EFFECTS OF ADOPTION OF TECHNOLOGY ON PERFORMANCE

OF DEPOSIT TAKING SACCO’S: A CASE OF K-UNITY SACCO,

KIAMBU COUNTY

BY

LUCY W. KARIUKI

UNITED STATES INTERNATIONAL UNIVERSITY – AFRICA

SUMMER 2019
EFFECTS OF ADOPTION OF TECHNOLOGY ON PERFORMANCE
OF DEPOSIT TAKING SACCO’S: A CASE STUDY OF K-UNITY
SACCO, KIAMBU COUNTY

BY

LUCY W. KARIUKI

A Research Project Report Submitted to the Chandaria School of

Business in Partial Fulfillment of the Requirements for the Degree of
Masters in Business Administration (MBA)

UNITED STATES INTERNATIONAL UNIVERSITY – AFRICA

SUMMER 2019
 STUDENTS DECLARATION

I, the undersigned, declare that this is my original work and has not been submitted to any
other, institution or university other than the United States International University-Africa
for academic credit.

Signed: Date:

Lucy W. Kariuki (Student ID: 636037)

This project has been presented for examination with my approval as the appointed
supervisor.

Signed: Date:

Dr. Joyce Ndegwa

Signed: Date:

Dean, Chandaria School of Business

ii
 COPYRIGHT

All rights reserved. This report may not be reproduced, stored in a retrieval system or
transmitted in any form by electronic or mechanical means without prior permission of
the author.

© Lucy Kariuki 2019

iii
 ABSTRACT

The study sought to establish the effect of adoption of technology on performance of

Deposit Taking Saccos with reference to K-Unity Sacco. To fulfil this purpose, the study
addressed three research objectives; to establish the effect of mobile banking on
performance of Deposit Taking Saccos in Kenya, to determine the effect of loan
management system on performance of Deposit Taking Saccos in Kenya and finally, to
assess the effect of digitization of operations on performance of Deposit Taking Saccos in
Kenya.

Descriptive research design was adopted using quantitative and qualitative approach to
data collection, analysis and reporting. Using census sampling, the study was based on a
census of 95 employees at K-Unity Sacco as at 31st January 2019. A structured
questionnaire administered to all the staff was used to collect primary data. Additionally,
secondary data covering three years on performance (return on equity and return on
assets) of Deposit-Taking SACCOs was· collected. Descriptive statistics were utilized in
providing simple summaries about the sample and measures. While simple linear
regression models were applied on the quantitative data to generate coefficients and their
corresponding t-statistics and p-values used to test hypotheses, qualitative data from the
questionnaires was analyzed using content analysis.

The research findings regarding the first objective revealed that the relationship between
mobile banking and financial performance was positive and statistically significant.
Findings about the second research objective indicated the correlation between loan
management system and financial performance was positive, moderately weak but
statistically significant. Whereas, the regression coefficient for adopting loan
management system was statistically significant. Lastly, the correlation between
digitization of Sacco operations and financial performance was found to be positive,
relatively strong but statistically significant. The regression coefficient for digitization of
Sacco operations was also statistically significant.

The study concluded that the utilization of mobile communication services particularly
mobile messaging, mobile call and mobile chatting services by Deposit-Taking SACCOs
enhances their performance. The study further concludes that loan management system

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had enhanced capabilities of the borrower in ensuring effective loan management and
creating a positive customer experience.

The system also allowed Sacco staff members to have a better overview over customer
structure, loan- and savings portfolios. Lastly, the study concludes that full automation of
Sacco activities can play a significant turnaround role for Saccos in terms of cost
reduction, improved customer experience, credit risk mitigation, transparency and
strengthened confidence among stakeholders in the vital Sacco industry.

On the first objective, it is recommended that Deposit Taking Saccos should go beyond
mobile banking and appreciate the role of Internet banking which can enable their
customers to conduct financial transactions through the Sacco’s website on the Internet.
On the second objective, the study recommends the need for the Deposit Taking Saccos
to invest in technological advancement by equipping their staff with technical skills and
also providing them with the necessary facilities. On the third objective, the study
recommends that DTS should adapt the cloud loan management systems to further
improve the quality of their working and bring in a new dimension in the financial sector.
Urgently, there is need to strengthen the security capabilities of these system to ensure
maximum protection from vulnerable attacks.

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 ACKNOWLEDGEMENT

I acknowledge the continuous support from my supervisor, Dr.Joyce Ndegwa, throughout

the course of writing the research project. I would also like to thank my respondents who
participated in the study. Finally, I thank God for granting me good health, resources and
the determination to complete this project.

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 DEDICATION
This research project is dedicated to my parents and family who emphasized the value
and importance of education. Their personal sacrifices towards achieving my goals has
been an inspiration to work hard, set high goals and motivate myself in achieving them.

vii
 TABLE OF CONTENTS

STUDENTS DECLARATION ........................................................................................ ii

COPYRIGHT ................................................................................................................... iii
ABSTRACT ...................................................................................................................... iv
ACKNOWLEDGEMENT ............................................................................................... vi
DEDICATION................................................................................................................. vii
LIST OF TABLES .............................................................................................................x
LIST OF FIGURES ......................................................................................................... xi

CHAPTER ONE ................................................................................................................1

1.0 INTRODUCTION...................................................................................................1
1.1 Background of the Study ..........................................................................................1
1.2 Statement of the Problem ..........................................................................................7
1.3 General Objective of the Study .................................................................................8
1.4 Specific Objective of the Study ................................................................................8
1.5 Significance of the Study ..........................................................................................9
1.6 Scope of the Study ..................................................................................................10
1.7 Definition of Terms.................................................................................................10
1.8 Chapter Summary ...................................................................................................11

CHAPTER TWO .............................................................................................................12

2.0 LITERATURE REVIEW ....................................................................................12
2.1 Introduction .............................................................................................................12
2.2 Effect of Mobile Banking on Performance .............................................................12
2.3 Effect of Loan Asset Management System on Performance ..................................17
2.4 Effect of Digitization of Sacco’s Operations on Performance ................................21
2.5 Chapter Summary ...................................................................................................27

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CHAPTER THREE .........................................................................................................28
3.0 RESEARCH METHODOLOGY ........................................................................28
3.1 Introduction .............................................................................................................28
3.2 Research Design......................................................................................................28
3.3 Population and Sampling Design ............................................................................29
3.4 Data Collection Methods ........................................................................................30
3.5 Research Procedures ...............................................................................................31
3.6 Data Analysis ..........................................................................................................31
3.7 Chapter Summary ...................................................................................................31

CHAPTER FOUR ............................................................................................................33

4.0 RESULTS AND FINDINGS ................................................................................33
4.1 Introduction .............................................................................................................33
4.2 Demographic Information .......................................................................................33
4.3 Mobile Banking and Performance among DTS ......................................................40
4.4 Loan Management System and Performance among DTS .....................................44
4.5 Digitization and Performance among DTS .............................................................48
4.6 Chapter Summary ...................................................................................................52

CHAPTER FIVE .............................................................................................................53

5.0 DISCUSSION, CONCLUSIONS, AND RECOMMENDATIONS .......................53
5.1 Introduction .............................................................................................................53
5.2 Summary .................................................................................................................53
5.3 Discussion ...............................................................................................................54
5.4 Conclusion ..............................................................................................................61
5.5 Recommendation ....................................................................................................62

REFERENCES .................................................................................................................65
APPENDICES ..................................................................................................................77
APPENDIX I: COVER LETTER ..................................................................................77
APPENDIX II: QUESTIONNAIRE ..............................................................................78
APPENDIX III: SECONDARY DATA COLLECTION SHEET ...............................82
APPENDIX IV: NACOSTI RESEARCH AUTHORIZATION LETTER ................84

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 LIST OF TABLES
Table 4.1: Response Rate ...................................................................................................33
Table 4.2: Descriptive Results Mobile Banking and Performance of DTS .......................41
Table 4.3: Correlation Between Mobile Banking and Financial Performance ..................42
Table 4.4: Model Summary Mobile Banking ....................................................................43
Table 4.5: ANOVA For Mobile Banking ..........................................................................43
Table 4.6: Mobile Banking Regression Coefficients .........................................................44
Table 4.7: Descriptive Results Loan Management System ...............................................45
Table 4.8: Correlation Between Loan Management System and Financial Performance .46
Table 4.9: Model Summary For Loan Management System .............................................47
Table 4.10: ANOVA For Loan Management System .......................................................47
Table 4.11: Coefficients For Loan Management System ..................................................48
Table 4.12: Descriptive Results For Digitization of Sacco ................................................49
Table 4.13: Correlation of Digitization of Sacco Operations against ROA, ROE. ...........50
Table 4.14: Digitization of Sacco Operations ....................................................................51
Table 4.15: ANOVA For Digitization of Sacco Operations ..............................................51
Table 4.16: Regression Coefficients For Digitization of Sacco Operations ......................52

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 LIST OF FIGURES
Figure 4.1: Gender of Respondents ...................................................................................34
Figure 4.2: Age of Respondents.........................................................................................34
Figure 4.3: Academic Qualifications .................................................................................35
Figure 4.4: Work Experience .............................................................................................36
Figure 4.5: Duration For Applying IT ...............................................................................36
Figure 4.6: Automation ......................................................................................................37
Figure 4.7: ICT Budget For 2017 ......................................................................................37
Figure 4.8: ICT Budgetary Allocation For 2020 ...............................................................38
Figure 4.9: ICT Supplementary Budget FY 2020 ..............................................................38
Figure 4.10: ROE and ROA ...............................................................................................39
Figure 4.11: Dividends FY (2014-2018) ...........................................................................39

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 CHAPTER ONE

1.0 INTRODUCTION
1.1 Background of the Study

The current turbulent environment has made organizations to adapt to the new
technological revolutions taking place across the globe (Mutuku, 2014). Specifically, the
technological advancements have made it possible for information to be transmitted
easily and at a faster rate than before. As a result, traditional methods of marketing have
been overtaken by new forms of digital advertising which has led to increase of consumer
awareness due to the access of internet services (Odun & Utulu, 2016).

Consequently, the adoption of these new technologies has had a positive impact on the
overall performance of the firm as they have recorded growth in every aspect. However,
Passaris (2006) notes that understanding the importance of the adoption of the new
technologies in every aspect of business are still a new concept to some firms. Some firms
shy away from adopting the technology owing to the heavy financial implication it will
have on the financial capability of the company. On the other hand, some companies have
experienced resistance to change by their employees as some perceive the adoption of the
technologies is a way of replacing their services. The realization of the benefits accrued
from the adaptation of the technological innovation can only be realized if the players
involved are well informed of the overall good of the new change (Gondat, 2014).

It is of utmost importance for the different stakeholders in a business environment to

understand the importance of Information technology. Researchers across the globe have
shown great interest with regards to the adoption of technology by different organizations
in different sectors of business (Allen, 2013) .The firms need to analyze the technological
gaps in their sector before they decide to adapt and invest in that technology in a bid to
gain competitive advantage. Furthermore, the firms need to come up with ways of
implementing change and understand the acceptance process by the employees and more
so the factors that are essential in making the process effective. It is upon the management
of the firms to effectively communicate to the employees the benefits of the adoption of
the different technologies (Birch & Young, 2012).

1
The impact of using the new forms of technology in the financial sector has led to
immense improvement not only efficiency but also overall performance of the financial
institutions. In India, the use of internet banking was found to substantially increase the
amount of deposits collected by the financial institutions. It also led to lower operational
expense in terms of building and equipment as well as increase in service performance. In
Europe the introduction of electronic banking systems and internet banking technologies
has revolutionized access to the financial services. This has depicted the benefits that the
customers can accrue by having these services at their disposal (Garg, 2014).

Performance is defined as the act of performing a task and awaiting positive end results
(Jenatabadi, 2015). It can also be defined as the outcome of work that has been in an
organization based on the firm’s vision, mission, and strategic goals. Moreover, it can be
based on the business’s position in the industry, financial contribution and the relation the
firm has with its customers. There are two distinct categories in which companies can
benchmark their performance namely strategic performance and financial performance.
Audebrand and Morin (2013) posit that organizational performance is generally assessed
with financial indicators such as return on investment or profit per share. Due to the
turbulent nature of the business environment and heightened competition, companies are
forced to adapt and ensure that they can maximize on what they have without having a
huge financial impact on the company (Romdhane & Erragcha, 2014).

Savings and credit cooperatives (SACCO’s) are an association of people belonging to a

group or community who have come together with a common goal of improving their
livelihood in an economic aspect. The first cooperative society was formed in 1840 in
England when Britain was undergoing industrial revolution in a village called Rochdale
by a group of people known as the Rochdale pioneers (Ridley-Duff, 2008). The aim of
the movement was to promote and defend the interests of the working class during the
industrial revolution. In the 1860’s a second generation of pioneers emerged, and they
created the agricultural cooperatives Savings and Credit which had been inspired by the
need of farmers to raise and organize their supply of agricultural inputs and market them.
This enabled them to be independent and not to rely on moneylenders in the big cities as
they could access the necessary credit (Blumberg, 2014).

2
The idea of cooperatives was started in Ghana in 1955 in a small town known as Jirapa by
a Roman Catholic Priest who had learnt about Savings and Credit Societies in Canada.
The movement helped the members to solve their financial issues which they couldn’t
solve individually (Credit Co-operative Movement, 2006). In Kenya the cooperative
movement was stared in 1931 when the cooperatives were regularized. In 1945, the
cooperative ordinance act was enacted due to the numerous interventions by different
stakeholders and in 1977; the current cooperative society act Cap 490 of the Kenyan law
was amended (Lagat, Mugo, & Otuya, 2013). The act stipulates that for a society to be
registered it has to have at least ten members in which most belong to a community who
undertake similar economic activities. The key requirement to be a member is that you
must provide financial resources where the pool of funds is used to give loans to the
members at an affordable interest. Some of the commercial banks in Kenya like Equity
bank, Family bank and Unaitas all started out as Sacco’s (Bruett, 2011).

Romdhane and Erragcha (2014) use a sample size of fifteen Tunisia based banks to
evaluate the impact information and technology on performance. The study establishes a
positive link between investment in IT and performance of commercial banks. In
Southern Nigeria, Ugwuanyi (2017) assesses the effect of information and
communication technology on the economic activities of cooperative societies. The study
utilizes primary data which was gathered through interviews, questionnaires, and focus
group discussion. Analysis of findings was based on descriptive statistics. Overall
findings confirmed a positive association between information and technology and
performance of cooperative societies.

Baryamureeba (2014) focused on the role of technology on enhancing service delivery in

Rwanda based SACCOs. The study establishes that IT helps in cost reduction while at the same
time enhancing service delivery. Moreover, Technology enables provision of electronic
services (e-services) and it can be deployed in several ways. Ngando (2017) evaluated the
contribution of the technology advancement on improving the performance of
commercial Bank in Tanzania. On the above mentioned parameters, primary date was
collected through questionnaires for 300 respondents. The research found that there has
been significant challenges among people as recognized and proved by an increase in
income employment level saving and assets ownership to them in which case Technology
and Commercial Bank has resulted.

