not only strengthens their financial position but
also boosts customer loyalty and satisfaction. Furthermore, innovations that streamline internal processes
contribute to cost efficiency and operational effectiveness, enabling SACCOs to optimize resource allocations
and maximize returns.

9
2.2.3 Task-Technology Fit Theory (TTF)
The Task-Technology Fit Model was developed by Goodhue & Thompson in 1995 to explain the utilization of
technology by examining the fit of technology to users' tasks/requirements. The purpose of the theory was to
add to the body of knowledge on technology utilization in the private and public contexts, which had limited
explanation as to how the acceptance of technology contributes to individuals’ performance. TTF was the first
theory that aimed to explore the post adoption aspect of technology utilization, unlike other prior research,
which had mainly focused on the antecedents of use and intention (Marikyan & Papagiannidis, 2023)

TTF theory is essential in evaluating the ways in which the selection and implementation of technology impact
financial performance of Deposit-Taking SACCOs in Nyeri Town. SACCOs seem to see increase efficiency
and cost-effectiveness when they successfully use technology to streamline banking operations, including
member services, loan management and transaction processing. SACCOs can lower operating costs and
increase productivity by choosing technological solutions that closely match their unique goals and needs.
Examples of these solutions include powerful accounting software and user-friendly mobile banking apps.

TFT highlights the significance of user acceptability and happiness with technology, suggesting that SACCOs
give top priority to the implementation of member and staff-friendly and intuitive technologies. Furthermore,
TFT shows the significance of user acceptability and satisfaction with technology, suggesting that SACCOs
ought to give top priority to implementing systems that are user-friendly and intuitive for both employees and
members. This smooth incorporation of technology into day-to-day operations promotes higher worker
productivity as well as an improved member experience, which may result in higher member engagement and
retention. Thus, by increasing operational effectiveness, cutting expenses, and providing members with better
services, SACCOs that establish a strong task-technology fit are better positioned to maximize their financial
performance and maintain their competitive edge in the market.

2.3 Empirical Review

(Kiptum, A.K) Evaluated the effect of investment in financial innovations in relation to commercial banks
financial achievement within Kenya. The study used a descriptive research design. Through census, the study in
Kenya targeted commercial banks totaling to 41. Relationships were established through analysis of correlation
and regression. The study found out that commercial banks' financial performance, market innovation
expenditure, product innovation and institutional innovation expenditure and return on assets are substantial
predictors of return on asset by extension the profitability levels of the regulated commercial Banks in Kenya.

(zacchaeus,N. V. & Muturi, W. M , 2017) Studied the impact of financial innovation on financial sector
development in East African countries of Uganda, Tanzania and Kenya. They established that financial
10
innovations have significant influence on financial sector development, hence boosting market efficiency. The
study while evaluating the secondary data from the banking sector in the three countries indicated that financial
innovation indicators can work for or against developmental effect via the transmission mechanism, hence
impacting financial development. The study also found out that rapid innovations as past incident has changed
the assortment of financial services accessible to clients and increased the efficiency of the financial system and
is becoming an important factor in the development of the banking sector.

(Omwanza , 2019) Examined the relationship between financial innovation and a financial performance of
microfinance institutions in Kenya. The study used descriptive survey method. The study findings showed that
product innovation had an imperative effect on performance of the Microfinance institutions (MFIs). The study
concluded that it is consequently important for microfinance institutions to constantly engage themselves in
providing new products that fulfils customers' needs.

2.3.1 Internet Banking

(Kegan,A. ,Acharya.R.N , Rao L.S & Kodepaka,V.) Examined the impact of online banking applications on
community banks performance in America. The study used a structural equation model to create an online
banking index and an econometric model to evaluate bank performance. A survey of ten community banks was
conducted. The results indicated that banks that provide extensive online banking services tend to perform
better than those who lag behind. In addition, online banking helps community banks improve their earnings
ability as measured by return on equity and improve asset quality

(Surma , 2011) Examined the impact of e-banking on profitability of Pakistani banks. The study was carried out
by assessing the qualitative factors determining the impact of-banking. The study showed that e-banking has
increased the profitability of banks, has enabled banks meet their costs and has enabled them earn profits even
in the short span of time.

(DeYoung,R. ,Lang, W.W.& Nolle,D.L, 2007)Carried out a study on performance of internet banking
community banks in USA. He concludes that the adoption of internet banking services improves services
delivery and performance. The banks that used internet services had improved bank’s profitability of
community banks, in particular, increased income from deposit service charges

2.3.2 Telephone Banking

(Okiro & Ndungu, 2013) Pertaining to effects of internet and banking mobile on performance of financial
organizations in Kenya. The study investigated 30 financial institutions by assessing the role played by internet
11
and mobile banking in performance of institutions. The study employed qualitative and descriptive methods
research designs with aim of having a clear understanding of internet and mobile banking. The study collected
qualitative data from the managers, subordinate staff and also from customer of the 30 institutions. These 30
institutions were arrived at by use of stratified sampling. The sampling process led to 17 commercial banks, 11
SACCOs and 2 microfinance institutions were sampled. Open and closed ended questionnaire were applied in
process of data collection. The analysis of collected data was conducted using of both qualitative and
quantitative measures.

(Njoki, 2011)Aimed to improve the security system, or an additional layer of transaction security used in mobile
banking systems by designing a multifactor authentication security model for AB Bank Rwanda, to strengthen
transaction security. The developed model offers remedy to challenges faced by mobile banking users in AB
Bank by offering them another way of authorization and authentication even after putting in PIN to approve
transactions, which will reduce theft and other related threats that happens due to insufficient security
mechanisms in place. In conclusion, the use of USSD Push in mobile banking is to provide an efficient layer of
authentication hence improved mobile banking.

(Koivu.T, 2002)Stated that the use of phones in Kenya has been unmanned. M-banking in Kenya impacts
financial performance, character and decisions of the entire economy. The trend of continuous reliance on m-
banking to the execution of money transactions is picking up the pace in a steady manner in the financial sector.
M-banking is one of the innovations that have increasingly offered itself a way of cutting across several firms of
economy and industry.

2.3.3 Agency Banking

(Oral and Yolalan, 1990) Conducted a study on the functional competence of branches belonging to profit-making
banking facilities. The study's objective was to determine the operating efficiency of 20 major branches of the
Turkish Commercial Bank. The study employed the DEA model in analyzing the data from the selected
branches. The findings indicated that branches that were service-efficient were the most profitable hence
proposing the relationship between efficiency in service delivery and increased profits Agent banks that are
efficient in terms of service delivery offer a viable alternative to the branch model with an aim of enhancing
functional efficiency of banking institutions.

(Rodrigez, 2014) Evaluated the impact of agency banking adoption on commercial banks in Mexico where
Stratified sampling was used in the study of five regions in Mexico. The results showed that agency banking
improved access networks and transactions efficiency beefed up making transactions easier and faster in

12
Mexico. Despite the evident agency banking benefits, respondents claimed agents were insecure for making
high value transactions and hence they preferred branches to agents.

