Digital Financial Inclusion and Economy Growth in Kenya: Banking Sector’s Efficiency and Competition Interaction Analysis

Abstract

The main purpose of the study was to investigate the interaction effects of both banking sector’s efficiency as well as competition in the relationship between digital financial inclusion and economic growth.Positivist research paradigm and cross-sectional survey research design was adopted. A sample size of 384 respondents was drawn from the target population distributed across the four County governments in the Kenya’s Western Province. Structured questionnaires and document analysis research instruments yielded data that was subjected to descriptive, Pearson correlation and hierarchical regression analysis.From the findings, digital financial inclusion measured based on account ownership and use of financial service indicators was found to positively and significantly improve economic growth. On the other hand, banking sector efficiency as well as competition each separately moderated significantly the relationship between digital financial inclusion and economic growth. Moreover, the results outlined a combined moderating effect of banking sector efficiency and competition given the nexus between digital financial inclusion and economic growth. The findings of the study have implication for not only practice and policy but also to theory, social and future research. In the recent past, technology advancement has amplified the use of digital financial services amid the increased efficiency and competition concerns in the banking sector. The study therefore contributes significantly to the existing body of knowledge as it examines the relationship between digital financial inclusion and economic growth taking into consideration the joint moderation effects of banking sector efficiency and competition.