IMPROVING THE FINANCIAL PERFORMANCE OF MICROFINANCE INSTITUTIONS THROUGH E-BANKING WITH THE CASE OF CAMCCUL

Abstract

The main objective of this study was to improve the financial performance of MFIs through E-banking services with CAMCCUL as case study Specifically, this study clearly defined e-banking, discovered why CAMCCUL has not implemented E-banking so far, show CAMCCUL how it can improve on its profitability through e-banking and also show how they can implement the e-banking. The study adopted a descriptive design where inferential statistics were used in analysing the data. The study population consisted of 20 CAMCCUL officials selected randomly from the different credit unions under CAMCCUL and 40 customers of CAMCCUL selected randomly. Two sets of questionnaires were created and administered randomly among CAMCCUL officials and its customers. Secondary data was also collected from the website of CAMCCUL from the institutions annual accounts. Both descriptive (frequencies, percentages, deviation) and inferential statistics was used and data was analysed using the logistics regression model. The variables which were used to measure financial performance included, profitability, efficiency and customer satisfaction. And it was proven from the analysis that adoption of E-banking by CAMCCUL will improve on her financial performance as there was a relationship between e-banking and the afore mentioned variables used to measure financial performance.

Summary of findings proved that CAMCCUL hasn’t implemented e-banking due to insufficient funds, And in order to help CAMCCUL the researcher proposed an e-banking model that would help CAMCCUL in the implementation of e-banking.

CHAPTER ONE

INTRODUCTION

1.1 Background to the study

Before the emergence of modern banking system, banking operations were done manually which led to a slowdown in settlement of transactions. Online banking first appeared in 1980 when it was understood as a terminal, keyboard and TV to access the banking system by using a phone line. Chase Manhattan, Chemical, Citibank, and Manufacturers Hanover were the four big banks that provided home banking service by a Videotext system. Even though that it did not take long time to adopt this system because of the commercial failure of Video tex all this went off. In France the use of Videotext or (Minitel) was given by the telecom provider, whereas in the UK, with the use of Prestel system. But the first home service online banking was implemented by Bank of Scotland for customers of the Nottingham Building Society (NBS) in 1983. They used the same system as UK Prestel with a computer, as the BBC Micro, keyboard (TANDATA Td1 400) that connected to a telephone system and television set the system named “HOMELINK”. Customers were allowed to take a look at their statements, bank transfers and bill payments.

The new millennium brought with it new possibilities in terms of information access and availability simultaneously, introducing new challenges in protecting sensitive information from intruders while making it available to others. Today’s business environment is extremely dynamic and experience rapid changes as a result of technological improvement, increased awareness and demands Banks to serve their customers electronically. Banks have traditionally been in the forefront of adapting technology to improve their products and services (Aladwani 2001).

After the third decade of the first online banking users in the USA, major studies followed policy implications, rules, laws and banks types.  Luckily nowadays, studies took place also for the part of Europe and adopted with our specifics policy implication, types of banks, small, big, commercial, domestic, foreign and linking to the bank performance indicators. The Banking industry of the 21st century operates in a complex and competitive environment characterized by these changing conditions and highly unpredictable economic climate. Information and Communication Technology (ICT) is at the centre of this global change curve of Electronic Banking System in Africa today (Stevens 2002). Assert that they have over the time, been using electronic and telecommunication networks for delivering a wide range of value added products and services. The application of information and communication technology concepts, techniques, policies and implementation strategies to banking services has become a subject of fundamental importance and concerns to all banks and indeed a prerequisite for local and global competitiveness Banking. The advancement in Technology has played an important role in improving service delivery standards in the Banking industry. In its simplest form, Automated Teller Machines (ATMs) and deposit machines now allow consumers carry out banking transactions beyond banking hours. With online banking, individuals can check their account balances and make payments without having to go to the bank hall. This is gradually creating a cashless society where consumers no longer have to pay for all their purchases with hard cash hence improving customer relationship management system. With the introduction of e-banking, financial institutions are investing more on providing the customers with the new technologies such as personal computer (PC) banking, mobile banking, automated teller machines (ATM), electronic funds transfer, account to account transfer, paying bills online, online statements, credit cards among others. Today the internet is well on its way to become a full – fledged delivery and distribution channel for the consumer oriented financial product and services banks. It is now being considered as a strategic weapon and revolutionizes the ways the banks operate, deliver and compete against one another, especially when competitive advantages of traditional branch networks are eroding rapidly (Newmzow.C, 1997) ;This mode of banking is considered as complimentary delivery channel for services rather than a substitute for the brick and mortar banking branches. It is envisaged that a host of benefits ranging from regulation, operational costs, accessibility of services will accrue to the institution and customers that adopt the technology which will in turn improve on the firm’s financial performance.

