Research Key

The Role of Information Technology On Profitability of Microfinance Institutions in Buea, South West Region of Cameroon

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Page Excerpt

The study sort to establish the extent to which ICT is used as a strategic tool in MFIs in order
to compete effectively and survive in a dynamic and turbulent environment.

The first was to Identify the various ICT tools used by microfinance organizations in Buea, the second was to determine the relationship between technology and profitability of microfinance institutions and the third was to determine the challenges faced by microfinance in the use of ICT



The study sort to establish the extent to which ICT is used as a strategic tool in MFIs in order
to compete effectively and survive in a dynamic and turbulent environment.

Microfinance is the supply of loans, savings, money transfers, insurance and other financial services to low-income people.

Microfinance institutions (MFIs) which encompass a wide range of providers that vary in legal structure, mission, and methodology offer these financial sources to clients who do not have access to mainstream banks or other formal financial service providers.

There were three research objectives in this study. The first was to Identify the various ICT tools used by microfinance organizations in Buea, the second was to determine the relationship between technology and profitability of microfinance institutions and the third was to determine the challenges faced by microfinance in the use of ICT.

A survey research design was carried out; data were collected through questionnaires using a sample of 50 staff from microfinance institutions in Buea. Data were analyzed using regression analysis and the results show that technology affects the profitability of microfinance institutions.

Recommendations were made that despite the high cost, all microfinance institutions should implement ICT in their systems as it brings favourable results to the organization.




1.1 Background of the study

Today, global poverty and malnourishment rank among the largest humanitarian problems in the world. An estimated 805 million, or 11.3% of the world’s population, were classified as chronically undernourished in 2012-2014 (FAO, 2014).

This problem is the most pronounced in Sub-Saharan Africa where 23.8 % of the population is undernourished. Poverty ranks as the principal reason for malnourishment (Riggins & Weber, 2016).

To enhance international development, the United Nations (UN) announced the millennium development goals, aimed to eradicate poverty by 2015 (Arifujjaman & Rahaman, 2007).

To achieve this goal, the UN counts Microfinance as one and sure way to fight against poverty as well as the microfinance industry in the form of financial development that is now being considered as one of the most important and effective mechanisms for poverty alleviation.

The emergence of microfinance in the past three decades is viewed as a critical component in the fight against global poverty (Mosley, 2001). Microfinance is defined as the provisioning of financial services to poor
or low-income clients, including consumers and entrepreneurs who would otherwise not be served by traditional financial institutions (Ledgerwood, 2000). According to Mosley (2001), microfinance makes a considerable contribution to the reduction of poverty through its impact on income and also has a positive impact on asset level.

That’s why, the UN, declared 2005 as the International Year of Microcredit. Microfinance institutions are the main financing sources for poor and low-income households around the world. They provide financial services to this world’s poor in hopes of moving individuals and families out of poverty.

These institutions provide financial services to the poor who are excluded by formal financial systems, to enable them to sustain a living and engage in economic activity through entrepreneurial activity and small business which together have impacts on the country’s economic developments (Kipesha, 2013).

In this regard, the Microfinance industry serves as an umbrella term that describes the provision of banking services by poverty-focused financial institutions to poor parts of the population that are not being served by mainstream financial services providers (Sehgal, 2008).

MFIs play also a very important role in the economy. More precisely, MFIs have a two-fold mission which is social and economic by helping the customers to have active financial lives, intermediate a large part of their income, seek ways to save, borrow and insure and focus first on the day to day needs
(Bernd, 2007).

To achieve this mission, the microfinance sector, as for any other financial institution, has a great task to adopt and adapt the information, Communication, and Technology (ICT) to improve its products and services as well as 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 (Agboola, 2001).

In fact, ICT has been also shown to have some impact on poverty at the micro, meso, and macro levels (Arifujjaman & Raham, 2007). Low ICT capabilities diminish the ability to use financial services to reduce poverty in developing areas.

Nowadays, the Banking industry operates in a complex and competitive environment characterized by these changing conditions and highly unpredictable economic climate in the World in general and in Africa in particular (Agboola, 2001).

That’s why financial institutions, in which MFIs occur, invest their time, human resources and huge sums of money in ICT, having their products and services basically supported by it. Bidley (2000) argues that Information and communication technology has brought a complete paradigm shift in the bank’s performance and on customer service delivery in the banking industry.