3
Wachira, Muturi, and Jerotich (2014) focused on establishing the effect of ICT adoption,
size and product diversification on the financial performance of SACCOs. Descriptive
research design was used targeting both deposit and non-deposit taking SACCOs in
Nairobi County which were 45 and 1000 respectively. Purposive sampling technique was
used in selecting 40 SACCOs and secondary data collected from their financial
statements. The results indicated that an increase in ICT adoption led to an increase in
SACCOs financial performance. Adoption of ICT resulted to the improvement in
payments, processing or reduction in service time due to the new ways to deliver financial
services electronically to customers. However, regulatory restrictions and requirements
hindered the effect of ICT adoption on performance. Thus seconding previous findings by
Ocheing’ (2017) who observed that approximately 80% of the Sacco’s had not fully
complied with the Societies’ Act of 2008.

Another local study by Momanyi, Osoro, Nyago, and Odoyo (2014) assessed the
influence of information technology in enhancing sustainable competitive advantage. It
was carried out on 31 registered SACCOs in Kisii County. It sought to determine the
extent to which SACCOs have invested in IT, competitive strategies adopted and extent
to which increased IT use has led to sustainable competitive advantage. Rorogu and Bett
(2018) sought to assess the application of mobile infrastructure, enterprise resource
planning, e-mail services and database management systems on performance of tea
processing companies in Kericho County. The research targeted Tergat tea processing
company with a total of 164 employees, Momul 152, Litein 95 and Chelal 89. The
researcher used Stratified Random Sampling and Systematic Sampling procedures and
data collection was done through Questionnaires and Interview The outcome from the
field study clearly showed that the use of ERP on profitability was excellent to the extent
of 40%, 25% of the respondent confirmed that the use was good but a minority of 5%
confirmed the contrary, that is, poor. 85% of the respondents supported the fact that the
effect of mobile technology on profitability was good was 15 % contested with that.
Mobile technology was found to have an excellent impact on the sales. The findings
implied that, 90% of the respondents confirmed that computers had an impact on
profitability.

4
Muchangi, Waithaka, and Mawathe (2018) sought to investigate the effect of mobile
communication services on performance of Deposit-Taking SACCOs in Kenya.
Descriptive and explanatory research designs were adopted using quantitative and
qualitative approach to data collection, analysis and reporting. The study used a sample of
86 Deposit-Taking SACCOs drawn from a target population of 110 Deposit-Taking
SACCOs that were licensed by SACCO Societies Regulatory Authority as at 31st
December 2011. A structured questionnaire administered to two managers (from
information technology and finance departments) in each SACCO was used to collect
primary data. Inferential analysis revealed the existence of statistically significant positive
effect of mobile communication services on performance of Deposit-Taking SACCOs in
Kenya.

Unlike most commercial banks in the country, the Sacco movement is the country is yet
to adapt to the new banking technologies which involve agency banking, internet
banking, or mobile banking (Ngure, Kimani, & Kariuki, 2017). A recent survey by The
Brookings Institute regards Digital Finance Service in Kenya as a success story where
there is the innovative use of mobile phone technology that drives financial inclusion in
the country (Villasenor, West, & Lewis, 2016). The blueprint that holds the country’s
vision 2030 encompasses the financial sector where development will be brought about
by providing affordable services to the citizens. The cooperative movement which has
tapped most of the citizens is the future hope of revolutionizing the industry by use of the
technology (Donner, 2005).

Following the supervision of Deposit-Taking SACCOs by SASRA, improved

performance has been recorded in the sector. According to SASRA (2013) report, total
assets have increased to KShs 241.6 billion in December 2013 from KShs 134 billion in
December 2008. Turnover from SACCOs has also grown to KShs 33.7 billion in
December 2013 from KShs 15.7 billion in 2008. Improved performance of Deposit
Taking SACCOs has been attributed to key prudential norms and operational
requirements expected of them by SASRA. The loans and advances stood at KShs 223.2
billion Kenyan shillings as at December 2014 and constituted 75.8 percent of total assets
of Deposit-Taking SACCOs (SASRA, 2014). For instance, a study by Mutinda (2016)
found that the application of prudential regulatory requirement was even among all the
SACCOs in Kenya. The study further found the implication of loan provisioning

5
requirement was highest in influencing financial performance of SACCOs in Kenya. The
four independent variables were found to have a positive relationship with return on
investment. Liquidity requirement was however found to have the least impact on
financial performance on Deposit Taking SACCOs in Kenya holding the other variables
constant.

The loans and advances portfolio have been financed principally by deposits to the tune
of 90.1 percent, and thus reinforces the Deposit-Taking SACCOs' model of mobilizing
deposits for on-ward lending. However, a portion of the loans and advances provided by
Deposit-Taking SACCOs is financed through external borrowings (Ngure, Kimani, &
Kariuki, 2017). Mwangi and Genga (2019) observe that the growth in Deposit Taking
Saccos cannot be directly linked with technology since most of them are yet to fully
automate their operations. Nevertheless, Deposit-Taking SACCOs still experience
performance challenges. They continue to face stiff competition from other institutions in
deposit-taking business particularly commercial banks (Matumo, Maina, & Njoroge,
2013; Buluma, Kung’u, & Mungai, 2017). They still have a problem of non-performing
loans which was recorded at 4.7 percent in 2013 and 5.73 percent in 2014 (SASRA,
2014). Additionally, many SACCOs have not yet managed to comply with capital
adequacy ratios as was observed by SASRA (2013, 2014). Deposit Taking SACCOs in
Kenya have also been facing an increase in the level of non-performing loans with the
trend likely to worsen as the demand for loans rise (SASRA, 2014). For instance, the
level of non-performing loans increased by 5.73 percent between the year 2013 and 2014
(SASRA, 2014).

K-Unity Sacco previously known as Kiambu Dairy and Pyrethrum Society was formed by
Dairy and pyrethrum farmers in Kiambu County in 1974. It was an amalgamation of the
respective societies in a bid to provide a platform where their farmers could be paid
through and also get financial assistance. K-Unity has a presence in five counties with
fifteen branches and its core business is to offer credit facilities to its business that not
only include the farmers in all areas such as tea and coffee but now include business
players and salaried employees (K-Unity, 2017). In a bid to adapt to the changing
technological environment and serve its customers better, K-Unity has partnered with
Cooperative bank to offer Sacco link ATM cards where the customers can withdraw
money at the bank’s ATM machines. Moreover, the Sacco launched the mobile platform

6
where the consumers can withdraw and deposit money through the mobile phones. The
benefit of initiative is confirmed by Gachara (2018) who acknowledges technology as
among the key factors that have influenced good performance at K-Unity Sacco.

1.2 Statement of the Problem

Courbe (2016) writes that technology has spurred significant changes in the financial
sector over the last decade. As a result, business leaders have turned to Information
Technology as a tool to enhance efficiency and sustainability of their enterprises. Cost
reduction in business operations as another ingredient associated with IT disruption in the
financial sector. Meanwhile, customers are now aware of their expectations, demanding
better products, superior service delivery and guaranteed value for their money.
Regulators demand more from the industry too, and have started to adopt new
technologies that will revolutionize their ability to collect and analyses information
(Biwott & Nyakang’o, 2017).

In Kenya for instance, the banking sector has experienced intense competition where each
financial institution puts systems in place to ensure it survives the technological
disruptions that are taking place (Mohamud & Mungai, 2019). The firms ensure that they
guard their businesses to keep afloat and reduce the various risks that are a result of the
new innovations and technology (Space, 2015). Commercial banks for instance have
embraced various technologies such as Internet banking, mobile banking, agency
banking, real time gross settlements and ATM services. This in turn has tremendously
improved the overall performance of these institutions as there was a profit of over 48
billion in 2015 indicating a 14.3% when compared to 2014.

Moreover, the banks have come up with phone applications that consumers can download
and use it to pay their bills, transfer money to other bank accounts and even borrow loans
through their phones (Daneshvar, & Ramesh, 2012). The income generated from this is
high as people tend to transact more often as they are not limited to the banking hours.
The customers also don’t have to make long queues in the banks in the name of accessing
their accounts. It has proved to be of benefit to the banks as they have lowered costs as
they do not open new branches and hire more employees but instead they have invested in
technology (Bojanova, 2014). On the other hand, although Sacco’s have diversified their
products, they still use the traditional ways of banking which is proving to be a challenge

7
as the same customers have access to the digital banking services offered in the banks.
Furthermore, the birth of mobile lending apps in the country has presented stiff
competition for Saccos which have been slow in adopting new technology (Wambu,
2019).

Literature that has been reviewed at a local context linked technological adoption to the
performance of an organization presented gaps in a conceptual, contextual and
methodological context (such as; Mutevu, 2015; Wanyoro, 2017; Must & Ludewig, 2014;
Mugo, Muathe & Muchangia, 2018). For instance, a methodological gap was established
through a case study of National Bank of Kenya where there was an assessment of the
factors that affected deposit mobilization by bank agents. A contextual gap was
established through a study of Mediamax Network Limited that investigated marketing
strategies and its effect on performance. According to Benkler (2016) evaluated the role
that innovation strategy plays on the performance with regards to insurance penetration in
the country.

Although the above studies have been researched in different contexts with regards to the
adoption of technology and how it affects performance, none has focused on how
technology adoption in deposit taking Sacco’s in Kenya affects performance. Therefore,
the study sought to establish the effects of adoption of technology on performance with
regards to K-Unity Sacco in order to fill the gap.

1.3 General Objective of the Study

The main aim of this study was to evaluate the effect of adoption of technology on
performance of Deposit Taking Saccos, a case of K-Unity Sacco, Kiambu County.

1.4 Specific Objective of the Study

1.4.1 To establish the effect of mobile banking on performance of Deposit Taking
Saccos in Kenya.
1.4.2 To determine the effect of loan management system on performance of Deposit
Taking Saccos in Kenya.
1.4.3 To assess the effect of digitization of operations on performance of Deposit
Taking Saccos in Kenya.

8
1.5 Significance of the Study
1.5.1 Savings and Credit Cooperative Society

The study contributes knowledge to the different Sacco’s regarding the utilization of the
digital platform and how it can contribute to the maximization of profits in the
organizations. The ultimate existence of every financial organization is to grow the
shareholders wealth and maximize their profits and this can be done by studying what
other financial entities namely banks do in the current market setup. It is an opportunity
for the Sacco’s to embrace technology as the customers are technologically advanced
through interactions in other advanced industries.

1.5.2 Information Technology Companies

The Study assists the technological companies that deal with the creation and formation
of the different applications that are used in the financial sector to come up with
innovations that are affordable.

One of the reasons why the different Sacco’s do not invest in this type of technology is
because it’s very expensive and since technology keeps changing it’s a waste of resources
to invest in them every time. Moreover, the companies can come up with innovations that
are customer based hence there is a ready market for their products. As a result, the
microfinance industry in the country and other affiliated firms will derive great benefit
from the study

1.5.3 Researchers and Future Scholars

Fellow academicians and researchers who wish to uptake additional research in the area
will greatly contribute to the present study of the influence of the digital platform on
profitability in deposit taking Sacco’s and provide sufficient knowledge and will be a
source of reference to other researchers. The study facilitates individual researchers to
identify gaps in the current research and carry out research in those areas, the work will
also be used by academicians who will want to study similar area.

1.5.4 Policy Makers

Policy makers in the government can gain understanding on the effects that adoption of
technology has on performance of Sacco’s. This remains instrumental in identifying areas
that need reforms and in the making of policies that are favorable in the investment of IT

9
infrastructure in the country. The findings can also compel the national assembly to pass
favorable bills that can enhance the use of ICT as part of the financial deepening strategy
which goes hand in hand with the realization of the famous Vision 2030.

1.6 Scope of the Study

The research study focused on K-Unity which is a Deposit Taking Sacco’s in Kiambu
County centering on the adoption of technology and how it affects performance. The
target population was the ninety five employees in the Sacco’s branches and the head
office. The research was conducted during the first quarter of the Sacco’s financial year
and the study entailed collecting knowledge from the employees of the K-Unity Sacco in
Kiambu County through the use of questionnaires which were administered through
Survey Monkey. Moreover, the study helps the different stakeholders who include the
management staff and directors in investing on technology as this is the current trend in
the external business environment. It also builds a platform to understand the benefits that
the organizations can have as it a means of expanding their business and customer base
and ultimately maximize on profits which is the primary goal of any organization.

1.7 Definition of Terms

1.7.1 Mobile Banking

It is defined as a system in financial institutions that allows its customers to access

financial services through the use of a Tablet or a mobile phone (Telstra, 2017).

1.7.2 Loan/Asset Management System

Computer based application system that automates loan management; the servicing and
management of lending portfolios on a single platform (Sofika & Meka, 2014).

1.7.3 Digitalization of Operations

Deployment of the latest automation technologies for better service delivery and cost
effectiveness within Deposit Taking Saccos (Berruti & Weiberg, 2017).

10
1.7.4 Performance

Performance is described as the results or outcome that comes from work which is usually
associated with an organization’s strategic goals, customer satisfaction and the
contribution made by the economy (Hernando, 2016).

1.8 Chapter Summary

This chapter presents the introduction to the study by presenting the research topic and
giving background information to the problem statement. The objective of the study was
adequately represented which was to evaluate the effect of adoption of technology in
deposit taking Sacco’s a case study of K-Unity Sacco. The scope of the study and the
definition of terms were also covered in the chapter. The second chapter covers the
literature review which examines past studies on the effect of mobile banking, loan
management system, and the operational digitization on performance in financial
institutions. Chapter three focuses on the research methodology used while chapter four
focuses on the interpretation of the findings of the study. Chapter five focuses on the
summary findings, discussion, findings and conclusion of the study.

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 CHAPTER TWO

2.0 LITERATURE REVIEW

2.1 Introduction

Literature reviews encompasses the broad review of information with regards to the topic
of study. The chapter discusses the various studies in relation to the adoption of
technology across the globe and how it relates to performance of an organization. The
discussion was tailored on the research questions discussed in chapter one having a
background of a global context of the rise and adaptation of technology in the financial
sector.

2.2 Effect of Mobile Banking on Performance

This section reviews relevant literature related to the role and the impact of mobile
banking on the performance of Deposit Taking Saccos. In order to accomplish the
objective, the section focuses on key segments of mobile banking; credit application,
lending processes, and financial integration.

