EFFECTS OF MOBILE BANKING ON FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN UGANDA

INTRODUCTION

This chapter covers the background of the study, the statement of the problem, the purpose of the study, objectives of the study, research questions, scope and the significance of the study.

1.0 Background to the Study

In recent years banks have developed innovative products and offered a wide range of services in an effort to increase efficiency which is the ultimate goal of banks. Mobile banking refers to the access of banking services and facilities using electronic mobile devices such as mobile phones and PDAs. (Porteous, 2006). Although various, and at times competing, labels and definitions have been used when discussing the provision of financial services through mobile phone networks. This study uses the increasingly popular term “mobile money” to refer to the convergence of mobile telephone and financial services.

• Historical Background

Mobile banking is an innovation that has progressively rendered itself in pervasive ways cutting across several financial institutions and other sectors of the economy. During the 21st century mobile banking advanced from providing mere text messaging services to that of pseudo internet banking where customers could not only view their balances and set up multiple types of alerts but also transact activities such as fund transfers, redeem loyalty coupons, deposit cheques via the mobile phone and instruct payroll based transactions (Vaidya 2011). The world   has   also become increasingly addicted to doing business in the cyber space, across the internet and World Wide Web. Internet commerce in its own respect has expanded in various innovative forms of money, and based on digital data issued by private market actors, has in one way or another substituted for state sanctioned bank notes and checking accounts as customary means of payments (Cohen 2001).

Technology has greatly advanced playing a major role in improving the standards of service delivery in the financial institution sector. Days are long gone when customers would queue in the banking halls waiting to pay their utility bills, school fees or any other financial transactions. Additionally due to the tremendous growth of the mobile phone industry most financial institutions have ventured into the untapped opportunity and have partnered with mobile phone network providers to offer banking services to their clients.

ATM banking is one of the earliest and widely adopted retail e-banking services in Uganda   (Nyangosi et al.  2009). However according to an annual report by Central Bank of Uganda   its   adoption and usage has been surpassed by mobile banking in the last few years (CBU 2008). The suggested reason for this is that many low income earners now have access to mobile phones.

According to Al-Smadi & Al-Wabel (2011), banks are beginning to heavily focus on their internet and mobile banking activities, leading to global expansion of electronic banking activities that explore the use of the wireless networks such as the internet and venturing into some new areas of electronic commerce such as m-banking. Banking through the internet and mobile devices has emerged as a strategic resource for achieving higher efficiency.

According to Okiro & Ndungu (2013), the world is becoming increasingly addicted to conducting business across the internet and World Wide Web (WWW). Similarly, mobile banking as an innovation has progressively began to dominate commercial transactions in major financial and other sectors of the economy and more often than not, the two are being used simultaneously to achieve efficiency.

1.1.2 Theoretical back ground

The study consists of the theories governing innovations such as mobile and internet banking as well as those theories governing the performance of commercial banks in their operations. In particular, the section looks at the financial intermediation theory.

According to Scholtens and Van Wensveen (2003), the role of the financial intermediary is essentially seen as that of creating specialized financial commodities. Financial intermediaries tend to exist due to market imperfections. Entrepreneurs possess inside information about their own projects for which they seek financing (Leland and Pyle, 1977). Moral hazard hampers the transfer of information between market participants, which is an important factor for projects of good quality to be financed. As such, in a perfect‟ market situation, with no transaction or information costs, financial intermediaries would not exist.

Diffusion of Innovation Theory. This theory was officially introduced by Bradley and Stewart in the year 2002 and it affirms that firms engage in the diffusion of innovation in order to gain competitive advantage, reduce costs and protect their strategic positions. The innovation diffusion theory put forward by Rogers in 1962 is a well -known theory that explains how an innovation is diffused among users over time (Liu and Li, 2009).

• Conceptual Background

Internet banking (e-banking) refers to the use of the internet as a delivery channel for banking services (Frust, Lang, & Nolle, 2000). When first introduced, internet banking was used mainly as an informational medium in which banks marketed their products and services on their websites. Now, customers can access traditional banking services such as balance enquiry, printing statements, fund transfers, bills payment and electronic bill presentation and payment. Customers benefit from being able to execute their banking business whenever and wherever they have access to the internet.

According to Chau & Lai (2003), while the rapid growth and popularity of the internet has created great opportunities, it has also created new threats to commercial sectors. For banks, the scope of competition is now not limited by the region or by country. It is more difficult to retain customer base since switching cost, an opportunity cost paid by a customer when changing financial institutions, is lowered by e-banking (Lin, Geng &Whinstone, 2001).

Mobile banking (m-banking) is defined as the provision of banking and financial services through the help of mobile telecommunication devices (Okiro & Ndungu, 2013). The services that may be rendered by m-banking include access to customized information and facilities to conduct bank, stock market and accounts administration. According to Schofield & Kubin (2002), the telecommunications industry worldwide is scrambling to bring what is available to networked computers to mobile devices. This is due to the fact that a user has access to his mobile phone all day, at all times, therefore convenience can be achieved 24 hours a day.

According to Chogi (2006), only a small percentage of the population had access to banking services due to high bank fees, lack of customized products and services, limited geographical reach and the perceived low level of demand and low bank income. In response to these challenges, banks adopted technological developments to facilitate the provision of better products and services, all which enhance customer satisfaction and at the same time, minimize operational costs (Sohail & Shanmugham, 2003).

Financial performance refers to the degree to which financial objectives are being accomplished (Trivedi, 2010). It is used to measure firm’s overall financial health over a given period of time and can also be used to compare similar firms across the same industry or to compare industries or sectors in aggregation. Financial analysts often assess firm’s profitability performance, productivity performance, liquidity performance, working capital performance, fixed assets performance, fund flow performance and social performance.

