The relationship between financial innovation and financial performance among savings and credit co-operative societies in Mombasa county Kenya

Financial innovation is defined as the creation or designing of new financial products, \nbetter process, efficient systems and institution alliances. It also entails the constant \nimprovement of the existing products and activities of financial institutions in order to \nmeet the emerging needs of the stakeholders. All financial innovation strategies are \nimplemented using a few basic techniques such as increasing or reducing risk, pooling \nrisk, swapping income streams, splitting income streams and converting long-term \nobligations into short-term ones. Innovation strategy is a determinant of SACCO \nfinancial performance and provides additional insight into the indirect contribution of the \nindividual dimensions of innovation strategies to SACCO performance. The objective of \nthis study was to determine the relationship between financial innovation and financial \nperformance among SACCOs in Mombasa County Kenya. The study aimed at \nestablishing whether institutional innovation, process innovation and product innovation \ninfluence the financial performance of SACCOs in Mombasa County. The study used a \ndescriptive research design. This study aimed at collecting and analyzing data on the \ninfluence of financial innovation variables on the financial performance of SACCOs in \nMombasa County. The population of the study was 165 SACCOs based in Mombasa \nCounty. The study used a random sample of 36 SACCOs. Data was collected from both \nprimary and secondary sources. The primary data was collected using a semi-structured \nquestionnaire while secondary data was collected from the SACCOs annual reports. \nPrimary data collected was mainly on the extent to which the SACCOs applied financial \ninnovation while the secondary data collected was on the financial performance. The data \nwas analyzed using a multivariate regression analysis with the help of SPSS version 21. \nThe results indicated that there was a positive relationship between financial innovation \nand financial performance of the SACCOs in Mombasa County. The regression analysis \nrevealed that all financial innovation variables had a positive effect on the financial \nperformance of the SACCOs in Mombasa County. The most influential variable was \nproduct innovation followed by process innovation and lastly institutional innovation. \nThe coefficient of determination (R2) showed that that 23.2% of the financial \nperformance of SACCOs in Mombasa County was influenced by financial innovation. \nThe study concluded that financial innovation is a predictor of financial performance of \nSACCOs in Mombasa County. The SACCOs in Mombasa County employed all the three \ntypes of financial innovation to a great extent and all had a positive effect on the financial \nperformance. The study recommended that the SACCO management boards should apply \nmore product innovation as this had the greatest impact on financial performance \nfollowed by process innovation. The study further recommended that the government \nshould pass legislation that will support the SACCOs to adopt more innovation in order \nto improve performance. This will help them move from the traditional products to more \ninnovative products that are tailored to meet members‟ needs.