THE IMPACT OF ICT ON THE GROWTH AND DEVELOPMENT OF BANKING SECTOR IN UGANDA

ACASE STUDY OF CENTENARY BANK, MAPEERA HOUSE

LIST OF ABBREVIATIONS

ICT                  : INFORMATION AND COMMUNICATION TECHNOLOGY

EDI                 : ELECTRONIC DATA INTERCHANGE

EFT                 : ELECTRONIC FUNDS TRANSFER

TCP                 : TRANSMISSION CONTROL PROTOCOL

IP                    : INTERNET PROTOCOL

EADB             : THE EAST AFRICAN DEVELOPMENT BANK

BOU               : BANK OF UGANDA

ABSTRACT

The study topic was the impact of ICT on the growth and development of banking sector in Uganda, the objectives of the study was; To establish the benefits of Information and communication technology in Banking at centenary bank limited, to establish the relationship between ICT system and growth and development in Banking sector and to assess the Challenges halting the growth and development of banking sector.

Across sectional research design was used with a blend of qualitative and quantitative approaches. Qualitative approach: this approach gathers information based on an in depth understanding of human behavior and the resources that govern the behavior depending on the why and how. This is used because it deals with smaller population and it puts emphasis on uncovering more about people’s experiences.

The findings indicate that though ICT has an influence in the growth and development of the Banking sector, there are other factors that affect the growth and the development of the Banking sector, some of there include employee knowledge and skills regarding the use of ICT systems in the organization.

The study recommends that Centenary Bank should train some of its employees who are not well conversant ICT system to have knowledge on how to use ICT, this will enable the organization to fully benefit from the benefits of using ICT in the Banking sector, according to the study there is a strong relationship between ICT and the growth and development of the Banking sector, this study that centenary Bank should fully implement ICT to other departments which donot have ICT and lastly the study also further recommends that Centenary Bank should ensure an effective way of determining interest rates and also ensure that there is effective way of determining credit worthiness in centenary Bank.

CHAPTER ONE

INTRODUCTION

1.1Background of the Study

The utilization of computers started far back in 1930 as electro-mechanic accounting machine that used to sort computer cards into bins and calculate totals then print reports for decision making, ( Laudon&Laudon, 2007 ).

Since then computers system has progressed through personal computer era to client server era and currently to enterprise internet. Computing era of communications environment on Transmission control protocol/ Internet protocol (TCP/ IP) all aimed at information generation, information sharing and information Application (French, 2001). Information systems are changing business processes and in the management of the inventory in different organizations giving rise to new terms such as vendor managed inventory, (Sewanyama and Busier, (2007).

Technology covers vast areas of organizational activities and is used in an organization in many forms such as mobile and wireless technology, telecommunications, software development, security. Printing and photocopying, intelligent systems etc. technological advancement has had a huge impact on industries, organizations, and the community in general and our daily lives technology has many application in an organization can be applied to many fields. (Huang et al 2012).

Before Uganda‘s independence in 1962, government-owned institutions dominated most banking in Uganda. In 1966, the Bank of Uganda (BoU), which controlled the issue of currency and managed foreign exchange reserves, became the central bank and national banking regulator. Uganda Commercial Bank, which had fifty branches throughout the country, dominated commercial banking and was wholly owned by the government. The Uganda Development Bank was a state-owned development finance institution, which channeled loans from international sources into Ugandan enterprises and administered most of the development loans made to Uganda. The East African Development Bank (EADB), established in 1967, was jointly owned by Uganda, Kenya, and Tanzania. It was also concerned with development finance. It survived the breakup of the East African Community in 1977 and received a new charter in 1980, In the 1960s, other commercial banks included local operations of the Bank of Baroda, Barclays Bank, the Bank of India, Grindlays Bank, Standard Chartered Bank, and the Uganda Cooperative Bank. During the 1970s and early 1980s, the number of commercial bank branches and services contracted significantly. Whereas Uganda had 290 commercial bank branches in 1970, by 1987 there were only 84, of which 58 branches were operated by government-owned banks. This number began to increase slowly the following year, and in 1989 the gradual increase in banking activity signaled growing confidence in Uganda’s economic recovery, however by 2016 there are over 14 commercial banks in Uganda, (BOU, 2016).

The adoption of ICT in banking in  the developing countries specifically in Africa have received a major boost in African countries and Uganda in particular due to the growth of mobile telephone services in these countries , this is has enhanced the growth and development of the Banking sector in these countries (Belayneh (2011).

Banking practices involves many activities like data entry, accepting of cash withdrawals, cash deposits and most of all record keeping and financial reporting, despite of the numerous investments by centenary rural development Bank on technology with a view of achieving quality in its accounting practices there has been numerous challenges with its accounting status basing on this background this study intends to investigate into the impact of Information and Communication Technology on growth and development of the Banking sector in Uganda.

1.2 Statement of the Problem

According to the current trend of computer development, information and communication technology is an important tool to enhance efficiency and responsiveness in modern-day Banking practices. The introduction, implementation and usage of Information and communication Technology in Banking is usually motivated by an attempt to reduce costs. The objective is to obtain a more efficient accounting practice in terms of reduction of errors, improvement in data entry and general improvement in accounting reporting system (Lysons, 2006).

Despite of the massive investment in ICT, Centenary Rural Development Bank is facing massive accounting challenges including fraud and failure to account for some of the funds in the organization (New vision, 10th March 2015).This study therefore intends to investigate into the impact of information and communication technology on the growth and development of the banking sector in Banking.

1.3 Purpose of the Study

To establish the impact of information and communication technology on growth and development of the Banking sector in Uganda.

1.4 Specific objectives of the study

The overall objectives of this research are;

1. To establish the benefits of Information and communication technology in Banking at centenary bank limited.
2. To establish the relationship between ICT system and growth and development in Banking sector

• To assess the Challenges halting the growth and development of banking sector.

1.5 Research Questions

The following research questions shall guide the study;

1. What are the benefits of Information and communication technology in Banking at Centenary Bank limited?
2. What is the relationship between ICT system and growth and development in Banking sector?

• What are the Challenges halting the growth and development of banking sector.