2.2.1 Credit Application Processes

The credit application is the primary step in the credit management process. Regardless of
the size and purpose of the loan a loan application is required (Purohit, Mahadevan, &
Kulkarni, 2012). Though it may appear as simple questions to the applicants they should
understand the importance of the document. The application documents contain detail
information about the applicant. The information among other things include name of the
applicant, address, residential address, age, telephone number, marital status, number of
dependents, educational background, hometown, the type of business, business location,
number of years in business, reasons for the loan, amount required, the repayment period,
security pledge if any and guarantors. Okiro and Ndung’u (2013) posit that customers
today want different options for loan repayment. The application systems helps customers
multiple repayment modes like cash, PDC, electronic payments and standing instructions.
Besides, Batch processing makes the repayment management process simple and
efficient.

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Kiplang’at and Omar (2016) adds that banks’ attention should focus on understanding
customer behavior and designing reliable mobile banking system that will meet their
needs and provide useful and quality services. In addition banks should focus on
communicating information that emphasizes the relative advantage and usefulness of
mobile banking compared to other banking channels like physical presence to the bank or
using ATM machines. Banks must seek to reduce risk perceived by their customers by
offering specific guarantees protecting them and taking their complaints seriously and
urgently.

Ching (2011) examined the relationship between constructs of perceived innovativeness,

perceived ease of use, social norms, perceived risks and perceived relative advantage
towards behavioral intention in adopting mobile banking. The findings of this study
revealed that perceived usefulness, perceived ease of use, relative advantage, perceived
risk and personal innovativeness were the factors affecting the behavioral intention of
mobile user’s to adopt mobile banking services in Malaysia. Social norms were the only
factor found to be insignificant in the study. Another study in Sudan by Karma (2014)
revealed that customer’s intention to use m- banking in Sudan is influenced strongly by
perceived trust, perceived ease of use and perceived 14 risk. Perceived usefulness was
found to have no influence on the intention to use m-banking services among bank
customers of Sudanese banks.

Another survey by Ritho and Jagongo (2015) sought to assess the link between mobile
banking and financial performance within the 43 commercial banks of Kenya. The study
took a descriptive survey design. The population of the study was the 43 commercial
banks in Kenya targeting all information technology managers of the commercial banks
in their headquarters in Nairobi. Questionnaires were used for data collection in a drop
and pick system. From the findings and summary the study concludes that the prices of
M-banking services had a high positive influence on the financial performance of
commercial banks in Kenya. M-Banking helped to promote efficiency and confidence in
the financial system thus winning public trust. The study also concludes that Security and
Speed through M-banking had a positive impact on the financial performance of
commercial banks in Kenya with many of the baking institution recording high amount of
deposits and thus creation enough pool of for willing investors to borrow thus increased
profits.

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Utilizing descriptive design, Mutindi (2017) sought identify and investigate the factors
which influence customers’ decision to use mobile banking in Kenya with a particular
interest in Machakos town. The study targeted a population of 116,800 bank customers
from three commercial banks purposively selected for this study, from which a
convenient sample of 399 customers was selected. An analysis on the association between
the bank factors, individual customer characteristics and availability of infrastructure
(independent) and Mobile banking adoption established that there is a strong positive
correlation between bank factors, individual customer characteristics. Wechuli,
Wabwoba, and Wasike, (2017) reviews the cyber security challenges to mobile banking
and ways which SACCOs minimize the impact. Findings indicate that some mitigation
strategies to cyber threats to mobile banking are in place though they seem not to address
the major challenges.

Haider, Manzoor, Sumra, and Abbas (2011) carried out a study on the impact of e-
banking on the profitability of twelve Pakistani banks. The results showed that e-banking
has increased the profitability of banks; it has enabled the banks to meet their costs and
earn profits even in the short span of time. The illiteracy of customers is not regarded as a
major impediment in provision of their products and services. Kingoo (2011) asserts that
for banks, the main motive to adopt e-banking is to increase their clientage and to retain
their customers. A study by Miayo (2013) revealed that fees and commission from debit
cards, credit cards and mobile banking has a significant effect on returns on asset whereas
fees and commission from internet banking as well as the amount of money that
commercial banks invest in electronic banking to install, train staff and maintain the
platforms has no or minimal effect on return on assets.

2.2.2 Mobile Lending Processes

Masinge (2011) defines mobile lending as the process whereby a customer of a financial
institution applies for a loan and gets approval on a mobile phone without physically
visiting the branch. The concept of mobile banking is based on the theory that
commercial banks use this technology with an aim of getting more profits where they
incorporate new technologies with their financial services through mobile phones to serve
the customers better (Kathuo, 2015). Innovation diffusion theory asserts the innovation of
mobile lending came as a need to continue the delivery of financial services.

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Njenga (2012) elucidates that in the recent times the concept of mobile banking has
acquired significant acceptance especially by the low-income earners who previously
could not get access to credit. The commercial banks have used this platform as the new
strategy to get access to this untapped market. This form of loan issued by the use of
mobile phones is seen to be more convenient as there are no stringent measures when it
comes to the application and disbursement of the loans. Unlike the other form of loan
services offered by the financial institutions that have inhibitors such as introducers and
collateral, the mobile loans are being preferred as they are easy to get (Beshouri, 2013).

The mobile phone acts as the channel through which transactions are conducted and
mobile lending is measured by the number of mobile loans. Mobile lending is measured
by the total number of loans issued through the mobile phone, the loan interest from the
mobile loans, the transaction cost and the average lending rate. M-Shwari is a product
offered in Kenya by Commercial Bank of Africa and telecommunication giant Safaricom
which has revolutionized the financial sector (Allen, 2013). The ‘M’ stands for mobile as
the operations of the product are through the mobile phone while ‘shwari’ is a Swahili
word standing for smooth or good. The loan services are offered to the M-Pesa customers
which are a reliable, efficient and cost-effective way of encouraging people to save up
and get value for their money. The features of the loan include accessing loans from as
low as 100kshs to a maximum of 50,000kshs with a repayment period of one month. The
interest levied is a one-off charge of 7.5% of the amount borrowed and the qualification
being an M-Pesa subscriber for at least six months and using the other Safaricom services
(Allen, 2013).

Barclays Bank of Kenya in the month of March 2018 launched a new mobile lending
application dubbed Timiza which is the latest entrant into the new market for mobile
lending by financial institutions (Miururi, 2019). Other financial players in the country
such Equitel by Equity Bank, M-Co-op cash by cooperative Bank and KCB have
maximized on returns by offering this services to the consumers. The mobile loan is a
strategy by Barclays bank to grow its profits as it closed seven of its branches in July
2017 citing market realities. The loans are cheaper as compared to M-Shwari as the
interest is a one-off facilitation fee of 5% and an interest rate of 1.17% to be repaid in a
period of 30 days.The amount borrowed is from a minimum of 100ksh to a maximum of
150,000ksh (McGovern, 2015).Other plays within the fitech industry include Tala

15
(formerly Mkopo Rahisi), Branch Opesa, Okesha, among other hundreds of mobile
lending apps.

Ozili (2018) asserts that mobile lending has more benefits to the financial institutions as
more mobile transactions lead to more profits as there is a wide customer base due to lack
of geographical barriers. The financial bodies have invested heavily in technology as this
is the future for the sector as they move away from the traditional ways of banking
(Batista & Vicente, 2013).The Sacco’s can leverage on technology and invest on having
mobile lending as part of their core business by ensuring they offer affordable loans to the
customers. As noted earlier, the Sacco’s have access to most of the population in the rural
areas meaning there is a ready market for them and they can be able to maximize on
profits.

2.2.3 Mobile Banking on Financial Integration

Gathoni and Obwogi (2017) argue that Mobile money providers have partnered with
commercial banks in Kenya to offer mobile based financial products that aim to reach the
unbanked. However, as compared to commercial banks in Kenya, the penetration of M-
banking in SACCOs has been very slow. Ngumi (2013) deployed descriptive survey
design in examining the influence of bank innovations on income of commercial banks in
Kenya. A moderate association between bank innovation and consequent financial
performance was found. They recommended that banks should continue investing in
innovative delivery channels as these will improve their cost control strategies and hence
improvement in the bank’s financial performance. The main shortcoming to this study is
that conclusions were based on primary data thus limiting the scope of generalization.

Nzombo, Kilika, and Maingi (2017) applied exploratory design in evaluating the effect of
branchless banking on the financial performance of commercial banks in Kenya. A
survey of all the 42 licensed commercial banks in Kenya was done. Study findings
indicated that when used in isolation; both agency and electronic banking had a
significant negative effect on the financial performance of commercial banks at 5 percent
significance level. However, when agency and electronic banking channels were used
together as a multichannel strategy, they had a significant positive effect on bank’s
financial performance at 5 percent significance level.

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Firdous and Farooqi (2017) examined the impact of internet banking service quality on
customer satisfaction. An exploratory survey with the help of a Likert based questionnaire
was conducted to investigate the impact of Internet Banking service quality on customer
satisfaction in New Delhi. Judgmental and convenience sampling was used and various
kinds of internet banking customers were approached in New Delhi. Data were collected
from a sample of 194 internet banking customers. The result implicated that the internet
banking service quality dimensions have a significant impact on the customer satisfaction
of internet banking customers. Each of the dimension namely efficiency, system
availability, fulfillment, privacy, contact, responsiveness and contact individually
contributed 70% to the overall customer satisfaction in internet banking.

2.3 Effect of Loan Asset Management System on Performance

Computerization and the general use of computer systems and softwares is an increasing
trend in microfinancial institutions. Therefore, this section reviews previous and existing
studies on this subject with primary focus on credit assessment processes, credit
monitoring processes, and credit recovery processes.

2.3.1 Credit Assessment Processes

Credit risk simply means the risk of default as a result of a borrowers’ failure to repay the
loan taken from a financial institution (Addae-Korankye, 2014). Appropriate assessment
of a customer determines the financial situation and also helps to measure capability of
the customer to repay the loan when due (Tsai, Li, Wu, Zheng, & Wang, 2016). This
involves the authentication of primary and collateral security provided by the customer
which will be relied on when the repayment of the loan becomes difficult. It helps to
assess the applicants’ credit worthiness and helps to reduce the difficulties between
borrowers as an agents and the financial institution as the principal (Nirmala, et al. 2017).
Dinh and Kleimeier (2007) write that the lending institution’s loans management
processes procedures and directives controls the loan evaluation processes. The question
that must be answered before anything else is whether or not the borrowers have the
financial capacity to repay the loan, that is, repay the credit when due with the appropriate
interest rate.

17
A study in Ghana by Danso (2015) sought to investigate the credit management processes
that are employed by credit unions to sustain their business performance. The purpose of
this study was to examine what tools, interventions and standards are exercised in credit
unions. The survey was concentrated on five societies in Obuasi Municipality in order to
obtain an insight into their daily credit management process. The key results underline
that credit unions appear to be deficient in the credit management department; namely in
the areas of experience, academic qualification of credit committee members and the
consistency of areas interventions use by credit unions. Moreover, the lack of technology
operated in the loan decision process is apparent. Therefore more complex and
sophisticated models are a prerequisite if credit unions are to maintain financial stability.

Mani (2019) observes that loan management system will perform the activities right
from loan disbursement till its closure. The main key features of the loan management
system are KYC process, collateral management, multiple disbursals, compatibility,
versatility, Mobile application, GPS-based location mapping, among others (Moti,
Masinde, Mugenda, & Sindani, 2012). The automated loan management system ensures
that the process is performing the activities like applying for a loan, onboarding,
collection is properly executed.

2.3.2 Credit Monitoring Processes

Credit Monitoring is an integral part of lending activity (Addae-Korankye, 2014).

Financial institutions have a great responsibility to maintain the quality of the assets and
to recover the interest and principal due in time. Though adequate precautions are taken
during assessment and approval of a loan, a financial institution has to be more vigilant.
Unless early warning signals are captured, a financial institution may not be able to take
proper remedial measures to arrest and reduce bad debt in the institution. A financial
institution needs to put in place a very sound and effective credit monitoring system for
watching the borrower’s account from various angles for prompt action (Purohit,
Mahadevan, & Kulkarni, 2012).

Asrat (2018) elucidates that monitoring of credit facilities has been directed
characteristically on ensuring repayment when there are signs of defaults for repayment
of interest and principal installments. Such practice, in the view of the researcher, fails to
achieve desirable loan repayments since the facility might have already gone bad. It is

18
believed that monitoring of loans should be total by following events right from the
disbursement of the facility, ascertaining the deployment of funds on the intended project,
follow up and reviewing progress of the project, identifying shortcomings for possible
advice through field visits and discussions, ensuring prompt repayment of proceeds from
the project and advising on further expansion or re- direction of the project among others.
“Armed-chair” monitoring invariably becomes a factor for non-repayment of credit
facilities (Branda, Isoréb, & Tripier, 2019).

Efficient monitoring should be instituted by credit unions credit officers and credit
committee members and appropriate management of the state of affairs of each project
(Danso, 2015). Credit unions can adjust their credit monitoring by using online
monitoring of automatically generated, risk-adjusted clients’ borrowing bases to decrease
exposure and systematically manage the key risks of extending working credit to
businesses. Because acquiring standard loan documentation is automated, you can
comfortably extend your lending footprint and extend credit to smaller businesses at
accepTable rates. Less time is spent monitoring the loan and managing the loan
documents (Nikolaidou, 2010). This system is costless and very efficient but it is feasible
to customers who do business on line. Most of the customers of credit unions are the
lower income earners who are mostly illiterates therefore application of the online
monitoring will be highly difficult.

Ethiopia based study by Mekelle (2010) was premised on the rationale of evaluating the
performance of credit management of Wegagen bank in Tigray Region as compared to
National Bank’s requirements in comparison with its credit policy and procedures. The
issues impeding loan growth and rising loan clients complaint on the bank regarding the
valuing of properties offered for collateral, lengthy of loan processing, amount of loan
processed and approved, loan period, and discretionary limits affecting the performance
of credit management. Moti et. al. (2012) in her study on effectiveness of credit
management system on loan performance, empirical evidence from micro finance sector
in Kenya found out that Credit terms formulated by the microfinance institutions do affect
loan performance; the involvement of credit officers and customers in formulating credit
terms affects loan performance. Interest rates charged had a negative effect on the
performance of the loans, the higher the interest rates the lower the loan performance.

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Chikamai (2018) sought to determine the influence credit policy on the financial
performance of SACCOs in Kakamega County. The study employed descriptive research
design. Structured questionnaires were used as the instruments for data collection. The
sample size was 99. The study employed purposive sampling technique in identifying the
SACCOs and the respondents from the sampled SACCOs. Data was analyzed and
presented with the aid of statistical package for social sciences (SPSS). The findings
indicated that credit policy significantly affect financial performance.