• Contextual Background

Centenary Rural Development Bank Ltd started as an initiative of the Uganda National Lay Apostolate in 1983 as a credit Trust and it began operations in 1985 with the main objective of serving the rural poor and contributing to the overall economic development of the country. In 1993, Centenary Rural Development Bank Ltd was registered as a full service commercial Bank. Today it’s the leading Microfinance Commercial Bank in Uganda serving over 1,300,000 customers. Its services can be accessed across its 62 full service branches and 154 ATMs networked countrywide. As of December 2014, the bank’s assets were valued at approximately US$586.7 million (UGX: 1.63 trillion).This represented 8.8 percent of all banking assets in the country, making the bank the fourth-largest commercial bank in the country at that time. Centenary Bank officially launched a new mobile banking platform in Uganda which will enable users to consult their balance via mobile phone. They will also be able to deposit and withdraw money through the service.

The launch comes a month after microfinance institution Pride Microfinance introduced a new mobile banking service in Uganda, which enables its customers to do a variety of transactions including balance inquiry, buying airtime, inter-account fund transfer, paying for utilities, depositing and withdrawing money from the account onto one’s mobile money account.
Mobile banking was introduced in the country in 2009.  There are currently about 18 million users of mobile banking services in the country, according to figures from the central bank.

The Bank of Uganda is confident that this innovation will make financial services more accessible for millions of Ugandans who have been yearning for pocket-friendly financial services from the banking industry.

The Bank of Uganda is the central bank of Uganda. Established in 1966, by Act of Parliament, the bank is wholly owned by the government of Uganda but is not a government department. The Bank of Uganda is a primary regulator of financial institutions. As of December 2014, Uganda had 44 banking institutions (25 commercial banks and 1 mortgage finance company), 7 representative offices of foreign banks, 9 deposit-taking microfinance institutions (DTMs), 226 forex bureaus and 2 credit reference bureaus (CRBs).

1.2 Statement of the Problem

Mobile banking faces unique challenges due to the nature of their operations. Their need for payment and transactional services are not always served by banks. This is due to lack of capacity to qualify them to access financial services from commercial banks since they experience low capital base and lack of collateral property to secure loans. They also do not find it very cost effective to embrace banking services because their target customers are mostly the unbanked. Additionally, they lack proper mode of receipts and payments, debt collection procedures and access to finance and this makes them to be faced with problems associated with liquidity and working capital management (Higgins at el, 2012).  This scenario is likely to have an effect on the growth and performance of the commercial banks. The inception of the mobile phone financial transactions has changed how business is being done. It has made financial transactions to be easy and faster and at the same time provided a saving avenue for those without bank accounts. However, Kanyi and Maharaj (2011) observe that despite the exponential growth in the use of mobile banking in East Africa, only few studies have focused on its impact on the financial performance of commercial banks. This means that the effect of using mobile banking in the growth of commercial banks or businesses has not been effectively assessed. Consequently, there was need to study how this financial innovation has affected the performance of commercial banks.

In Uganda, several studies have been conducted on electronic banking. Mutua (2011) investigated the effects of mobile banking on the financial performance of commercial banks in Uganda and found that mobile banking to a larger extent impacts the financial performance. Kingoo (2011) conducted a study on the relationship between electronic banking and financial performance of institutions in Uganda where he paid keen attention on the Microfinance Institutions (MFIs) in Kampala.

1.3Purpose of the study

The study is going to investigate the effects of mobile banking on financial performance of centenary bank

1.4 Research Objective

1. To examine factors that determine performance of mobile banking?
2. To examine the factors that influence performance of banks?

• To examine different mobile banking techniques?
  • Research Questions

The following research questions guided the study:

1. What are factors that determine performance of mobile banking?
2. What are the factors that influence performance of banks?

• What are the different mobile banking techniques?
  • Scope of the Study

1.6.1 Geographical scope.

The research will be carried out at centenary bank of najjanankumbi Entebbe road. The area is selected because of easy accessibility and helped researcher minimize cost of data.

1.6.2 Content scope.

The study will concentrate on assessing the effect of mobile banking services on financial performance of commercial banks in Kampala CBD. The reason being that CBD is headquarters of most of the banks and there are many branches for most banks. In addition CBD houses different types of banks. The study will cover commercial Banks licensed by the Central Bank of Uganda.

1.6.3 Time scope.

The research will cover a period of one year from 2016- 2017, this time has been taken with a hope that it will be an appropriate time to cover.

1.7 significance of the Study

The research will serve as a reference to companies (especially banks), yet to implement the usefulness of information technology in their activities and to banks who are already involved but do not provide all the delivery channels for banking products and services. It will also enable customers to appreciate the level of influence made by electronic banking in making banking and also make them aware of the electronic delivery services that banks are offering currently and the benefits that come along with these services.

The study will be used as reference material by future researchers interested in further research on internet and mobile banking and its effects on financial performance of commercial banks. The study will also be of importance to policy makers and government regulators as it would provide an opportunity to understand the issues and constraints that might affect the development of the internet and mobile banking sector in Uganda.