(Omar 2014) investigated the contribution of agency banking to financial sector in India. Random sampling was
used and 400 respondents from 40 registered commercial banks were chosen to participate in the study. The
findings revealed that agency banking enhanced operational efficiency and effectiveness of commercial banks.

2.4 Conceptual Framework

A conceptual framework for the current study shows the effects of financial innovations on financial
performance of SACCOs in Nyeri Town and had been depicted in Figure 2. 1 below which conceptualized that
financial innovation as an independent variable while financial performance as dependent variable

FIGURE 2. 2 CONCEPTUAL FRAMEWORK

Telephone banking

Financial Performance
Internet banking

Agency banking

Independent Variables Dependent Variable

2.5 Operational Framework

As per Figure 2. 3, telephone banking indicators are SACCO’S mobile apps and use of Unstructured
Supplementary Service Data (USSD) codes while internet banking indicators are Sacco’s website and Security
and authentication methods. Furthermore, agency banking indicators are inclusion of MPESA services and
Sacco’s agents. Financial performance indicator is profitability which will be measured using R.O.A and net
profit margin.

13
FIGURE 2. 2 OPERATIONAL FRAMEWORK

Telephone banking
 SACCO’S mobile app
 Unstructured Supplementary
Service Data (USSD) codes

Internet banking Financial Performance

 Security and authentication Profitability
methods
 SACCOs website  R.O.A
 Net Profit Margin

Agency banking
 Saccos agents
 Inclusion of MPESA services

Independent variables Dependent Variable

2.6 Research Gap

Previous studies like those of (Odero, Jackline & Egessa, Robert ,Oseno&Ben, 2020) generally explored
innovation and overall performance without diving deeply into the specific financial innovations and their direct
impact on financial performance. This study aims to fill the previous study contextual gap by focusing on the
effects of financial innovation on financial performance of DT SACCOs in Nyeri Town.

Previous studies such as (Muriuki, Nahashon & Kiiru, David, 2019), focused on the organizational or firm
industry rather than the financial industry. Therefore, there is a need to investigate the financial industry focus
gap specifically to understand the financial innovations and the financial performance of DT SACCOs in Nyeri
Town.

Previous studies on the financial performance of DT SACCOs have been conducted in Nyeri County and
different regions across Kenya but have not specifically focused on Nyeri Town. This geographical focus gap
creates a need for localized research that considers the unique economic environment and also to understand the
specific conditions and challenges faced by DT SACCOs in Nyeri Town, which has not been adequately
addressed by broader different studies.

14
Therefore, the knowledge gap lies in the need for a localized, sector-specific analysis of how financial
innovations affect the financial performance of DT SACCOS in Nyeri Town. By addressing this gap, the study
will provide valuable insights for SACCOs to adapt to economic conditions and customer demands, thereby
improving their profitability and long-term sustainability. The study will also look to address the knowledge gap
associated with such inconsistencies.

15
 CHAPTER 3

RESEARCH METHODOLOGY
3.1 Introduction
Research methodology provides details regarding the procedures to be used in conducting the study, (Mugenda
& Mugenda, 2003). This section entailed of the research design, the target population, the sample and sampling
technique, and a description of instruments or tools used to collect data, the measurement of variables and the
techniques to be used in analyzing and presenting data.

3.2 Research design

Descriptive research design carried out the study. The method focuses on accurately detailing and summarizing
the characteristics or relationships of the studied subject using fresh, original data collected by the researchers
themselves. Close-ended questionnaires were used. This allowed systematic collection and analysis of data to
describe financial innovation and its effects on financial performance of DT SACCOs in Nyeri Town.

3.3 Target population

The target population of the study for registered deposit taking SACCOs in Nyeri Town was 8 (SASRA, 2022).
These SACCOs must have been in operation for a minimum of 5 years. The registered deposit taking SACCOs
in Nyeri Town were assumed to have implemented financial innovations that is telephone banking, agency
banking and internet banking in their operations.

Target population Frequency

New Fortis SACCO 1
Taifa SACCO Society Ltd 1
Wananchi SACCO Society Ltd 1
Biashara SACCO Society Ltd 1
2NK SACCO Society Ltd 1
Baraka SACCO 1
Wakulima SACCO Society Ltd 1
Unaitas SACCO Society Ltd 1

TABLE 3. 1 REGISTERED DEPOSIT TAKING SACCOS IN NYERI TOWN

16
3.4 Sampling Technique and Sample Size

Suitable sampling frame is necessary for the selection of the sampling units. (Halperin & Heath, 2020) Indicate
that sampling frame is a list of elements from which the sample is actually drawn and is closely related to the
population. For effective data collection process, the sampling frame was Branch Managers, Tellers and
SACCOs’ agents of the deposit taking SACCOs in Nyeri Town because they were well conversant with the
relevant information concerning the variables of the study. Purposive sampling technique was used to pick
respondents; branch managers, tellers and SACCOs’ agents of the DT SACCOs in Nyeri Town since they are
majorly involved in the SACCOs operations.

Target population Frequency

New Fortis SACCO 3
Taifa SACCO Society Ltd 3
Wananchi SACCO Society Ltd 3
Biashara SACCO Society Ltd 3
2NK SACCO Society Ltd 3
Baraka SACCO 3
Wakulima SACCO Society Ltd 3
Unaitas SACCO Society Ltd 3

TABLE 3. 2 SACCOS’ STAFF OF THE REGISTERED DT SACCOS IN NYERI TOWN

3.5 Data collection instrument

The study collected primary data. Closed ended-questionnaires (Appendix two) was used to capture the primary
data. (Dalati & Gómez, 2018) Stated that questionnaires are effective in collecting data from a large number of
people with cost and time efficiency. Quantitative data was measured using 5-point Likert scale with closed-
ended questions to establish the effects of financial innovations (telephone banking, internet banking and
agency banking) on financial performance as well as to determine the overall effects of financial innovation on
financial performance of DT SACOs in Nyeri Town.

3.5.1 Data Validity and Reliability

Before data collection, the reliability and validity of the study tool was tested. Cronbach’s Alpha coefficient was
computed to assess the reliability of the study tool. The Alpha level was checked using SPSS version 29.
According to (Agaba, Turyasingura & Kabagambe., 2023), validity demonstrates that the study tool is
evaluating what it should. Face and content validity of the questionnaire were also tested. Face validity is in
17
relation to the misunderstanding or misinterpretation of the questions. Content validity relates to the capacity of
the instrument to provide adequate coverage of the topic. Both face and content validity were checked by
employing experts’ opinion. This ensured that the instrument effectively fulfils the objective of the study.

