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CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction
This chapter provides a comprehensive review of existing literature on the influence of Information and Communication Technology (ICT) on the efficiency of accounting practices within organizations. It draws on scholarly opinions, research findings, and theoretical insights to explore the benefits, relationship with banking growth, and challenges associated with ICT adoption.
2.2 Benefits of ICT in Banking
Marasco (1992) emphasizes that information becomes meaningful to organizations only when it is accurate, complete, simple to understand, economically viable, and relevant. ICT has significantly contributed to the globalization of economies, facilitating the rapid and efficient sharing of information across linguistic and geographic boundaries. It has transformed the world into a global village, enabling countries like Chile and Japan to exchange ideas despite distance and language barriers.
Chaffey (2007) highlights that ICT has made communication faster, cheaper, and more efficient. Tools such as email, messaging, and video conferencing have revolutionized how people interact across the globe.
Crake Richard (1998) notes that ICT enhances business operations by automating processes, which streamlines operations and improves productivity—ultimately increasing profitability and improving working conditions.
Cortesao et al. (2005) argue that ICT bridges cultural divides by facilitating communication and the exchange of ideas among diverse groups, fostering understanding and reducing prejudice.
Kennedy (2001) states that ICT allows businesses to operate 24/7 globally, enabling seamless transactions and delivery of goods across borders. Additionally, ICT has created new employment opportunities in fields such as programming, system analysis, hardware and software development, and web design.
According to Magdalene M. (2010), computerized accounting significantly reduces the time and resources needed to perform financial tasks compared to manual systems. Employees simply input transactions, and the software processes all calculations.
Magdalene also emphasizes the accuracy of computerized accounting. Computers process and convert data into meaningful information by sorting, calculating, and summarizing it, thereby minimizing errors. Birungi (2000) supports this by noting that computerized systems enhance decision-making due to timely and accurate reporting.
In terms of security, manual records are vulnerable to physical damage, while digital systems allow for data backup and restricted access through passwords, enhancing data protection.
Although some argue that manual accounting is cost-effective due to low labor costs (Magdalene, 2010), computerized accounting offers superior output that justifies the initial investment. It can handle thousands of transactions simultaneously with higher accuracy and speed, thereby enhancing decision-making.
2.3 Relationship Between ICT Systems and the Growth of the Banking Sector
ICT has transformed accounting processes in the banking sector by standardizing operations, enabling error tracking, and improving record-keeping efficiency (Kotler, 2000). Technologies such as the internet and satellite systems allow real-time monitoring of inventory and shipment, helping reconcile physical stock with financial records.
Kenneth Lysons (2006) observes that ICT has simplified accounting by improving supply chain efficiency, enhancing cooperation with suppliers, and increasing the accuracy of shared data. Process automation, through tools like barcoding and image processing, reduces paperwork, minimizes errors, and enhances real-time data exchange.
R.J. Carter et al. (2007) state that ICT has improved record management from production to consumption points by lowering handling costs, reducing labor, and speeding up order processes.
In warehousing, ICT has introduced systems like e-receipts and e-issuing, which ensure accuracy in inventory management. In payment systems, technologies such as ATMs and credit cards facilitate faster payments and reduce credit risks (Aberdeen Group, 2005).
Dobler and Burt (2001) assert that ICT has enhanced distribution through tracking and tracing systems, allowing errors in delivery to be quickly corrected. This has improved logistics and on-time deliveries.
Kenneth Lysons (2003) highlights that satellite technology allows for real-time interaction, providing up-to-date information on goods in transit. Both buyers and suppliers can monitor the exact location and condition of deliveries.
According to Nair N.K (2006), ICT has also modernized communication between buyers and suppliers. While traditional communication methods like fax have become obsolete, modern ICT tools have made communication faster and more reliable.
Dave Chaffey (2010) notes that efficient information transfer is critical for organizational success. ICT tools ensure that suppliers can give buyers timely information on handling and storage, facilitating proper management of goods.
Technology has also helped reduce inventory levels by enabling just-in-time ordering (Thomson & Singh, 2001). This minimizes storage costs, obsolescence, and inventory-related losses.
2.4 Challenges Affecting Growth in Banking Operations
Loan Default
Liu and Zhu (2006) define credit as a faith-based transaction with future obligations. Failure to meet these obligations constitutes default, affecting trust and institutional relationships. Before the Basel II accord (2004), definitions of default varied widely among institutions (Gestel & Baesens, 2009). Basel II later standardized this definition, considering defaults after 90 days past due, bankruptcy, write-downs, or non-accrual classification.
Interest Rates in Credit Management
Stiglitz and Weiss (1981) argue that high interest rates lead to adverse selection and affect borrowers’ repayment behavior. Weinberg (2006) notes that both interest rates and loan sizes directly influence repayment capacity.
Borrower Indebtedness
Akhavein (2001) finds that the personal debt profile of business owners predicts business loan repayment. Afolabi (2010) agrees, stating that banks assess both personal and business financial standing when granting loans.
Weak Financial Discipline
Burki & Perry (2006) highlight the misuse of bank resources by owners, while Nguyen (2007) identifies weaknesses in credit policy implementation and skepticism about automated credit assessments.
Low-Income Borrowers
According to Hahn (2002), low-income individuals pose higher default risks due to unstable incomes and poor repayment capacity.
Market Competition
Bofondi et al. (2003) argue that intense competition among banks has led to lax loan assessments. The IMF (2003) attributes Uganda’s high-interest rate spreads to perceived credit risks and limited competition.
High Lending Risk
Freixas (2005) and Nguyen (2007) stress that banks must adjust interest rates and collateral requirements based on loan duration and borrower history to mitigate risk.
Government Influence
Krugman (2003) states that political interference forced banks to lend to unviable firms, contributing to financial instability. Burki et al. (2003) blame a lack of transparency and poor disclosure practices.
Macroeconomic Imbalances
The Saudi Arabian Monetary Agency (2003) attributes banking challenges to macroeconomic instability and insufficient technical expertise in credit evaluation.
Irregular Deposits and Limited Collateral
The IMF (2003) warns that loan concentration among a few clients increases systemic risks. Njoroge et al. (2009) and Kimenyi et al. (1998) emphasize that poor borrowers often lack collateral and are difficult to screen and monitor.
Inadequate Market Reach
Amha (2000) acknowledges that despite recent growth, microfinance institutions still struggle to serve large segments of rural and urban poor populations.
Infrastructural and Legal Challenges
CGAP (2010) identifies poor communication systems, weak legal enforcement, and limited technical expertise as barriers to effective banking services.
Non-Performing Loans (NPLs)
NPLs pose serious risks to financial institutions. Behrman and Srinivasan (2005) discuss agency problems that arise from conflicting goals among lenders, shareholders, and managers. Ray (2008) points out information asymmetry as a major issue in credit markets.
Trust and Speculation
Loss of trust and speculative behavior, including unsecured loans and internal mismanagement, have contributed to rising NPLs (Barth et al., 2004).
Conclusion
ICT has significantly enhanced accounting practices by improving speed, accuracy, security, and output. However, its adoption is hindered by factors such as high costs, lack of expertise, and security risks like hacking and privacy breaches.
To overcome these challenges, policy interventions should support training programs, promote partnerships for technology transfer, and provide financial incentives for ICT adoption. Adopting consistent product and process standards can further enhance organizational efficiency, though divergent standards may still pose accuracy and integration issues.