2.3.3 Credit Recovery Processes

To withstand new regulatory pressures, investor expectations, and innovative competitors,

banks need to reset their value focus and digitize their credit risk processes (Bahillo,
Ganguly, Kremer, & Kristensen, 2012). Kalanidhi (2018) observes that where traditional
collection processes have faltered, the techniques and practices adopted as a part of the
modern collection management systems have gone a long way to address several pain
points that were encountered in the earlier systems. The modern collection
process follows several guidelines that aimed at streamlining the operations and offer
benefits to both collectors and their debtors. Augmenting the robustness of the internet
networks and a centralized financial system, the modern collection management
software goes a long way in the ease of business (Adebayo, Zandra, Oluwatosin, &
Adepeju, 2014).

Offiong and Egbuka (2017) observe that debt recovery or realization process is one of the
important things in a bank lending activity. This is because if the processes of recovery
are unruly protracted or a bank is negligent, there will be huge losses. When this happens,
the level of arrears on loan portfolio of banks would very high, which will affect the
capital ratios of banks in turn. Loan recovery is the collection of a loan amount from a
customer in default. In simple terms, loan recovery refers to the pay back of the principal
loan amount together with interest. Financial institutions need to be aware of loans of
default loans. Nonetheless, numerous factors have been identified in various studies as
having an impact on credit management and loan repayment. Several factors such as
interest rates, age, marital status, location and numbers of dependents are said to impact
on the likelihood of default (Lodha, 2011). Loan recovery is thus a very important aspect
in loan management for it helps in reducing the risks the lender is likely to incur. Katula

20
and Kiirinya (2018) found a statistical significant relationship between loan recovery and
financial performance of DTS Saccos.

Research by Kiplagat (2012) sought to evaluate the effect of technological innovation on

the loan recovery of a student financing organization, Higher Education Loans Board
(HELB). The results showed that there is a positive relationship between the various
technological innovations and the amount of loan recovered in a given year. Mobile
phone payments, electronic funds transfers and the use of standing orders showed a
positive effect on loan recovery while the use of debit and credit cards showed a negative
relationship with the amount of loans recovered.

Chibuike (2015) states that the Computer-based Asset Management System is a web-
based system. The researcher further asserts that the system allows commercial banks to
keep track of their assets. The most advantages of this system are the effective
management of asset by keeping records of the asset and retrieval of information. In this
research, in his study he gathers the information to define the requirements of the new
application and look at factors how commercial banks managed their asset. Ogola (2017)
sought to investigate the challenges facing the projects involved in the uptake of Sacco
Link System by a selected set of Sacco’s within the Nairobi area. The use of the Sacco
Link System provides customized Sacco Link card that FOSA account holders can use
access their money via any Cooperative Bank ATM where they are available. The card is
visa branded and will help the member to access his or her money at any VISA branded
ATM at Visa Charges and at any Point of Sale (POS) or Co-op agent as well.

2.4 Effect of Digitization of Sacco’s Operations on Performance

Automation of activities and programs of Saccos has been born as a result of rapid
adoption of technology across the sector. As a result, Saccos are opting for digitization as
a mechanism to align themselves to the new business order that demands for a serious
automation of Sacco functions. This section takes into consideration the aspect of cost
reduction, oversight and operational efficiency, as well as customer satisfaction.

21
2.4.1 Digitalizing of Operations

Berruti, Ross and Weinberg (2017) posit that digitization is the focus of intense interest in
the global financial industry. Many financial institutions are rushing to deploy the latest
automation technologies in the hope of delivering the next wave of productivity, cost
savings, and improvement in customer experiences. While the results have been mixed
thus far, McKinsey expects that early growing pains will ultimately give way to a
transformation of banking, with outsized gains for the institutions that master the new
capabilities.

There are some SACCOs who, before digitization, had existing computers and relied on
spreadsheets. For other SACCOs, most especially the smaller ones, everything was
manual, and paper based before digitization. As such, the SACCOs that were relying on a
purely paper-based system noticed significant reduction in the cost of stationery. This is
because everything was done manually. In Uganda, for the case of Nakasero Market
Traders SACCO, the decision to digitize caused the cost of stationery to fall by 77.8%
(Mercy Corps Uganda, 2016).

With digitization comes an increase in the earning potential of SACCOs (Waithaka,

Muathe, & Muchangi, 2018). Revenues increase because as membership grows, so does
the loan portfolio. An increase in the loan portfolio equally translates into an increase in
the interest income. In the case of Rukiga SACCO, the interest income was growing by
about 20% annually before digitization. Following the digitization process, the growth
rate increased to 24%, an increase of 4% within the first year of digitization. Also, the
cost to income ratio reduced by 4% following digitization.

Findings from Rukiga SACCO were validated by both Ensibuuko and Future Link that
shared the view that following the digitization process, the loan book has the potential to
spike. Increase in the Number of Members One of the drivers of revenues is the number
of members, the more accounts that are opened, loans taken out, etc., the more income
earned by a SACCO (Mercy Corps, 2016). In the case of Rukiga SACCO, prior to
digitization, the number of members was increasing by about 500 a year. Following the
digitization process and further expansion in the branch network, the number of
customers increased by 2,000 in 2017 – an increase by a factor of four (4). This trend is
very much similar to that of a SACCO managed by Future Link where, following

22
digitization, the number of members increased from 14,000 to 23,000 in a period of one
year, whereas it had taken the SACCO nine (9) years to reach 14,000 members. The
number of members significantly grew after digitization because staff can go out to the
field to do rigorous recruitment.

2.4.2 Operational Efficiency

Digitization makes it easier for management to have oversight on what is happening in

real time (Mercy Corps Uganda, 2016). This is because reports can be generated in real
time and causes of any inconsistencies easily tracked. For SACCOs operating through a
network of branches, there is more visibility as the General Manager can view accounts
of the entire branch network in real time. For the case of Rukiga SACCO, continuing to
expand and grow would have been very hard without a proper MIS. This is because
SACCOs with operations in more than one branch experience delayed information
exchange between branches if they do not use a cloud-based software solution. Future
Link validated this fact that inter branch system linkages plays a significant role in
improving the efficient running of a SACCOs with a branch network.

Mercy Corps (2016) found it hard to track loan repayments before digitization. The Loan
Officers had to go back to the manual loan book on a frequent basis to identify
repayments that were due. This left room for recollections to pass the due date as the
tracking was not done on a daily basis. This finding was validated from the interaction
with Future Link where a case was quoted that the loan repayment rate for one of their
SACCO’s short-term loan product had increased by up to 41% and that of the longer-term
loans had increased by 29%. This upward trend was observed to be similar among other
SACCOs that they have digitized. Additionally, the ability of SACCOs to recover loans
has equally improved liquidity positions and made it possible to give out more loans.

Adopting a descriptive survey with a sample size 45 Saccos based in Kiambu and Nairobi
Counties, Oyugi (2014) sought to determine effect of automated service on financial
performance of Saccos licensed by SASRA in Kenya. The study found out that all the
Saccos (100%) had undertaken automation of BOSA and FOSA operations in the last 5
years. The study also found out that majority of the Saccos introduced internet banking
services, mobile banking and ATM services. These reduced the dependence on the branch
network as a core delivery mechanism. From the regression model, the study deduced that

23
taking into consideration all the five factors (expenditure in internet banking, expenditure
in automation, expenditure in mobile banking, number of ATM cards issued and size of
the Sacco) there is a positive effect on financial performance of Saccos licensed by
SASRA.

Utilizing a five year financial data covering between 2009 to 2013, Guyo (2014) focuses
on assessing the impact of technological adoption on operational efficiency of
commercial banks in Kenya. The study established a positive regression model with ATM
cards, internet banking, debit and credit cards having a significant bearing on the
operational efficiency of these banks. In the same manner, Saccos have experienced a
major turnaround in their operational capabilities due to widespread application of
modern technology in their daily operations. A decade ago, employing DEA, Das and
Ghosh (2006) assesses the efficiency of Indian commercial banks during the post reform
period of 1992-2002. Improved performance and high operational efficiency was
observed among the medium sized banks.

2.4.3 Technology and Customer Experience

It is important to be able to handle all customer queries at the touch of a button. It can be
account statements, request for pre-payment, re-scheduling, early closures, changes in
client information, revaluation, resale & tracking insurance renewals for asset backed
loans; it can all be handled here. Trust Digitization has played a big role in increasing the
level of trust that members have in SACCOs. In the case of Nakasero Market Traders
SACCO, prior to digitization, the SACCO had heaps of books and files piled on top of
each other (Mercy Corps, 2016). With a completely manual system, it was hard for
members to trust that the money they were depositing with the SACCO was safe.
Following digitization, this attitude completely changed with members of other small
saving groups in the area that have not digitized deciding to join the SACCO.

Local evidence suggests that the first benefit that results from m-banking for financial
institutions is improved customer service to existing customers (Nzombo, Kilika, Maingi,
2017; Muchangi, Muathe, & Waithaka, 2018). This has been the experience of SMEP in
Kenya once it linked into the M-PESA platform for repayment services for its customers
Kumar (2010). Before M-PESA was used, a SMEP customer had a lengthy repayment
process. He/she would carry her cash to the group gathering location. Meetings would be

24
long as each customer’s cash was counted and recorded by the loan officer. This can take
a long time since the treasurer had to inspect that the notes are not fake. The treasurer
would travel with the cash to the bank and deposit it. This process made the customers to
spend a lot of time in the process besides the great security risk of walking around with
cash. An Mpesa service enables the customers to deposit money directly from their
phones to the respective bank accounts. The studies on the speed and convenience of M-
banking services are numerous and have largely focused on the benefits to the customers
with little said about the benefits to the commercial banks and other m-banking service
providers.

Githinji (2009) in her study on factors influencing sustainability of microfinance

institutions in Kenya studied Kenya Women Finance Trust and found out that that the
quality of service delivered influenced KWFT Sustainability by attracting new customers
through word of mouth advertising, improving on the reputation of the organization,
improving financial performance and profitability, lowering operating costs and also
increased customer retention rates hence boosting the overall quality of the organization.

Ndubisi (2007) asserts that digital transformation in the financial sector has had a great
impact on the switching costs experienced by customers. In this case, customers or rather
members of Deposit Taking Saccos have the option to select from both financial and non-
financial institution provided they can maximize their monetary gain. That is, with the
advent of technology, technology has reduced the barriers associate with shifting from
one Deposit Taking Saccos to the other. Infact, what one needs is the internet and proper
network connection and with a touch of a button, a customer is able to navigate through
websites of various Saccos, evaluating and comparing financial products on offer to settle
for the best deal.

2.4.4 Digital Strategy and Performance of DTS

Another important element of technology in Deposit Taking Saccos is range aspect of

digital strategy. It is through proper digital framework as laid down by the management
that Deposit Taking Saccos are in position to capture the elements of consumer behavior
within the Sacco industry. Furthermore, well-organised digital systems allow the bank to
utilise the gathered information in order to customize the products and services to be in
line with the chosen business strategy and market position while also being aligned with

25
their customer demands and preferences (Berman, 2012). The Saccos can as well easily
communicate any anticipated changes in the sector, keeping customers well informed and
boosting information symmetry between the Sacco and the members.

Haq (2005) brings in the argument of falling internet costs which is a major plus to the
operations of Deposit Taking Saccos. Haq (2005) highlights how the increasing adoption
of internet banking results to rapid fall in unit costs of Deposit Taking Saccos. The
ultimate outcome is enhanced competitiveness of the Sacco which is a major strategic
goal of any frim. Chung and Dutta (2012) add that the use of internet banking in the
financial segment of the economy has strengthened the balance sheets of these institution
hence propelling higher profitability and overall financial performance. Other benefits as
cited by Bander and Charles (2006) include a twenty four hour operation, faster attention
to customer needs, and minimized time wastage.

In 2015, the Rwandan government hired Kenyan-based firm, FinTech, to develop an IT

based system for Umurenge-SACCOs at the cost of $4.6 million. The project failed to
take off (Munezero, 2019). Karanja (2011) reports that automation will enable Saccos to
become more vibrant and compete more favorably with banks and Micro finance
institutions thus, ensuring that financial services in the country are more accessible to
even those in the rural areas. In Kenya, The Sacco Societies Regulatory Authority has
already opted for a web-based system instead of directly linking up to the front office
operations of a Sacco because the web system is secure.

However, unlike banks which tend to have strong firm capabilities, most Saccos within
developing economies such as Kenya are struggling with limited resources among several
competing needs. On this argument, Liu, Chen, and Chou (2013) elucidates that the
digital strategy requires both internal resources and capabilities in order to achieve an
optimal digital transformation process. As Saccos have limited internal resources and
capabilities, they, therefore, are selective about which digital projects they undertake.
Despite all the odds, Momamnyi, Osoro, Nyago, and Odoyo (2014) reinforces that the manual
systems of operation in Deposit Taking Saccos have to be replaced with computerized
systems. Their argument points in one direction that the management of these Saccos
have to invest in technology.

26
2.5 Chapter Summary

The chapter has presented a discussion and critique of existing literature and empirical
studies. The literature review was organized into three major subsections; the first one
focused on the effect of internet banking adoption on performance of Saccos and other
microfinance institutions. Whereas, the second one analysed literature regarding the effect
of computerize loan management system on the performance of Saccos and the last
section detailed the role of digitalizing operations on the performance of Saccos. The next
chapter outlines the methodological approach which was employed by the researcher in
accomplishing the study.

27
 CHAPTER THREE

3.0 RESEARCH METHODOLOGY

3.1 Introduction

This chapter entails the research design, population, and sampling techniques. It further
describes data collection methods and the procedures followed in gathering data. Data
analysis, how data was presented and how data quality was maintained are also discussed.

3.2 Research Design

Akhtar (2016) notes that research design can be viewed as the conceptual within which
research is conducted: the blueprint for the collection, measurement and the analysis of
data. Sekaran and Bougie (2016) adds that its output is to add new knowledge, develop
theories as well as gathering evidence to prove generalizations. Akhtar (2016) elaborates
that the major research designs are: Exploratory or formulative Research, Descriptive
Research or Statistical Research, Explanatory Research, and Experimental Research or
Analytical Research.

The study made use of descriptive form of research design. This design is applied in
identifying and obtaining information on characteristic of a particular issue like
community, group or people. In other words, we can say that this type of research
describes social events, social structure, and social situations, among others. The
researcher observes and describes the findings. Descriptive research responds to the
questions, what, who, where, how and when. It is widely used in the physical and natural
science. But it is used more common in the social sciences, as in socio- economic
survey and job and activity analysis (Zikmund, Basin, Carr, & Griffin, 2013).

The main aim of descriptive research is the accurate portrayal of the characteristics of
individuals, situations, or groups and the frequency with which certain phenomena occurs
using statistics to describe and summarise the data (Polit & Hungler 2013). A descriptive
study may be concerned with the attitude or views (of a person) towards anything
college autonomy among others (Khanzode, 2014). Bhawana and Manju (2014) states
that descriptive statistics deals with the presentation of numerical facts, or data, in either
tables or graph form, and with the methodology of analyzing the data.