1.6 Scope of the study

The scope of this study was divided into subject, geographical and time scope.

1.6.1 Subject scope

The study will establish at the impact of information and communication technology on the growth and development of the Banking sector in Uganda. Specifically it will establish; the benefits of Information and communication technology in Banking, the relationship between ICT system and growth and development in banking sector and assess the Challenges halting the growth and development of banking sector.

1.6.2 Geographical scope

The study was carried out at Centenary Bank Head office house located at plot 44-46 Kampala road, The reason for Choosing Centenary Rural Development Bank is due to the fact that it is the largest indigenous bank in Uganda with assets of around Ugsh2Trn ($0.6bn). It has over 60 branches across Uganda mainly serving microfinance, small businesses, farmers, traders, small manufactures and individuals. It has around 1.3million savings accounts plus 40,000 current accounts, (BOU annual report, 2016), making it an area of special interest in the study.

1.6.3 Time scope

The study used information from 2012 to 2016, this is because this is the period the banking sector in Uganda has witnessed a lot of challenges in fraud and numerous changes in ICT especially the introduction of mobile phones and internet which has revolutionised a lot of centenary bank business.

1.7 Significance of the study

Management

The study findings will help the management of centenary Bank have information regarding the different ways of enhancing the growth and development of Centenary Bank.

The study will also help the management of Centenary Bank make necessary decisions regarding the use of ICT in the Bank.

Customers

Study findings will enable the Bank to provide the best services to its customers

The customers will benefit from the various innovations that will come as a result of using the ICT techniques that the bank will initiate.

Policy makers /government

The study will enable the government to enact laws regarding the use of ICT in the Banking sector, this may include mobile Banking and internet Banking.

The study will also enable the government have information on the challenges that the Banking sector face and design policies to enhance their better performance.

The study will help the government have information on the different ways of enhancing the growth and development of banking sector.

The researcher

The study will help the researcher to complete his studies for Bachelors degree at Kyambogo University, since it is a requirement for the completion of his study.

CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction

This chapter presents an overview of the existing literature based on other writers’ opinions, findings, and viewpoints on the influence of technology on the efficiency of accounting practices in an organization.

2.2 Benefits of ICT in banking

Marasco (1992) asserts that, information will only be meaningful to an organization in case it is; Accurate thus free from errors, complete, simple to understand by all the participants, economic where resources are utilized properly, relevant

ICT has not only brought the world closer together, but it will allow the world’s economy to become a single interdependent system. This means that we will not only share information quickly and efficiently, but we will also bring down barriers of linguistic and geographic boundaries. The world will developed into a global village due to the help of information and communication technology, allowing countries like Chile and Japan who are not only separated by distance but also by language to share ideas and information with each other Marasco (1992).

Chaffey (2007) asserts that with the help of information and communication technology, communication become cheaper, quicker, and more efficient. We can now communicate with anyone around the globe by simply text messaging them, or sending them an email, for an almost instantaneous response. The internet has also opened up face-to-face direct communication from different parts of the world, thanks to the help of video-conferencing.

According to Crake Richard (1998), information and communication technology helps to computerize the business process, thus streamlining businesses to make them extremely cost effective money-making machines. This, in turn, increases productivity, which ultimately gives rise to profits; that means better pay and less strenuous working conditions.

Cortesao L., Martins F., Rosa A., Carvallio P. (2005) argues that information and communication technology helps to bridge the cultural gap by helping people from different cultures to communicate with one another, and allow for the exchange of views and ideas, thus increasing awareness and reducing prejudice.

ICT makes it possible for businesses to be open 24 x7 all over the globe. This means that a business will be open anytime, anywhere, making purchases from different countries easier and more convenient. It also means that you will have your goods delivered right to your doorstep without having to move a single muscle (Kennedy A, 2001).

Kennedy A, (2001) argues that probably, the best advantage of information and communication technology is the creation of new and interesting jobs. Computer programmers, Systems analyzers, Hardware and Software developers and Web designers are just some of the many new employment opportunities created with the help of ICT.

Time: Paper works are involved in manual accounting; all the accounting activities are carried out on paper manually and obviously, it takes much time and resources for the average business organization and most especially, a financial institution that still uses the manual system. Computerized accounting saves a lot of time where in, the employee has to record the transactions and all the other calculations would be carried out by the software either automatically or by a request. Magdalene M, (2010)

Accuracy: I also agree with Magdalene M, (2010) again, that computerized accounting is not only speedy but also accurate. With a computer being used to collect data and change it into meaningful information that is used by management to make timely and effective decisions, the computer carries out the entire data processing through classifying, sorting, calculating, summarizing the data and production of reports, as stated by Birungi (2000). This entire process helps to minimize the risk of miscalculations and other human errors that could have emerged as a result of manual data processing.

Security: With the manual accounting system, every record is on paper and in case of any uncertainties such as heavy floods, landslides and fire outbreaks, the useful data may all be lost, and yet with the computerized accounting system and the introduction of internet and networks in the information technology world, an easy backup and restoration system as well as the use of passwords to avoid unauthorized parties from accessing the data, keeps the information secure.

Cost : Some arguments may stress that manual accounting can be handled with cheap work force and resources and that it is reliable as it is done manually with minutes of observations Magdalene M, (2010). However, the level of competition in the business world of today is tight and even growing tighter day by day and if a business with an aim of being successful does not consider the aspect of time especially as far as decision making is concerned, then that business stands to lose. Computerized accounting in this case may be more costly than manual accounting in terms of cheap work force but its output actually overweighs its cost.

Level of output : Magdalene M, (2010) also argues that computerized accounting can actually handle thousands of calculations simultaneously and accurately as compared to manual accounting where by transactions are handled one at a time and even needs much time to do that as well as being characterized by human errors and mistakes in calculations which may eventually affect the final output of information and hinder effective decision making.

2.3 Relationship between ICT system and growth and development in Banking sector.

Standardized accounting process, including faster tracking of errors, improved quality control, efficiency in record keeping, greater efficiency through the use of information and communication components like internets, satellites among others that enables tracking and tracing of the goods in transit, during shipment as well as giving up to date information to the accountants about the quantity of goods in storage so that the accountants are able to reconcile the books of accounts with the physical stock in the store, (Kotler 2000).

