CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
This chapter examined the related literature pertinent to the study. It involved a theoretical review, a conceptual review, an actual literature review, and a summary of the literature, along with an identification of the literature gap. The focus was to assess the effect of information systems software on the performance of Pride Microfinance, to establish the effect of systems infrastructure on the performance of Pride Microfinance, and to examine the effect of user knowledge and skills on the performance of Pride Microfinance.
2.2 Theoretical Review
This study was guided by the Diffusion of Innovation theory to examine the effect of information and communication technology systems on the performance of microfinance institutions. The Diffusion of Innovation theory was developed by Everett Rogers in 1962, the theory posited that diffusion is governed by four elements: the innovation itself, communication channels, time, and social systems. These elements explained the process of change as determined by employees and the entire organization (Rogers, Singhal, & Quinlan, 2014).
Using this theory, the innovations of ICT systems at Pride Microfinance were numerous, including the adoption of modern website systems and the use of software in most of its operations. Pride Microfinance Limited adopted these innovations to address the key challenges faced by the organization. The theory assumed that the propensity to adopt an innovation was primarily a function of the availability of information. The information systems at Pride Microfinance Limited were adopted to enhance performance. The Diffusion of Innovation theory was widely recognized and had several strengths that contributed to its popularity and usefulness in understanding the adoption and spread of innovations (Dearing, & Cox, 2018).
Diffusion of innovation theory posits that, the Diffusion of Innovation theory provided a comprehensive framework that encompassed various factors and processes involved in the adoption and diffusion of innovations. It considered the interplay between individuals, social systems, communication channels, and the innovation itself. The theory effectively described and explained how and why innovations were adopted by individuals and groups (Dibra, 2015).
The theory offered insights into the diffusion process, including the stages of adoption, the characteristics of adopters, and the influence of interpersonal relationships and social networks. It enabled researchers and practitioners to predict the rate and pattern of adoption for particular innovations. The Diffusion of Innovation theory had practical applications in various fields, including marketing, public health, technology adoption, organizational change, and policy development (Zhang, Yu, Yan, & Ton , 2015).
It provided a roadmap for designing effective communication strategies, targeting specific adopter groups, and facilitating successful adoption and implementation. The theory recognized the crucial role of communication channels and interpersonal influence in the diffusion process. It highlighted the importance of opinion leaders, social networks, and communication strategies in shaping individuals’ attitudes and behaviours towards adopting innovations. The theory had been successfully applied across different domains and cultural contexts. While the diffusion process might have varied in different settings, the underlying principles and concepts of the theory could be adapted and applied to understand the dynamics of innovation adoption in diverse environments, including MFIs.
While the Diffusion of Innovation theory had been widely influential in the field of communication and technology adoption, it was not without its criticisms. Some of the common criticisms included:
The theory assumed a linear and predictable diffusion process, where innovations spread gradually from innovators to early adopters, then to the early majority, late majority, and finally to laggards. However, in reality, the diffusion process could be complex and non-linear, influenced by various external factors such as government policies and organizational politics that could disrupt or accelerate the adoption (Mehmood, Barbieri, & Bonchi, 2016).
The theory did not explicitly address power dynamics and inequalities in the diffusion process. It assumed that all individuals had equal access to information and resources to adopt innovations, neglecting the influence of power structures, socio-economic disparities, and access barriers that could hinder or accelerate the diffusion process.
The theory primarily focused on the factors that facilitated adoption but paid less attention to the reasons behind resistance and non-adoption of innovations. Understanding and addressing resistance and barriers to adoption were crucial for a comprehensive understanding of the diffusion process.
Despite the limitations associated with the Diffusion of Innovation theory, the researcher believed that it was relevant to the study since it tackled the role that ICT could play in the performance of financial institutions like MFIs, especially in relation to effective service delivery, cost-cutting, and increased outreach. MFIs like Pride Microfinance had to remain innovative if they were to stay competitive.
2.3 Conceptual Review
This section reviewed the major concepts of the study: Information and Communication Technology, which served as the independent variable, and the performance of microfinance institutions, which acted as the dependent variable.