• Conceptual frame work

Mobile Banking                                          Performance Of Commercial Banks

Intervening variables

Source: Developed By The Researcher

The conceptual frame work indicates that mobile banking has key dimensions like Electronic transfer of funds, Electronic financial statement and Electronic access of funds which directly affects the performance of banks in the following ways; Reduction on the interest charged, Increase on profitability, Low costs on human resources, Faster response to customer needs and Customer satisfaction but they are affected by intervening variables of Government policies, Level of competition in the finance industry and The level of economic development

CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction

Mobile Banking

Mobile banking is a service provided by financial institutions in cooperation with mobile phone operators. It allows customers with busy lives to conveniently do their banking using their phones anytime. It is about getting banking services to the unbanked, those who do not have bank access or bank accounts, and those who are at the bottom of the economic pyramid, often living in remote areas. They receive the benefits of banking services such as being able to save and borrow in a cost-efficient and secure way. The services include opening bank accounts, viewing account balances, making cash transfers between accounts, or paying bills via a mobile device. In recent time Mobile banking is most often performed via SMS or the Mobile Internet but can also use special programs downloaded to the mobile device (Salzaman, Palen& Harper, 2001).

In recent years, banks, payment system providers, and mobile operators have begun experimenting with branchless banking models which reduce costs by taking small-value transactions out of banking halls into local retail shops, where agents such as airtime vendors, gas stations, and shopkeepers, register new accounts, accept client deposits, process transfers, and issue withdrawals using a client‟s mobile phone then communicate transaction information back to the telecommunication provider or bank. This enables clients to send and receive electronic money wherever they have cell coverage. They need to visit a retail agent only for transactions that involve depositing or withdrawing cash (Salzaman, Palen& Harper, 2001).

Mobile banking provides a number of advantages for both banks and customers. Mobile banking removes geographical limitation to customers and therefore bringing convenience. There is no time limitation i.e. banking maybe performed throughout the day and in any place. Mobile banking also provides efficient cash management and security of cash.

2.2 Theoretical Review

 This section reviews theories that will guide the study. It consists of the theories governing the performance of commercial banks in their operations. In particular, the section looks at the Innovation Diffusion Theory which deals with how new inventions in this case internet and Mobile banking is adopted and becomes successful, Financial intermediation Theory which deals with the core function of financial institutions in intermediating between the surplus and the deficit units for sustained economic development. It also reviews the Modern Economics Theory which holds that for a business to make returns, it has to obey the modern economics

2.2.1 Innovation Diffusion Theory

Mahajan and Peterson (1985) defined an innovation as any idea, object or practice that is perceived as new by members of the social system and defined the diffusion of innovation as the process by which the innovation is communicated through certain channels over time among members of social systems. Diffusion of innovation theory attempts to explain and describe the mechanisms of how new inventions in this case internet and mobile banking is adopted and becomes successful Clarke (1995).

Sevcik(2004) stated that not all innovations are adopted even if they are good it may take a long time for an innovation to be adopted. He further stated that resistance to change may be a hindrance to diffusion of innovation although it might not stop the innovation it will slow it down. Rogers (1995) identified five critical attributes that greatly influence the rate of adoption. These include relative advantage, compatibility, complexity, triability and observability. According to Rogers, the rate of adoption of new innovations will depend on how an organization perceives its relative advantage, compatibility, triability, observability and complexity. If an organization in Uganda observes the benefits of mobile and internet banking they will adopt these innovations given other factors such as the availability of the required tools. Adoption of such innovations will be faster in organizations that have internet access and information technology departments than in organizations without

2.3 Factors that determine performance of mobile banking

Mobile communication is progressing rapidly, extending the range of possibilities that can be achieved through mobile telephony. Today the mobile phone is not just another communication device between two parties. It is now being used in business applications especially with the introduction of Third Generation (3G) mobile phones which not only transmit voice and text messaging but also video streaming infotainment, multimedia messaging, location services, online banking and financial services, online shopping and internet browsing, (Zift, 2006). Mobile phones have come to represent a new era of secure electronic mobile commerce (Black, Lockett, Ennew, Winklhofer&McKechnie, 2005).

The financial services industry has recently been open to historic transformation. So-called E-developments are emerging and advancing rapidly in all areas of financial intermediation and financial markets. E-finance, E-money, E-banking, E-brokering, E- insurance, E-exchanges and even E-supervision. The new information technology is turning into the most important factor in the development of banking, (Daniel, 1999; Mols, 1998; Sathye, 1999: Burr, 1996). The revolution of information technology has influenced almost every facet of life, among them is the banking sector. The introduction of electronic banking has revolutionized and redefined the way banks were operating. As technology is now considered as the main contribution for the organizations‟ success and as their core competencies. So the banks, be it domestic or foreign are investing more on providing customers with the new technologies through mobile banking.

Determinants of Financial Performance The determinants of bank performances can be classified into bank specific (internal) and macroeconomic (external) factors (Al-Tamimi, 2010; Aburime, 2005). These are stochastic variables that determine the output. Internal factors are individual bank characteristics which affect the banks performance. These factors are basically influenced by internal decisions of management and the board. The external factors are sector-wide or country-wide factors which are beyond the control of the company and affect the financial performance of banks. The overall financial performance of banks in Kenya in the last two decade has been improving. However, this doesn’t mean that all banks are profitable, there are banks declaring losses (Oloo, 2010). Studies have shown that bank specific and macroeconomic factors affect the performance of commercial banks (Flamini et al., 2009). In this regard, the study of Olweny and Shipho (2011) in Kenya focused on sector-specific factors that affect the performance of commercial banks. Yet, the latest element; Mobile Banking on the performance of commercial banks in Kenya was not studied. Thus this study will be conducted with the intention of filling this gap.