Simplified accounting process; The introduction of technology has not only simplified the accounting process but has also improved on the business process including control over suppliers, improved process cycle time, close cooperation relationships, improved supply chain efficiency, accuracy of shared information, (Kenneth Lysons 2006).

Process Automation. With the use of technologically components such as Bar coding, Satellite, internets and Image processing among others in the process of managing accounting efficiency, there has been reduction on paper work thereby leading to a substantial reduction of errors, as well as increased capability to obtaining and exchanging real time information. This is possible through the use of information technology systems such as Bar code and scanners which represents a series of alphanumerical characters, bar code readers to interpret bar code symbology, and bar code printers to reliably and accurately print bar codes on labels, cartons, and/or picking /shipping documents Kenneth Lysons 2006).

Improved accounting process; Accounting process involves management of an organizations record with a view of minimizing organizational information in a cost effective way. Accounting information enables suppliers and buyers to get related information from the point of origin to the point of consumption (R.J Carter et al, 2007). The introduction of technology has brought in tremendous improvements in the keeping of organizations records from the point of origin to the point of consumption including reduced arrangement costs and handling times, shortened response time for purchasing, improved order process speed and reduced labour costs.

Improved warehousing facilities. Warehousing is the primary link between the producers and the consumers; it is used for storing products (raw materials, in process inventory and finished goods) before they are finally worked upon or delivered to the ultimate consumers. Through the implementation of technology, ware house efficiency and effectiveness has improved greatly through using opportunities such as e- warehousing, e- receipts and e- issuing. These have brought about accurate operations in the warehouse hence complementing accounting management efficiency (R.J Carter et al, 2007)

Reduce product delivery time. Through the implementation of technological system in organizations like Spedag Interfreight Company the organizations’ processes of making payments to their suppliers have improved greatly including faster payment systems like using ATMS, credit cards among others. This reduces among others interest rate, credit risk among others (Aberdeen group 2005).

Improved distribution process. According to Dobler and Burt (2001) With improved tracking and tracing as a result of using internet, satellites among others, the company that is to say the distributing company is assured of efficiency and effectiveness in the distribution process as their trucks are properly tracked and traced so that in case the deliveries are made to a different location, the mistake can easily be rectified. This has therefore, improved Logistics efficiency in organizations and this has all been because of the introduction of information and communication technology. Other benefits include; delivering on time, reduced delivery enquiring time and improved distribution management.

Proper monitoring. The introduction of information and communication technology in logistics management has brought about efficient and effective monitoring of the materials during transit to their various destinations. This is done through use of technologies that allows communication across a very wide geographical area. Satellite communication provides a fast and high volume channel for information movements. Satellite technology facilitates real time interaction which provides up to date information about location and delivery information about the products in transit. The satellite devices can also be used in tracking and tracing the materials in transit. Tracking is specifically achieved through the use of internet and others, this therefore enables both the delivering organization or the supplier and the buyer to know where specifically the goods in transit is and also in case of any problem encountered say by the truck being used for the transportation purposes, it can easily be recognised by the parties concerned (Kenneth Lysons 2003)

Better communication and connection links. According to Nair N.K (2006), the introduction of information communication technology, communication between the buyers and the suppliers has been eased. Logistics is an old age industry that has been one of the greatest holdouts against the waves of computerization that has swept the world. Until recently, most organizations were still using traditional systems like fax and letter writing among others as a means of communication. However with the introduction of information and communication technologies such as telephones, internets and satellites among others, communication has not only been eased but also made efficient and effective.

Faster information transfer. Information and communication technology equipment like internet, satellite and telephones enables a speedy transfer of information between the supplier and the buyer. Therefore, all the necessary information that the supplier needs to give to the buyer regarding how the goods in transit should be handled, stored and packed are given to the buyer prior to delivery so that special attention is taken by the buyer where necessary, According to Dave chffey (2010),  information transfers in the basis of survival for an organization.

Reduce inventory levels. According to (Thomson and Singh 2001) technology helps the buying organisation to order the needed items at the right time and once the need arises then an order will be placed. This helps the organisation to do away with bulk stock levels hence solving the problem of inventory costs like obsolescence and dampness leading to losses this leads to efficiency and effectiveness in the logistics operations.

2.4 Challenges halting the growth and development of Banking operations

Loan default

Liu and Zhu (2006) argued that credit is granted on faith and defined credit as “the ability of a business or individual to obtain economic value on faith, in return for an expected future payment”. Since trust is built on faith to commit and meet agreed financial obligations, trust, faith, respect and sometimes relationships are compromised if those obligations are not met. Not meeting the obligations is considered as default. Prior to 2004, when the Basel II accord was endorsed, financial institutions could adopt their own strategic definitions of default (Oke Adeyemo, Agbonlahor 2007). Client classifications such as good payers, poor payers and bad payers were commonly used and a payment in arrears for more than three months was considered to be a default in the retail context. The fact that every organisation could use any definition meant different scoring systems; risk measures and risk management practices could be used (Gestel and Baesens, 2009).

According to Chorafas (2007), Basel II defines default as “four different events or a combination of them; ninety days past due, write down, placement on internal non-accrual list and/or outright bankruptcy”. According to the Basel Committee 2006, “a default is considered to have occurred with regard to a particular obligor when either or both of the two following events take place: i) the bank considers that the obligor is unlikely to pay its credit obligations to the banking group in full, without recourse by the bank to actions such as realising security (if held) and; ii) the obligor is past due more than 90 days on any material obligation to the banking group” (Saita, 2007).

Interest rate in credit management

The pioneering work of Stiglitz and Weiss (1981 cited by Godquin, 2004) marked the beginning of attempts at explanations of credit rationing in credit markets. They asserted that “… interest rates charged by a credit institution are seen as having a dual role of sorting potential borrowers (leading to adverse selection), and affecting the actions of borrowers (leading to the incentive effect)”. Weinberg (2006) advocated that interest charged and the amount of debt are the two main factors affecting repayment obligations.