3.6 Data Collection Procedure

The researchers obtained all the necessary approval in form of the introduction letter from the Dedan Kimathi
University of Technology. The investigators visited all the 8 SACCOs to meet up with the SACCOs’ staff on
the day of collection of data. The three researchers said who they were and stated the purpose of the meeting.
Once the managers agreed, they administered questionnaires and wait for them to fill after a period agreeable by
both parties. Drop and pick data collection approach was adopted in distributing questionnaires as
recommended by (Smith & Kim, 2015) as ideal when dealing with a busy class of respondents.

3.7 Data analysis and presentation

The interpretation of the data, which is derived from the data analysis and draws inferences and conclusions, is
another important aspect of the research (Dutilh, 2019). Data collected through questionnaire was cleaned to
reduce biases, increase the precision and achieve the consistency. The responses to each question were
categorized, discussed, classified, and summarized based on the varied responses. This allowed the researcher to
extract key patterns from the data that helped structure the presentation. After that, the data was loaded into a
computer and evaluated using SPSS 29.0.2. Descriptive statistics consists of methods for organizing, displaying,
and describing data by using tables. The goal of descriptive statistics is to provide a concise summary of the
data that allows for easy interpretation and comparison. (Bluman, 2017). The study used descriptive statistics
such as frequencies, percentages, standard deviation and mean to analyze the data collected.

3.8 Ethical consideration

The study began by getting all the requirements needed for data collection such as Dedan Kimathi University of
Technology introduction letter. Later on, the respondents were not forced to participate in the data collection
process hence had to consent before data was collected from them (appendix 1). The study ensured that the
collected data was maintained private for confidentiality purposes of sensitive data. The researchers maintained
courtesy at all times irrespective of the attitude of the respondents. The study also ensured that there was no
fabrication of data from other sources hence all the sources of information that the study obtained was identified
through citing and referencing them in APA 6th edition. Finally, the findings will be uploaded to public portals
for dissemination of knowledge.

18
 CHAPTER 4
DATA ANALYSIS AND PRESENTATION

4.1 Introduction
This chapter presents the findings of the study on the effects of financial innovation on performance of deposit
taking SACCOs in Nyeri Town. The findings and discussions were presented according to the specific
objectives. Data presentation was organized based on the specific objectives of the study for the data collected
from the questionnaires; whereby the researcher sorted views and opinions of the respondents. The chapter
covered the response rate of the research instrument, the pretesting results and the presentation of the general
and demographic results. The main findings were presented in two phases; the descriptive and inferential
analysis which were done systematically as per the study objectives.

4.2 Response rate

According to Young (2013), a response rate analysis is essential to determine whether a study obtained a
threshold of participants required to make it valid and effective as well as to be a representative of the targeted
population. The study had a sample of 24 respondents drawn from deposit taking SACCOs in Nyeri Town. A
total of 24 questionnaires were issued out to the respondents. Out of these, a total of questionnaires were
returned fully filled implying a response rate of 54%. A total of 13 questionnaires were fully filled, making it
achieve a response rate of 54%. Mugenda (2003) recommendation that a response rate of 50% is adequate for
analysis and reporting; a rate of 60% is good and a response rate of 70% and over is excellent. This indicates
that the response rate from this study was adequate. This is summarized in Table 4.1.

19
 Distribution of Questionnaire Questionnaire
respondent Issued Returned Percentage Response

New Fortis Sacco 3 3 100%

Biashara Sacco 3 2 67%

2NK Sacco 3 3 100%

Taifa Sacco 3 0 0%

Wakulima Sacco 3 2 67%

Unaitas Sacco 3 0 0%

Baraka Sacco 3 1 33%

Wananchi Sacco 3 2 66%

TOTAL 24.0 13.0 54%

TABLE 4.1 RESPONSE RATE.

4.3 Pre-testing Results for Research Instruments

4.3.1 Reliability of the Research Instruments

Reliability is the degree to which a study tool consistently measures in a similar way when used in the same
situation with the same components (Agaba and Emenike, 2019). It establishes if the measure is able to yield
the same results on other occasions, similar observations are reached by other observers and transparency in the
raw data. Reliability was used to check the internal consistency of the data measuring instrument. Cronbach's
coefficient alpha which determines the internal consistency or the average correlation of items within the test
were used for collection of data to test the findings. The closer Cronbach’s alpha coefficient is to 1, the higher
the internal consistency reliability (Sekaran, 2003). (Voss & Marton, 2012) Suggested that if values were too
low, either too few items were used or the items had little in common. Lim (2013) posits that reliability of over
0.70 is considered acceptable. This was the threshold applied in this study.

20
 Variables No. of items Cronbach Alpha Values

Telephone Banking 20 0.591

Internet Banking 20 0.836

Agency Banking 20 0.799

Financial Performance 20 0.817

TABLE 4.2: CRONBACH ALPHA FOR RELIABILITY ASSESSMENTS.

4.3.2 Validity of the Research Instruments

According to (Agaba, Turyasingura & Kabagambe, 2023), validity demonstrates that the study tool is
evaluating what it should. Face and content validity of the questionnaire will be tested. Face validity is in
relation to the misunderstanding or misinterpretation of the questions. Content validity relates to the capacity of
the instrument to provide adequate coverage of the topic. Both face and content validity will be checked by
employing experts’ opinion. We issued 15 questionnaires to 15 finance students which was done through
random sampling. This will ensure that the instrument effectively fulfils the objective of the study.

4.4 General and demographic information

The study collected information regarding general characteristics of the respondents and the institution they
work in. The information was grouped in terms of their name of the institution, gender, age, academic
qualifications and the periods in which the institutions were registered.

4.4.1 Name of institution

The study aimed at identifying the institution participating in the study. Table 4.3 shows the list of institutions
that took part in the study.

21
 NO NAMES OF THE DT SACCOs

1. New Fortis SACCO

2. Taifa SACCO Society Ltd

3. Wananchi SACCO Society Ltd

4. Biashara SACCO Society Ltd

5. 2NK SACCO Society Ltd

6. Baraka SACCO Society Limited

7. Wakulima SACCO

8. Unaitas SACCO Society Ltd

TABLE 4.3 NAME OF INSTITUTION.

Source: Sacco Societies Regulatory Authority (2019)

4.4.2 Gender of the respondent
The study discovered that majority of the respondents were females (61.54%) while a minority of the
respondents were males (38.46%) as indicated in the table below :

GENDER NO PERCENTAGE
MALE 5 38.46%
FEMALE 8 61.54%
TOTAL 13 100%
TABLE 4.4 GENDER OF THE RESPONDENT.

22
FIGURE 4.1 A PIE CHART SHOWING THE DISTRIBUTION OF THE RESPONDENTS BY GENDER

% in Gender

Female Male

4.4.3 Distribution by age

The study discovered that majority of the respondents were between the age of 20-30 years with a percentage
of 30.77% and 30-40 (46.15%) while minority of respondents were between age of 40-50 (15.38%) and 50-60
years(7.69%).

