Effect Of Agency Banking Transactions On Financial Performance Of Small Scale Enterprises In Kiambu Town, Kenya

ABSTRACT

Over the last eight years, agency banking has progressively gained importance in Kenya. Agency banking has enabled banks to save on costs associated with opening bank branches and has offered convenience to bank customers who before the introduction of agency banking involuntarily had to travel long distances and incur hefty amounts on transportation in order to access a bank branch. Agency banking is facilitated by small scale enterprises who take up the role of the bank teller and offer financial services to bank customers. Research has shown that small scale enterprises face surmounting obstacles which limit their long term existence and development. Many small scale enterprises fail within the first few years as the owners are not able to meet the costs of running the business. Engaging in Agency Banking may save small scale enterprises from the problem of winding up due to financial injection from the agency business. Studies on agency banking within the country and world over have concentrated on the how agency banking has affected the performance of banks while other studies have concentrated on the customers of the agency and how agency banking has impacted on their livelihoods with little attention being focused on the effect of agency banking on the financial performance of the small scale enterprises that undertake agency banking. Scanty systematically organized studies exist on the effect of agency banking on the financial performance of banking agents and whether it is viable for small scale enterprises. Driven by this knowledge gap, this study sought to determine the effect of agency banking transactions on the financial performance of Small scale enterprises in Kiambu Town, Kenya. The specific objectives of this research examined the effect of agency financial transactions; common costs of agency and primary business and agency liquidity on the financial performance of small scale enterprises in Kiambu Town, Kenya. The study anchored on Agency theory since the small scale enterprises act in the interests of the commercial banks as they serve clients who belong to the banks. Positivism philosophy was adopted for the study and cross sectional design was the research design that was used. The study sample was identified through stratified random sampling technique where Small scale enterprises in Kiambu Town were classified into the category of the bank they operate for and a sample of 51 Small scale enterprises providing agency banking services were selected. Characteristics of the study variables were computed using descriptive statistics with regression analysis being used to test the hypothesis. The study concluded that agency financial transactions for e.g commissions received from the banks and additional business from the customers had positive significant effect on financial performance of Small scale enterprises. Common costs e.g wages, rent and security cost had negative significant effect on financial performance of small scale enterprises .The businesses engaging in agency business also save on operational costs since the same resources are used to derive additional income. The study also concluded that regulatory framework had no significant moderating effect on the financial performance of small scale enterprises. The study recommended an awareness campaign on all the financial services offered by agents as most customers seem only to engage on few of the permissible activities of agency banking and an agent management framework be created to effectively determine and manage the number of agents within a certain radius.