Contribution Of Agency Banking On Financial Performance Of Commercial Banks In Kenya

Abstract

The revolution of information technology has influenced almost every facet of life, among them is the bankingsector. Technological advancement has not only affected the way of living but has had an effect on the waypeople do their banking. The Kenya Bureau of Statistic Report (2011) indicates that more than 7 million adultrural Kenyans are either under-banked or unbanked. This is partly because of the high cost of maintaining thebank branches and the low nature of business transactions in rural Kenya - a situation which makes opening ofnew branches in the rural areas a less productive venture. Technology has therefore created greater opportunitiesto service providers to offer great flexibility to the customers. Agent banking involves a number of technologiesin order for the financial institutions to keep track of the transactions done by the retail outlet. This study wasguided by counsels of previous researches undertaken abroad in an effort to find out the contributions of agencybanking on financial performance of the commercial banks in Kenya. This study adopted a descriptive survey.The study found that the move by the central bank to regulate agency banking had a positive influence on thefinancial performance of commercial banks in Kenya. The study also found that low transaction cost throughagency banking had a positive impact on the financial performance of commercial banks in Kenya. The studyfound that financial services accessibility by customers through baking agencies had a positive impact onfinancial performance of commercial banks in Kenya. The study found that increased market share had a positiveeffect on the financial performance of commercial banks with many banking institutions indicating thatincreased market share allowed a company to achieve greater scale in its operations which generally improvedits profitability.Keywords: Agency banking, financial innovation, financial performance