AGE NO PERCENTAGE
20-30 4 30.77%
30-40 5 46.15%
40-50 2 15.38%
50-60 1 7.69%
TOTAL 13 100%
TABLE 4.5 DISTRIBUTION BY AGE.

23
FIGURE 4. 3 A BAR GRAPH SHOWING THE DISTRIBUTION OF THE RESPONDENTS BY AGE

Distribution by Age
50.00%
45.00%
40.00%
35.00%
30.00%
25.00%
46%
20.00%
15.00% 31%

10.00%
15%
5.00% 8%
0.00%
20-30 30-40 40-50 50-60

Percentage

4.4.4 Distribution of Respondents by Academic Qualifications

The study discovered that majority of the respondents had undergraduate degrees level of education (76.9%)
while a minority of the respondents had a diploma level of education (23.1%) as indicated in the table below :

Academic Qualifications Frequency Percent

Secondary and below - -
Diploma 3 23.1%
Undergraduate degree 10 76.9%
Post graduate - -
Total 13 100%
TABLE 4.6 DISTRIBUTION OF RESPONDENTS BY ACADEMIC QUALIFICATIONS.

24
FIGURE 4. 3 A BAR GRAPH SHOWING THE DISTRIBUTION OF RESPONDENTS BY ACADEMIC QUALIFICATIONS

D istribution of R espondents by A cademic

Qualifications
90.00%

80.00%

70.00%

60.00%

50.00%

40.00% 77%
30.00%

20.00%

10.00% 23%

0.00% 0% 0%
Certificate Diploma Undergraduate Masters

4.4.5 Distribution of SACCOs by Years of Operation

The study discovered that most of the SACCOs have been in operation for above 20 years while one SACCO
has been in operation for a period of 12 to 20 years as indicated in the table below:

Period of Registration Frequency Percent

0 – 10 Years - -
11 - 20 Years 1 16.7%
Above 20 Years 5 83.3%
Total 6 100%
TABLE 4.7 DISTRIBUTION OF SACCOS BY YEARS OF OPERATION.

25
FIGURE 4. 4 A PIE CHART SHOWING THE DISTRIBUTION OF SACCOS BY YEARS OF OPERATION

Distribution by years in operation

0.167; 17%

0.833; 83%

0-10 Years 11-20 Years Above 20 Years

4.5 Descriptive Statistics

The study requested respondents to give their opinion in regards to the effect of financial innovation on
financial performance of deposit taking SACCOs in Nyeri Town. The findings of the study were analyzed in
order of the specific objectives. The questionnaire responses were based on a Likert scale which was coded with
numerical values for ease of data analysis. Descriptive statistics enables the meaningful description of a
distribution of scores or measurements using a few indices or statistics. Mean values informed the researcher on
the expected score or measure from a group of scores in a study. Standard deviations informed the analyst about
the distribution of scores around the mean of the distribution.

4.5.1 Effect of telephone banking on Financial Performance

In this part, the study had sought to establish the effect of telephone banking on financial performance of DT
SACCOs in Nyeri Town. The respondents were asked to indicate their level of agreement on the effect of
telephone banking on the financial performance of DT SACCOs in Nyeri Town. The findings were as indicated
in Table below;

26
 Items Frequency Minimum Maximu Mean Standard
N m deviation
Telephone banking use of mobile 13 1 1 1.00 .000
apps
Telephone banking SACCOs volume 13 1 2 1.15 .376
of transactions
Telephone banking usage of USSD 13 1 2 1.23 .439
codes
Telephone banking increased 13 1 3 1.62 1.62
deposits
Telephone banking access of account 13 1 3 1.46 .776
information
TABLE 4.8 EFFECT OF TELEPHONE BANKING ON FINANCIAL PERFORMANCE.

The findings indicates that the respondent strongly agreed (mean = 1.00; standard deviation = 0.000) with the
statement that use of mobile apps have improved the financial performance. Respondents also agreed that
telephone banking (mean = 1.15; standard deviation = 0.376) has increased the volume of transactions. The
study further indicates that the use of USSD codes (mean = 1.23; standard deviation = 0.439) has positively
impacted financial performance. In addition, respondents concurred (mean = 1.62; standard deviation = 1.62)
that the introduction of new deposit accounts has increased the number of deposits collected and(mean = 1.46;
standard deviation = 0.776) for access of account information . The findings implies that when a SACCO
comes up with new processes like use of mobile apps, use of USSD codes and introduction of new deposit
accounts has increased the volume of transactions and enabled easy access of account information hence
improving the DT SACCOs’ financial performance. The findings are in agreement with study findings by
(Mang’ana 2015) which affirmed that SACCOs in Kenya have adopted technology in operations in order to
achieve sustainable advantage over the competitors. Study by (Misati, Njoroge and Ouma 2010), reveals that
mobile banking has expanded the services that financial organization could offer and hence expanded the
stream of incomes.

4.5.2 Effect of internet banking on Financial Performance

The study had aimed to establish the effect of internet banking on financial performance of DT SACCOs in
Nyeri Town and the response of findings were as indicated in Table below;

27
 Items Frequency Minimum Maximum Mean Standard
N deviation
Internet banking Information from 13 1 3 1.92 .641
SACCOs Website
Internet banking Secure logins 13 1 2 1.54 .519
Internet banking Authentication 13 1 3 1.38 .768
methods
Internet banking Volume of 13 1 4 2.00 1.080
transactions
Internet banking General impact 13 1 2 1.38 .506
TABLE 4.9 EFFECT OF INTERNET BANKING ON FINANCIAL PERFORMANCE.

The findings reveal that respondents admitted that (mean =1.92, standard deviation =0.641) information from
SACCOs websites has impacted the SACCO’s financial performance. It was also evident that the SACCOs
financial performance is affected by Secure logins to customers’ accounts (mean = 1.54, standard deviation =
0.519). The respondents also concurred with the statement that internet banking authentication methods
contributes to improved financial performance (mean = 1.38, standard deviation = 0.768). The volume of
transactions has an impact on financial performance by a mean of 2.00 and a standard deviation of 1.080. It is
also evident that internet banking has a general impact on a SACCO’s financial performance (mean = 1.38,
standard deviation = 0.506). The findings implies that when a SACCO comes up with internet banking services,
the SACCO will be able to reduce operating costs and also serve its customers efficiently. This will in turn
boost customers’ satisfactions and improve the financial performance.

4.5.3 Effect of agency banking on Financial Performance

The study had sought to establish the effect of agency banking on financial performance of DT SACCOs in
Nyeri Town and the response of findings were as indicated in Table below;

Items Frequency Minimum Maximu Mean Standard

N m deviation
Agency banking Mobilization of 13 1 2 1.46 .519
deposits
Agency banking Service Access 13 1 2 1.38 .506
Points
Agency banking Increase Number of 13 1 3 1.31 .630
New Members
Agency banking Volume of Loans 13 1 4 2.15 1.068
Issued
Agency banking Adoption of Mpesa 13 1 2 1.08 .277
services
TABLE 4.10 EFFECT OF AGENCY BANKING ON FINANCIAL PERFORMANCE.