28
3.3 Population and Sampling Design
3.3.1 Population

The entire set of cases from which researcher sample is drawn in called the population
(Taherdoost, 2016). Bartlett, Kotrlik, and Higgins (2001) observe that target population is
the group of individuals or participants with the specific attributes of interest and
relevance for the study. The target population of this study comprised of all the ninety
five (95) employees of K-Unity Sacco (K-Unity Sacco, 2019).

3.3.2 Sampling Design and Sample Size

3.3.2.1 Sampling Frame

Rahi (2017) notes that sampling frame defines a frame where a sample of target
population can be drawn. Similar to this accession authors like Creswell and Clark
(2017), have stated that, a sample frame can be defined as a list of all units in the
population from which research sample is be selected. In this study, the sampling frame
comprised of a list of all the staff members at K-Unity Sacco.

3.3.2.2 Sampling Technique

Sampling involves a process of selecting a sub-section of a population that represents the

entire population in order to obtain information regarding the phenomenon of interest.
The study utilized census approach hence there was no sample size. A census can provide
detailed information on all or most elements in the population, thereby enabling totals for
rare population groups or small geographic areas (Lavrakas, 2008). Foley (2018) clarifies
that censuses are employed when the researcher wants accurate information for many
subdivisions of the population. The advantages of a census are that: Data for small areas
may be available, assuming satisfactory response rates are achieved.

Data for sub-populations may be available, assuming satisfactory response rates are
achieved. (Because of the above reasons) detailed cross-tabulations may be possible.
Additionally, the estimates are not subject to sampling error. The person conducting the
research need to focus on those people with the same opinion to have the required
information and be willing of sharing it (Etikan & Bala, 2017). In the current study, the
use of census permits the inclusion of small or rare groups, enabling high accuracy of the
final results.

29
3.3.2.3 Sample Size

A sample is a sub-section of the population, which is selected to participate in a study

(Polit & Hungler, 2013). Census approach was employed in determining the number of
participants to engage in the survey. Therefore, the sample size comprised of all the 95
staff members K-Unity Sacco. Apart from guaranteed high degree of accuracy, census
surveys conducted through census results in enough respondents to have a high degree of
statistical confidence in the survey results (Lavrakas, 2008).

3.4 Data Collection Methods

Both primary and secondary data were necessary for the study. The primary data was
collected using structured and non-disguised type questionnaire from officials working
with K-Unity Sacco. Questionnaires were suitable for this study as they collect
information that is not directly observable as they inquire about feelings, motivations,
attitudes, accomplishments as well as experiences of individuals (Gall, Gall, & Borg,
2007). The questionnaires were administered by the researcher through the online method
using Survey Monkey research platform. The questionnaires were checked to ascertain
that they are fully filled and if not, respondents were required to fill in the gaps. These
types of questions were accompanied by a list of possible alternatives from which
respondents were expected to select the answer that best described the situation. The
secondary data set was drawn from the audited financial statements of K-Unity Sacco and
included: The return on assets and the return on equity. There was also the use of Investor
Published Reports by Sacco.

The validity and reliability was assessed through piloting of the study. A pilot study is a
trial run of the research (Nieswiadomy, 2012). It is conducted on a small number of
participants to assess the adequacy and feasibility of the intended research (Moxham,
2012). By doing so the pilot study can identify problems and strengthen the quantitative
methodology. The pilot test comprised 9 employees at K-unity Sacco. According to
Mugenda and Mugenda (2003) a pilot study can comprise of between 4-10 members of
the target population. Data from the pilot study was combined with data from the main
study because the sampling frame and methodologies to be used were the same (Thabane,
Ma & Chu, 2010).

30
3.5 Research Procedures

Permission was sought from the management of K-Unity Sacco Head Office, Kiambu
Town to carry out the research. To ensure confidentiality, information was only used for
the purpose of research and names of the participants' were omitted on the questionnaires
to ensure anonymity. A pilot study was carried out to test how suitable the data collection
tool is. Thereafter, research assistants were selected and trained for the collection of data
including the general administration of the final questionnaires. The questionnaires were
hand delivered to the respondents by the research assistants. To ensure that a high
response rate is attained, telephone follow up was were done after every five days.

3.6 Data Analysis

The purpose of analysing data is to obtain usable and useful information. Data analysis
usually involves reducing accumulated data to a manageable size, developing summaries,
looking for patterns, and applying statistical techniques (Cooper & Schindler, 2014).
SPSS Version 25.0 software was utilized in accomplishing the analysis.

Data was analyzed through the use of descriptive statistics while inferential statistics was
done through correlation. The simple linear regression models were used to estimate the
causal relationship between dependent variable and the independent variables. Tables and
Figures were used to present the analysis output. Since the motive of the study was to
establish the dependent variable from a set of predictor variables (Internet banking,
Computerized Loan Management System, and Digitization of Operations predictors), The
Pearson Correlation Matrix was employed to test the strength of the association between
variables. The means of the DTS performance indicators were regressed against the
independent variables.

3.7 Chapter Summary

The chapter has discussed the methodological framework which was employed in
accomplishing the study. The researcher used descriptive design as a strategy to fulfilling
study objective while the census approach was utilized in determining the sample size.
The study population comprises the 95 employees at K-Unity Sacco.

31
Data was collected through questionnaires whereas descriptive and inferential statistics
were adopted as techniques of generating data output. The next chapter presents the
results and findings based on the specific study objectives.

32
 CHAPTER FOUR

4.0 RESULTS AND FINDINGS

4.1 Introduction

The research was coined against the expedition to establish the effect of technology
adoption in Deposit Taking Saccos in Kenya. This focused on K-Unity Sacco and how it
adopts technology to enhance performance of its activities. This chapter covers data
analysis and findings of the research. Using data from the ninety five employees of K-
Unity Saccco descriptive and inferential analytical techniques were employed in the
analysis. The first section presents demographic characteristics of the respondents. The
second section focuses on findings related to mobile banking and performance of Deposit
Taking Saccos. The Third section analyzes data regarding loan management system and
performance of Deposit Taking Saccos. The last section presents data analysis about
digitization of Deposit Taking Saccos.

4.2 Demographic Information

The study sought to establish the respondent’ background details. In this regard, As a
result, the respondents profile was analyzed as follows; gender, age, education level, work
experience, utilization of modern technology and lastly the area that the Sacco had fully
implemented automation.

4.2.1 Response Rate

Of the 95 questionnaires distributed for this research, 81 useable questionnaires were

returned giving a response rate of 85.26 per cent, which was considered satisfactory for
subsequent analysis. Curtin, Presser, and Singer (2005) advocate that a response rate of
60% is sufficient for scientific surveys. The study’s response rate is summarized in Table
4.1

Table 4.1: Response Rate

Category Frequency Percentage

Responded 81 85.26
Did not Respond 14 14.74
Total 95 100.00

33
4.2.2 Gender of Respondents
The researcher aimed at establishing the gender distribution of the respondents. Findings
reveal that gender was fairly distributed with 53% males and 47% females. This implies
that respondents comprised different gender, prompting a huge effect on their way of
thinking thus majorly affecting the result of the survey. The findings were captured in
Figure 4.1 as shown.

Figure 4.1: Gender of Respondents

4.2.3 Age of Respondents

The researcher further sought to establish the respective age categories of the
respondents. The results indicated that the Sacco sector was dominated by employees
aged between 31-40 years at 50.0%, followed by the youthful age of 18-30 years at
36.5%, then 41-50 at 9.6%, and lastly, those aged above 50 making only 3.9%. These
results infer that the respondents had higher sense of maturity to diligently respond to the
research questions. Figure 4.2 reflects the summary of age distribution among the
respondents.

Age Distribution

50.00%
36.54%
9.62% 3.85%
18-30 31-40 41-50 Above 50

Figure 4.2: Age of Respondents

34
4.2.4 Education Level of Respondents

Another measure of respondent’s demography was education level as depicted in Figure

4.3. The bachelor degree holders were the majority at 55.3% distantly followed by
diploma and masters holders with 19.1% each, certificate graduates 6.4%, and lastly none
had obtained doctoral study qualifications. Education is one of the most important
characteristics that might affect the person’s attitudes and the way of looking and
understanding any particular social phenomena. In a way, the response of an individual is
likely to be determined by his educational status and therefore it becomes imperative to
know the educational background of the respondents. The results suggest that the
respondents possessed necessary academic knowledge to provide relevant feedback to the
questionnaire.

Figure 4.3: Academic Qualifications

4.2.5 Work Experience of Respondents

The researcher further assessed the levels of work experience of the respondents. Finding
in Figure 4.4 signal that majority had worked for a period of 7-10 years at 36.2%,
followed by those who had worked for 4-6 years at 27.7%, thereafter those who worked
for 1-3 years at 21.3%, only 12.8% had worked for more than ten years with 2.1% having
worked for a period less than 1 year. Individual’s work experience does have a bearing on
his or her personality. The implication of these findings is that majority of the
respondents had gained valuable experience with the activities, operations, challenges,

35
and opportunities in the DTS sector and could apply this remarkable expertise in giving
viable responses to the survey questions.

Figure 4.4: Work Experience

4.2.6 Application of Modern Technology

In determining the length of utilization of technology by the Sacco, results revealed that
modern technology had been applied over the past 5 years at 57.4%, followed by those
who felt 2-3 years at 42.6%. These findings indicate that majority of the respondents had
adequate exposure with the application of IT in their respective dockets, prompting good
command of issues tested in the survey items.

Figure 4.5: Duration for Applying IT

4.2.7 Area of Full Operational Automation

In establishing the phase of the Sacco which had experienced great automation due to
application of technology, 70.2% indicated FOSA while the rest, 29.8% went for BOSA.
The implication of these findings is that respondents could adequately respondents to

36
questions testing on both Front and Back Office Service Activities and respective levels
of ICT adoption in these areas of functionalities.

Figure 4.6: Automation

4.2.8 ICT Budgets

Figure 4.7 reveals that the Sacco took bold steps in the FY 2017 towards implementing
radical ICT systems that could revolutionize its entire functions. The highest allocation of
Kes 7 million went for the establishment of proprietary ATMs, followed by Kes 3.8
million that catered for internal audit of existing ICT systems, another 3 million went for
consolidation of online information system so as establishment of finger print detection
software, then Kes 2.5 million for mobile loan system and lastly Kes 2 million for the
setup of the IP Telephony and the contingency reserve. Such heavy financial allocations
signal how serious the Sacco has adopted ICT as part of the overall strategy for improved
performance.

Figure 4.7: ICT Budget For 2017

For the coming year FY 2020, the Sacco has already budgeted Kes 3 million for
establishing a queuing system, Kes 2.5 million for acquisition of modern computers, Kes

37
2.5 million for acquisition of a biometric system and Kes 2 million for database overhaul.
The summary for all budgetary allocation in the ICT department are illustrated in Figure
4.8.

Figure 4.8: ICT Budgetary Allocation For 2020

The supplementary budget for FY 2020 can be broken down as follows; Kes 15 million
for system upgrade, Kes 3 million for Implementation of System Audit Recommendation,
Kes 2.5 Million for internet banking and another Kes 2.5 million for Debiting Server as
shown in Figure 4.9.

Figure 4.9: ICT Supplementary Budget FY 2020

4.2.9 Sacco’s ROA and ROE (2014-2018)

Results in Figure 4.10 reveals a sporadic trend in terms of Sacco’s ROE. From 52% in
2014, to 42.9% in 2015 which later rose to 44.0% in 2016 , a subsequent rise in 2017
(47.9%) before registering a drastic fall in 2018 to 42.5%. Whereas, ROA seem to be
taking a near stagnant shape oscillating between 12.1% in 2014 to 10.0% in 2018.

38
Generally, financial performance as measured by ROA and ROE has been non-uniform
for the period selected.

The trend could be linked to the high political temperatures that the country underwent
between 2015 to early 2018. Such a prolonged electioneering periodic was unfavorable
for smooth business operation.

Figure 4.10: ROE and ROA

4.2.10 Sacco’s Dividends FY (2014-2018)

The effect of a firm’s dividend policy on performance is a matter of considerable

importance, not only to management, who must set the policy, but also to Sacco members
and to economists seeking to understand and appraise the functioning of Sacco’s
(Farrukh, 2017). Findings about the annual dividend as depicted in Figure 4.11 illustrates
that over the years, the Sacco has been registering improved dividends with a slight drop
in 2015 when Kes 18,923,045 was issued.

Annual Dividends (Kes)

19180463
19027015 18923045 24767977 28585795
2014 2015 2016 2017 2018

Figure 4.11: Dividends FY (2014-2018)

39
4.3 Mobile Banking and Performance among DTS

This section presents results and analysis of mobile banking and performance of deposit
taking saccos. The results are organized as follows; Descriptive findings are presented
first, followed by correlational analysis, and finally the regression analysis and model
development.

4.3.1 Descriptive Analysis for Mobile Banking and Performance

Frequency statistics are the main descriptive statistics used with discrete variables. These
include absolute frequencies for each category of the discrete variable, relative
frequencies (proportions or percentages of the total number of observations), and
cumulative frequencies for successive categories of ordinal variables. In the current study,
relative frequencies were used.
Table 4.2 shows that fifty one (51.1%) percent of the respondents agreed that statements
could be verified through mobile phones. 61.7% strongly agreed that mobile devices had
reduced time for making deposits. 52% of the respondents agreed that information related
to Sacco products could be relayed to customers through sms. 40.4% disagreed that credit
ratings could be conducted through mobile devices. 31.9% agreed that the loan
management system had been integrated with the Mpesa payment platform. Nearly 85%
of the respondents stated that members received their loan status through Short Message
Services (SMS) alerts. 74% of the respondents agreed that members were notified of their
loan status. 90% agreed that the loan application systems were linked to members’ mobile
money wallets. 44.7% agreed that evaluation of the borrower was done real time. 73%
agreed that the Sacco was able to perform multiple approvals for different financial
products. 84.8% of the respondents agreed that the Sacco had managed to combine
branch reports into a single financial document for easier reporting. All the results for
descriptive statistics are illustrated in Table 4.2.