2.3.1 Information and Communication Technology (ICT)
Information and Communication Technology (ICT) can be defined as an electronic medium for creating, storing, manipulating, receiving, and sending information from one location to another. This technology enhances message delivery by making it faster, more convenient, and easier to access, understand, and interpret. ICT utilizes devices such as cell phones, the Internet, wireless networks, computers, radios, televisions, satellites, and base stations to create, store, communicate, transmit, and manage information (Zonneveld et al., 2020).
Additionally, ICT encompasses the study of complementary networks of hardware and software that individuals and organizations use to collect, filter, and process, create, and distribute data. According to Jessup and Valacich (2008), ICT includes various disciplines, such as system analysis and design, computer networking, information security, database management, and decision support systems.
Valacich and Schneider (2015) define ICT systems as an organized combination of people, hardware, software, communication networks, and data resources, alongside policies and procedures, to perform activities that store, retrieve, and transform data into information. These interrelated components work together to collect, process, store, and disseminate information, supporting decision-making, coordination, control, analysis, and visualization within an organization.
The components of ICT systems include technology, which can be viewed as the application of scientific knowledge for practical purposes. From the invention of the wheel to harnessing electricity for artificial lighting, technology is integral to our daily lives, often taken for granted. Information systems comprise hardware, software, and data, all falling under the umbrella of technology.
According to Brynjolfsson and Hitt (2010), the use of ICT can reduce costs associated with coordination, communication, and information processing, enabling efficient service provision at a lower cost. ICT serves as a strategic tool that enhances efficiency and effectiveness. It promotes the dual objectives of microfinance: sustainability and outreach to underserved populations. While ICT can help microfinance institutions (MFIs) reduce transactional costs, expand their market reach, and provide affordable, flexible services to customers, many MFIs still rely on inefficient manual data processing systems (Parikh, 2016), resulting in operational inefficiencies.
2.3.2 Performance of Microfinance Institutions (MFIs)
The financial sustainability of MFIs is a key determinant of their long-term viability. Several studies, such as those by Cull, Demirgüç-Kunt, and Morduch (2007), emphasize the trade-off between financial and social goals. These studies argue that while achieving profitability is essential, an overemphasis on financial sustainability may dilute the social mission of MFIs. Furthermore, financial sustainability often hinges on the adoption of appropriate interest rates, effective loan recovery mechanisms, and diversified funding sources. Research has also highlighted the challenges posed by high operational costs, especially in reaching rural and underserved communities (Hermes & Lensink, 2011).
Social performance, particularly outreach to the poor, is a fundamental measure of MFI success. Studies like those by Morduch (1999) have shown that MFIs often achieve significant social outcomes, such as empowering women, improving household income, and enhancing access to healthcare and education. However, some critiques argue that social impact is not always consistent across regions and programs. For instance, Karim and Osada (2018) found that while MFIs in South Asia excel in outreach, African MFIs often struggle with limited scalability and resource constraints.
Efficiency is another critical metric for assessing MFI performance. According to Gutiérrez-Nieto, Serrano-Cinca, and Molinero (2007), operational efficiency is influenced by factors such as technology adoption, staff productivity, and economies of scale. Research indicates that MFIs employing digital solutions for loan disbursement and collection demonstrate enhanced efficiency and reduced costs. However, inefficiencies persist in areas like client follow-up and risk assessment, particularly in contexts with limited infrastructure (Hartarska & Nadolnyak, 2007).
Governance structures and institutional frameworks play a significant role in shaping MFI performance. Effective governance ensures accountability, minimizes risks, and aligns operations with the institution’s mission. According to Mersland and Strøm (2009), MFIs with strong board structures, transparency, and stakeholder engagement exhibit better financial and social performance. Conversely, weak governance often leads to mission drift, fraud, and financial mismanagement.
