Relationship Between Service Diversification and Performance of Agency Banking Firms: A Case of Commercial Bank Agency Firms in Imenti-South Sub-County, Kenya

Abstract

The Kenya Banking sector has demonstrated a solid growth over the past few years.The industrycontinues to offer significant profit opportunities for themajor participants and this has compelled banks to adopt strategies such as Agency banking and mobile bankingso as to diversify the bank products and services. Agency banking was introduced in Kenya in May 2010.The innovation was intended to assist in financial inclusion and reduction of congestion in banks. Agency banking has faced several challenges such as the network failure, insufficient float and insecurity issues. Despite efforts by banks to put in place measures to ensure smooth running of the agency firms most agency firms are still not able to handle large cash transactions due to inability of banking agents to maintain sufficient float. This study therefore sought to determine the relationship between service diversificationand performance ofcommercial bank agency firms in Imenti-South sub-county. The objectiveof the study wasto establish the relationship between service diversification practices and performance of agency banking firms. A descriptive research design was adopted. The target population was 100 banking agents of Equity, Cooperative and Kenya Commercial Bank in Imenti-South Sub-County. A Sampling model was used to get a sample size of 80 banking agents and stratified random sampling technique was used to select subjects to form the sample. Primary data was collected using questionnaire with both open and closed ended questions. The questionnaire was pretested to enhance the validity and reliability. Split half technique was used to assess the reliability of the research instrument. A reliability coefficient of 0.84 was obtained which indicated a high degree of reliability. Data analysis was facilitated by Statistical Package for Social Sciences version 21.0. Descriptive statistics such as frequencies and percentages were used in data analysis. Hypotheses were tested using chi-square test at 5% significance level. The analysis of the results revealed that service diversification had significant relationship on performance of agency banking firms (p-value ˂0.05). The findings of the study would be useful to banking agents in designing effective cash management system for sustainable bank agency business operations. This would in turn enhance provision of banking services to the unbanked population, thus improving economic growth of the financial sector.