THE RELATIONSHIP BETWEEN FINANCIAL INCLUSION AND CREDIT RISK OF COMMERCIAL BANKS IN KENYA
Abstract
Purpose of Study: This research aimed to ascertain the effect of financial inclusion on credit risk in Kenyan commercial banks, specifically focusing on banking services availability, accessibility and usage.
Problem Statement: Commercial institutions are facing growing challenges with escalating credit risk, largely attributed to efforts to expand their loan portfolios. The drive for greater financial inclusion, combined with increasing competition, has led banks to innovate and strive for an all-inclusive economy. However, despite these efforts, credit risk measured by the rise in bad debts has continued to grow alongside financial inclusion.
Methodology: An explanatory research design was employed, the study's target population consisted of all 38 commercial institutions operating in Kenya as of 2022, and it relied on secondary data collected from the banks' financials and Central Bank of Kenya's supervision reports from 2018 to 2022. Descriptive statistics included measures such as frequency distributions, means, percentages and standard deviations. Inferential analysis was assessed through regression techniques.
Result: The study revealed that bank availability, bank accessibility and bank usage had positive and significant effect on credit risk of commercial banks in Kenyan.
Conclusion: Greater availability, accessibility and usage enables a wider population to utilize banking services, increasing the number of depositors and enhancing bank liquidity.
Recommendation: The banks should implement robust risk assessment frameworks that utilize advanced analytics and data modeling to help banks better understand and predict credit risks.
Keywords: Bank Availability, Bank Usage, Banking Competition, Bank Accessibility, Credit risk and Financial Inclusion
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