Despite significant advancements, measuring the performance of MFIs remains a challenge. Researchers such as Rhyne (1998) point out the difficulty in balancing quantitative metrics, like repayment rates and profitability, with qualitative measures, such as client satisfaction and social impact. Moreover, heterogeneity among MFIs in terms of size, region, and operating models complicates the development of standardized performance indicators.
Regulatory environments significantly affect MFI operations and performance. Studies by Christen, Lyman, and Rosenberg (2003) suggest that supportive legal frameworks promote the growth and stability of MFIs. However, overly stringent regulations can stifle innovation and limit outreach, especially for small-scale MFIs. The role of government subsidies and international donor support has also been widely debated, with mixed evidence on their impact on MFI performance.
Formal institutions were typically members of the Association of Microfinance Institutions of Uganda (AMFIU), which played a significant role in advocating for the sector and providing support (Ssewanyana, 2009).
On the other hand, informal institutions often included savings and credit cooperatives (SACCOs) that were not registered with the government. These institutions lacked the formal oversight found in regulated entities but played a crucial role in providing financial services, particularly in rural areas.
2.4 Actual Literature Review
2.4.1 Information and Communication Technology and Performance of Microfinance Institutions
Studies have established that small depositors and small businesses were generally good savers, preferring to keep their money intact unless faced with serious financial needs, they were also diligent in repaying their obligations, with loan recovery rates usually exceeding 95%, These developments spurred the growth of microfinance institutions (MFIs) (Ullah et al., 2024).
Over the past decade, the microfinance sector experienced exponential growth, with a turnover estimated at US$2.5 billion worldwide. This growth was expected to continue, particularly with the introduction of mobile banking. The World Bank estimated that there were about 7,000 MFIs globally, serving 16 million people in developing countries. Among these, 13 million individuals were microcredit borrowers, holding US$7 billion in outstanding loans, all with a repayment rate exceeding 95% , (Goar, Kuri, Kumar, R., & Senjyu, 2024).
The financial industry, particularly the banking sector, has undergone significant transformation driven by technological advancements and innovations. Within the realm of global commercial banks, financial technology (fintech) innovation has emerged as a pivotal force redefining traditional banking practices by integrating advanced technological solutions and services (Gomber, Kauffman, Parker,& Weber, 2018).
Globally Fintech landscape has experienced rapid growth, with a proliferation of innovative solutions such as mobile payments, digital banking, blockchain, and artificial intelligence. This evolution is marked by a dynamic interaction between traditional banking methods and state-of-the-art technological advancements (Murinde et al., 2022).
The adoption of fintech innovations in the banking sector has triggered substantial technological disruption, leading to shifts in customer expectations, operational processes, and the development of new business models. These changes are reshaping the competitive landscape and driving a reassessment of efficiency metrics within commercial banks (Fadhul & Hamdan, 2020). Regulatory frameworks play a crucial role in shaping the adoption and effects of fintech innovations. Understanding these regulations is essential, as they influence the scope, speed, and risk management practices associated with implementing fintech solutions in the banking sector (Iyamu et al., 2020).
Bank efficiency is a multidimensional concept, encompassing operational, cost, and technological efficiency. Evaluating the impact of fintech innovation on bank efficiency requires an in-depth analysis of these metrics, incorporating both quantitative and qualitative dimensions (Quaranta et al., 2018). Fintech innovations often prioritize a customer-centric approach, delivering personalized solutions, enhanced accessibility, and improved user experiences. Analyzing how these innovations enhance overall bank efficiency is critical to understanding the broader implications of fintech adoption (Fornell et al., 2020).
While fintech innovations present opportunities for improved efficiency, they also bring challenges such as cybersecurity risks, data privacy issues, and the need for robust risk management frameworks. Investigating how Chinese commercial banks address these challenges is essential for a comprehensive understanding of fintech’s impact (Finch et al., 2017).
Comparative analysis with global trends in fintech innovation and its effects on bank efficiency can yield valuable insights. Examining how Chinese commercial banks compare to their global counterparts provides a deeper understanding of the unique dynamics within China’s financial sector (Phung et al., 2023).