28
The findings reveal that mobilization of deposits have an impact on financial performance of a SACCO (mean =
1.46, standard deviation = 0.519). The respondents concurred that service access points also have an influence
on financial performance of a SACCO (mean = 1.38, standard deviation = 0.506). There has been an increase in
new members which have impacted the SACCO’s financial performance (mean =1.31, standard deviation =
0.630). The respondents reveal that the volume of bank loans issued to customers have an impact on the
financial performance of a SACCO (mean = 2.15, standard deviation = 1.068). Finally, the adoption of Mpesa
services have an influence on the SACCO’s financial performance (mean = 1.08, standard deviation =0.277).

4.5.4 Overall Effects of Financial Innovation on Financial Performance

In this part, the study had sought to establish the overall effects of financial innovation on financial performance
of DT SACCOs in Nyeri Town. The respondents were asked to indicate their level of agreement on the overall
effects financial innovation on the financial performance of DT SACCOs in Nyeri Town. The findings were as
indicated in Table:

Items Frequency Minimum Maximu Mean Standard

N m deviation
Financial Performance Impacts of 13 1 2 1.46 .519
Financial Innovation
Financial Performance Rate of 13 1 3 1.85 .689
Return on Assets
Financial Performance Net Profit 13 1 3 1.69 .630
Margin
Financial Performance Reduced 13 1 4 2.15 1.144
Operational Costs
Financial Performance Increased 13 1 3 1.77 .725
Sales Volume
TABLE 4.11 OVERALL EFFECTS OF FINANCIAL INNOVATION ON FINANCIAL PERFORMANCE.

29
4.6 Inferential Statistics

The study conducted Pearson’s correlation analysis and regression analysis to establish the relationship between
the independent variables and the dependent variable.

4.6.1 Effects of Telephone Banking and Financial Performance

The correlation between Telephone Banking and financial performance of DT SACCOs in Nyeri Tow was
examined. The results of the correlation analysis presented in Table below. The study revealed that the
relationship between Telephone Banking and Financial Performance was positive and statistically significant as
the r values were above p values, (P> 0.05).

Pearson
Correlation
N
Pearson
Correlation
Sig. (2-
tailed)
N
Pearson
Correlation
Sig. (2-
tailed)
N
Pearson
Correlation
Sig. (2-

30
 tailed)
N
Pearson
Correlation
Sig. (2-
tailed)
N

 Telephone Banking Use of mobile apps & Volume of transactions (0.65, Sig. = 0.025): There is a strong
positive correlation between the use of mobile apps for telephone banking and the volume of transactions. This
suggests that as mobile app usage increases, SACCO transaction volumes tend to rise. The correlation is
significant at the 0.05 level.

 Telephone Banking Use of mobile apps & Increased deposits (0.70, Sig. = 0.012): A strong positive
relationship is observed between mobile app usage and increased deposits. This implies that mobile apps likely
facilitate more deposits, and the relationship is statistically significant.

 Telephone Banking SACCO’s volume of transactions & USSD Codes Usage (0.60, Sig. = 0.039): There
is a moderate positive correlation between the volume of transactions and the use of USSD codes, suggesting
that USSD technology is also important for increasing transaction volumes, though slightly less impactful than
mobile apps.

 Telephone Banking Increased deposits & Access to account information (0.65, Sig. = 0.025): A strong
positive correlation between increased deposits and access to account information indicates that providing easy
access to account information may encourage customers to deposit more frequently, a significant finding.

 USSD Codes Usage & Access to account information (0.50, Sig. = 0.087): There is a moderate positive
relationship between the use of USSD codes and access to account information, though not statistically
significant at the 0.05 level. This suggests a possible role of USSD in account accessibility but with limited
confidence

31
REGRESSION ANALYSIS

Table 4.12 provides adjusted R Square, which provides statistics on the amount of financial performance
variations explained by effects of telephone banking among the DT SACCOs in Nyeri Town. The study found
that -13% of variations in financial performance of DT SACCOs in Nyeri Town are explained by telephone
banking.

Model Summary

Model R R Square Adjusted R Std. Error of the

Square Estimate
1 .340a .115 -.130 .543
a. Predictors: (Constant), Telephone banking

TABLE 4.12 PERCENTAGE VARIATIONS OF FINANCIAL PERFORMANCE EXPLAINED BY TELEPHONE BANKING .

Table 4.13 provides statistics used to assess the significance of regression model in predicting performance of
SACCOs in Nyeri County using compliance risk control.

ANOVA

Model Sum of Squares df Mean Square F Sig.

Regression .692 5 .138 .469 .794b
1 Residual 5.308 18 .295
Total 6.000 23
a. Dependent Variable: Financial performance
b. Predictors: (Constant), Telephone banking
TABLE 4.13 SIGNIFICANCE OF REGRESSION MODEL ON PREDICTION OF SACCO'S FINANCIAL PERFORMANCE.

The model significance to predict the performance of SACCOs was evaluated at α=0.05. The study found the
model was significance in predicting the financial performance of DT SACCOs in Nyeri Town. Table 4.13
presents the contribution of effects of telephone banking on the performance of SACCOs in Nyeri Town. The
table presents the coefficients of regression model and their significance in prediction of financial performance
of DT-SACCOs in Nyeri Town.

32
Coefficients

Unstandardized Standardized
Coefficients Coefficients

Model B Std. Error Beta t Sig

1 (Constant) 1.719 .524 3.280 .004
Telephone banking 1.5 1.787 -.195 -.629 3.295
a. Dependent Variable: Financial performance

TABLE 4.14 SIGNIFICANCE OF TELEPHONE BANKING IN PREDICTING SACCO'S FINANCIAL PERFORMANCE.

The study found telephone banking coefficient (1.5) is a statistically significance in prediction of Sacco’s
financial performance in Nyeri Town using regression model at α=0.05. This can be fitted in the regression
model to give; Y=1.5telephone banking(X1) +1.719. This implies that telephone banking had significant effect
on the financial performance of the DT SACCOs in Nyeri Town.