Capital Adequacy Capital is one of the bank specific factors that influence the level of banks financial performance. Capital is the amount of own fund available to support the bank’s business and act as a buffer in case of adverse situation (Athanasoglou et al., 2005). Banks capital creates liquidity for the bank due to the fact that deposits are most fragile and prone to bank runs. Moreover, greater bank capital reduces the chance of distress (Diamond, 2000). However, it is not without drawbacks that it induce weak demand for liability, the cheapest sources of fund Capital adequacy is the level of capital required by the banks to enable them withstand the risks such as credit, market and operational risks they are exposed to in order to absorb the potential loses and protect the bank’s debtors. According to Dang (2011), the adequacy of capital is judged on the basis of capital adequacy ratio (CAR). Capital adequacy ratio shows the internal strength of the bank to withstand losses during crisis. Capital adequacy ratio is directly proportional to the resilience of the bank to crisis situations. It has also a direct effect on the financial performance of banks by determining its expansion to risky but profitable ventures or areas (Sangmi and Nazir, 2010).

Asset Quality The bank’s asset is another bank specific variable that affects the financial performance of a bank. The bank asset includes among others current asset, credit portfolio, fixed asset, and other investments. More often than not the loan of a bank is the major asset that generates the major share of the banks income. Loan is the major asset of commercial banks from which they generate income. The quality of loan portfolio determines the financial performance of banks. The loan portfolio quality has a direct bearing on bank financial performance. The highest risk facing a bank is the losses derived from delinquent loans (Dang, 2011). Thus, nonperforming loan ratios are the best proxies for asset quality. It is the major concern of all commercial banks to keep the amount of nonperforming loans to low level. This is so because high nonperforming loan affects the financial performance of the bank. Low nonperforming loans to total loans signify a good health of the bank portfolio. The lower the ratio the better the bank is performing (Sangmi and Nazir, 2010).

Management Efficiency is also another key internal factor that determines the bank financial performance. It is represented by different financial ratios like total asset growth, loan growth rate and earnings growth rate. Yet, it is one of the complexes subject to capture with financial ratios. Moreover, operational efficiency in managing the operating expenses is another dimension for management quality. The performance of management is often expressed qualitatively through subjective evaluation of management systems, organizational discipline, control systems, quality of staff and others.

The capability of the management to deploy its resources efficiently, income maximization, reducing operating costs can be measured by financial ratios. One of this ratios used to measure management quality is operating profit to income ratio (Rahman et al., in Ilhomovich, 2009; Sangmi and Nazir, 2010). The higher the operating profits to total income (revenue) the more the efficient management is in terms of operational efficiency and income generation. The other important ratio is that proxy management quality is expense to asset ratio. The ratio of operating expenses to total asset is expected to be negatively associated with financial performance. Management quality in this regard, determines the level of operating expenses and in turn affects financial performance (Athanasoglou et al., 2005).

Liquidity Management Liquidity is another factor that determines the level of bank performance. Liquidity refers to the ability of the bank to fulfill its obligations, mainly of depositors. According to Dang (2011) adequate level of liquidity is positively related to bank financial performance. The most common financial ratios that reflect the liquidity position of a bank according to the above author are customer deposit to total asset and total loan to customer deposits. Other scholars use different financial ratio to measure liquidity. For instance Ilhomovich (2009) used cash to deposit ratio to measure the liquidity level of banks in Malaysia. However, the study conducted in China and Malaysia found that liquidity level of banks has no relationship with the performances of banks (Said and Tumin, 2011).

2.2 FACTORS THAT INFLUENCE PERFORMANCE OF BANKS

Performance is often defined simply in output terms – the achievement of quantified objectives. But performance is a matter not only of what people achieve but how they achieve it. The Oxford English Dictionary confirms this by including the phrase carrying out‘ in its definition of performance: The accomplishment, execution, carrying out, working out of anything ordered or undertaken. High performance results from appropriate behavior, especially discretionary behavior and the effective use of the required knowledge, skills and competencies. Performance management must examine how results are attained because this provides the information necessary to consider what needs to be done to improve those results (Armstrong, 2006). In a knowledge economy, organizations rely heavily on their employees to survive. They can only win a competitive advantage through their people (Alo, 1999). The product or service of any organization is provided to customers with the involvement of people. However, as Mathis et al., (1997) pointed out, people are not only essential resources that an organization has but also problematic ones to manage. This makes human resource management a key ingredient in fostering organizational competitiveness and the ability to fulfill its mission. Managing employee performance is an integral part of human resource management that all managers and rating officials perform throughout the year. The work of Chris (2011) testifies the fact that performance management is important as managing financial resources and program outcomes because employee performance or the lack thereof has a profound effect on both the financial and program components of any organization.

Although many factors contribute to productivity, job performance is viewed to be the most influential one. One of the indicators in enhancing and improving the service industry is job performance. Job performance refers to the behaviors that are expected in the line of the organizations‘goals and the purpose under control of individual employees (Campbell et al., 1993). Performance measurement systems are described as the overall set of metrics used to quantify both the efficiency and effectiveness of action (Shepherd and Gunter, 2006).

StudiesSanya and Gaertner (2012) and Grenade (2007) have shown that market concentration reduces competition. Entrop, Memmel, Ruprecht and Wilkens (2012) studied determinants of bank interest margins in Deutsche Bundesbank. They observed that the industry’s competitive structure is determined by the extent to which the demand for loans and deposit supply are inelastic with respect to the intermediation fees charged.

Gambacorta (2004) who studied factors explaining cross-sectional differences in bank interest rates of Italian banks noted that the impact of the structure of the banking sector on the spread can be ambiguous. A concentration that makes banks to behave in an oligopolistic manner will lead to higher lending rates and low deposit rates while a

Gerhart (2004), wrote that without information about actual conditions in relation to intended goals or results, no one can perform to standard. Such information is known as feedback. It informs progress, enables corrections and, eventually, signals attainment of the objective. For most hard tasks (that is, tasks involving tangible products or other immediate and readily measured effects of one’s actions), feedback is generally available without much effort on any-one’s part. We are aware of our actions and their effects. But, for soft tasks (that is, tasks where the effects of our actions are not tangible, immediate nor readily measured), the feedback loop is essentially open. This is especially true when the main effects of a person’s actions are the reactions of other people. Therefore, lack of good feedback leads to lack of correction and hence poor performance.