However, MFIs in developing countries faced several impediments to success, including challenges related to scalability, sustainability, outreach, and the overall impact of various microfinance initiatives (Kashyap, 2009). Overcoming these obstacles often required the use of information and communication technology (ICT) to maximize outreach and sustainability (Kashyap, 2009; Gibson and Meehan, 2002).
ICT served as an enabler of affordable solutions for MFIs, allowing them to reach remote rural clients in a cost-effective manner, observed that transaction costs were crucial bottlenecks to increasing profits and achieving long-term sustainability for MFIs. ICT was found to alleviate many of the challenges faced by MFIs by providing secure, low-cost, and reliable means for capturing and transferring transactional data (Osei, Cherkasova, & Oware, 2023).
Digital technology has become essential in transforming microfinance programs by improving their efficiency, scalability, and impact, the key advantage is its ability to extend financial services to underserved populations in remote areas (Martino, 2021). Mobile banking, for instance, allows clients to access loans, savings accounts, and insurance products directly from their phones, eliminating the need for physical branches. This not only reduces transaction costs and saves time but also empowers users by granting them greater control over their finances. Additionally, digital platforms support real-time data collection and analysis, offering insights into client behaviour and preferences. This data-driven approach enables microfinance institutions (MFIs) to customize financial products, boosting client satisfaction and retention (Mainga, & Nyariki, 2023).
Another notable benefit of digital technology in microfinance is its capacity to enhance transparency and minimize operational risks. Digital records of transactions reduce the likelihood of fraud and corruption, building trust between MFIs and their clients. Furthermore, digital systems streamline loan disbursements and repayments, lowering administrative costs and increasing operational efficiency (Dorfleitner, Forcella, & Nguyen, 2022), these savings often translate into reduced interest rates and fees, making financial services more affordable and accessible for clients. By integrating digital solutions, microfinance programs not only expand their reach and efficiency but also deepen their impact on poverty alleviation and economic empowerment globally (Timbula, & Marvadi, 2023).
The rise of financial technology (fintech) has further revolutionized the microfinance sector, introducing innovative tools that enhance accessibility, efficiency, and inclusivity. Fintech solutions leverage mobile devices, internet connectivity, and digital payment systems to provide seamless banking services, especially for underserved populations in remote or economically disadvantaged regions (Homaid, 2022), By overcoming traditional barriers like geographic isolation and bureaucratic challenges, fintech has enabled MFIs to significantly expand their reach, bringing financial services to millions of previously unbanked individuals (Mwenda, Ithai, & Waweru, 2024).
ICT offered various benefits to clients and microfinance institutions (MFIs) across different countries. For clients, the advantages included access to banking services, more convenient options, faster loan processing, and reduced waiting times in queues, MFIs, benefits comprised reduced transaction costs, decreased fraud, improved quality of financial information, increased outreach, lower operational costs, and heightened customer satisfaction and loyalty (Ullah, et al., 2024).
Operational efficiency is a key determinant of MFI performance. Studies highlight that ICT tools, such as management information systems (MIS) and mobile banking platforms, streamline processes, reduce transaction costs, and improve record-keeping, the automation of loan disbursement and repayment tracking through ICT reduces human errors and speeds up service delivery, digitized systems in MFIs contribute to time savings and better resource allocation, which enhances productivity (Mazikana, 2023).
Some research underscores challenges in implementing ICT systems, such as high initial investment costs and the need for technical expertise, while ICT improves efficiency, its benefits are contingent upon adequate staff training and maintenance of digital infrastructure, ICT adoption has been linked to improved financial performance through cost reductions, better risk management, and expanded revenue streams, demonstrated that mobile banking services help MFIs reach remote clients, thereby increasing their client base and revenue, ICT facilitates real-time monitoring of loan portfolios, which reduces default rates and enhances credit risk management (Nuthalapati, 2022).