40
Table 4.2: Descriptive Results for Mobile Banking and Performance

Variable SD D N A SA Mean StDev

(%) (%) (%) (%) (%)
Application for Statements are 2.1 31.9 14.9 36.2 14.9 3.3 -0.1
available via mobile phone
Mobile devices have facilitated 8.5 0.0 4.3 25.5 61.7 4.3 -2.1
reduction in the time it takes
members to make a deposit.
Questions about Sacco products are 0.0 30.4 17.4 32.6 19.6 3.4 0.0
readily available through text
message notifications.
Credit ratings of the customer can be 4.3 40.4 27.7 21.3 6.4 2.9 0.4
performed over a mobile device.
Loan management system has been 10.6 44.7 10.6 31.9 2.1 2.7 0.2
integrated with Mpesa payment
services to aid loan disbursement
Members can receive SMS alerts 4.3 15.2 0.0 43.5 37 3.9 -1.1
regarding their loan application
status.
Members are notified of their loan 2.1 17 8.5 42.6 29.8 3.8 -0.8
approval standings.
Money can be wired from the 0.0 4.3 4.3 23.9 67.4 4.5 -1.9
Sacco’s account to members’ Mobile
money wallet.
There is real time automatic 0.0 27.7 27.7 36.2 8.5 3.3 0.1
evaluation of the borrower.
The Sacco is able to create multiple 2.2 12.7 19.6 51.8 21.7 3.8 -0.8
approval processes for different
financial products.
Combined branches report to assist 0.0 8.7 6.5 52.2 32.6 4.1 -1.0
in overall integration of financial
performance.
SD-Strongly Disagree, D-Disagree, N-Neutral, A-Agree, SA-Strongly Agree, N=81,
StDev-Standard Deviation

41
4.3.2 Correlation Analysis for Mobile Banking and Performance

Correlation may be described as the degree of association between two variables, and it
ranges between –1 and 1 (Asuero, Sayago, & González, 2006). A correlation of either +1
or -1 implies a perfect relationship, whereas, zero signifies the absence of any association.
The sign depends on whether the variables are positively or negatively related. Two
different types of correlation coefficients are in use. One is called the Pearson product
moment correlation coefficient, and the other is called the Spearman rank correlation
coefficient, which is based on the rank relationship between variables. The Pearson
product-moment correlation coefficient is more widely used in measuring the association
between two variables. In this study, Pearson product moment correlation was employed
in testing the relationship between each of the independent variables and the dependent
variable under instigation.

The correlation between mobile banking and financial performance (ROA) of K-Unity
Sacco was examined. The results of the correlation analysis presented in Table 4.3. The
study revealed that the relationship between mobile banking and financial performance
was positive and statistically significant (r=0.233, p<0.05). This implies that introduction
of mobile banking for instance launching questions through mobile devices, linking of
member’s bank account with personal mobile money wallet; notification of loan
standings through sms enhanced the financial performance of a SACCO. These findings
are in agreement with a study with Bahati (2018) who concluded that indeed mobile
banking had a positive impact on financial performance among Deposit Taking Saccos.

Table 4.3: Correlation Between Mobile Banking and Performance

Correlations
ROA ROE Mobile Banking
Mobile Pearson 0.533 0.608 1
Banking Correlation
Sig. (2-tailed) 0.011 0.005
Sum of Squares 298.524 27.651 15.379
and Cross-products
Covariance 0.055 0.036 0.334
N 81 81 81
*. Correlation is significant at the 0.01 level (2-tailed). *. Correlation is significant at the
0.05 level (2-tailed), a. List wise N=81

42
4.3.3 Regression Analysis for Mobile Banking and Performance
Regression is a method for studying the relationship between two or more quantitative
variables. The structural model underlying a linear regression analysis is that the
explanatory and outcome variables are linearly related.

Linear regression analysis was conducted to ascertain the effect of mobile banking on
financial performance of the SACCOs. The results in Table 4.4 shows that the value of R2
was 0.284 indicating that variation of 28.4% in financial performance of Saccos can be
attributed to application of mobile banking in Deposit Taking Saccos.

Table 4.4: Model Summary for Mobile Banking and Performance

Model Summaryb
Model R R Square Adjusted R Square Std. Error of the Estimate Durbin-Watson
1 0.533a 0.284 0.271 0.97205 2.789
a. Predictors: (Constant), Mobile Banking
b. Dependent Variable: ROA

ANOVA examines the relationship between variables when there is a nominal level
independent variable has 3 or more categories and a normally distributed interval/ ratio
level dependent variable. It produces an F-ratio, which determines the statistical
significance of the result. The findings on the analysis of variance (ANOVA) presented in
Table 4.5 shows that F-statistic value of 20.180 and P-value of 0.001<0.05. These
findings imply that the regression model was significant in predicting the relationship
between mobile banking and performance of Deposit Taking Saccos.

Table 4.5: ANOVA for Mobile Banking and Performance

ANOVAa
Model Sum of Df Mean Square F Sig.
Squares
Regression 36.405 1 36.405 20.180 0.001b
1 Residual 142.520 79 1.804
Total 178.925 80
a. Dependent Variable: ROA
b. Predictors: (Constant), Mobile Banking

According to the regression coefficient model as extracted from Table 4.6, it was found
that taking all the independent variables value at zero, the financial performance of the
SACCO will be 10.729. The regression coefficient for mobile banking (0.705) was

43
statistically significant (t= 4.764, p=0.001<0.05), which indicates that a unit increase in
mobile banking will result to an increase of 0.705 units in financial performance:

The regression model of the study was Y= β0 + β1X1 + ε Substituting the coefficient in
the model,

Y= 10.729 +0.705 Mobile Banking + ẹ

Table 4.6: Mobile Banking Regression Coefficients

Coefficientsa
Model Unstandardized Standardized t Sig.
Coefficients Coefficients
B Std. Error Beta
(Constant) 10.729 0.880 12.192 0.000
1 Mobile
0.705 0.148 0.233 4.764 0.001
Banking
a. Dependent Variable: ROA

4.4 Loan Management System and Performance among DTS

This section presents results and analysis of loan management system and the
performance of deposit taking Saccos. The results are organized as follows; descriptive
findings are presented first, followed by correlational analysis, and finally the regression
analysis.
4.4.1 Descriptive Analysis for Loan Management System and Performance

Table 4.7 shows that ninety three (93.7%) percent of the respondents agreed that interest
rate was performed automatically. 38.3% agreed that advanced financial analytic decision
methods were applied.39.1% agreed that guarantors could be verified online. 89.1%
agreed that personal information was verified against fraud. 83% agreed that IT had a
huge bearing on risk management and Sacco’s lending operations.40.4% disagreed that
members could not receive frequent alerts on their individual credit scoring. 87.2%
supported the statement that the Sacco had a system for monitoring loan servicing on
monthly basis. 82.9% agreed that reports related to loan repayment was automatically
generated. 71.1% agreed that the loan management system had aided in the reduction of
administering loans.

44
Table 4.7: Descriptive Results for Loan Management System and Performance

Variable SD D N A SA Mean StDev

(%) (%) (%) (%) (%)
Interest computation is performed 0.0 2.1 4.3 42.6 51.1 4.4 0.7
automatically.
Advanced decision methods such as 6.4 17 27.7 38.3 10.6 3.3 1.1
decision trees are used
Guarantors can be verified online. 2.2 34.8 23.9 34.8 4.3 3.0 1.0
There is ability to customize 4.3 8.5 23.4 48.9 14.9 3.6 1.0
workflows internally for varying
business needs such as credit
approval process.
Personal information is protected 0.0 2.2 8.7 50 39.1 4.3 0.7
against fraud
There is an influence of Information 0.0 4.3 12.8 59.6 23.4 4.0 0.7
Technology on the risk
management and lending operations
Members are able to receive 0.0 40.4 23.4 27.7 8.5 3.0 1.0
frequent alerts on individual credit
scores.
Sacco has a system of monitoring 2.1 2.1 8.5 53.2 34 4.1 0.8
adequacy of provisions for loan
performance on monthly basis
Sacco’s loan management system is 2.2 2.2 10.9 54.3 30.4 4.1 0.8
highly interactive.
Repayment report for principal and 2.1 4.3 10.6 34 48.9 4.2 1.0
interest is automatically generated
to guide the borrower with
repayment schedule
The loan management system has 2.2 8.9 17.8 48.9 22.2 3.8 1.0
reduced the cost of loan
administration
SD-Strongly Disagree, D-Disagree, N-Neutral, A-Agree, SA-Strongly Agree, N=81,
StDev- Standard Deviation

45
4.4.2 Correlation Analysis for Loan Management System and Performance

Correlation may be described as the degree of association between two variables, and it
ranges between –1 and 1 (Asuero, Sayago, & González, 2006). The sign depends on
whether the variables are positively or negatively related. In this study, Pearson product
moment correlation was employed in testing the relationship between each of the
independent variables and the dependent variable under instigation. The relationship
between loan management system and financial performance of K-Unity Sacco was
examined. The results of correlation analysis are presented in Table 4.8. The Table
indicates that the correlation between loan management system and financial performance
is positive, moderately weak but statistically significant (r=0.396, p<0.05).

This implies that utilization of loan management software, computerization of loan

management, enhanced the loan processes creating conducive environment to manage
loan assets among DTS. Hence, the findings support previous research by Ndubuisi,
Chinyere, Chidoziem, and Ezechukwu (2017) who established that there is a positive
and statistically significant relationship between loan management (Proxied by Non-
Performing Loan & Deposit) and financial performance (ROA, EPS, DPS) of quoted
deposit money bank in Nigeria.

Table 4.8: Correlation between Loan Management System and Performance

Correlations
ROA ROE Loan
Management
System
Loan Management Pearson Correlation 0.396 0.108 1
System Sig. (2-tailed) 0.026 0.469
Sum of Squares and 191.140 220.241 115.903
Cross-products
Covariance 0 .025 0.440 0.302
N 81 81 81
*. Correlation is significant at the 0.01 level (2-tailed). *. Correlation is significant at the
0.05 level (2-tailed), a. List wise N=81

46
4.4.3 Regression Analysis for Loan Management System and Performance

The regression value measures the correlation between outputs and targets. Linear
regression analysis was conducted to ascertain the effect of loan management system on
financial performance of the SACCOs. The results in Table 4.9 shows that the value of R2
was 0.156 indicating that variation of 15.6% in financial performance of SACCOs can be
contributed by the adoption of the loan management system.

Table 4.9: Model Summary for Loan Management System and Performance

Model R R Square Std. Error of the Estimate Durbin-Watson

a
1 0.396 0.157 0.975 2.330
a. Predictors: (Constant), Loan Asset Management System
b. Dependent Variable: ROA

ANOVA examines the relationship between variables when there is a nominal level
independent variable has 3 or more categories and a normally distributed interval/ ratio
level dependent variable. It produces an F-ratio, which determines the statistical
significance of the result. The findings on the analysis of variance (ANOVA) presented in
Table 4.10 shows that F-statistic value of 10.691 and P-value of 0.026. The P-value
obtained was less than the conventional P value of 0.05. These findings imply that the
regression model was significant in predicting the relationship between loan management
system and performance of Deposit Taking Saccos.

Table 4.10: ANOVA for Loan Management System and Performance

ANOVAa
Model Sum of df Mean Square F Sig.
Squares
Regression 21.093 1 21.093 10.557 0.026b
1 Residual 157.832 79 1.998
Total 178.925 80
a. Dependent Variable: ROA
b. Predictors: (Constant), Loan Asset Management System

According to the regression coefficient model, it was found that taking all the
independent variables value at zero, the financial performance of the SACCO will be
10.457. The regression coefficient for adopting loan management system (.568) was

47
statistically significant (t=2.168, p=0.026<0.05), which indicates that a unit increase in
loan management system will result to an increase of 0.568units in financial performance.
The regression model of the study was Y= β0 + β2X2 + ε Substituting the coefficient in
the model,
Y= 10.457 +0.568 Loan Management System + ẹ

Table 4.11: Coefficients for Loan Management System and Performance

Coefficientsa
Model Unstandardized Standardized t Sig.
Coefficients Coefficients
B Std. Error Beta
(Constant) 10.457 0.976 10.709 0.000
1 Loan Asset
0.568 0.262 0.047 2.168 0.026
Management System
a. Dependent Variable: ROA

4.5 Digitization and Performance among DTS

This section presents results and analysis of digitization and the performance of deposit
taking Saccos. The results are organized as follows; descriptive findings, correlation
analysis, and finally the regression analysis.

4.5.1 Descriptive Analysis for Digitization and Performance

Eighty seven percent (87%) of the respondents agreed that the loan management system
had reduced the time required for processing loans. Overwhelming 93% of the
respondents agreed that it had effectively eased the loan approval and disbursement
processes. Another majority of 84.8% of the respondents agree that digitization had
contributed to shorter queues at the Sacco premises. 87% agreed that customers could
access services at any geographical location.

A majority of 84.4% acknowledge that digitizing of Sacco operations had made it easier
to conduct loan reconciliation. 91.5% appreciated effective service delivery in Sacco’s
FOSA. 88.9% of the respondents stated that humanly errors had declined due to IT
adoption. 75.6% of the respondents agreed that customers could launch queries at any
given time. 92.3% had agreed that the cost of making withdrawals had declined. Another
93.9% strongly indicated that feedback time had significantly reduced. 83.0% agreed that

48
communication expense ad declined due to the usage of ICT system applications. The
percentage frequencies, mean, and standard deviation were summarized in Table 4.12 as
shown.

Table 4.12: Descriptive Results for Digitization and Performance

Variable SD D N A SA Mean StDeV
(%) (%) (%) (%) (%)
The loan management system has 0.0 6.5 6.5 60.9 26.1 4.1 0.8
reduced the time taken in processing
loans
Information Technology eases loan 0.0 2.2 4.3 65.2 28.3 4.2 0.6
approvals and disbursement.
Digitization has contributed to short 2.2 4.3 8.7 41.3 43.5 4.2 0.9
queues at the premises.
Adoption of IT enables customers to 4.3 4.3 4.3 41.3 45.7 4.2 1.0
access services at any location
Digitization of Sacco operations has 0.0 4.4 11.1 60 24.4 4.0 0.7
enhanced loans reconciliation
processes
Through IT there is prompt and 0.0 2.1 6.4 53.2 38.3 4.3 0.7
efficient service delivery through the
Sacco's ATM and FOSA services.
Transaction errors have significantly 0.0 4.4 6.7 68.9 20 4.0 0.7
declined.
Customers’ can launch queries anytime 0.0 11.1 13.3 57.8 17.8 3.8 0.9
Adoption of IT has lowered the cost of 0.0 10.6 17 46.8 25.5 3.9 0.9
making withdrawals
Amount of time taken to receive 0.0 4.3 12.8 57.4 25.5 4.0 0.8
feedback has significantly reduced.
Modern communication channels have 0.0 2.1 14.9 51.1 31.9 4.1 0.7
aided in the reduction of
communication expense.
SD-Strongly Disagree, D-Disagree, N-Neutral, A-Agree, SA-Strongly Agree, N=81,
StDev-Standard Deviation

49
4.5.2 Correlation Analysis for Digitization and Performance
Correlation may be described as the degree of association between two variables, and it
ranges between –1 and 1 with zero implying no relationship between the variables
(Asuaro, Sayago, & González, 2006). The sign depends on whether the variables are
positively or negatively related. In this study, Pearson product moment correlation was
employed in testing the relationship between each of the independent variables and the
dependent variable under instigation.