Concentration that arises because more efficient banks are replacing less efficient banks may lead to lower lending rates and higher deposit rates and hence, lower spreads.

Khawaja and Din (2007) asserted that various determinants of interest spread included: market structure of the industry; bank specific factors; macroeconomic variables; and financial regulations. The industrial organization literature predicted that an oligopolisticmarket structure may result in higher spreads Samuel and Valderrama(2006) though the empirical evidence on this count is mixed.

Ahokpossi (2013) found that operating inefficiencies appeared to be the main determinants of high bank spreads in SSA economies. Brock and Rojas Suarez (2000) also showed that administrative and other operating costs contributed to the prevalence of high spreads in Latin American countries. On the other hand, Bourke (1989), and Moulyneux and Thornton (1992) in a study on concentration of markets found no relationship of concentration in banking sector on interest rate spread.

Maudos… et al (2004) analyzed interest margins in the principal European banking countries over the period 1993–2000 by considering banks as utility maximizers bearing operating costs. They found that factors that explain interest margins are the competitive condition of the market. Radha (2011) studied sources and impact of segmentation in the banking sector in Kenya and found that diversification gains are frequently offset by the costs of increased exposure to volatile activities. Similarly, Caprio., Klingebiel, Laeven and Noguera, (2005) have suggested that agency problems in financial conglomerates engaged in multiple activities and indicated that economies of scope are not sufficiently large to produce a diversification premium. It may also be the case that specialized banks exhibit higher unit costs on average, so that margins and efficiency will be lower, in the case of specialization for the European banking system(Maudos & Fernandez de Guevara, 2004).

Sara (2004), asserts that absent feedback, people have no choice except to act in ways that are consistent with internally-held views or mental models of what is appropriate or what should work instead of externally-based information about what is and isn’t actually working. For this reason, it is worthwhile spending time working with people to identify the mental models they currently use in situations where feedback isn’t readily available. In some cases, this will surface mental models that are inappropriate or inadequate. In other cases, it might surface mental models that are superior to those held by most people. This means that employee performance does not only depend on the information provided to the employees but also to their mental models.

In his studies on performance, (Rynes, 2004) found out that performance might not occur if the environmental conditions are so unsuitable as to present insurmountable barriers to performance. He writes that most of us can successfully drive our cars on windy days but none of us can drive through a tornado. In less dramatic terms, missing tools and equipment, competing priorities, a repressive climate and other factors can interfere with our ability to perform as expected, regardless of our motives or our repertoire, the presence or absence of feedback and the quality of the mental models that guide our thinking and actions. In short, the task environment must support the desired performance; at the very least, it must be manageable.

Samuel (2010), was of the view that technology is primary tool that can be used to boost employee performance. Ha writes that improvement in technology accompanied by training of the employees can significantly increase their levels of performance because it reduces the stress that comes with doing the job manually. An organization which is in relatively stable conditions both internally and externally is able to implement its pay policy in relative ease yet an organization which is undergoing massive will probably find that it has to completely restructure its way system due to market pressure (Cole 1997).

Scott (2000), defined ability as the capacity to learn and perform the tasks required.  He revealed that a good mixture of ability, training and experience is the root cause best performances. He asserts that best performing employees at least have two of the three factors. Cole (1997), suggests that its important to recognize the training fact since sometimes trained employees are asked to meet needs which ought to be met or to be dealt with in some other way that is replacing machinery. The main purpose of training in an organization is to equip the employees within skills to enable them deliver well their jobs and this keeps employees updated in the modern way of doing things (Hippo, 2002).

Berman (2001), wrote that as much as an employer may not want to be affected by the personal life of his employees, personal problems can sometimes affect employee performance. Managers need to be sensitive to employee personal problems, and be prepared to discuss the issues with employees when necessary. If an employee requires time off to deal with a personal problem, then granting that time off will help to show all of your employees that the company values its employees.

Fear is a great motivator for very short time, that is why a lot of yelling from the boss will not seem to light a spark under employees for a very long time. In turn, this implies that some employees are threatened from work hence having a lot of fear that make them not to effectively perform their required tasks at the required time (Gary, 2003).

In case of Pakistan, State Bank of Pakistan (2006) observed that bank-specific factors such as, provisioning, administrative expenses, and ownership (e.g. foreign or domestic), as well as industry factors e.g. market concentration, all positively influence the level of banking spreads in Pakistan. In terms of macro variables, GDP has a positive relationship with spreads; explained by a higher demand for advances. In line with the literature, interest rate volatility is observed to be positively associated with banking spreads.

Khawaja and Din (2007) also found evidence to support the view that administrative costs and market power have a positive influence on banking spreads in Pakistan. In addition, they included the share of current and savings account deposits in total banks deposits, and found that in the case of Pakistan, an interest-insensitive supply of deposits had a significant positive impact on banking spreads, rather than the market concentration per se. In addition, they found that, GDP has a negative relationship with banking spreads.

This means lack of long term employment in an organization. When there is a change in the organization, for example change in management– where the employees fear for their job, in terms of structure and job competition, workers will resist as they are not sure of the future thus bringing about poor industrial relations. Furthermore, this is the fear of losing one’s job (Subbakarishna, 1998). This therefore is concerned with the potential loss of employment and uncertainty regarding the job and carrier issues. This improves ones level of responsibility and promotional opportunities.