Indebtedness of owner/business in loan repayment

Akhavein (2001) indicated that the personal credit history or indebtedness of small business owners is highly predictive of the loan repayment prospects of their businesses. López (2007) asserted that both “hard” and “soft” information has an impact on the repayment patterns of the borrowers. Hard information such as borrowers‟ capacity, indebtedness and monthly instalments need to be taken into consideration. In the small business environment, bankers actually deal with two customers: the members of such a business and the business itself. In actual fact, the indebtedness of the owner plays a pivotal role in loan repayment to such an extent that when a close corporation applies for finance and has to rely on the personal assets of the members to secure the finance, the two characteristics are seen as one (Afolabi, 2010).

Poor personal financial management, Burki and Perry, (2006) assert that the bank owners are directly or indirectly involved in the weakening of the loan assessment systems in that they often turn banks’ credits to finance their own activities which they in most cases did not pay in time and thus affecting bank operations, However they did not explain the procedure that can be undertaken to avoid such loopholes.

Difficulty in determining credit worthiness, , financial institutions have failed to determine credit worth borrowers simply because they have inadequate credit policies, failure of bank officers to comply with lending policies, inadequate customer relations, low staff morale, and bank officers’ exposure to fraud. Nguyen (2007)  on the other hand believes that, the inefficient mechanisms used in assessing loans are attributed by the banks’ pessimism about the ability of technology to come up with decisions on who qualifies and who doesn’t. He went ahead to suggest that the failures need to be closely examined because they reveal deep-rooted weaknesses and limitations about banks.

Presence of low income earners in an economy, low-income consumers are high-risk borrowers as this is attributed to inadequate income and lack of income security and hence making it difficult for them to make repayments on credit commitments. He further adds that this is compounded by the disproportionately higher cost of credit available to low income earners and lack of flexibility available to consumers who may experience temporary difficulty in maintaining repayments. However, he did not explain the extent of the relationship between poor loan assessment and low-income consumers, (Hahn, 2002).

Competition among financial institutions, found that overwhelming banks competition in prices (interest rates) and moreover with imperfect knowledge of borrowers’ ability to repay their debts has accelerated poor loan assessments to potential borrowers (Bofondi et al, 2003). Considering Uganda’s banking sector, Interest rate spreads have been exceptionally high, reflecting high levels of perceived credit risk, low competition among banks, and inefficiency of the system. Interest rate spreads have ranged between 15 -20 percent since 1994, while real lending rates have varied from 10-25 percent since 1996. Non-interest expense is high at 5.8 percent of assets and is passed on to borrowers in the form of high spreads, suggesting inadequate competitive pressure in the market. However, there are signs of more competitive forces at play following the privatization of UCBL and its subsequent merger with Stanbic, International Monetary Fund, (2003).

High level of risks involved in holding and lending credit, lending embraces a wide range of risks. In an economy where survival almost depends on loans, loan officers have to be careful while assessing borrowers, Where interest rate is considered as an important factor, a lending officer should not use a single rate of interest for all loans because it would lead to inappropriate investment decisions. Other things being constant, a loan should be required to earn a rate that is at least equal to the risk free rate plus a premium. The premium would compensate for the risk attached to the loan. Nguyen (2007) considers a model of repeated moral hazard, without learning and risk neutrality. In the optimal loan contract, the loan interest rate and collateral requirements decrease with the duration of the bank-borrower relationship, after the firm has demonstrated some project success. In a recent contribution, Freixas (2005) presents a model where relationships arise because there is an initial fixed cost of monitoring, that is, repeated lending from the same bank avoids duplication of monitoring costs

Government policies. According to Krugman, (2003), the reasons as to why there was no proper credit assessment in Asian banks, was partly due to government persuasiveness or order to lend heavily to particular industries and companies. In other wards they were”captive banks”. This allowed the companies concerned to become over leveraged (vulnerable to economic down town) and directed resources into un profitable investments hence affecting the bank’s performance. Burki et al, (2003) on the other hand have a different view. They believe that, poor loan assessment in Asian Banks was as a result of lack of transparency in regional banking systems, which resulted into failure in disclosing the true scale of bad debt problems and henceforth weakening the market discipline on bank management. This reduced the need for them to face the problems and hence undermining public confidence in banking systems, which was largely attributed to lack of credible information from depositors.

Macroeconomics imbalance, Saudi Arabian monetary agency, (2003) [31] argues that the main causes of the problems faced by Saudi banks arises from the macroeconomics imbalances which are mainly created by lacked adequate credit assessment and monitoring procedures in relation to lack of required technical expertise and that all this therefore made banks so difficult to recover their cash from the borrowers. However no remedies were advanced to counteract the situation of poor credit assessment in banks.

Irregular deposits in banks, many deposits, According to the International Monetary Fund, (2003) a key feature of the Ugandan banking sector is the high degree of concentration on both the loan and deposit sides. When loans to the top five borrowers for each bank are aggregated, they represent about 40 percent of all loans with deposit concentration having a smaller percentage. Banking sector’s exposure to a small number of borrowers and depositors means that a cyclical downtown or terms of trade shock affecting these borrowers could translate quickly into asset quality problems for banks. I agree with IMF simply because a loan is a major asset of a financial institution so if it is not properly managed, there are few chances of survival..

Limited collateral security among lenders, People living in poverty, like in Ethiopia, need a wide range of financial services for consumption smoothing, running their business and building assets. But due to collateral problems, poor people in most cases have no credit access from Banks. Microfinance offers financial services such as loans, savings and micro insurance to the poor people either in individual or in a group basis. Lending to the poor usually means that a lender will not be able to get any collateral to secure the loan (Njoroge, et al, 2009). Moreover, Kimentyi et al. (1998) argues that the most difficult aspects of lending to poor clients are borrower selection and repayment enforcement.

Limited number of customers especially in the developing world, The establishment of sustainable microfinance institutions that reach a large number of rural and urban poor, who are not served by the conventional financial institutions (such as the Commercial Banks) has been a prime component of the new development strategy of most African countries, Although the development of microfinance institutions in the developing world especially in African countries,  started very recently, the industry has shown a remarkable growth in terms of outreach, particularly in number of clients (Amha, 2000).