On the downside, Karlan et al. (2014) caution that over-reliance on ICT without robust cyber security measures can expose MFIs to fraud and data breaches, potentially harming financial performance. The ability of MFIs to reach underserved populations is significantly enhanced by ICT. Mobile money platforms, for instance, enable clients in remote areas to access financial services without visiting physical branches. Jack and Suri (2014) found that ICT-enabled services, such as mobile wallets, contribute to financial inclusion by reducing geographical barriers and making financial transactions more accessible.
ICT facilitates the development of innovative financial products tailored to the needs of low-income clients, such as micro-insurance and savings plans. These innovations not only expand outreach but also address the diverse financial needs of underserved communities, ICT adoption in MFIs is fraught with challenges. High implementation costs, particularly for small MFIs, remain a significant barrier, the cost of acquiring and maintaining ICT infrastructure can strain the financial resources of MFIs, especially those operating in low-income regions (Morris, Santos, & Neumeyer, 2020).
Digital literacy among clients poses a challenge. Aker et al. (2016) highlight that limited knowledge of ICT tools among rural populations can hinder the uptake of digital financial services, thus limiting the potential benefits of ICT for financial inclusion.
2.4.2 Information Systems Software and Performance of Microfinance Institutions
Information systems software encompassed vast areas of technologies, including mobile and security, wireless technology, software development, telecommunications, and intelligent systems, information systems had a significant impact on industries, communities, and daily lives (Almufarreh, & Arshad, 2023). This software could be applied across many fields, with one of the emerging applications being its use in organizations to enhance performance, information systems software was rapidly becoming a key driver of change, presenting new strategic challenges (Oyeniran et al., 2023).
During this period, the business environment underwent unprecedented changes, compelling many companies to seek innovative ways to distinguish themselves from competitors and maintain their competitive advantage. In the highly competitive global marketplace, organizations faced pressure to discover new methods for creating and delivering value to customers (Añón Higón, & Bonvin, 2022).
Digital technology is set to transform the Indian microfinance sector by boosting efficiency, expanding outreach, and amplifying impact. One of the most notable advancements is its role in promoting financial inclusion. With the widespread use of mobile phones and increased internet connectivity, digital platforms allow microfinance institutions (MFIs) to reach underserved communities in remote areas. This expanded access facilitates the delivery of essential financial services such as loans, savings accounts, and insurance products to individuals previously excluded from formal banking systems (Awad, 2023).
Digital technology also significantly improves operational efficiency for MFIs. Automated loan processing, digital documentation, and mobile payment solutions simplify administrative tasks, lower transaction costs, and reduce risks associated with cash handling. This streamlined approach not only enhances service quality but also enables MFIs to scale their operations, serving a larger client base effectively, mobile banking applications empower clients by offering tools to check account balances, make payments, and track loan repayments from their devices (Tang et al., 2023).
The integration of data analytics and artificial intelligence (AI) adds another layer of innovation. These technologies help assess creditworthiness and tailor financial products to meet the specific needs of clients. By aligning services with clients’ financial goals and capabilities, MFIs improve loan repayment rates and ensure greater client satisfaction. In essence, the adoption of digital technology in Indian microfinance holds the potential to deepen financial inclusion, enhance operational efficiency, and drive sustainable socio-economic growth (Sinha, & Ghosh, 2022).
Innovations such as digital loans, mobile payments, and digital savings accounts are vital in shaping microfinance services. Digital loans provide quick and efficient access to credit for rural and underserved populations. Mobile payment systems revolutionize transactions by offering safe, convenient, and cashless alternatives, building trust in formal financial systems. Digital savings accounts create secure platforms for clients to accumulate funds, promoting financial stability and planning (Kurpayanidi, 2022).
Additional tools like micro insurance and financial advisory services further bolster the sector. Micro insurance mitigates risks from health emergencies and uncertainties, protecting clients’ financial well-being (Boukhlif, Hanine, & Kharmoum, 2023), Financial education and advisory services enhance decision-making skills, empowering clients to make the most of microfinance offerings. Together, these innovations highlight the transformative power of digital technology in expanding outreach, improving efficiency, and fostering economic resilience in communities across India (Almufarreh, & Arshad, 2023).
