AN INVESTIGATION ON THE  ROLE OF INFORMATION TECHNOLOGY ON PROFITABILITY OF MICROFINANCE INSTITUTION IN DOUALA, CAMEROON

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Malnutrition and poverty are currently major humanitarian issues on a global scale. Between 2012 and 2014, an estimated 805 million individuals, or 11.3% of the world's population, were classified as chronically undernourished (FAO, 2014). However, sub-Saharan Africa faces the most severe manifestation of this issue, with 23.8% of its population experiencing undernourishment. Additionally, poverty is identified as the primary cause of malnourishment (Riggins & Weber, 2016). In an effort to enhance international development, the United Nations (UN) introduced the Millennium Development Goals, targeting the eradication of poverty by 2015 (Arifujjaman & Rahaman, 2007). In order to accomplish this objective, the UN recognizes microfinance as a crucial means to combat poverty, with the microfinance industry emerging as a vital and effective mechanism for alleviating poverty. Furthermore, the rise of microfinance over the past three decades is deemed pivotal in the global fight against poverty (Mosley, 2001). The term ‘microfinance’ is defined as the provision of financial services to impoverished or low-income clients, including consumers and entrepreneurs who would otherwise be underserved by traditional financial institutions (Ledgerwood, 2000). According to Mosley (2001), microfinance significantly contributes to poverty reduction by impacting income and positively influencing asset levels. Consequently, the UN declared 2005 as the International Year of Microfinance. Beyond that, microfinance institutions serve as the primary financial sources for poor and low-income households globally, aiming to lift individuals and families out of poverty by providing financial services. These institutions cater to the financially excluded poor, enabling them to sustain a livelihood and engage in economic activities through entrepreneurial endeavors and small businesses, thereby contributing to the economic development of their countries (Kipesha, 2013). The microfinance industry, encompassing poverty-focused financial institutions, plays a crucial role in serving the population not reached by mainstream financial services providers (Sehgal, 2008). According to Bernd (2007), it also have a dual mission, both social and economic, assisting customers in achieving active financial lives, managing income, saving, borrowing, and insuring for their day-to-day needs. However, in pursuit of their mission, the microfinance sector, like other financial institutions, faces the task of adopting and adapting Information, Communication, and Technology (ICT) to enhance products and services. The dynamic business environment, driven by technological advancements, increased awareness, and changing demands, necessitates the integration of ICT to improve poverty reduction efforts at the micro, meso, and macro levels (Arifujjaman & Raham, 2007). Furthermore, given the complex and competitive nature of the banking industry, which includes MFIs, financial institutions invest significant resources in ICT to support their products and services. Information and communication technology have brought about a paradigm shift in banking performance and customer service delivery, prompting heavy investments to align with global development, enhance customer service quality, and reduce transaction costs (Bidley, 2000).

The recent enactment of the Microfinance Act aims to regulate the sector, subjecting MFIs to thorough audits by the  Bank Of Central African States (BEAC). The new guidelines include fines for non-compliance, introducing a code of conduct and ethics where previously there was a lack of regulation. However, MFIs encounter various challenges, such as high operating and financial expenses, with revenues generally lower than in other global regions. Efforts to improve efficiency, reduce costs, expand outreach, and enhance overall profitability require technological innovations, product refinements, and capacity-building initiatives for African MFIs. Notably, there has been a substantial increase in interest and knowledge about the microfinance industry and has undergone significant transformations in recent years, with technology playing a pivotal role in shaping the landscape of  financial services. However, as the global economy becomes increasingly digitized, financial institutions are compelled to adapt and leverage technological advancements to remain competitive and meet the evolving needs of their customers.  With scientific development, it is not possible to avoid information technology now-a-days. It has changed the face of many industries and so is the case of banking and financial services sector. Beyond that, the use of information technology/ computerized banking is now standard, with mobile devices facilitating convenient access to financial services. Furthermore, financial institutions have introduced various technological tools, including mobile banking applications, personal financial management websites, and dynamic online financial plans, reflecting the industry's commitment to leveraging advancements for enhanced service delivery (Wright, M. 2015).  Moreover,  the operational strategies of the microfinance institutions reflect broader trends within the financial sector, indicating the industry's response to the digital era. Therefore, a survey will be conducted on an investigation on the  role of information technology on profitability of microfinance institution in Douala, Cameroon