High level of risk in lending, Dejene, (2003) argues in his study on the economic importance of the informal institutions in Ethiopia that the poor are often marginalized in the formal credit markets. This can be explained partly in terms of: 1) a lack of collateral, which makes lending to the poor a risky venture; 2) transaction cost of lending to and borrowing by the poor is often high; and 3) utility loss from repayment is higher for the poor as compared to the rich. So the poor don’t have access to the formal financial sources. Lack of access to institutional credit is one of the crucial factors impeding the poor from involving in operating small business and in particular and economic development in general.

Poor infrastructural development in most parts of the developing world has also hampered the work of most financial institutions , this has mainly been in terms of lack of proper ways of communication were financial institutions have faced a big setback in terms of delivering information to their debtors. Despite this financial institutions also faced challenges of, weak legal systems, banking sector and lack of technical capacity (CGAP, 2010).

The existence of nonperforming loans, some of the loans given out by the lending institutions unfortunately become non performing and eventually result in bad debts with adverse consequences for the overall financial performance of the institutions. The issue of loan default is becoming an increasing problem that threatens the sustainability of MFIs. The causes of the problem are multi-dimensional and non uniform among different literatures, (

An informational constraint, the fundamental feature that creates imperfection in credit markets is informational constraints. Ray (2008) stated that informational gap occur at two basic levels. First, there is lack of information regarding the use to which a loan will be put. Second, there is lack of information regarding the repayment decision of borrowers, as well as limited knowledge of the defaulter’s subsequent needs and activities. All the important features of credit markets can be understood as responses to one or the other of these informational problems. In addition, Behrman and Srinivasan (2005) stated about the arising of agency problem in the functioning of credit market. This problem exists when there are different goals between creditors, shareholders and management. Financial intermediaries may reduce agency problem by monitoring borrowers and make wise investment choices

Limited trust, Sinapi Aba Trust is one of the leading microfinance institutions facing the challenge of a growing non- performing loan portfolio with its attendant harmful effect on the operations of the institution and the situation calls for remedial measures to curb it. The study therefore focuses on identifying the causes of nonperforming loans, the implications of NPLs on the operations of MFIs and the strategies to reduce the incidence of NPLs.

Speculation in the financial market is one of the principle challenges of loan, management as , another publication (kalyan-city.blogspot.com) identifies speculation: i.e. investing in high risk assets to earn high income and also fraudulent practices such advancing loans to ineligible persons or advances without security or reference as some of the causes of failures in loan management. It also cites internal reasons such as labor agitation/shortage and market failure as some of the causes of the incidence of NPLs. External factors such as recession in the economy and natural calamities/disasters were also cited by the same publication as some of the factors accounting for loan default. (Barth et al., 2004).

Principal repayment in future (Kay Associate Ltd), 2005). Because of this risk of default in loan repayment, lenders needs to project into the future and make sound judgment that will ensure that repayment is effected at the agreed date. Available literature places so much importance on the lender’s role in ensuring good decisions relating to the granting of loans in order to minimize credit risk. The lender must always aim at assessing the extent of the risk associated with the lending and try to reduce factors that can undermine repayment. The lender should therefore assemble all the relevant information that will assist him/her in arriving at a sound credit decision. In view of the possibility of nonpayment which leads to NPLs, MFIs have adopted a standard loan request procedures and requirements usually contained in credit policy manual to guide loan officers and customers. Some of the factors that the MFIs consider before granting loans include the following which are often referred to as the canons of good lending

In conclusion, a number of key factors that inhibit the widespread adoption and use of computers, include the cost of technology, uncertainty over the business benefits and impacts, and the lack of relevant internal computers expertise. The computers technology use in accounting has been observed to be of great benefit to the organization including saving of organizational time this is because Paper works are involved in manual accounting, Accuracy in doing work , ensuring security of the organizational information, reduction of organizational cost and improvement Level of output.

Promotion of technological upgrading is critical in order to encourage organizations achieve various objectives Policy in this area should aim to support training and capacity building via skill development programmes; promote partnerships between manufacturing companies and organizations overseas that can develop or transfer technology, products, processes or management practices; and to facilitate the technological upgrading through various financial schemes, such as credit lines for upgrading.

Facilitation of compliance procedures through adoption of product and process standards has several well-known benefits for firms. It enables them to introduce new technology and integrate business practices that ameliorate their overall performance.

However, different and concurrent standards can become barriers to achievement of accuracy in accounting this is because computers has challenges including loss of privacy by organization, increased risk of being hacked by computers Hackers.

CHAPTER THREE

METHODOLOGY

3.1 Introduction

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.

3.2 Research design

The research design refers to the overall strategy that a researcher chooses to integrate the different components of the study in a coherent and logical way, thereby, ensuring that he will effectively address the research problem, (Trochin, 2001).

Across sectional research design was used with a blend of qualitative and quantitative approaches. Qualitative approach: this approach gathers information based on an in depth understanding of human behavior and the resources that govern the behavior depending on the why and how. This is used because it deals with smaller population and it puts emphasis on uncovering more about people’s experiences.

Quantitative approach: this is the approach that deals with numerical expression in figures in terms of quantity which involves measurement of quantity and amounts.

3.3 Data type and sources

3.3.1 Sources of data

Source of data was both primary and secondary sources.

Primary sources of data

Data from primary sources was obtained by the questionnaires administered on the target respondents to gain opinions and practices on the influence of ICT on the growth and development of banking sector at Head office Centenary Bank.

Secondary sources of data

Data from secondary sources was collected from text books, news papers, journals, and government reports; this helped in building the literature and comparison with the primary sources of 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).

3.3.2 Data types

Quantitative data are anything that can be expressed as a number, or quantified. Examples of quantitative data are scores on achievement tests, number of hours of study, or weight of a subject. These data may be represented by ordinal, interval or ratio scales and lend themselves to most statistical manipulation.

The study collected quantitative data using the questionnaire; this was used because quantitative data easily present information which can easily be understood.

Qualitative data is data that cannot be expressed as a number. Data that represent nominal scales such as gender, socio economic status, religious preference are usually considered to be qualitative data.

The research used qualitative data to fill up the gap that the quantitative data may not be able to present , this is mainly because qualitative data helps to collect data regarding the feeling and attitudes of people in a given.

