The relationship between financial innovation and financial performance of commercial banks in Kenya

The purpose of the study was to establish the relationship between financial innovations and financial performance of commercial banks in Kenya. The research design used was descriptive survey. The population of study consisted of all the 45 licensed commercial banks that were dully registered with Central Bank of Kenya. The data collection instrument used was the questionnaire which was administered by the researcher through drop and pick method. Responses were grouped into various categories for analysis using descriptive statistics. Statistical Package for Social Sciences (SPSS version 17) was used to analyze the structured questions while the use of descriptive statistics determined frequencies and percentages. The results were presented in prose, tables, bar graphs and charts. \n \nThe study found out that financial innovations improved their operations, improved the liquidity and the asset quality in commercial banks in Kenya. This not only increased their markets but also helped the organizations to remain competitive in the market. Adoption of innovativeness improved firm performance; this is the reason why commercial banks in Kenya are vesting their resources in financial innovations. Financial innovations also deepen liquidity of banks in existing markets, for example by reducing excessive reliance on a narrow base of depositors for funding and improves on earnings, asset quality and this increased efficiency in the operations as a whole and especially in commercial banks in emerging markets and developing countries such as Kenya. \n \nBy way of recommendation, the researcher indicates that there is need to adopt financial innovations in order to improve banks performance. In product innovation, the banks should introduce products that are relatively simple and standard and that offer clear value-added. Adoption of financial innovations also enables us to make real economy more efficient through making financial services more available and reducing their prices Allotting large sums of capital to financial innovation will not only make it possible to provide the inputs required for innovation, but will also allow the bank to absorb the costs of innovation, as well as the costs arising from potential failures and thus will enable the bank to take more first mover initiatives in product/service and process innovation.