Bio-data is yet another factor explaining variation in individual performance. For example, older employees are often more reluctant to engage in new training and tend to prefer collaborative versus competitive tasks compared with their younger counterparts. According to Kanfer and Ackerman (2004), life-span theorists proposed that person versus environment transactions not only determine the direction, intensity and persistence of action but also help shape the person versus situation context in which motivation takes place. Kanfer and Ackerman (2004) suggest that age is likely to be positively associated with increased preferences for physical security, job security and salary.

Beck, Thorsten and Hesse (2006) uses bank-level dataset on the Ugandan banking system to examine the factors behind the consistently high interest rate spreads and margins. According to them while foreign banks have lower interest rate spreads, there is no robust and economically significant relationship between interest spread and privatization, foreign bank entry, market structure and banking efficiency. Similarly, macroeconomic variables explain little of the over-time variation in bank spreads. Bank-level characteristics, on the other hand, such as bank size, operating costs, and composition of loan portfolio, explain a large proportion of crossbank, cross-time variation in spreads and margins.

Some of the studies Tennant and Folawewo (2008)show that the degree of development of the banking sector is not an important determinant of interest rate spread. A few studies show, however, that the development of the banking sector in low income countries in Asia, Europe, Latin America and SSA has a significant negative effect on interest rate spread. The contradictory result on the effect of banking sector development on interest rate spread is seemingly surprising– they contradict findings obtained by some important studies (Crowley 2007; Moore & Craigwell 2000; Demirgüc-Kunt & Huizinga 1998) in the area. Other macroeconomic factors found to impact positively on interest rate spread include: degree of government borrowing from the commercial banking sector (Tennant & Folawewo, 2009); Interest rate uncertainty (Brock & Franken, 2003); and high real interest rates (Demirgüc-Kunt & Huizinga, 1998).

Khawaja and Din (2007) in their investigation of determinants of interest spread of the banking industry in Pakistan given the specific features of banking industry in Pakistan such as the non-existence of financial intermediaries that can serve as an alternative to banks for small savers, making them to include inelasticity of deposit supply to banks as a determinant of interest spread, they found out that inelasticity of deposit supply impacts positively on spread while concentration does not cause interest spread.

Plans provide a sense of directions by focusing the attention on specific targets and direct employee efforts towards important outcomes (Draft,1991) through goal setting and planning, managers learn what the organization is trying to accomplish. They can make decisions to ensure that internal policy, roles performance structure, products and expenditures will be made in accordance with desired outcomes.

Afanasieff, Lhacer and Nakane (2002) focused their research on the possibility that the Brazilian banking sector may not be fully competitive. In their research they indicated that Brazilian banks behave oligopolistically. Such a competitive structure would weaken the incentives to improve efficiency, which would explain why financial intermediation by banks is so scarce and costly. Not everyone, however, agrees on this issue. Afanasieff, Lhacer, and Nakane (2002) summarized and analyzed several studies on the pricing power of banks in Brazil and argued that “there exists little evidence to suggest that the high bank spreads practiced in Brazil are the result of weak competition in the banking sector”.

Beck, Thorsten and Hesse (2006) analyzed factors explaining interest rate spreads in Uganda compared with peer African countries for the period 1999 to 2005. They used a panel data set of 1,390 banks from 86 countries, and reported that the variation of spreads is high both across countries and within countries across banks. The average margins are around 10.9% while a mean spread of 18.1% was observed. To explain the high variation in interest rate margins across countries, they used bank size, exchange rate depreciation, real t-bill rate, liquidity ratio, concentration, inflation, GDP growth, institutional development, and overhead costs. They reported that most bank-specific as well as macroeconomic factors are relevant in explaining the high banking margins in Uganda. However, foreign banks and changes in market structure had no significant relationship with interest rate spreads. They concluded that size, high t-bill rates, and institutional deficiencies explain the large proportions of Ugandan interest margins.

Further, in line with studies (Maudos & Guevara, 2004; Williams, 2007; Wong & Zhou, 2008; Khawaja & Din 2007) on banking spreads in different countries, the level of competition in the banking industry in Pakistan was considered as a key factor in explaining high spreads contrary to Khawaja and Din (2007) earlier findings. They found that competition is positively associated with banking spreads and in particular

Performance is important to us as people and organizations. In fact, most of us believe that we can, and will, improve at what we do, and we expect others to improve over time as well (Temple, 2002). People are an organization‘s greatest assets: individuals and organizations have learned about the importance of the role of people in an organization, and how the success of an organization depends on its people (Bartlett and Ghoshal, 1995).

According to Katz and Green (1997:7), performance management is a system which comprises of an orderly series of programs designed to define, measure, and improve the performance of an organization. Performance management is a shared process between managers, individuals, and teams they are supervising; it is designed to improve the performance of an organization and the people working within it (Armstrong 1994:1, Torrington and Hall 1998:317).

Sologoub (2006) highlights that high interest rate is indicative of inefficiency in the banking sectors of developing countries, as it is now widely acknowledged that interest rate spreads are an adequate measure of bank intermediation efficiency. The difference between lending and deposit interest rates, known as the interest rate spread (IRS), is an important determinant of the efficacy of the financial system in a country (Hassan and Khan, 2010). Alternatively, a high interest rate spread could mean unusually low deposit rates discouraging savings and limiting resources available to finance bank credit (Mustafa & Sayera, 2009).