3.4 Area and study population

The study was carried out in centenary bank Mapeera house located plot 44-46 Kampala road

The study targeted centenary bank officials (administration), the procurement staffs of centenary bank, accounting officers of the bank, tellers of the bank, and cashiers.

3.5 Sample size and Sampling Selection

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.

The study used solvin’s formula

It is computed as n = N / (1+Ne2).

Whereas:

n = no. of samples

N = total population

e = error margin / margin of error, e=0.05

Centenary Bank Mapera has got about 75 employees using solvin’s formula,

n=       75/(1+175(0.05)²

n =      75/1.1875

n  = 63

The sample comprised of 63 respondents that was selected in a way that 15 respondents was from the information technology department, 10 from administration, 6 from finance, Tellers 10, 7 marketing and retail sales 15 respondents. While carrying out research, purposive sampling was applied to the above different categories of respondents.

The study used purposive sampling because the respondents are known , and therefore using this technique it helped in time saving and reduction of costs.

3.6 Data Collection methods

The major instruments for data collection were questionnaires and interview guide. Surveys was 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 provided respondents with ample time to comprehend the questions raised and hence, they were able to answer factually.

3.6.1 Questionnaires

The questionnaire was used to collect quantitative data. The researcher administered the questionnaires to respondents in different departments including, finance, information technology department, administration, which was designed basing on study objectives and questions. Respondents read and wrote the questionnaires themselves. The questionnaires was close ended and was considered convenient because they were administered to the literate and its anonymous nature fetched unhindered responses.

3.6.2 Interviews

Qualitative data was collected from the informants using interviews. The interview guide was structured. The interviews were held with administration and finance staffs, 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.

3.6.3 Documentary review

A documentation technique that involves selecting, reviewing and recording characteristics of objects or phenomenon were used. Documentary review checklist was also used to review the response from the respondents in the study while examining the magnitude of the impact of ICT on the growth and development of banking sector in Uganda. This helped the researcher identify strength, weakness and gaps which could have been omitted in other tools.

3.7 Data presentation and analysis

Quantitative analysis of raw data was done. Raw data took a variety of forms, including measurements, survey responses, and observations. Tabular and percentage calculations was used to list questionnaire responses. Analysis and interpretation of the raw data was based on the responses and opinions. Qualitative and Quantitative data analysis techniques was used to manipulate data during the analysis phase to draw conclusions.

The study used chi-square to analyze the relationship between the variables this specifically helped to get accurate information regarding the P-Values.

3.8 Data collection procedures

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

3.9 Data reliability and validity

Validity of the instrument

Validity of Instruments is the extent to which the instruments used during the study measure the issues they are intended to measure. To Ascertain the Validity, questions were discussed with the supervisor, given to two independent lecturers. This was done to clear any lack of clarity and ambiguity to assess the relevancy of the questions with the objective of the study and the content validity index therefore be computed using the formulae below.

Content validity index (CVI) =   Number of items rated relevant

Total Number of Items in the questionnaire

The content validity index was calculated basing on the different sections of the questionnaire. This is supported by Amin (2005) who states that for any instrument to be accepted as valid. The average index should be greater than 0.5.

Reliability of Instrument

Reliability is the extent to which the measuring instrument produces consistent scores when the same groups of individuals are repeatedly measured under the same conditions (Amin, 2004).

For consistency of research results from the study instrument, the researcher will use Cronbach’s alpha method with the help of SPSS.

3.10 Limitations and Delimitations of the study

The researcher faced the following challenges in the course of the study;

The researcher may not get enough time to interview all the respondents. This was solved by budgeting for the time appropriately and also the researcher ensured that he informs the respondents earlier to enable the respondents plan for their time appropriately.

The researcher may faced challenges in language as other respondents may feel comfortable expressing themselves in local languages like luganda, However the researcher solved this challenges by ensuring that the respondents are informed of using English languages during the course of the study.

CHAPTER FOUR

PRESENTATION, ANALYSIS, INTERPRETATION

OF FINDINGS

4.1 Introduction

This chapter presents the results in reference to objectives in chapter one. Gender of    respondents, Age of respondents, education level of respondents, to establish the benefits of Information and communication technology in Banking at centenary bank limited, to establish the relationship between ICT system and growth and development and to assess the Challenges halting the growth and development of banking sector.

4.2 Response rate

The table above indicates that the response rate was 79%, this was okay since that is a high percentage to warrant data analysis.

4.3 Demographic Information

4.3.1 Gender of respondents

Table 4.1 : Showing gender of respondents

Source: Primary Data

The findings in the study was gender sensitive as both male and female were involved in the study , as shown in the table were by 74% of the respondents were male and 26% were females.

4.3.2 Duration employees have worked at centenary Bank

Figure 4.1: Number of years respondents have worked at centenary Bank

The figure above indicates that majority of employees have spent 6-10 years at centenary Bank which implies that they have enough knowledge regarding Impact of ICT on the growth and development of the Banking sector, therefore the respondents gave correct information.

4.3.3. Education level of respondents  

Table 4.2: Showing education level of respondents

Source: Primary Data

According to the findings in the study 58% of the respondents were degree holders, 22% of the respondents were diploma holders, 12% of the respondents were masters degree and 8% of the respondents were certificate holders, since majority of the respondents were degree holders this implied that they gave correct information from an informed point of view and above all they were also conversant with the study topic.

4.4 Benefits of using ICT in the Banking sector

4.4.1 Whether Centenary Bank has benefited from the adoption of ICT in the Banking sector

Table 4.3: Showing whether Centenary Bank benefited from the adoption of ICT in the Banking sector

Source: primary data

The results in the study indicates that majority of the respondents assert that centenary Bank has adopted the use of ICT in the Banking sector.

4.4.2 Benefits of ICT in the Banking sector

Table 4.4: Benefits of ICT in the Banking sector

Source: primary data

According to table, the results in the study (38%) of the stated that globalization and connected departments within the Bank is one of the main benefits of using ICT in the Banking sector at Centenary Bank, (16%) stated that Communication has becomes cheaper between the different departments, (10%) stated that Computerization of organizational operations in achieving efficiency, the findings further show that (22%) of the respondents stated that time saving of organizational operations and the remaining (14%) asserted that Customer service has improved, the findings from the study above shows that ICT has numerous benefits to the Banking sector in Uganda.