Microfinance institutions are at the forefront of driving this digital revolution. By leveraging mobile banking, digital payment solutions, and automated systems, they reduce costs and address barriers such as geographical isolation and administrative inefficiencies. These advancements enable MFIs to deliver services more effectively, reaching underserved populations and ensuring financial inclusion for all (Manshor et al., 2023).
Technology represented the application of scientific knowledge for practical purposes. From the invention of the wheel to the harnessing of electricity for artificial lighting, technology played an integral role in daily life, often taken for granted, emphasized that understanding the need for information systems development required comprehending the use of software within organizations, as effective application of this software was essential for enhancing performance and achieving organizational goals (Nguyen-Duc, Cabrero-Daniel, Przybylek, Arora, Khanna, 2023).
The integration of information technology (IT) and business processes irrevocably changed the way modern organisations operated, the majority of medium-to-large organizations invested significant time, money, and effort into information systems (IS), which combined hardware, software, and networking capabilities to enhance the efficiency and effectiveness of their business processes, the IS/IT supporting a business process became so integral that distinguishing between them was challenging (Boukhlif, Hanine, & Kharmoum, 2023).
Information systems software worked in conjunction with hardware, enabling organizations to achieve their goals and objectives, information systems hardware included computers, keyboards, disk drives, iPads, and flash drives, that software was intangible and could not be touched. When programmers created software programs, they were essentially typing out the organization’s instructions that directed the hardware on what to do. Several categories of software existed, with the two main categories being operating-system software, which made hardware usable, and application software, which performed specific tasks. Examples of operating systems included Microsoft Windows on personal computers and Google’s Android on mobile phones, while application software examples comprised Microsoft Excel and Angry Birds (Hou et al., 2024).
Governments around the world faced pressure from citizens and businesses to be more open and transparent in managing public funds and delivering quality public services that meet the needs of citizens, In the last quarter of 2017, global expenditure on software development reached $480 billion, this expenditure was directed toward information systems software aimed at enhancing service delivery and improving overall public sector performance (Sausi, Kitali, & Mtebe, 2021).
Internet and intranet technology had practical integrative applications for organizations. They argued that companies utilized IT as a structural mechanism, emphasizing that managing technology presented significant challenges. The research from this thesis addressed these two issues: the use of IT for integration and the implications associated with the management of information technology itself (Choudhuri, Srivastava, Gupta, Kumar, & Bag, 2021).).
Information systems initiatives in India began in 1990 with minimal financial investment in the National Informatics Centre to facilitate the computerization of operations and automation of pension fund management. This initiative aimed to address challenges related to mismanagement and poor record-keeping of pensioners’ files (Anwer et al., 2024).
The government of the Philippines invested approximately 8-10% of its GDP in information systems to integrate the operations of government agencies and enhance transparency in the public sector. Such financial investments in information systems by various public sector organizations globally manifested the long-term benefits of improving organizational performance (Anwer, et al., 2024).
Over the last decade, the government of South Africa recognized the importance of information and communications technology (ICT) and more recently, information systems, in improving service quality standards and increasing overall government efficiency (Aisara & Pather, 2011). Consequently, the government allocated over R14 billion in systems software to different public institutions during the 2015/2016 financial year.
Abdullahi (2014) reported that the government of Nigeria, in an effort to eliminate inefficiencies in service delivery and enhance overall performance, invested $32 billion in 2015 to improve network systems and eliminate shortcomings in information systems performance. Karim (2015) noted that Nigeria had some of the poorest public sector delivery systems in the world, characterized by corruption and delays in public service delivery.
2.4.3 Information Systems Infrastructure and Performance of MFIs
The use of computer systems in organizations improved performance in several ways. Firstly, computers enhanced coordination among different departments in the public sector, enabling governments worldwide to improve public service delivery effectiveness and the overall performance of government agencies (Stamoulis, 2022).
Information systems infrastructure also increased the speed and reliability of information transfer and processing within organizations. This improvement allowed various departments to send and receive information rapidly, which contributed to enhanced performance and greater competitive strength. In Ethiopia, however, there were delays in microfinance institutions (MFIs) delivering services to those in need, particularly in areas such as pensions (Qatawneh, 2022).