The relationship between digitization of Sacco operations and financial performance of

K-Unity Sacco was examined. The results of correlation analysis are presented in Table
4.13. The Table indicates that the correlation between digitization of Saco operations and
financial performance is positive, relatively strong but statistically significant (r=0.691,
p<0.05).

The findings imply that capitalization on automation, digitization, of Sacco activities and
operations can contribute positively to the financial performance of the organization. The
results support Kavulya, Muturi, Rotich and Ogolla (2018) who established that that
technological adoption strategy and performance of Saccos are positively and
significantly associated.

Table 4.13: Correlation for Digitization and Performance against ROA, ROE.

Correlations
Digitization of ROA ROE
Operations
Digitization Pearson Correlation 1 0.691 0.176
of Operations Sig. (2-tailed) 0.038 0.326
Sum of Squares and 6.111 3.152 18.144
Cross-products
Covariance 0.133 0.067 0.394
N 81 81 81
*. Correlation is significant at the 0.01 level (2-tailed). *. Correlation is significant at the
0.05 level (2-tailed), a. List wise N=81

50
4.5.3 Regression Analysis for Digitization and Performance
The regression value measures the correlation between outputs and targets. Linear
regression analysis was conducted to ascertain the effect of digitizing Sacco operations on
performance of the SACCOs. The results in Table 4.14 shows that the value of R2 was
0.478 indicating that variation of 47.8% in financial performance of SACCOs can be
contributed by digitization of Sacco activities.

Table 4.14: Model Summary for Digitization and Performance

Model Summaryb
Model R R Square Adjusted R Std. Error of the Durbin-Watson
Square Estimate
1 0.691a 0.478 0.409 0.95874 3.587
a. Predictors: (Constant), Digitization of Operations
b. Dependent Variable: ROA

ANOVA examines the relationship between variables when there is a nominal level
independent variable has 3 or more categories and a normally distributed interval/ ratio
level dependent variable. It produces an F-ratio, which determines the statistical
significance of the result. The findings on the analysis of variance (ANOVA) presented in
Table 4.15 shows that F-statistic value of 5.463 and P-value of 0.038. The P-value
obtained was less than the conventional P value of 0.05. These findings imply that the
regression model was significant in predicting the relationship between digitization of
Sacco operations and performance of SACCOs.

Table 4.15: ANOVA for Digitization and Performance

ANOVAa
Model Sum of df Mean Square F Sig.
Squares
Regression 11.571 1 11.571 5.463 .038b
1 Residual 167.354 79 2.118
Total 178.925 80
a. Dependent Variable: ROA
b. Predictors: (Constant), Digitization of Operations

51
The findings in Table 4.16 show the coefficient and P values for the variables in the
study. The results show that digitization of Sacco operations was statistically significant
at 95% (p=0.38<0.050).

According to the regression coefficient model, it was found that taking all the
independent variables value at zero, the financial performance of the SACCO will be
12.253. The regression coefficient for digitization (0.717) was statistically significant
(t=3.514, p=0.038<0.05), which indicates that a unit increase in Sacco digitization will
result to an increase of 0.717 units in financial performance.

The regression model of the study was Y= β0 + β3X3 + ε Substituting the coefficient in
the model,

Y= 12.253 + 0.717 Digitization of Operations + ε

Table 4.16: Regression Coefficients for Digitization of Sacco Operations

Coefficientsa
Model Unstandardized Standardized t Sig.
Coefficients Coefficients
B Std. Error Beta
(Constant) 12.253 1.611 7.604 .000
1 Digitization of
.717 .204 .191 3.514 .038
Operations
a. Dependent Variable: ROA

4.6 Chapter Summary

The chapter analysed results and findings regarding the effect of technology adoption
among Depoist Taking Saccos with special interest in K-Unity Sacco. A response rate of
85.26% was attained from the 95 distributed questionnaires. Mobile banking was found to
be statistically significant with performance (ROA) among Deposit Taking Saccos. The
utilization of loan asset management system was also found to be statically significant
with performance of DTS. Lastly, the results further revealed a significant relationship
between digitization of Sacco activities and operations with the financial performance.
The next chapter discusses the findings, presents conclusion, and offers necessary
recommendation for both strategic framework for the management of DTS and policy
action by influential policy makers in the DTS segment and the microfinancial industry at
large.
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 CHAPTER FIVE

5.0 DISCUSSION, CONCLUSIONS, AND RECOMMENDATIONS

5.1 Introduction

The focus of the research was to assess the effect of technology adoption among Deposit
Taking Saccos, a case of K-Unity Sacco. This chapter covers summary of the findings,
discusses the findings in tandem with the literature review and finally concludes and
offers recommendation for action and further improvement.

5.2 Summary

The realization of Kenya’s Vision 2030 and now The Big Four Agenda demands a vibrant
and suitable financial system. As a result, Deposit Taking Savings and Credit Cooperative
Societies (SACCOs) remain at the focal of ensuring wealth accumulation by the
unbanked market segment as well as the overall financial inclusion among the majority
Kenyans who have been in the past sidelined by the formal banking sector. To effectively
serve this purpose, Deposit Taking Saccos are increasingly adapting the use of modern
technology as a facet to enhanced performance and better service delivery to their
customer base. It was against this background that the study sought to establish the effect
of adoption of technology on performance of Deposit Taking Saccos with reference to K-
Unity Sacco. The study addressed three research objectives; to establish the effect of
mobile banking on performance of Deposit Taking Saccos in Kenya, to determine the
effect of loan asset management system on performance of Deposit Taking Saccos in
Kenya and finally, to assess the effect of digitization of operations on performance of
Deposit Taking Saccos in Kenya.

Descriptive research design was adopted using quantitative and qualitative approach to
data collection, analysis and reporting. Using census sampling, the study was based on a
census of 95 employees at K-Unity Sacco as at 31st January 2019. A structured
questionnaire administered to all the staff was used to collect primary data. Additionally,
secondary data covering three years on performance (return on equity and return on
assets) of Deposit-Taking SACCOs was· collected. Descriptive statistics were used to
explain the patterns in the collected data. While simple linear regression models were
applied on the quantitative data to generate coefficients and their corresponding t-

53
statistics and p-values used to test hypotheses, qualitative data from the questionnaires
was analyzed using content analysis.

The results regarding the first objective revealed that the relationship between mobile
banking and financial performance was positive and statistically significant. While the
regression coefficient for mobile banking was statistically significant. Findings about the
second research objective indicated the correlation between loan management system and
financial performance was positive, moderately weak but statistically significant.
Whereas, the regression coefficient for adopting loan management system was
statistically significant. Lastly, the correlation between digitization of Sacco operations
and financial performance was found to be positive, relatively strong but statistically
significant. The regression coefficient for digitization of Sacco operations was also
statistically significant

5.3 Discussion
5.3.1 Mobile Banking and Performance among DTS

The findings revealed that the relationship between mobile banking and financial
performance was positive and statistically significant Furthermore, linear regression
analysis was conducted to ascertain the effect of mobile banking on financial performance
of the SACCOs. These findings support previous study by Khajehdangolani (2011) who
aimed at investigating the effect of information technology in the banking system of Bank
Keshavarzi Iran. The findings then proved that Information technology contributes to the
financial system in three different ways as follows: IT saves the time of the customers and
the employees conspicuously, IT cuts down the expenses and IT facilitates the network
transactions.
An article by KPMG (2011) concluded that financial system could be transformed by new
technology by 2015. This entailed increased dominance of customer friendly products,
delivery channel, easy and accessible services and competitive pricing would be driving
forces-and technology shall pay a dominant role in all these. Models using mobile devices
and efficient payment systems will make banking services more widely available 24 x 7.

The study supports Sobol and Cron (2006) who conducted the study to find the
relationship between computerization and several measures of overall performance of
Indian banks. Three performance comparisons are presented: users versus non-users of
54
computers, three levels of usage, and class of computer usage. Results indicate that
computerization is related to overall performance. Non-users tend to be small firms with
about average overall performance. Furthermore, the study agrees with Rao and Rao
(2015) who conclude that Indian public sector banks that hold around 75 % of market
share do have taken initiative in the field of IT. They are moving towards the centralized
database and decentralize decisions making process. They possess enviable quality
manpower. Awareness and appreciation of IT are very much there. What is needed is a
„big push‟ the way it was given in the post nationalization period for expansionary
activities.

The study also reveals that Sacco’s are increasingly capitalizing on technology in the
pursuit of developing their distribution channels. The major and upcoming channels of
distribution in the banking industry, besides branches are ATMs, internet banking, mobile
and telephone banking and card based delivery systems. Through mobile banking, Sacco
members can now dial up the Sacco designed telephone number and he by dialing his ID
number will be able to get connectivity to bank’s designated computer. By using
Automatic voice recorder (AVR) for simple queries and transactions and manned phone
terminals for complicated queries and transactions, the customer can actually do entire
non-cash relating banking on telephone: Anywhere, Anytime.

The study resonates with Wahla and Awan (2014) who noted that use of mobile phones
for communication improved working efficiency of employees in Pakistan industries as
they could easily contact their colleagues for purposes of sharing thoughts and
knowledge. Although the respondents in the study admitted using mobile phones for
personal issues such as calling their family members and sending messages to their loved
ones, they nonetheless argued that their productivity was greatly enhanced through
mobile communication services especially to their colleagues on work related issues.
Some respondents even indicated that they could not manage to work without their
mobile phones as they needed to make enquiries related to their tasks from time to time to
both their managers in other offices and their colleagues.

Kiganane, Bwisa and Kihoro (2012) found that mobile call service had the greatest effect
on improving firms’ performance. Other services such as mobile messaging, mobile
email, mobile chatting and mobile conferencing also constitute mobile communication
but were left out in the study. Another study combining all these mobile communication
55
services on organizational performance is therefore important and was the focus of this
study.

In separate study by Maina, Bwisa and Kihoro (2012), mobile phone services were found
to have significantly increased sales volume, profit, worker productivity, and customer
satisfaction ratings. The study was based on the use of longitudinal data
from manufacturing firms and considered six mobile technology services that were listed
as mobile calls, mobile internet services, mobile banking, mobile messaging, M-Pesa and
mobile bills payment where mobile calls, mobile messaging and M-Pesa were the only
significant variables in determination of firms’ performance.

5.3.2 Loan Asset Management System and Performance among DTS

Traditionally, Saccos have to deal with the delayed process due to the manual loan
processing system, which in some cases results in losing their prospective customers. In
order to avoid this, most Deposit Taking Saccos are going the way of an automated loan
processing system, which in a way help both the customers and the Saccos. The
automated loan processing allows the people to get the quick approval of loans, while at
the same time; it allows DTS to disburse the loan amount in quick time and thus resulting
in the customer happiness and more satisfaction. In a way it eliminates the tedious tasks
of sorting papers or documents and minimizes the costing involved.

The adoption of loan asset management system has played miracle in terms of
strengthening consumers’ confidence and trust towards the products, services, and the
entire operations of the Saccos. Several respondents indicated that clients feel that it has
increased the transparency of the SACCO and it is no longer as easy for employers to
“cheat”. Besides, also the collection of overdue loans has become a lot easier as staff
members now have a daily updated overview of their dispersed loans. It can be called as a
way to streamline the loan operations and help in the better way the loan repayments
among others can be managed. With the added security, the loan management offers an
extra set of security to the people or so called customers. At the same time, it offers the 24
hour customer support services, thus adding another dimension to the new concept.

56
The study is in agreement with Kiplagat (2012) who showed that there is a positive
relationship between the various technological innovations and the amount of loan
recovered in a given year. Mobile phone payments, electronic funds transfers and the use
of standing orders showed a positive effect on loan recovery while the use of debit and
credit cards showed a negative relationship with the amount of loans recovered.

Furthermore, the study supports Mani (2019) who states that loan management system
will perform the activities right from loan disbursement till its closure. Another important
aspect that emanated from the study is the role of the loan management system in
reducing time required to process the loan. Better customer satisfaction and several new
product offerings to customers and thus creating a great impact in the minds of the
customers. Better document management and tracking of status on line. Ability to inquire
in quicker time and improve the performance all throughout. The minimization of the
details required and removal of unwanted information requirements. The minimization of
the error involved. Reduced time in processing and turnaround.

Thus, in a way the automated loan processing allows the more disbursal of the loan
applications either in the approval or rejection. It also involves the lower cost and in a
way reduces the corruption involved. Through the automated loan processing, the Sacco
sector can surely gain an edge over their competitors and can bring a dynamic business
culture in the market. According to Chibuike (2015), Computer-based Asset
Management System is a web-based system. It allows commercial banks to keep track of
their assets. The most advantages of this system are the effective management of asset by
keeping records of the asset and retrieval of information. In this research, in his study he
gathers the information to define the requirements of the new application and look at
factors how commercial banks managed their asset.

The study further established that having the ability to service the loan online is a huge
positive impact for borrower experience. Loan management systems has been useful for
the lending experience, the system has aided loan monitoring process. The automation
technologies and capabilities incorporated in these solutions give lenders big advantages
in today’s market. To be successful in a very competitive auto lending market, lenders
must leave legacy lending systems by the wayside and adopt modern, cloud-based loan
processing solutions.

57
As consumers, we have come to expect simplicity in our commerce. However, one area in
need of improvement is lending. Today, too many consumers think the process of
obtaining an auto loan is complex. In a Federal Reserve 2016 survey, nearly half of all
respondents complained of the difficult application process and time to receive a credit
decision. An automated lending system can dramatically change this perception by
simplifying and accelerating the entire process.

The study further resonates with Chibuike (2015) who states that the Computer-based
Asset Management System allows financial institutions to keep track of their assets.
Because the lending process begins via the web, the applicant could be at home, at a
dealer, or in any web-accessible location. Automation and configurable menus lead the
applicant through the process, prompting for required information and providing guidance
when needed to help the applicant enter the correct information. The flexibility and power
of decision rules verify that information has been entered correctly. Paper documents, if
required, are digitized and securely sent to the lender to eliminate delays associated with
shipping documents to a lender. When automation is applied to the application process,
all required information is collected quickly and accurately and transmitted to the lender
for a faster decision process. In today’s auto lending market, faster credit decisions are a
competitive advantage.

In totality, the study agrees with Thapa (2011) who show that there is a significant
relationship between performance of financial institutions and loan management. The
availability of cash and loanable funds are important to the successful operations of a
Sacco. However, if there is excess cash, it could lead to a waste of resources unless
properly channeled in to loans. If cash is insufficient to meet the demands of customers,
especially depositor’s withdrawals and credible borrowers, it could lead to loss of public
confidence and consequent run on the DTS leading to Sacco failure. As a result, a DTS
has to hold a certain amount of cash that will meet with depositor’s withdrawal
requirements and other liquidity needs of the DTS.