4.5 Relationship between ICT system and growth and development in banking sector

Figure 4.2: Showing Relationship between ICT system and growth and development in banking sector

Source: primary data

Findings above indicates that majority of the respondents assert that there is a relationship between ICT system and growth of small and medium industries.

Table 4.5: Relationship between ICT system and growth and development in banking sector

The results indicate that there is a positive correlation between the variables; this is shown by the fact that the P-Value is positive. The table above further shows that the P value, P=0.002, which indicates that there is a strong relationship between the independent and dependent variables. This further shows that there is a strong Relationship between ICT system and growth and development in banking sector.

4.5 Challenges halting the growth and development of banking operations

 Table 4.5.1: Whether the banking sector faces challenges halting their growth and development of banking operations

Table

Table 4.6: : Showing challenges halting the growth and development of banking operations

Source: Primary Data

The result above indicates that most of the respondents hold the view that the banking sector faces numerous challenges.

4.5.2 Challenges faced by banking sector

Table 4.7: showing challenges faced by the banking sector

Source: Primary Data

On the question regarding how organizations face challenges with Difficulty in determining interest rates that (34%) of the respondents stated that Difficulty in determining credit worthiness, (28%) of the respondents assert that Presence of low income earners is abig challenges for Banks, the results further indicates that (24%) of the respondents stated that Competition among financial institutions is avery big challenge for financial institutions.

CHAPTER FIVE

DISCUSSION, CONCLUSION, RECOMMENDATIONS AND AREAS OF FURTHER RESEARCH

5.1 Introduction

This area discusses, concludes, recommends and also shows areas of further research.

5.2 Discussion

The discussions were made basing on study objectives.

5.2.1 Benefits of using ICT

The results in the study indicate that the use of ICT has facilitated globalization Marasco (1992), who states that ICT has not only brought the world closer together, but it will allow the world’s economy to become a single interdependent system. This means that we will not only share information quickly and efficiently, but we will also bring down barriers of linguistic and geographic boundaries. The world will developed into a global village due to the help of information and communication technology, allowing countries like Chile and Japan who are not only separated by distance but also by language to share ideas and information with each other

Then use of ICT in centenary Bank has also made Communication to become cheaper, this is also in line with Chaffey (2007) asserts that with the help of information and communication technology, communication become cheaper, quicker, and more efficient. We can now communicate with anyone around the globe by simply text messaging them, or sending them an email, for an almost instantaneous response. The internet has also opened up face-to-face direct communication from different parts of the world, thanks to the help of video-conferencing.

The findings in the study indicates that Computerization of organizational operations in achieving efficiency, this view is also shared by Crake Richard (1998) who states that information and communication technology helps to computerize the business process, thus streamlining businesses to make them extremely cost effective money-making machines. This, in turn, increases productivity, which ultimately gives rise to profits; that means better pay and less strenuous working conditions.

The results in the study indicates that the use of ICT has facilitated Time saving of organizational operations, this is also in line with Cortesao L., Martins F., Rosa A., Carvallio P. (2005) argues that information and communication technology helps to bridge the cultural gap by helping people from different cultures to communicate with one another, and allow for the exchange of views and ideas, thus increasing awareness and reducing prejudice, while (Kennedy A, 2001) further argues that ICT makes it possible for businesses to be open 24 x7 all over the globe. This means that a business will be open anytime, anywhere, making purchases from different countries easier and more convenient. It also means that you will have your goods delivered right to your doorstep without having to move a single muscle.

5.2.2 Relationship between ICT system and growth and development in banking sector

The study established that there is a strong positive relationship between the ICT systems and the  growth and the development of the Banking sector, this view is also in line with   (Kotler 2000), who states that ICT systems like, Standardized accounting process, including faster tracking of errors, improved quality control, efficiency in record keeping, greater efficiency through the use of information and communication components like internets, satellites among others that enables tracking and tracing of the goods in transit, during shipment as well as giving up to date information to the accountants about the quantity of goods in storage so that the accountants are able to reconcile the books of accounts with the physical stock in the store., this views shows that there is direct relationship between the ICT systems and the growth and development of the Banking sector, while Kenneth Lysons 2006), also further states that with the use of technologically components such as Bar coding, Satellite, internets and Image processing among others in the process of managing accounting efficiency, there has been reduction on paper work thereby leading to a substantial reduction of errors, as well as increased capability to obtaining and exchanging real time information. This is possible through the use of information technology systems such as Bar code and scanners which represents a series of alphanumerical characters, bar code readers to interpret bar code symbology, and bar code printers to reliably and accurately print bar codes on labels, cartons, and/or picking /shipping documents.

5.2.3 Challenges halting the growth and development of banking operations

The findings in the study indicates that difficulty in determining interest rates, this is also in line with Liu and Zhu (2006) who argued that credit is granted on faith and defined credit as “the ability of a business or individual to obtain economic value on faith, in return for an expected future payment”. Since trust is built on faith to commit and meet agreed financial obligations, trust, faith, respect and sometimes relationships are compromised if those obligations are not met. Not meeting the obligations is considered as default.

The study shows that ddifficulty in determining credit worthiness, this is also in line with Stiglitz and Weiss (1981 cited by Godquin, 2004) marked the beginning of attempts at explanations of credit rationing in credit markets. They asserted that “… interest rates charged by a credit institution are seen as having a dual role of sorting potential borrowers (leading to adverse selection), and affecting the actions of borrowers (leading to the incentive effect)”.

The findings in the study indicates that Presence of low income earners is abig challenges for Banks this is also in line with (Hahn, 2002) who states that presence of low income earners in an economy, low-income consumers are high-risk borrowers as this is attributed to inadequate income and lack of income security and hence making it difficult for them to make repayments on credit commitments. He further adds that this is compounded by the disproportionately higher cost of credit available to low income earners and lack of flexibility available to consumers who may experience temporary difficulty in maintaining repayments. However, he did not explain the extent of the relationship between poor loan assessment and low-income consumers.