In recent years, a host of developing countries have issued regulations governing mobile transactions, e-money, and other aspects of branchless banking to aid in securely extending financial services to more citizens. Yet as adoption skyrockets for services ranging from smartcard-enabled agent networks to mobile phone payment systems, regulators continue to face challenges in ensuring adequate consumer protection, particularly for new users of financial. services. One of the recently emerging technologies in the microfinance industry is the use of mobile phone technology for both banking and remittance. According to a research firm Gartner Inc., Mobile payment   users   reached 74.4 million in 2009, an increase of 70percent over the 43 million users in 2008. In 2012, the number   exceeded 190 million users.  The UN projects that there will be four billion mobile phone connections globally, with millions of air-time resellers and retail agents in developing countries making it possible to distribute financial services at far lower cost than through traditional channels. ( Rosenberg 2008, ). By the year 2018, CGAP and GSMA estimate that there will be 1.7 billion people with a mobile phone but not a bank account and as many as 364 million unbanked people could be reached by agent-networked banking through mobile phones (Rosenberg, 2009).

For most customers mobile banking presents a delicate balance between a conceptually powerful opportunity being able to transact anytime, anywhere and practical challenges finicky menu sequences on a small screen and tiny buttons (Kumar, 2008). Ivatury and Mas (2008) predicted that poor people are more likely to use mobile phones to undertake financial transactions than rich people.  People in less developed countries like Cameroon, have very few options, if any, for transferring money and accessing banking services, less formal banking infrastructure, few bank branches, automated teller machines and low internet penetration.  Recognizing the potential that E-banking holds in strengthening the socioeconomic position of those currently lacking access to banking, especially the rural poor, the two leading mobile operators in the country, (Orange and MTN Cameroon) have both become facilitators of banking through the mobiles. Their respective services, MTN mobile money and Orange money enable users to send and receive money, purchase airtime, pay bills and taxes, and purchase items in shops through simple SMS-based services. In order to improve efficiency in the delivery of microfinance services, where the banking system is not well distributed, especially in the rural areas, micro finances such as EXPRESS UNION, has proved a success in utilizing the existing large network of mobiles by recently introducing their own   “express cash” system. While it cannot be argued that e-banking is the best for an improved banking service in developing countries, it is, however, certain that traditional banking service alone may not result in any significant improvement in providing the un-banked community with access to financial services. The speed and efficiency with which money can be transferred and monitored, through such mobile platforms, is likely to be far greater and higher as compared to a cash-based system. Apart from extending customer reach, financial institutions are able to reduce operational costs, which would have otherwise been incurred on disbursement and loan collection. By leveraging operator’s retail ecosystem comprising distributors, retailers, and street resellers, they are able to streamline operations. The customers will also benefit by having better and close access to loans. This state of affairs therefore calls for an in-depth research into the relationship between e-banking and financial performance of CAMCCUL MFIs and how the financial performance of these MFIS can be improved through e-banking services in the face of intense competition.

1.2 Statement of problem 

As technology becomes the order of the day and new development in the economy creates new opportunities which are hard to assume, many organization are looking for ways on how to embrace technology as way of survival. E-banking services can be used to improve on profitability, efficiency and customer satisfaction. It reduces the need for cash transaction and the risks associated including less opportunity for fraudulent and criminal activities, providing a more personalized service to the consumers (Turban, 2008).

However, this is not the case with many Micro finance institutions   like CAMCCUL where low profitability, inefficiency and customer dissatisfaction is the order of the day as they are yet to inculcate E-banking into their system; in an interview with one of the Customer service personnel of CAMCCUL, he admitted that the microfinance due to the in-availability of E-banking services has experienced a drop its profitability and efficiency. Likewise, in an interview with one of the members of CAMCCUL, she said the in-availability of these e-services has been somehow difficult as she only gets information about her transactions when she goes to the bank personally which leaves her disgruntled every time.

Cheruiyot, (2010) indicates that Microfinance banks that offer E-banking services have better operating efficiency ratios and profitability as compared to those who do not practice since they rely more heavily on core deposits for funding. With the falling costs of technology, it is imperative that MFIs like CAMCCUL should consider e-banking as it has the ability to enhance their financial performance.

The introduction of e-banking Services draws upon the successful marriage of two fundamentally different platforms; banking and technology. These Services have seen an unprecedented development and growth during the last few years and it is becoming a major catalyst for economic and social development in many countries (Turban, 2008), Cameroon inclusive. With the falling costs of technology, it is imperative that MFIs like CAMCCUL should consider e-banking as it has the ability to enhance their financial performance.

1.3 Research Questions

In view of the above problem statement, the research is therefore based on the following questions;

1. What is E-banking?
2. Why is E-banking not being implemented by CAMCCUL?
3. How can E- banking services contribute to a low cost advantage for banks?
4. How can E-banking services be implemented in CAMCCUL?

1.4 Research Objectives

In response to the research questions above, this write-up has one general objective and several specific objectives as seen below; the general objective is ;

1. To improve on the financial performance of micro finance banks through E-banking services
2. The specific objectives are;
3. To clearly define E-banking.
4. To show why E-banking is not being implemented by CAMCCUL.
5. To show how E-banking services can contribute to profitability
6. To show how E-banking services can be implemented in CAMCCUL.

IMPROVING THE FINANCIAL PERFORMANCE OF MICROFINANCE INSTITUTIONS THROUGH E-BANKING WITH THE CASE OF CAMCCUL