In a bid to catch up with global development, improve the quality of customer service delivery, and reduce transaction costs, banks invest heavily in ICT and widely adopt ICT networks for delivering a wide range of value-added products and services.

Microfinance Act was enacted recently, and it is aimed at regulating the sector. MFIs will now be subjected to thorough audits by CBK and MFIs are expected to comply with these new guidelines which attract fines for everyone broken.

Code of conduct and ethics were non-existent and everyone was doing business the best way they knew how; it was a free-for-all.

Microfinance Institutions play an important role in the economic development of poor communities. Access to credit enables the households to accumulate wealth and assets which allows them to cope better.

MFIs face many challenges. Operating and financial expenses are high, and on average revenues remain lower than in other global regions. Efficiency in terms of cost per borrower is the lowest for MFIs.

Technological innovations, product refinements, and ongoing efforts to strengthen the capacity of African MFIs are needed to reduce costs, increase outreach and boost overall profitability. Currently, interest and knowledge about the microfinance industry had grown substantially.

The focus of these institutions has gradually changed from emphasis on the very poor to the enterprise, as the demands on these institutions to become financially sustainable have increased.

]MFIs are important actors in the financial sector, and they are well-positioned to grow and reach the millions of potential clients who currently do not have access to mainstream financial services.

1.2 Statement of the Problem

The ever-increasing and complex business challenges (such as globalization, the need for flexibility) call for the use of ICT, requiring organizations to embrace IT for core functions. ICT is part of the core business in many organizations offering the organization key success factors required by modern-day organizations, speed integration, flexibility, and enabling innovation (Askkenas et al., 1995).

Porter (1998), states that ICT is applicable in all the value-adding activities in an organization’s value chain. ICT links the various activities offering the organization a positive effect on differentiation and cost through its influence on the drivers for cost and uniqueness (of value activities).

Competition is now based on information, with companies that are better able to gather and utilize information having an advantage; therefore organizations need to formulate comprehensive ICT strategies, but then high-cost structures in implementing ICT coupled with the fact that many organizations cannot attract high staff in terms of competitive salary, are some of the numerous challenges microfinance organizations face with regards to using ICT.

Hogbin et al (1994) conclude that there is a greater need for IT to be more responsive to the long-range needs of the business strategy, and other business functions to make better use of ICT to stay competitive.

Over the last decade, mainstream financial institutions closed their branches that they had set up in rural areas and microfinance institutions filled the gap. The target customers in the microfinance business are the rural poor. Therefore, this calls for continuous innovation to offer quality service at reduced costs.

To better understand this study, the following research questions have to be answered

What are the various ICT tools used by microfinance institutions in Buea?
What is the relationship between this ICT and the profitability of microfinance institutions?
What are the challenges faced by microfinance institutions in the use of Information communication technology?
Research objectives

The main objective of this study is to identify the role of information technology on the profitability of microfinance institutions in Buea.

1.3.1 Specific objectives include;

To Identify the various ICT tools used by microfinance institutions in Buea
To determine the relationship between technology and profitability of microfinance institutions
To determine the challenges faced by microfinance in the use of ICT

The hypothesis of the Study

H0: Information Technology does not have any effect on the profitability of microfinance institutions in Buea

H1: Information Technology has a significant effect on the profitability of microfinance institutions in Buea

Significance of the Study

The study will be important to the players in the microfinance industry as they will be able to understand information communication technology as a powerful strategic tool in transforming profitability. This approach significantly changes the ways of doing business.

The findings will also be used by scholars as a point of reference in aspects that relate to ICT as a strategy and the value it adds to the organizations.


Scope of the Study

This study is an attempt to examine the role of information technology on the profitability of microfinance institutions.

This study covers microfinance institutions in Buea, the capital of the Southwest Region. This research is for a period of three months (June 2018-July 2018).

Definition of terms


Microfinance is an economic development approach that involves providing financial services, through institutions, to low-income clients, where the market fails to provide appropriate services (Maanen, 2004). The services provided by the Microfinance Institutions (MFIs) includes credit, saving and insurance services. Many microfinance institutions also provide social intermediation services such as training and education, organizational support, health and skills in line with their development objectives.