1.2 Statement of the Problem

Microfinance institutions (MFIs) play a pivotal role in promoting financial inclusion and alleviating poverty by providing financial services to the economically marginalized populations. In recent years, the integration of Information Technology (IT) into the operations of these institutions has become increasingly prevalent.  Several researchers suggests that IT can enhance operational efficiency, reduce costs, and improve the overall performance of financial institutions. However, there is still much to learn about the precise methods by which IT affects microfinance firms' profitability. However, there are questions over how much higher profitability results from the adoption and use of IT systems, and whether the results vary depending on the size, location, and technological complexity of the microfinance institutions.  Hence, it is in the light of these that the study seeks an investigation on the  role of information technology on profitability of microfinance institution in Douala, Cameroon.

1.3  Objectives of the Study

The main purpose of this study is to investigate on the  role of information technology on profitability of microfinance institution in Douala, Cameroon. Specifically, the study will;

1.        Assess the current technological infrastructure and systems employed by of microfinance institution in Douala, Cameroon

2.        Assess the impact of information technology adoption on the efficiency and effectiveness of microfinance institution in Douala, Cameroon

3.        Investigate  the challenges associated with integrating information technology into financial services of microfinance institution in Douala, Cameroon

1.4 Research Questions

The following questions have been prepared for the study:

1. What is the current technological infrastructure and systems employed by of microfinance institution in Douala, Cameroon?

2. What are the impact of information technology adoption on the efficiency and effectiveness of microfinance institution in Douala, Cameroon?

3. What challenges are associated with integrating information technology into financial services of microfinance institution in Douala, Cameroon?

1.5 Research Hypothesis

H0: Information Technology does not have any significant effect on the profitability of microfinance institutions in Douala, Cameroon

HA: Information Technology has a significant effect on the profitability of microfinance institutions in Douala, Cameroon

1.6  Significant of the Study

This study will reveal to policymakers on the need to formulate policies that encourages responsible and effective integration of information technology in microfinance. Further more, subsequent researchers will use it as a literature review. This means that other students who may decide to conduct studies in this area will have the opportunity to use this study as available literature that can be subjected to critical review. Invariably, the result of the study contributes immensely to the body of academic knowledge with regard to an investigation on the  role of information technology on profitability of microfinance institution in Douala, Cameroon.

1.7 Scope of the study

The scope of this study is boarded on an investigation on the  role of information technology on profitability of microfinance institution in Douala, Cameroon.  Theoretically, this study will assess the current technological infrastructure and systems employed by of microfinance institution, the impact of information technology adoption on the efficiency and effectiveness of microfinance institution in Douala, Cameroon and investigate the challenges associated with integrating information technology into financial services of microfinance institution in Douala, Cameroon.

Geographically, the study will be delimited to staff of Pleroma Finance microfinance, Douala, Cameroon.

1.8 Limitation of the study

In the course of carrying out this study, the researcher experienced some constraints, which included time constraints, financial constraints, language barriers, and the attitude of the respondents. In addition, there was the element of researcher bias. Here, the researcher possessed some biases that may have been reflected in the way the data was collected, the type of people interviewed or sampled, and how the data gathered was interpreted thereafter. The potential for all this to influence the findings and conclusions could not be downplayed.

More so, the findings of this study are limited to the sample population in the study area, hence they may not be suitable for use in comparison to other schools, local governments, states, and other countries in the world.

 1.9 Definition of Terms

Technology: refers to the application of scientific knowledge, tools, and methods for practical purposes, often in the creation and use of machinery, systems, and devices to solve problems or accomplish tasks.

Information Technology:

Microfinance: defined as the provision of financial services to impoverished or low-income clients, including consumers and entrepreneurs who would otherwise be underserved by traditional financial institutions (Ledgerwood, 2000)

Microfinance institution: (MFI) is an organization that provides financial services, such as loans, savings, and insurance, to low-income individuals or communities, often in developing countries.

Profitability: in the context of a microfinance institution, refers to the ability of the organization to generate a financial surplus or profit from its operations