The findings in the study indicates that Competition among financial institutions is a very big challenge for financial institutions this view is also shared by (Bofondi et al, 2003) who states that Competition among financial institutions, found that overwhelming banks competition in prices (interest rates) and moreover with imperfect knowledge of borrowers’ ability to repay their debts has accelerated poor loan assessments to potential borrowers.

5.3 Conclusion

The use of ICT in an organization like centenary Bank has led to globalization and connected departments within the Bank , Communication has becomes cheaper between the different departments, Computerization of organizational operations in achieving efficiency, Time saving of organizational operations and  Customer service has improved

The table above shows that the P value is P=0.002 which indicates that there is relationship between the independent and dependent variable.

The study also indicates that challenges with Difficulty in determining interest rates  are one of the main challenged faced by ICT in the Banking sector, Difficulty in determining credit worthiness and Presence of low income earners is abig challenges for Banks.

5.4 Recommendations

The study recommends that Centenary Bank should train some of its employees who are not well conversant ICT system to have knowledge on how to use ICT, this will enable the organization to fully benefit from the benefits of using ICT in the Banking sector.

According to the study there is a strong relationship between ICT and the growth and development of the Banking sector, this study that centenary Bank should fully implement ICT to other departments which donot have ICT.

The study also further recommends that Centenary Bank should ensure an effective way of determining interest rates and also ensure that there is effective way of determining credit worthiness in centenary Bank.

5.5 Area of study

The study recommends the following areas for further study;

• The benefits of the use of ICT in organizational activities
• The influence of ICT in organizational performance
• Techniques of enhancing performance of the banking sector

REFERENCES

Auditor General’s Reports (2010).

Bessant (1998) ‘learning to Use office 94 for CLAIT and IBTII ISBN 1098765432. Public Accounts committee report, (2010).

Chaffey, (2007) e-business and e-commerce management 3^rd edition. Prentice Hall.

Daily Monitor 30may 2011.

Ernst and Young. (2000). Fraud, the Unmanaged Risk and International survey .

Katzscan (1996). An Introduction to Supply Chain Fraud, Telephone: 954-942-4141 www.katzscan.com, www.supplychainfraud.com

Lysons (2000) Purchasing and Supply Chain Management.

Lysons and Gillingham, (2003) Purchasing and Supply Chain Management 6thedition Pranticehall ISBN 027365764 X.

National fraud authority (2011). Procurement Fraud in the Public Sector Public Procurement & Disposal of Public Assets (2003), Government printer, Entebbe. Public Procurement and Disposal of Public Assets Authority (2007),

Parliament of Uganda, the Public Accounts Committee (PAC) report (2010).

Parliament of Uganda, the Public Accounts Committee (PAC) report (2010). The special report

Saunders, M. (1997), Strategic Purchasing and Supply Chain Management. 2ndedition, Pearson, England.

The National fraud authority London (2010). Annual fraud indicator www.attorneygeneral.gov.uk.

The special report of auditor general on the Commonwealth Heads of Government Meeting (CHOGM) 2007 Kampala.

Training Manual. of auditor general on the Commonwealth Heads of Government Meeting (CHOGM) 2007 Kampala.

Weele (2005) Purchasing &Supply Chain Management: Analysis, Strategy, Planning and Practice, 4th edition. Prentice Hall.

Weele, et al (2010). Purchasing and Supply Chain Management: Analysis, Strategy, Planning and Practice (5th ed. ed.).

William Melody et al., Information and Communication Technologies (1986).

APPENDIX I: QUESTIONNAIRE

I am Kayunga Justsus a student of Kyambogo University, pursuing a degree, as part of the requirement for the award of completion of my course; I am carrying out a study on the impact of ICT on the growth and development of banking sector in Uganda a case study of centenary Bank.

You have been selected to take part in this study; the success of this study therefore depends on your kind cooperation. You are requested to answer the questions below according to the best of your understanding. The information given shall be treated with utmost confidentiality and used only for academic purpose.c

Kindly Tick and or fill in.

SECTION A-BIO DATA

1. Name (optional)………………………………………………

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

• Sex: a) Male b) Female

• Marital status: a) single b) Married c) Divorced

5. Educational Background

Master’s degree           Bachelor’s degree                   diploma                       others

6. For how long have you been working with Centenary Bank?

a)Less than 3 years                               c) 5-9years

b)3-5 years                                        d) 10 above

Section B: Specific Questions

Benefits of Information and communication technology in Banking at centenary

7) Has Centenary Bank benefited from the adoption of ICT in the Banking sector?

1. a) Yes b)No

8) If yes what are some of the benefits of using ICT in banking sector?

• It has promoted globalization and connected departments within the Bank

• Communication has becomes cheaper between the different departments

• Computerization of organizational operations

• Time saving of organizational operations

1. Customer service has improved

9) Others specify

…………………………………………………………………………………………………

Relationship between ICT system and growth and development in banking sector.

10). Does the growth in the use of ICT lead to the development of the banking sector?

Yes                                                                           No

11) If yes how has ICT led to the growth and development of the banking sector?

• Standardized accounting process in organizational activities

• Automation of organizational record keeping activities

• Improved accounting systems

• Faster information transfer

1. Better communication within the Banking sector

12) Others specify?

………………………………………………………………………………………………

Challenges halting the growth and development of banking operations

14) Does the Banking sector face any other challenges in its effort to grow and develop?

Yes                                                                           No

15) If yes what are some of the challenges halting the growth and performance of Banks?

1. a) Difficulty in determining interest rates

1. b) Difficulty in determining credit worthiness

1. c) Presence of low income earners

1. d) Competition among financial institutions
2. e) High level of risks involved in holding and lending credit

17) Others specify

………………………………………………………………………………………………………

THANKS FOR YOUR COOPERATION

APPENDIX II: INTERVIEW GUIDE

1. Does the use of ICT help centenary Banks in its business?
2. How has Centenary Bank benefited from the adoption of ICT in the Banking sector?
3. Has the use of ICT promoted globalization and connected departments within the Bank
4. How has the growth in the use of ICT led to the development of the banking sector?
5. Does the Banking sector face any other challenge in its effort to grow and develop?
6. What are some of the challenges halting the growth and performance of Banks?