Mobile Based Loan Management Practices and Financial Performance of Commercial Banks in Kenya

Abstract

Mobile phone penetration in Kenya has seen immense growth, with over 38.9 Million subscriptions in the second quarter of 2016/2017 up from slightly above 16 Million in 2008. Over 88% of adult Kenyans now have mobile phones, according to CAK. The use of mobile phone technology to offer different financial services by commercial banks in Kenya has impacted on the way these services are offered, as opposed to the traditional brick and Mortar based banking, thus enhancing financial inclusion. The financial sector is aggressively adopting use of Mobile banking. Among the services being offered through this mode is issuance of mobile based loans. However, while there has been increased growth in mobile based loans, no corresponding significant similar growth has been realized in financial sector performance by commercial banks operating in Kenya. The profit margins have not shown significant growth.  Provision for bad debts is on the increase, and bad loans are also growing. The purpose of this study was to establish the effect of mobile based loans management practices to the financial performance of commercial banks in Kenya. Specifically, the study sought to establish the effect of mobile based loans credit scoring system on the financial performance of commercial banks in Kenya; to establish the mobile based loans average repayment period and its effect on the financial performance of commercial banks in Kenya; to analyze the effect of mobile loans default patterns on the financial performance of commercial banks Kenya; and to examine the effect of mobile based loans risk profile on the financial performance of commercial bank in Kenya. The study adopted a descriptive research design. The population of interest for this study was the commercial banks in Kenya, who offer mobile loans. The respondents consisted of a sample of 52credit risk and finance managers of the commercial banks in Kenya selected for the study. Primary data was collected using structured questionnaires. The data was analyzed using descriptive and inferential statistics. Tables and graphs were used to summarize responses for further analysis and to facilitate comparison. In relation to the study findings the study concluded that mobile based loan management practices influence the financial performance of the commercial banks. In particular, the study concluded that credit scoring and repayment period had a significant positive influence on financial performance of commercial banks in Kenya. Further, the study concluded that default patterns and risk profile had a significantly negative influence on financial performance of commercial banks. Finally, the study concluded that credit scoring had a greater influence on the financial performance of commercial banks, followed by default patterns, repayment period and then risk profile. The study recommended that commercial banks in Kenya should invest more in development of good credit scoring systems; should consider adjusting the mobile based loans average repayment period and also formulate strategies on how to minimize incidences of default.