Sologoub (2006) further indicates that efficient financial intermediation is an important factor in economic development process as it has implication for effective mobilization of investible resources. A wide deposit-lending rate margin is not only indicative of banking sector inefficiency; it also reflects the level of development of the financial sector (State Bank of Pakistan, 2006).Proponents of financial market liberalization have argued that increased presence of foreign banks in developing countries would reduce the cost of financial intermediation, increase the availability of credit and foster financial development(Crowley, 2007).

Interest rate can be decomposed into different components. Banks charge higher interest rates to riskier borrowers in anticipation of defaults, and so interest rate therefore account for loan loss provisions in the decomposition. Interest rate also account for overhead costs, taxes, and required reserves, all the above are factors that contribute to higher spreads (Hamid, 2011). The overhead costs are those attributable to loans, which we identify by calculating the share of loan interest revenue in total revenue. Profit margin is a residual after adjusting for loan loss provisions, the tax rate, reserve requirements, and overheads (Brock & Franken, 2003)

Folawewo and Tennant (2008) studied the determinants of interest rate spread in 33 Sub-Saharan African (SSA) countries focusing on macroeconomic variables. Their results show that interest rate spread is influenced by the extent of the crowding out effect of government borrowing, public sector deficits, discount rate, inflation, level of money supply, reserve requirement, level of economic development and population size.

Smith (2004), emphasizes that the introduction of new technology in different organizations has affected employee performance both positively negatively whereby it requires training workers which becomes costly and on the other hand such improves worker’s efficiency and organizational development. Balunywa (2004), adds that introduction of new technology into the market has greatly affected the performance of employees in organizations because employees tend to relax and only monitor the machines, this has increased the rate at which they relax in so doing employees cannot use their skills to achieve what they can hence decreasing their level of performance.

Poor working materials and equipments may not depict employee performance because of the fact that poor results are ascertained which also to organizations collapse, Derek, (2000). Appleby (2001) observes that a good working environment influences worker’s performance. In areas where there is no security worker’s lives are put at risk and this may not induce their workings.  Neo-classical theorists, pointed out that in order for a worker to perform effectively he must be coarsed with punishments. Witkin (2000), disagrees adding that poor supervision purely leads to poor results which does not depict employee Performance. Conflict within an organization cannot yield employee performance but simply triggers grudges in between workers therefore affecting employee performance (Robbins, 2005).

2.3 Different mobile banking techniques

Electronic Data Interchange (EDI)

EDI is a technique based on agreed standards, which enables computers in different organizations to successfully send business information of transaction from one to another. They emphasize that EDI reduces on the lead-time simply because transactions are faster and more accurate (Lysons and Farrington, 2006).

According to Chaffey (2007), EDI involves business transactions like, placing orders, invoices, delivery and payment transactions. EDI works according to standards implying that the organizations using it have to agree on the systems and the soft ware that they are to use (Chaffey, 2007).

Chaffey (2007) identifies that EDI approach is associated with Electronic Point of Sale (EPOS) he cites an example in a supermarkets, when a product is purchased the check out operator scans the bar code on the label and automatically registers the price on the cash. In the same way in case of stock replenishment, the machine can order automatically as the stock reaches the re order level.

Electronic Fund Transfer (EFT)

According to Lysons and Farrington (2006), EFT is based non-electronic transmission of receipts and payments between banks and their customers or the purchasers and suppliers. It enables paperless payments to be made to suppliers “here money travels not paper”.  EFT involves automated digital transmission of money between organizations and banks. Lysons and Farrington (2006) state that the buying organization will make payment to the supplier using EFT, in a more convenient and accurate way.

Electronic Mail (e-mail)

E-mail is a process by which letters, orders or other documents are sent by a computer along telecommunication lines to appear on the Visual Display Unit (VDU) at their destination. They emphasize that incase buyers use this technique in the process of buying, sending and receiving of messages can take minutes instead of days. (leanders et-al, 1998)

According to Chaffey (2007), e-mail will be based on sending and receiving of electronic messages, he states that e-mail will be available in the internet for over 20 years.

Chaffey (2007) emphasizes that the recent innovation is the use of websites, which provide free         e-mail facilities, and does not require any software other than the web browser.

Smart Cards.

Smart cards are integrated circuit chips used to store customer specific information including electronic money. They have ability to provide intelligence and store significant amount of information of up to 20 pages of text.  Smart cards will be used to purchase goods or services, store information, and above all, they can be availed to all potential users.  (Lysons 2006)

Electronic Hubs (E-hubs)

This device connects several networks together. As used in e-business it means a central repository exchange such as the star network. In the network, a server is a control computer that holds database and programs and programs for many computers (Herper and Thompson 2005).

According to Herper and Thompson (2005), the buyers PCs will be connected together with the suppliers PCs and information regarding business transactions will be conducted, since all the information is kept in the server computer.

 E-Market place

Lysons (2006) asserts that, e-market is a web site that enables procurement officers to select the best suppliers in the market electronically. In this situation, a procurer is in control especially in open market places. This enables procurer to evaluate all potential suppliers for a particular product or service and make informed buying decisions regarding what and where to buy.  This brings efficiency in procurement since the best-evaluated bidders will be given contracts to supply.

According to Chaffey (2007), e-market is applicable where; the market is large enough, product specification and information are subject to rapid changes, suppliers have difficulties in comparing similar products from different vendors, the cost of locating, appraising and evaluating suppliers is high.

Electronic- catalogs

E-catalogs are web pages that provide information on products and services offered and sold by the vendors. (Lysons 2006)

According to Lysons (2006), e-catalogs mainly include; sell side catalogs; buy side catalogs and third party catalogs, E-catalogs support online transactions especially ordering and payment capabilities.