In Nigeria, the government adopted internet services as an effective information systems infrastructure to eliminate unnecessary costs associated with paperwork and enhance the performance of public sector agencies, for example Nigerian government agencies had been criticized for their poor responsiveness to citizens’ needs and for the high costs related to administrative paperwork (Dibie, & Quadri, 2018).
Adoption of computers in organizations aimed to provide better and more effective communication both between different departments and between the organization and the external environment. The government’s efforts to ut ilize computers for monitoring public agencies aimed to ensure that interactions between the government and citizens were efficient and timely (Amuche, 2019).
Websites were essential for fostering long-term relationships between organizations and their customers. They further asserted that websites allowed customers to stay informed about major changes in organizational products. Governments across Sub-Saharan Africa acquired advanced software in key agencies, such as taxation and water management systems, to improve the management of public utilities (Folorunso, & Simeon, 2021).
According to Ronald and Nazarius (2020), Pride Microfinance Limited faced challenges in meeting its targets, even after adopting advanced software solutions.
2.4.4 User knowledge and skills and Performance of MFIs
Knowledge emerged as one of the most highly valued commodities in the modern economy, serving as a principal tool for competitiveness and innovation within commodity chains. This perspective aligns, who emphasized that knowledge sharing within organizations is essential for fostering growth and enhancing competitiveness among management and staff (Gachuru, 2020).
Several significant changes have marked this evolution, including the increasing importance of knowledge as a catalyst for economic growth in the global economy, the revolution in information and communication technology (ICT), the integration of the global labor market, and various socio-political transformations, ICT has notably accelerated the production, use, and distribution of knowledge, making a country’s economic and social well-being increasingly reliant on its ability to share and generate knowledge efficiently (Kalui, 2019).
While the transformations brought by information systems present numerous opportunities for both developed and developing nations, they also pose challenges. Notably, globalization and the rise of Manuel Castell’s concept of the “Information Society” have created new issues, including a widening knowledge gap and digital divide between the information-rich and information-poor, both among and within nations. These disparities highlight the critical need for developing nations to enhance their ICT infrastructure and user knowledge to compete effectively in the global economy (Ali, Gueyie, & Okou, 2021).
The internet banking industry has experienced significant growth, with a compounded annual growth rate of 80% since 2014. Currently, over 100 million households globally engage in online banking, with 25% of American households adopting this service, Internet banking has emerged as a valuable opportunity for banking institutions in a world increasingly interconnected by the Internet and the World Wide Web. This evolution has introduced both opportunities and challenges, fostering new competition in the global banking sector (Suganthi & Rajaram, 2017), the World Bank, Africa has lagged behind in developing microfinance institutions compared to Asia and Latin America, resulting in smaller and less advanced systems. Despite this disparity, the overarching goal of global microfinance programs remains consistent addressing the needs of the poor, particularly women and youth (Cheston & Kuhn, 2022).
Online banking enables banks to offer services through computer networks, allowing customers to access these services without visiting physical branches. It acts as a gateway for banking service delivery and usage, encompassing various functions such as account management, service requests, third-party payments, fund transfers, and investments. These services are categorized broadly, including self-service options that allow customers to open, modify, or close accounts and retrieve account information independently, third-party payment services empower clients to initiate electronic payments and transfer funds between accounts without visiting bank branches. Unlike traditional banking, which often requires in-person forms and approvals, online banking facilitates such transactions seamlessly via the internet. Customers can access their account information at any time, day or night, from anywhere, significantly improving the efficiency of customer service delivery (Liu, Wang, Sindakis, & Showkat, 2024).
Research also highlights the importance of microfinance institutions (MFIs) in promoting economic participation among small-scale entrepreneurs. Scholars argue that entrepreneurs in democratic societies should have active roles and ownership in MFIs, including participation in planning, management, and decision-making (Liu, Wang, Sindakis, & Showkat, 2024).