It is a component of microfinance and is the extension of small loans to entrepreneurs, who are too poor to qualify for traditional bank loans (Meagher, 2002). Especially in developing countries; micro-credit enables very poor people to engage in self-employment projects that generate income, thus allowing them to improve the standard of living for themselves and their families.

Microfinance Institutions (MFIs):

A microfinance institution is an organization, engaged in extending micro-credit loans and other financial services to poor borrowers for income-generating and self-employment activities (Ledgerwood, 1999).


Technological advancement is the process of combining and reorganizing knowledge to generate new ideas. The development of technology has an impact on firm performance (Mumford, 2000).

Technological advancement comes from internal advancement (Pavitt, 1990), and internal advancement comes from employee capability. So there is a close relationship between technological advancement and employee performance (Huselid, 1995).

Technologies can only lead to increased productivity or improve performance when combined with other resources effectively by human resources or when done effectively, and use technology productively and ethically (Dauda & Akingbade, 2011). Advancement makes employees more effective and firms more efficient (Lawless and Anderson, 1996).

Employees Performance:

Employees’ Performance can be defined as how well the employee performs the task that he/she has been assigned.

It includes activities to ensure that goals are being met effectively and efficiently. Technological advancement can improve firm performance as well (Li and Deng, 1999).

An employee can more rapidly acquire new knowledge and further advancement competencies through training (Chi et al., 1989).

The motivation of the employee has a direct influence on technological advancement (Hennessey and Amabile, 1998).

Employee’s performance is closely linked with technological advancement. Technological advancement can be managed effectively through employees.

Resource-based theory suggests that a firm’s resources are extremely important for the firm’s development and that human capital is a key resource of a firm.

The function of this resource depends on the employees’ ability and enthusiasm, and efficient human resource management (Mumford, 2000).

Technological advancement has an enormous influence on employee performance (Nohria and Gulati, 1996). Technological advancement is an important factor for influencing the improvement of performance (Hitt et al., 1997).

Most of the studies have repeatedly shown a positive relationship between a firm’s technological advancement and performance and concluded that technological advancement is important for employee performance (Foster, 1986).  

Automatic Teller Machine (ATM):

The techniques of managing banking industries through the use of Automated Teller Machine (ATM) towards improving banking industry performance is a basket full where every financial institution is expected to pick that which applies to it.

According to the Fannie Mae Foundation, automated teller machine used in the banking sector serves approximately 420 million transactions annually for a total of $3.3 billion in gross annual revenues.

In this article, we will address several topics including the types of services provided by full-service banks, technological changes and the use and importance of automated teller machines and fringe banking services.

ATMs are known by various other names including automatic banking machine (or automated banking machine particularly in the United States) (ABM), Automated Transaction Machine, Cashpoint (particularly in the United Kingdom), Money Machine, Bank Machine, Cash Machine, Hole-In-The-Wall, Auto teller (after the Bank of Scotland’s usage), Cashline Machine (after the Royal Bank of Scotland’s usage), MAC Machine (in the Philadelphia area), Bankomat (in various countries particularly in Europe and including Russia), Multibanco (after a registered trademark, in Portugal), Minibank in Norway, Geld Automaat in Belgium and the Netherlands, and All-Time Money in India.

1.7.7 Online Banking: E-Banking refers to systems that enable bank customers to get access to their accounts and general information on bank products and services through the use of the bank’s website, without the intervention of or inconvenience of sending letters, faxes, original signatures, and telephone conformations ( Tofara et al.,  2009), Willcocks et al., (1996) and Dawson (1998) explicitly stated the benefits of adoption of information and communication technology as it facilitates speed operation, better communication, timely management, improvement of product quality and gaining competitive advantage.

Lee (2009) as cited in Azouzi (2009) identified the benefits of electronic banking adoption. For instance, e-banking provides customers with a wide range of financial benefits such as lower transaction handling fees, higher deposit rates, opportunities to win prizes, and extra credit cards.

European Journal of Humanities and Social Sciences (2011). It allows customers to save time by conducting their transactions quickly without having to queue up and to use paper documents to mention just a few.

E-banking offers customers the opportunity to interchange electronic data to communicate with bank staff since all-important transaction details are laid out on the website. Lee added that online banking provides customers with immediately available and transparent information.

Further reading: The Effects of Performance Appraisals Techniques On Employees Productivity. The Case of Hysacam Buea

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