Abstract

The purpose for this study is “The Impact of ICT on the Financial Performance of Microfinance Institutions in the Buea Municipality”. It specific objectives are to evaluate the impact of operational efficiency on the financial performance of KUTCCUL and to assess the impact of reliability of ICT on the financial performance of KUTCCUL. A descriptive research design was adopted as appropriate study designs were a sample of 40 employees of MFIs in KUTCCUL were selected simple random sampling techniques.

It also combined quantitative as well as qualitative research approaches. The quantitative methods of data collection were used in this work were a self-administered questionnaire composed of closed ended, and likert scale questions was used to collect data from the respondents. Data obtained through a structured questionnaire were analysed using analysed using descriptive statistics and the multiple regression analysis (Ordinary least square Regression technique) with the help of Statistical Package for Social Sciences (SPSS) software.

The findings show that ICT has a significant impact on financial performance of MFIs in Buea.  Both operation efficiency and reliability of ICT has a positive and significant effect on financial performance of MFIs in Buea.

The study therefore recommends that effective ICT should put in place so as to increase the financial performance of MFIs. The study further recommends that for every policy measure taken by MFIs to improve ICT, operation efficiency and reliability of ICT should be taken into consideration because failure to do so will lead to detrimental effect on financial performance.

CHAPTER ONE

INTRODUCTION

 1.1 Background of the Study 

Information and Communication Technology (ICT) refers to technologies that provide access information through telecommunication. It focuses primarily on communication technologies, including internet, wireless networks, mobile phones and other communication tools. Information and Communication Technology are key factors in socio-economic development, Access to relevant information and knowledge improves efficiency and productivity thereby improving performance; enhances social services delivery; increases access to market opportunities.

For these reasons, ICT usage and tools for advanced technology is included and has been considered such vital that in most developing countries including Tanzania, it has been incorporated in the poverty alleviation and other socio-economic development strategies. (Mary K. Pratt, 2019)

While the use of information and communication technologies remains concentrated largely in the developed world, ICT diffusion is beginning to reach developing countries, including poor ICTs (Survey Report, 2004).ICTs are assigned such importance in the development context addresses several pressing questions surrounding ICTs.

Research tries to conceptualize how the driving forces behind ICT adoption translate into economic benefits. Some researchers, however, hold much more skeptical views of the benefits of ICTs for development. The income gap could be further widened if ICT use raises the demand for skilled labor and by its introduction into manufacturing and service industries reduces the demand for unskilled labor, at least in the short term.

In the early years of computers, mostly scientists and the military had access, as years passed ICT has gradually been applied in other fields such as travel, business, accounting, communication, entertainment just to name a few. For easy understanding, ICT could be broken into two parts; hardware and software. Hardware refer to the physical devices that perform given tasks such as an ATM, whereas software could be seen as those instructions that guide the physical components (hardware) in accomplishing specific tasks for example an operating system such as Microsoft windows that is used in running a computer (Regina, 2015).

In the domain of business for instance micro finance institution which accounting is part of, there has been a great deal of ICT application that has gone a long way to increase efficiency. We see and interact with such innovations in our daily routines such as withdrawing money off an ATM machine, sending and receiving money from abroad, online banking  just to name a few, also there exist software that help in managing all aspects of a business such as recording transactions, keeping track of inventory, managing employees and preparation of reports. All the aforementioned ICT tools are very much applied in the developed world than in the less developed world like Africa where we mostly just hear of some of these technologies than use it because of lack of finance and lack of knowledge or education.

Nevertheless, some of these technologies are gradually being applied in the less developed world such as ATMs, e-commerce, mobile money and other related software, examples of business related software commonly used in Cameroon are sage accounting 100 used primarily in dealing with the accounting aspects of a business, sage trading 100 used to manage inventory and trading and also QuickBooks which basically manages a business as a whole.

The Microfinance is maturing in part due to the adoption of information and communication technologies (ICT). Thus, because in present day banking, total automation of banking operations is an imperative need for all banks and microfinance institutions to enhance convenience by extending access to customers residing outside the branch network and creating opportunities for effective cross-selling, to attract more customers, to provide efficient and quality services, and survive in the emerging new competition, apart from the profit motive which is the primary objective of the banks (Juma, 2012). Competition forces MFIs to invest in ICT to realize increased efficiency and quality service delivery, to mitigate costs and increase efficiency to achieve customer satisfaction and to boost their profitability (Riggins & Weber, 2016).

Furthermore, the empirical study by Bansal et al. (2022) shows that, with technical advancements in banks, their productivity grows. Multiple productivity, visualization, and analysis tools become available to the banks, which helps make better decisions. The considerable skill set level of the employees required to use these tools also increases.

Banks have to upskill existing employees or hire new ones possessing these skills. Investment in Information and Communication Technology (ICT) by financial institutions is a must to improve their profits. The study on banks in Oman also shows that learning about customers plays a vital role in a bank’s profitability as it helps make better judgments by bank officers about preventing money laundering (Al-Busaidi and Al-Muharrami 2021).

Offering products to the customer calls for critical evaluation by the bank to minimize the risk of defaults and non-compliance. Bank staff at various levels should be competent enough. This competence and awareness about changing regulations can be imparted to staff through continuous grooming by making learning opportunities available within the organization. ICT can help in imparting this training.

However, apart from the  benefits inherent  in adopting  information technology,  in business organizations   the   startup  cost   and   the   cost   of  training   the   employees   may   be   some challenges, coupled  with  the fact  that  it could  lead  to job  elimination.  It is based on this backdrop, that this research examined effect of ICT on organizational financial performance with KUTCCUL.