4.6.2 Effects of Internet Banking and Financial Performance

The relationship between Internet Banking and Financial Performance of DT SACCOs in Nyeri Town was
examined. The results of correlation analysis are presented in table below. The Table shows that the correlation
between Internet Banking and financial performance is positive and statistically significant

This implies that creation of new institution or change in existing institution for instance merging with another
institution, restructuring and forging external relationship can contribute positively to the financial performance
of an organization

33
Pearson
Correlation
N
Pearson
Correlation
Sig. (2-
tailed)
N
34
 Pearson
Correlation
Sig. (2-
tailed)
N
Pearson
Correlation
Sig. (2-
tailed)
N
Pearson
Correlation
Sig. (2-
tailed)
N

 Internet banking Information from SACCOs Website & Other Variables:

 Secure logins (0.386, Sig. = 0.193): A moderate positive correlation suggests that as information from
SACCO websites improves, secure logins tend to increase. However, this result is not statistically
significant (p > 0.05).
 Authentication methods (0.235, Sig. = 0.440): A weak positive correlation suggests that better
information from the SACCO website might slightly increase the use of authentication methods, but this
relationship is not significant.
 Volume of transactions (0.241, Sig. = 0.428): There is a weak positive correlation, suggesting that
more detailed website information may slightly increase transaction volumes, but again, this is not a
statistically significant result.
 General impacts (0.613, Sig. = 0.026): A strong positive correlation exists between information from
SACCOs' websites and the general impact of internet banking. This relationship is statistically
significant (p < 0.05), indicating that improving website information has a meaningful impact on overall
internet banking effectiveness.

 Internet banking Secure Logins & Other Variables:

35
  Authentication methods (0.483, Sig. = 0.095): There is a moderate positive correlation between secure
logins and authentication methods, suggesting that stronger authentication is associated with more
secure login procedures. This relationship is nearly significant (p ≈ 0.095).
 Volume of transactions (-0.297, Sig. = 0.324): A weak negative correlation exists between secure
logins and transaction volumes, implying that more secure logins might slightly decrease transaction
volumes. However, this relationship is not statistically significant.
 General impacts (0.098, Sig. = 0.751): A very weak positive correlation indicates almost no
relationship between secure logins and the general impacts of internet banking, and this finding is not
significant.

 Internet banking Authentication Methods & Other Variables:

 Volume of transactions (0.000, Sig. = 1.000): There is no correlation at all between authentication
methods and the volume of transactions, meaning that the use of authentication methods does not affect
transaction volumes.
 General impacts (0.016, Sig. = 0.957): There is no meaningful relationship between authentication
methods and the overall impact of internet banking, with a very small correlation and a non-significant
result.

 Internet banking Volume of Transactions & General Impacts:

 (0.000, Sig. = 1.000): No correlation exists between the volume of transactions and the general impacts
of internet banking. This suggests that transaction volume doesn't influence the general impact of
internet banking on users

36
REGRESSION ANALYSIS

Table 4.15 provides adjusted R Square, which provides statistics on the amount of financial performance
variations explained by effects of internet banking among the DT SACCOs in Nyeri Town. The study found
that -2.3% of variations in financial performance of DT SACCOs in Nyeri Town are explained by telephone
banking.

Model Summary

Model R R Square Adjusted R Std. Error of the

Square Estimate
1 .446a .119 -.023 .517
a. Predictors: (Constant), Internet banking

TABLE 4.15 PERCENTAGE VARIATIONS OF FINANCIAL PERFORMANCE EXPLAINED BY INTERNET BANKING .

Table 4.16 provides statistics used to assess the significance of regression model in predicting performance of
SACCOs in Nyeri Town using internet banking.

ANOVA

Model Sum of Squares df Mean Square F Sig.

Regression 1.196 5 .239 .896 .504b
1 Residual 4.804 18 .267
Total 6.000 23
c. Dependent Variable: Financial performance
d. Predictors: (Constant), Internet banking
TABLE 4.16 SIGNIFICANCE OF REGRESSION MODEL ON PREDICTION OF SACCO'S FINANCIAL PERFORMANCE.

The model significance to predict the performance of SACCOs was evaluated at α=0.05. The study found the
model was significance in predicting the financial performance of DT SACCOs in Nyeri Town. Table 4.17
presents the contribution of effects of internet banking on the performance of SACCOs in Nyeri Town. The
table presents the coefficients of regression model and their significance in prediction of financial performance
of DT-SACCOs in Nyeri Town.
37
Coefficients

Unstandardized Standardized
Coefficients Coefficients

Model B Std. Error Beta t Sig

1 (Constant) 2.085 .556 3.750 .001
Internet banking 0.195 0.905 -.634 -2.856 2.034
b. Dependent Variable: Financial performance

TABLE 4.17 SIGNIFICANCE OF INTERNET BANKING IN PREDICTING SACCO'S FINANCIAL PERFORMANCE.

The study found internet banking coefficient (0.195) is a statistically significance in prediction of Sacco’s
financial performance in Nyeri Town using regression model at α=0.05. This can be fitted in the regression
model to give; Y=0.195internet banking(X2) +2.085. This implies that internet banking had significant effect on
the financial performance of the DT SACCOs in Nyeri Town.

4.6.3 Effects of Agency Banking and Financial Performance

38
Pearson
Correlation
N
Pearson
Correlation
Sig. (2-
tailed)
N
Pearson
Correlation
Sig. (2-
tailed)
N
Pearson
Correlation
Sig. (2-
tailed)
N

39
 Pearson
Correlation
Sig. (2-
tailed)
N

REGRESSION ANALYSIS

Table 4.18 provides adjusted R Square, which provides statistics on the amount of financial performance
variations explained by effects of agency banking among the DT SACCOs in Nyeri Town. The study found that
2.8% of variations in financial performance of DT SACCOs in Nyeri Town are explained by agency banking.

Model Summary

Model R R Square Adjusted R Std. Error of the

Square Estimate
1 .489a .240 .028 .503
a. Predictors: (Constant), Agency banking

TABLE 4.18 PERCENTAGE VARIATIONS OF FINANCIAL PERFORMANCE EXPLAINED BY AGENCY BANKING .

Table 4.19 provides statistics used to assess the significance of regression model in predicting performance of
SACCOs in Nyeri County using agency banking.

ANOVA

Model Sum of Squares df Mean Square F Sig.

Regression 1.437 5 .287 1.134 .378b
1 Residual 4.563 18 .253
Total 6.000 23
e. Dependent Variable: Financial performance
f. Predictors: (Constant), Agency banking
TABLE 4.19 SIGNIFICANCE OF REGRESSION MODEL ON PREDICTION OF SACCO'S FINANCIAL PERFORMANCE.

The model significance to predict the performance of SACCOs was evaluated at α=0.05. The study found the
model was significance in predicting the financial performance of DT SACCOs in Nyeri Town. Table 4.20

40
presents the contribution of effects of agency banking on the financial performance of DT SACCOs in Nyeri
Town. The table presents the coefficients of regression model and their significance in prediction of financial
performance of DT-SACCOs in Nyeri Town.

Coefficients

Unstandardized Standardized
Coefficients Coefficients

Model B Std. Error Beta t Sig

1 (Constant) 2.094 .541 3.870 .001
Agency banking -.266 1.043 -.517 -2.085 2.55
c. Dependent Variable: Financial performance

TABLE 4.20 SIGNIFICANCE OF AGENCY BANKING IN PREDICTING SACCO'S FINANCIAL PERFORMANCE.