Knowledge Management (KM) garnered significant attention from researchers over the last decade, being recognized as a crucial tool for achieving innovation and sustainable competitive advantage, that in highly unstable economies, knowledge often represents the only reliable source of lasting competitive advantage. Studies indicated that firms implementing knowledge management practices tended to outperform their competitors that did not adopt such strategies, KM practices have been effectively applied across various industries, both in service and manufacturing sectors, to enhance performance and increase output (Deshmukh, Rayate et al., 2023).
The adoption of computers in education was not a new phenomenon; Ahmadi (2013) noted that as early as the 1970s, proponents claimed that computers would revolutionize and improve educational processes, growing trend towards computer integration in government operations, emphasizing the shift from manual processes to automated systems for tasks such as report preparation, accountability, and monitoring government projects (Deshmukh, Rayate et al., 2023).
During the 1990s, Busagala (2013) highlighted an intensified focus on increasing computer technology usage within health, defence, and education departments globally. This period saw mounting pressure to implement technology in education, with the Internet emerging as a significant feature of the digital era that greatly influenced educational practices.
2.5 Summary of the Literature
The literature review underscored the significant impact that information systems software had on the performance of microfinance institutions (MFIs). Key aspects included:
Well-designed and effectively implemented information systems software greatly enhanced efficiency and productivity by automating tasks, streamlining processes, and reducing manual errors. For instance, software that automated data entry or generated reports saved time and effort, allowing employees to focus on more value-added activities.
Information systems software provided valuable insights through data analytics, supporting informed decision-making. Advanced reporting capabilities enabled MFIs to make strategic decisions based on real-time data, leading to improved planning and resource allocation.
Software applications that facilitated effective collaboration and communication among team members significantly enhanced performance. Features such as document sharing, project management tools, and real-time messaging platforms promoted teamwork, improved coordination, and fostered a collaborative environment.
Information systems played a crucial role in maintaining data integrity. CRM software allowed organizations to manage and analyse customer data, track interactions, and streamline sales and marketing efforts, enhancing overall performance.
Computer user knowledge and skills also significantly affected organizational performance. Proficient computer users navigated software applications and digital tools efficiently, leading to heightened productivity. Their ability to effectively utilize collaboration tools—such as project management software and cloud-based systems—enabled improved teamwork, regardless of geographic location. Users adept in data management effectively organised, analysed, and interpreted data using spreadsheets, databases, and visualization tools. This proficiency allowed them to make informed decisions based on current information, enhancing efficiency and business outcomes within Pride Microfinance Limited. Users with a strong understanding of troubleshooting techniques independently addressed technical issues. Their problem-solving skills contributed to minimising downtime and maintaining operational efficiency.
In summary, both information systems software and the knowledge and skills of computer users play vital roles in improving the performance and competitiveness of MFIs like Pride Microfinance Limited.
2.6 Literature Gap
2.6.1 Theoretical gap
The researcher has visited different studies about the effect of information and communication technology system on performance of microfinance institutions, however, limited theories are found to be in line with the study. The researcher was only able to find the Diffusion of Innovation theory as the suitable theory yet more theories would be needed to make the study more comprehensive. However, the researcher ensured that he selects the most suitable theory that is relevant to the theory.
2.6.2 Contextual gap
The researcher also reviewed literature and was able to find out that few studies were conducted from Uganda on the same area. He found out that most of the studies were conducted from West African more specifically from countries like Nigeria and Ghana and this may based on the fact that Nigeria is one of the countries with a well-developed microfinance sector and where technology has been incorporated in most of the microfinance intuitions.
2.6.3 Methodological gap
The researcher was also able to identify the gaps in terms of methodology, this included the research design, population, sample size, approaches to data collection among others. From the review the researcher carried out, it was evidenced that most of the studies that were conducted about the same area of study used a case study design. This is limited by the limited information it helps to gather and does not clearly show the effect of the different variables. This prompted the researcher to adopt a descriptive research design in order to describe some phenomenon about the effect of ICT systems on the performance of MFIs.