Kumba Town Cooperative Credit Union Limited (KUTCCUL) is a savings and loans Cooperative society created in 1968. In the late 1970s, KUTCCUL and the Medical Civil Savant Cooperative credit union limited merged their activities but retained the name KUTCCUL. It is affiliated to the Cameroon Credit Union Limited (CAMCUL) and duly registered under ministerial and COBAC decision NO D-2001/05 code NO 19477 OF 11th January 2001 (KUTCCUL – Kumba Town Cooperative Credit Union LTD, 2023). KUTCCUL exercises savings and credit activities with the use of ICT in accordance with the Microfinance Laws and Regulations in Cameroon.

KUTCCUL uses computers, storage, networking and other physical devices, infrastructure and processes to create, process, store, secure and exchange all forms of electronic data. Typically, KUTCCUL uses ICT in this context of business operations, as opposed to technology used for personal or entertainment purposes. Harvard Business Review referred to information technology as consisting of three basic parts: computational data processing, decision support, and business software.

KUTCCUL is a joint stock institution owned and controlled by its members or shareholders in which the shareholders have equal shares. KUTCCUL is managed by the board of directors elected from amongst its members by her general assembly. The head office of KUTCCUL is in KUMBA but they are other branches in Nguti, Yaoundé, Buea and Douala. They also have collecting centers in Konye, Mator and Mbalangui. Ufeanei Mirene (2023) says anybody is qualified to join KUTCCUL provided he or she fulfills the conditions of membership. The cooperative functions on the financial sector by using money to make profit through interest, akaoh and potential members.

Cameroon is the third world or developing country and like most developing countries agriculture is its main activity and it employs like 80% of the working population and also contributes about 75% of the GDP of Cameroon. Due to the underdeveloped nature of Cameroon, a majority of the population cannot be served by commercial banks due to survey.

With this shortcoming to the poor, the idea of microfinance was introduced in Cameroon. Since 1992, 46 billion FCFA has been given as loans to more than 650000 people by 81 MFIs and of this amount, 40% was given to boost the production storage and marketing in Agro pastoral

activities.

ICT service exports (BoP, current US$) in Cameroon was reported at 57768431 USD in 2021, (the World Bank collection of development indicators), compiled from officially recognized sources. Cameroon – ICT service exports (BoP, current US$) (World Bank on March of 2023). Cameroon is displaying a relatively fair but feeble performance in terms of digital infrastructure, digital financial services and digital entrepreneurship compared to regional peers (and low performance compared to more advanced countries). In the 2017 ICT Development Index (IDI) of the International Telecommunications Union (ITU), Cameroon ranked only 149 of 176 countries and was the 18th ranked country in Africa. 2 Cameroon‟s IDI score highlighted only relative strengths in terms of penetration of mobile telephony and international access.

The diverse financial landscape features a large number of active formal institutions (454). Yet, the Cameroon market is in the startup stage for its digital financial services (DFS) ecosystem; financial inclusion in Cameroon has room for growth, and the usage of DFS remains low. Finally, although Cameroon has one of the highest rates of early-stage entrepreneurial activity, its economy ranks in the lower tier of global assessments on entrepreneurship, innovation, and competitiveness. Doing business within Cameroon involves high costs and complex procedures: Cameroon ranks 166th among 190 economies in the 2019 Ease of Doing Business, the lowest ranking among regional competitors.

1.2 Statement of the Problem 

Irrespective of the effort made by the government of Cameroon through CAMCCUL to support MFI, KUTCCUL still face challenges with financial difficulties. There is no indication that the sector is growing. For the past decade in the South West region specifically in Buea, the financial performance of financial institution has been dropping drastically.

This has been the alternate reason why the manager of KUTCCUL have reduced their employment capacity, send away most of their workers, inability to have other effective branches elsewhere, less diversification, drop down in their market share, and decrease in profit, inadequate cash as well as a reduction in the return on capital employed. So I have been wondering why the situation is the way it is and I started looking for what could have been the reasons for this poor financial performance and the impact of ICT to it financial performance.

On the other hand, a sizeable number of studies on relationship between ICT investment and financial performance undertaken in banking sector in general and microfinance in particular, revealed that firms using ICT performed better compared to those that were reluctant to adopt it (Bidley, 2000). They revealed also that ICT investment led to reduction in costs and improved performance.

In another hand, although, others studies revealed that some microfinance institutions, even though they invest in ICT, find little success either in reaching the poorest individuals (social performance), or in reaching the financial performance goals (loan portfolio, efficiency, productivity, profitability, and sustainability) or in focusing on one of these two elements in disfavour of another.

Thus, these facts reveal that to invest in ICT is not always and everywhere a success guarantee of financial performance and of efficient and productive management. Then, the crucial problem is how to make evidences of the impact of ICT utilization on financial performance in MFIs which invest in it.

In addition to that, despite the fact that microfinance activities have recently increased considerably, the significant growth is lacking and microfinance institutions are still far from reaching a significant portion of the population that lack access to formal financial services.

There are still reports on several occasions of wrongly allocation of loan, poor outreach, frauds, and misappropriation of loan services (Juma, 2012). Therefore, this study intends to assess the impact of ICT on the financial performance of KUTCCUL Buea.

1.3 Research Questions 

1.3.1 Main Research Question

What is the impact of ICT on the financial performance of KUTCCUL Buea?

1.3.2 Specific Research Questions

1. What is the impact of operational efficiency on the financial performance of KUTCCUL?
2. What is the impact of the reliability of ICT on the financial performance of KUTCCUL?

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