The study found agency banking coefficient (-0.266) is a statistically significance in prediction of Sacco’s
financial performance in Nyeri Town using regression model at α=0.05. This can be fitted in the regression
model to give; Y=-0.266agency banking(X3) +2.094. This implies that agency banking had significant effect on
the financial performance of the DT SACCOs in Nyeri Town.

4.6.4 Effects of Overall Financial Innovation and Financial Performance

41
Pearson
Correlation
N
Pearson
Correlation
Sig. (2-
tailed)
N
Pearson
Correlation
Sig. (2-
tailed)
N
Pearson
Correlation
Sig. (2-
tailed)
N
Pearson
Correlation
Sig. (2-
tailed)
N

42
 CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS

5.1 Introduction

The main purpose of the study was to assess effects of financial innovation on financial performance of deposit
taking SACCOs in Nyeri Town. This chapter covers the summary of findings of the study. The chapter also
focuses on the conclusion of the study and the recommendations based on the findings. These have been
systematically captured as per the objectives of the study which were to assess effects of telephone banking,
internet banking, agency banking and the overall effect of financial innovation on financial performance of
deposit taking SACCOs in Nyeri Town.

43
 5.2 Summary of Findings

The study sought to determine effects of financial innovation on financial performance of deposit taking
SACCOs in Nyeri Town. The study targeted the 8 deposit taking SACCOs in Nyeri Town that had been in
operation for a minimum of 5 years. The number of issued questionnaires was 24 the sampled respondents
namely: Branch Managers, Credit Managers and Tellers. Only 13 questionnaires returned. The study obtained a
response rate of 54% where13 questionnaires were given back for analysis. This was considered appropriate for
analysis and making conclusions and recommendations of the study. The pilot study results revealed that the
research instrument met the reliability test where all the variables had their items tally to more than 0.70
Cronbach’s alpha coefficient. The instrument also met the validity threshold.

The demographic results revealed that female were the majority (61.54%) while the male workers were the
minority with a percentage of 38.46%. The distribution by age showed that workers of age 30-40 were the
majority with a percentage of 46.15% while the age of 50-60 years were the minority had a percentage of
7.69%. For the distribution by academic qualification, diploma level achieved a percentage of 23.1% while
undergraduate level achieved a percentage of 76.9%. Lastly, the SACCOs that had been in operations for above
20 years were the majority with a percentage of 83.3%.

5.2.1. Telephone Banking and Financial Performance

It was revealed that organizations opt to adopt various financial innovations to meet customer needs and
enhance their profitability. Organizations were found to have adopted new innovations such as the use of
mobile app and USSD codes to meet client needs by some organizations increased their revenue collection
through transaction charges from withdrawals the overall results reveal that product innovation has a positive
effect on the financial performance of SACCOs. Findings also revealed that the creation of an online presence
contributes to the performance of the SACCO by creating awareness. The creation of custom deposit taking
accounts has also affected the performance positively by meeting client needs and specifications. These results
are interpreted to mean that creation or adoption of new product innovations would lead to better financial
performance by the organization.

5.2.2. Internet Banking and Financial Performance

Results indicates that use of internet banking has positive effects on financial performance of DT SACOs in
Nyeri Town. The results revealed that automation of services enhanced profitability of the SACCO. This is
evident through transaction charges charged to clients when they need to access mobile banking services.
Results revealed that use of mobile in banking increased income through commission charges and cashless
services has reduced operational costs to the SACCO enabling it to retain more profits from operations. This
44
meant that the financial performance of an organization depends on its mode of service delivery to meet its
client needs.

5.2.3. Agency Banking and Financial Performance

The findings indicated that the respondents strongly agreed that the adoption of agency banking has positively
influenced the financial performance. Results showed mobilization of deposits by the SACCO’s agents have
increased the total deposits collected hence improving financial performance of the SACCO. There has been
convenience from the establishment of Service Access Points (SAPs) especially with individuals with MPESA
café which has improved the financial performance of the SACCO. Adoption of M-Pesa services in the
SACCOs operations has led to improved financial performance. These results were interpreted to mean that
embracing agency banking in the DT-SACCOs results to better financial performance

5.2.4. Financial innovation and Financial Performance

It was revealed that the return on assets and profit margins depend on financial innovations adopted by the
organization. A great number of the respondents agreed that financial innovations play an important role in
increasing R.O.A and net profit margins of the organization hence maximizing shareholders wealth. These
results are interpreted to mean that adoption of financial innovation would lead to better financial performance
by the organization

5.3. Conclusion

From the findings the study makes the following conclusions;

5.3.1. Telephone Banking and Financial Performance.

Introduction of telephone banking can lead to better financial performance. In particular, if a Sacco introduces
mobile apps, the number of deposits will increase thus increasing the financial performance. In addition,
adoption of M-Pesa services has brought a positive impact on the Sacco’s financial performance. Similarly,
accounts for specific groups and the use of USSD codes have an influence on the financial performance and
also business collaborations have an impact on the financial performance. Lastly M-Pesa money transfer
services is a financial innovation strategy key in customer satisfaction.

5.3.2. Internet Banking and Financial Performance

Internet banking has a positive impact on financial performance. Embracing internet banking in an organization
will therefore result to better financial performance. In particular, adoption of internet banking has positively
influenced the financial performance. Similarly, SACCOs websites information, security measures and use of
45
authentication methods have an impact on the financial performance. It is evident that internet banking is highly
ideal in realization of high turnover.

5.3.3. Agency Banking and Financial Performance

Agency banking has a positive impact on financial performance. Embracing agency banking in an organization
will therefore result to better financial performance. In particular, increased deposits and increase in
membership have impacted the Sacco’s financial performance. In addition, Sacco performance is affected by
the number of members, number of deposits, and the volume of transactions.

5.3.4. Financial innovation and Financial Performance

Financial innovation positively affects the financial performance of DT SACCOs. Embracing financial
innovation in an organization therefore can improve financial performance. Financial innovations can enable a
firm to improve its rate of return on assets and net profit margin.

5.4 Recommendations

The study makes the following recommendations.

5.4.1 Internet banking

To embrace internet banking, various SACCOs should develop an intuitive and user-friendly website or mobile
application that simplifies navigation and transaction processes. SACCOs should Implement advanced security
protocols such as SSL encryption, multi-factor authentication (MFA), and regular security audits.

5.4.2 Telephone banking

To embrace telephone banking, various SACCOs should design a telephone banking system that is easy to use,
with clear instructions and minimal steps to complete transactions and ensure that the telephone banking service
is available 24/7 to allow members to access their accounts at any time.

5.4.3 Agency banking

In order to ensure efficiency in their operations, SACCOs should implement strong security protocols for
agency banking, including secure transaction methods and regular monitoring of agents and establish a wide
network of agents in both urban and rural areas to ensure easy access for all members.