5.3.3 Digitization and Performance among DTS

According to Rani (2015) for creating an efficient banking system, which can respond
adequately to the needs of growing economy, technology has a key role to play. Heavy
investments in IT have been made by the Saccos in the expectation of improvement in

58
their performance. But improvement in the performance depends upon, differences in the
deployment, use and effectiveness of IT. Electronic Fund Transfer (EFT) is another area
which the Sacco has scored big.

Analysis by Kavulya, Muturi, Rotich, and Ogolla (2016) showed that technological
adoption strategy and performance of Saccos are positively and significantly associated.
As Muchangi, Waithaka, and Muathe (2018) elucidates, in the financial services industry,
banks and SACCOs compete for customers. Members have dynamic consumer habits and
needs. Technology is equally changing fast. For SACCOs to compete with the
technologically advanced banks, they need to invest heavily in information technology
(IT) since members of late look forward to exploiting the upcoming forms of IT to
increase their satisfaction. They cherish linking up with their accounts at any time and
from anywhere. This is facilitated by use of IT services such as e-banking, m-banking,
VISA/SACCO link cardsand ATMs. The study is investigated whether IT alone may
bring SCA, or only when coupled with other resources. The role of information
technology in enhancing sustainable competitive advantage. The independent variable is
investment in IT and dependent variable, sustainable competitive advantage.

The results for this study agrees with Salia, Nuamah and Steel (2011) who found that
market efficiencies improved and price variations reduced as a result of better availability
of up-to date information. Their study aimed at investigating the effect of mobile
communication on market efficiency and livelihoods in Ghana. In their study, they argued
that mobile communication services enabled fishermen towards improving their incomes
and expanding markets for their produce. Additionally, the study noted that mobile
communication improved the livelihoods of the fishermen as it facilitated the staying in
touch with their families. Mobile communication services are now embraced by SACCOs
to communicate with their members on various organizational products and services.
According to International Telecommunication Union (2013) mobile communication
services, which are currently the most widely used form of mobile technology services,
include SMS, MMS, e-mails, and mobile chatting. This study was important in validating
the benefits of mobile communication services within the context of an organization.

59
The study is also consistent with that of Tirunillai and Tellis (2012) who noted the role of
communication services in organizations through online services where online users’
reviews and blogs provide product and brand specific information compared with other
forms of marketing. It is also corroborated by Kimani (2005) who indicated the crucial
role played by social media marketing on performance of organizations in Kenya.
Additionally, the findings are consistent with the study by Kiganane et al. (2012) which
indicated that mobile communication services had a positive effect on
organizational performance. Another study by Salia et al. (2011) found that mobile
communication services had improved market efficiencies and reduced price variations as
a result of availing better up-to date information to citizens.

Automation improves applicant evaluation and loan decisioning. It eliminates repetitive

manual steps that are best executed digitally and allows human expertise to be applied
where it works best (Kiragu, 2017). Examples include; Decision rules evaluate applicant
attributes and provide immediate loan approval for well-qualified applicants or
declination for applicants who have no credit history, are underage, or over-extended
credit. Integration with credit data sources and services such as Digital Matrix Systems
lets lenders automatically and quickly verify applicant information. Decision rule
flexibility can guide processing for exception applications, performing certain steps of the
evaluation process automatically and delegating more complex decisions to experienced
underwriters. No lost or misplaced documents. Sacco’s paperwork documents are
converted to digital images are immediately and securely accessible by the underwriter,
so they can review applicant materials more quickly. The combination of decision rules
and integration with credit data sources and services lets lenders automatically calculate
optimum loan structures and terms. Decision rules provide predictable, repeatable
processes that remove the variations associated with human decisions and demonstrate
compliance with lending regulations.

Automation decreases the manual work associated with notifications. Every application
requires a response, and a digital economy gives lenders great flexibility in how to
respond. An automated loan processing system helps lenders create a variety of
notification templates that are then populated with applicant and loan-specific information
before sending the notification. Multichannel communication gives lenders the ability to
send notifications by email, print, and even text messages. One clear advantage of

60
multichannel communications is the reduction of printing and mailing costs. Even better,
secure digital retention of notifications as records. Not only is this beneficial in the event
of demonstrating regulatory compliance, as in the case of adverse action letters, but it also
relieves lenders of the cost and risks in storing paper documents.

Technology has revolutionized customer relationship management in Saccos. Peelen

(2005) list websites, e-mail, and telephones as possible channels to interact with the
customer. Correlation analysis showed that customer focus strategy and performance of
Saccos are positively and significantly associated. Regression analysis indicated that
customer focus strategy has a positive and significant effect on performance of Saccos in
Kenya. Findings by Adiele, Gabriel, and Nath (2013) indicate that customer relationship
management permits firms to optimally manage their interaction with customers resulting
into optimal satisfaction levels. Narteh (2014) examined the effect of perceived service
quality on satisfaction with self- service technology (SST) in retail banking sector in
Ghana. The study focused on automated teller machines (ATM) service quality
dimensions and collected data from 530 ATM customers of 15 banks using a structured
questionnaire. The study established that ease of use, reliability, responsiveness,
fulfillment and convenience of services predicted customer satisfaction.

Full digitization of Sacco operation needs a consolidated digitization strategy. It also

requires the organisation to have the right culture, leadership, and embedded trust
throughout the organisation (Liu, Chen, & Chou, 2013). According to Matt, Hess, and
Benlian (2015) the digital transformation process can be seen as a strategy, which affects
other functional and operational strategies. For the organisation to be able to integrate and
transform the organisation’s structure and processes, it first has to find an alignment with
other operational and functional strategies.

5.4 Conclusion
5.4.1 Mobile Banking and Performance among DTS

The significant role played by mobile communication services towards enhancing

performance of Deposit-Taking SACCOs in Kenya has been demonstrated by the
findings. The study concluded that the utilization of mobile communication services
particularly mobile messaging, mobile call and mobile chatting services by Deposit-
Taking SACCOs enhances their performance. Use of mobile communication services

61
such as mobile messaging and mobile call services for official communication within
SACCOs should therefore be encouraged by SACCOs’ management.

5.4.2 Loan Management System and Performance among DTS

Results from the study indicated that the daily transactions can now be processed a lot
easier and quicker, due to the fact that client information can be accessed very easily and
it is no longer necessary to pick out the corresponding ledger card. Therefore, staff is now
capable to deal with a lot more clients per day than before. This is also true for the
preparation of financial reports, which can easily be printed whenever necessary as the
data is now always updated on a daily basis and no longer on a weekly or even monthly
basis. Thus, staff members have a better overview over customer structure, loan- and
savings portfolios.

5.4.3 Digitization and Performance of DTS

From this study, it can be concluded that digitization has positively impacted activities
and general performance of Deposit Taking Saccos (DTS). It has increased productivity,
reduced costs, and improved quality and consistency of consumer products and services.
Therefore, DTS in Kenya are investing heavily in the technology such as mobile
banking, net banking, automated teller machines (ATMs), credit cards, debit cards, smart
cards, customer relationship management (CRM) software, electronic payment systems
and data warehousing and data mining solutions, to bring improvements in quality of
customer services and the fast processing of banking operation.

5.5 Recommendation

5.5.1 Recommendation for Improvement

5.5.1.1 Mobile Banking and Performance among DTS

Mobile banking in DTS should be facilitated through revamping of the infrastructural

networks system for faster relay of information. This implies the need for strategic
alliances between Saccos and Mobile Service Providers. Furthermore, Saccos need to tap
into the capabilities of software development firms such as Microsoft, Google, Samsung,
Oracle, Huawei, among many other leading multinationals with operations in Kenya. This

62
way, they will be able to develop mobile friendly customized downloadable apps for their
clients. Additionally, academicians should collaborate with telecommunication industry
players to further develop capabilities of mobile technology devices in order to support
the emerging new methods of mobile communication services in order to encourage their
utilization within microfinancial organizations.

5.5.1.2 Loan Management System and Performance among DTS

Security of the existing loan management systems is another major concern that Saccos
should focus on. It is therefore paramount that Saccos increased budgetary allocation
towards acquisition and development of up-to-date, reliable and sustainable security
softwares to protect all IT-based loan infrastructures. Furthermore, an improved method
of predicting the demand of borrowers in the financial loan management system should
be developed. This model can have the ability to make predictions and provisions made
for future demand of borrowers which can solve the problems inherent in their present
management of loans. Lastly, strong ethical culture from the Sacco members, staff, and
the general public should be built by the Sacco management frequently sensitizing the
masses about the need to conduct their business within the premises of desired ethics as
much as information system is concerned.

5.5.1.3 Digitization and Performance of DTS

There is need for the firm to equip employees with adept tech skills in today’s digital
dominated work environment. Currently, the Sacco does not have a modern Customer
Relationship Management System. Therefore, it is important for the management to
embrace this new advent of technology as much as consumer experience is concerned.
CRM processes that help to provide employees with the information they need to know
their customers' wants and needs and build relationships between the company and its
customers.

5.5.2 Recommendation For Further Studies

A study seeking to assess the capabilities of Sacco staff to fully utilized modern
technology is necessary. This is because not all Sacco employees are equipped with
necessary skills to use these systems yet Saccos spend millions for the acquisition of the
63
same. Another study could focus on evaluating the effectiveness of these systems in
ensuring data integrity of the clients since data management is at the heart of performance
and sustainability of these Saccos. Another cross-sectional study could be conducted to
establish comparison among various Saccos in terms of ICT adoption.

64
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 APPENDICES

APPENDIX I: COVER LETTER

Dear Respondent,

My name is Lucy W Kariuki an MBA (Strategic) student at United States International

University- Africa (USIU).

I am undertaking a research on The Effects of Adoption of Technology on

Performance of Deposit Taking Sacco’s. Kindly accept my invitation for your
participation in this research by sparing some time to fill the questionnaire.

This questionnaire is being administered for research purposes and any information
provided will be used purely for academic purposes and will be treated with
confidentiality.

Thank you.

77
 APPENDIX II: QUESTIONNAIRE

An evaluation into the effect of technology on performance of deposit taking saccos

in Kenya. A Case Study of K-Unity Sacco

SECTION I: RESPONDENT’S BACKGROUND INFORMATION

1. What is your gender?

[] Male [ ] Female
2. In which of the following age brackets does your age fall?
18-30 years [ ] 31-40 years [ ] 41-50 years [ ] above 50 [ ]
3. State your highest education level
Certificate [ ] Diploma [ ] Undergraduate [ ] Masters [ ] PhD [ ] Other
…………………………………………..
4. Cumulative years of experience
Less than 1year [ ] 1-3 years [ ] 4-6 years [ ] 7-10 years [ ] More than 10 years [ ]
5. For how long have you been applying modern technology and internet in conducting
daily operations at your organization?
Past 1 Year [ ] 2-3 Years [ ] 5 Years []
6. In which area has your Sacco undertaken automation in the last 5 years?
Back Office Service Activity Operations [ ]
Front Office Service Activity Operations [ ]

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 SECTION II: MOBILE BANKING AND PERFORMANCE
What is your level of agreement with the following statements (5. Strongly Agree (SA) 4.
Agree (A) 3. Neutral (N) 2. Disagree (D) 1. Strongly Disagree (SD).

SD D N A SA

1. Application for Statements are available via mobile phone. 1 2 3 4 5

2. Mobile devices have facilitated reduction in the time it 1 2 3 4 5

takes members to make a deposit.
3. Questions about Sacco products are readily available 1 2 3 4 5
through text message notifications.
4. Credit ratings of the customer can be performed over a 1 2 3 4 5
mobile device.
5. Loan systems have been integrated with members’’ mobile 1 2 3 4 5
phones to facilitate money transfer.
6. Members can receive SMS alerts regarding their loan 1 2 3 4 5
application status.
7. Members are notified of their loan approval standings. 1 2 3 4 5

8. Money can be wired from the Sacco’s account to members’ 1 2 3 4 5

Mobile money wallet.
9. There is real time automatic evaluation of the borrower. 1 2 3 4 5

10. The Sacco is able to create multiple approval processes for 1 2 3 4 5

different financial products.
11. Combined branches report to assist in overall integration of 1 2 3 4 5
financial performance.

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 SECTION III: LOAN ASSET MANAGEMENT SYSTEM AND
PERFORMANCE

What is your level of agreement with the following statements (5. Strongly Agree (SA)
4. Agree (A) 3. Neutral (N) 2. Disagree (D) 1. Strongly Disagree (SD).

SD D N A SA
1. Interest computation is performed automatically. 1 2 3 4 5
2. Advanced decision methods such as decision trees are 1 2 3 4 5
used
3. Guarantors can be verified online. 1 2 3 4 5
4. There is ability to customize workflows internally for 1 2 3 4 5
varying business needs such as credit approval process.
5. Personal information is protected against fraud 1 2 3 4 5
6. There is an influence of Information Technology on the 1 2 3 4 5
risk management and lending operations
7. Members are able to receive frequent alerts on 1 2 3 4 5
individual credit scores.
8. Sacco has a system of monitoring adequacy of 1 2 3 4 5
provisions for loan performance on monthly basis
9. Repayment report for principal and interest is 1 2 3 4 5
automatically generated to guide the borrower with
repayment schedule
10. The loan management system has reduced the cost of 1 2 3 4 5
loan administration
11. The loan management system has reduced the time 1 2 3 4 5
taken in processing loans

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 SECTION IV: DIGITIZATION OF OPERATIONS AND PERFORMANCE

What is your level of agreement with the following statements (5. Strongly Agree (SA)
4. Agree (A) 3. Neutral (N) 2. Disagree (D) 1. Strongly Disagree (SD).

SD D N A SA
1. Information Technology effectively eases loan approvals 1 2 3 4 5
and disbursement.
2. Digitization has contributed to short queues at the Sacco 1 2 3 4 5
premises.
3. Adoption of information technology enables customers to 1 2 3 4 5
access services at any location
4. Digitization of Sacco operations has enhanced loans 1 2 3 4 5
reconciliation processes.
5. Through information technology there is prompt and 1 2 3 4 5
efficient service delivery through the Sacco's ATM and
FOSA services.
6. Transaction errors due to the Sacco personnel have 1 2 3 4 5
significantly declined.
7. Customers’ can launch queries anytime. 1 2 3 4 5
8. Adoption of technology in operations has lowered the cost 1 2 3 4 5
of making withdrawals
9. Amount of time taken to receive feedback has significantly 1 2 3 4 5
reduced.
10. Modern communication channels have aided in the 1 2 3 4 5
reduction of communication expense.

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 APPENDIX III: SECONDARY DATA COLLECTION SHEET

FINANCIAL PERFORMANCE FOR THE PAST 5 YEARS

Variable / Year 2014 2015 2016 2017 2018

ROA

ROE

Thank you for your feedback.

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APPENDIX IV: NACOSTI RESEARCH AUTHORIZATION LETTER

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