The advantages of e-catalogs includes; facilitation of real time communication between buyers and sellers; Allows room for the development of closer buyer-supplier relationship due to improved vendor services. Enables suppliers, respond quickly to market conditions by adjusting   repackaging (Lysons, 2006).

Material Requirement Planning (MRP)

MRP systems are primarily used to determine when to place orders for standard materials, so that they will arrive exactly when needed this helps in reducing the level of inventory held and theft in inventory (Sollish, et-al 2007)

According to Sollish, et-al (2007), MRP processes involve forecasting demand for individual parts so that they will be ordered in advance of receiving actual customer orders. This complex process is generally handled by computer soft ware program through decision support models, using calculated algorithms to predict future requirements

CHAPTER THREE

METHODOLOGY

3.0Introduction

This chapter presents the methodology which consists of the research design, area of study, study population, sample population and selection, sampling technique, data collection method, data quality control, data collection procedures and limitations of the study.

3.1 Research design

The study used cross-sectional research design which will involve both Qualitative and quantitative approaches; The researcher will  use the above methods because many aspects will be covered in the study concerning the topic. Qualitative research method will nbe used because it collects information within a short time while quantitative was through interview to cross check what has been given.

3.2 Area of the study

The study was carried out in centenary bank.

3.2Study population

The study will target tellers, Marketing department, managers and records department.

3.3 Sample size

The study used both a total of 15 respondents who will be selected among the different employees of the company.

3.3 Sampling techniques

According to (Amin, 2005) sampling involves selecting a sample of the population in such a way that samples of the same size have equal chances of being selected. While carrying out research, purposive sampling will be applied to the above different categories of respondents.

3.4 Data sources

Source of data will be from both primary and secondary sources.

• Primary data

Primary data will be obtained from the questionnaires administered on the target respondents to gain opinions and practices topic under the study.

Secondary data

Secondary data is data which has been collected by individuals or agencies for purposes other than those of a particular research study. It is data developed for some purpose other than for helping to solve the research problem at hand (Bell, 1997). This comprised of literature related to the topic . Secondary data will be  sourced because it yields more accurate information than obtained through primary data, and it is also cheaper

3.5 Data Collection Instruments

The major instruments for data collection will be questionnaires and interview guide. Surveys were just one part of a complete data collection and evaluation strategy. The major method of data collection for the study was the survey, which was done using selected instruments like questionnaires. The questionnaire provid respondents with ample time to comprehend the questions raised and hence, they will be able to answer factually.

3.5.1 Questionnaires

The questionnaire will be used to collect quantitative data. The researcher will  administer the questionnaires to respondents in different departments which will be designed basing on study objectives and questions. Respondents read and write the questionnaires themselves. The questionnaires will be close ended and were considered convenient because they will be administered to the literate and its anonymous nature fetched unhindered responses.

3.5.2 Interviews

Qualitative data was collected from the informants using interviews. The interview guide was be structured. The interviews were held with managers and took approximately thirty to sixty minutes. This was used since it’s the best tool for getting first-hand information /views, perceptions, feelings and attitudes of respondents. Both formal and informal interviews were used to get maximum information from the different respondents to participate in the research.

3.6 Data collection procedures

Upon receiving the University permission to carry out research, the area of study will be visited for purposes of familiarization.  The researcher will seek permission from staff and once allowed to proceed with research, questionnaires will be issued and interviews were carried out with the selected staff.

3.7 Quality control of data instruments

The instrument will be  taken to the supervisor to check its correctness there after pilot study will be carried out to find out if it measured what it is meant to for.

3.8 Data processing and analysis

The raw data will be coded, edited, and arranged ready for analyzing only completed raw data wil be analyzed using statistical tables and graphs.

3.9 Limitations of the study

The researcher may face the following challenges in the course of the study;

• The researcher may not get enough time to interview all the respondents, but this will be solved by budgeting for the time appropriately.
• The researcher may also face challenges in language as other respondents may feel uncomfortable expressing themselves in local languages like luganda.
• Other respodents may ask for money from the researcher, this will not affect the study as the respondents will be persuaded that the research is meant for academic purposes.

APPENDIX I: QUESTIONNAIRE

TOPIC: EFFECTS OF MOBILE BANKING ON FINANCIAL PERFORMANCE OF COMMERCIAL BANKS

A CASE STUDY: CENTENARY BANK IN NAJJANANKUMBI ENTEBBE BRANCH

Dear respondent

I am Namirembe Resty a student of Uganda Martyrs University, ,am carrying out a study on the above stated topic. You are one of the respondents randomly selected to participate in the study. The information given shall be treated with at most confidentiality and shall only be used strictly for academic purpose.

SECTION A:             GENERAL DATA

• Sex: Male                                     female

• Age a) 18 -29 b) 30 – 39 c)  40 and above

• Educational level

Certificate                               Diploma                      Degree             Others

4. For how long have you been working with Centenary bank Najjanakumbi Branch?

Less than one year                                    2-3 years

1–2 years                                                  above 3 years

Please tick one appropriate.

SECTION B:  FACTORS THAT DETERMINE PERFORMANCE OF MOBILE BANKING.

Key:SA=Strongly agree,A=agree,N=neutral,D=disagree,SD=strongly disagree

Please tick one appropriate.

SECTION C: Factors that influence performance of banks

Key:SA=strongly agree,A=agree,N=neutral,D=disagree,SD=strongly disagree

Please tick one appropriate.

SECTION D: 4.7. Different mobile banking techniques

Key:SA=Strongly agree,A=agree,N=neutral,D=disagree,SD=strongly disagree

THANKS FOR YOUR COOPERATION