46
5.5 Limitations

The researcher was faced with challenges during data collections. Some of the respondents were unwilling to
disclose information about their organization. Much time was taken to collect data from individuals and
searching for parties willing to take part in the study. Time allocated for the study was insufficient as the
researcher had to balance between class time and time allocated to the research paper. This proved tiresome to
the researcher thus causing a delay in data collection

5.6 Area of further study

The study only targeted deposit taking SACCOS operating in Nyeri town. Further research need to be
conducted and be focused on areas not included in the study to reach a conclusive decision. This would help
future scholars determine the effect of financial innovations on the financial performance of deposit taking
SACCOS.

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 APPENDICES

APPENDIX 1
INTRODUCTION LETTER

Dedan Kimathi University of Technology,

P.O. Box 657-10100,

Nyeri, Kenya.

2nd September 2024.

Branch Manager,

Deposit taking SACCO,

52
Dear Sir/Madam,

Re: Data collection for research study

We are students in the department of Bachelors of Commerce in Dedan Kimathi University of Technology. As
per requirement of our final year, we are required to conduct a research on the effects of financial innovation on
the financial performance of deposit taking SACCOs in Nyeri Town. We humbly request you to help us conduct
this research by filling the questions in the questionnaire honestly and objectively to the best of your
knowledge. Information obtained will be treated with strict confidentiality and the data collected will be useful
in enabling us find out the accuracy needed. This data will be used for academic purposes only.

We look forward to a positive response from your office.

Yours Faithfully,

Sarah Muthoni.

Yvonne Murugi.

Elvis Langat.

APPENDIX 2:
RESEARCH QUESTIONNAIRE

The questionnaire is for the purpose of collecting research information on the Effects of Financial Innovation on
the Financial Performance of Deposit Taking SACCOs in Nyeri Town. You are requested to complete this
questionnaire as honest and objective as possible. Use the 5-point Likert Scale provided (1 to 5) to indicate your
level of agreement, satisfaction, or perception regarding the subject matter. If do not offer particular service
(e.g., M-Pesa services), please skip the question. All information collected via this questionnaire is confidential
and will only be used for the purpose of this study. Feel free to provide additional comments or suggestions at
the end of the questionnaire.

SECTION A: GENERAL INFORMATION

1. Name of the SACCO

2. Gender of respondent

53
 Male ( ) Female ( )

3. Indicate your age bracket.

20-30 years ( ) 31-40 years ( ) 41-50 years ( ) 51 and above ( )

4. Participant’s highest level of education:

Secondary and below ( ) Diploma ( ) Undergraduate Degree ( ) Post graduate ( )

Others ( ) State in brief……………………………………….

5. Please indicate your current position

a) Branch Manager ( )
b) Teller ( )
c) SACCOs’ Agent ( )
6. Number of years you’ve worked in this SACCO.

Less than 2 years ( ) 2-4 years ( ) 5-10 years ( ) More than 10 years ( )

7. How long has your organization been in operation

a) 1-10 years ( )
b) 11-20 years ( )
c) Above 20 years ( )

SECTION B: FINANCIAL INNOVATION AND FINANCIAL PERFORMANCE

This section seeks to measure how financial innovation affects the financial performance of Deposit Taking
SACCOs in Nyeri Town. Please tick the appropriate box against each statement indicating your level of
agreement.

Strongly Agree {1} Agree {2} Neutral {3} Disagree {4} Strongly Disagree {5}

TELEPHONE BANKING AND FINANCIAL PERFORMANCE

SERIAL QUESTION 1 2 3 4 5
NO.

1. The use of mobile app provided by your

SACCO has improved financial performance
significantly.

54
 2. The volume of transactions as a result of
adoption of telephone banking has a positive
impact on the SACCO’s financial
performance.
3. Navigation and usage of the USSD codes
provided by your SACCO for banking
transactions has improved the financial
performance.
4. There is convenience in access of account
information using telephone banking
services offered by your SACCO which has
facilitated financial performance.
5. Introduction of new deposits accounts has
increased the amount of deposits thus
improving financial performance.

INTERNET BANKING AND FINANCIAL PERFORMANCE

SERIAL QUESTIONS 1 2 3 4 5
NO.

1 Information from the SACCO's website has

enhanced banking services such as
transferring funds, paying bills, applying for
loans hence improving financial
performance.
2 Security measures like secure login has
been implemented by your SACCO to

55
 protect online banking transactions and
personal information have improved
financial performance.
3 Use authentication methods such as
passwords and two-factor authentication
used in accessing internet banking services
has contributed to financial performance of
the SACCO.
4 Internet banking in general has impacted the
financial performance of the SACCO.

5 There has been increased number of

transactions processed through internet
banking hence improving the financial
performance of the SACCO.

AGENCY BANKING AND FINANCIAL PERFORMANCE

SERIAL QUESTIONS 1 2 3 4 5
NO.

1 Mobilization of deposits by the SACCO’s

agents have increased the total deposits
collected hence improving financial
performance of the SACCO.
2 There has been convenience from the

56
 establishment of Service Access Points
(SAPs) especially with individuals with
MPESA café which has improved the
financial performance of the SACCO.
3 There has been an increase in the number of
new members acquired through agency
banking channels thus improving the
financial performance of the SACCO.
4 Increase in number of SACCOs’ agents
handling customers’ banking needs has led
to improved financial performance of the
SACCO.
5 Adoption of M-Pesa services in the
SACCOs operations has led to improved
financial performance

SECTION C: FINANCIAL PERFORMANCE

SERIAL QUESTIONS 1 2 3 4 5
NO.

1 Financial innovation has positively

impacted the SACCO’s financial
performance.

57
2 Rate of return on assets has improved over
the years due to financial innovation.

3 The net profit margin has increased as the

SACCO embraces financial innovation.

4 There has been reduced operational costs

leading to cost savings as a result of
financial innovation.
5 Financial innovations such as telephone
banking, internet banking and agency
banking have greatly impacted the
SACCO’s overall financial performance

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 APPENDIX 3
LIST OF DEPOSIT TAKING SACCOS IN NYERI TOWN

NO NAMES

1. New Fortis SACCO

2. Taifa SACCO Society Ltd

3. Wananchi SACCO Society Ltd

4. Biashara SACCO Society Ltd

5. 2NK SACCO Society Ltd

6. Baraka SACCO Society Limited

7. Wakulima SACCO

8. Unaitas SACCO Society Ltd

Source: Sacco Societies Regulatory Authority (2019)

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 APPENDIX 4
BUDGET

Item Amount ( Kshs )

Binding expenses 400

Photocopying expenses 500

Printing expenses 800

Telephone expenses 500

Travel expenses 1000

TOTAL EXPENDITURE 3200

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 APPENDIX 5
WORK PLAN

Activity April May June July August

Research topic
selection and
approval
Writing concept
paper

Writing the
project proposal

Presentation and
submission of the
project proposal.
Data collection

Data analysis

Submission of the
research project

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