Example of a Research Proposal; EFFECTS OF MOBILE BANKING ON THE ECONOMY: CASE OF MOBILE BANKING IN NAIROBI COUNTY

1.1  Background of the Study

Mobile banking  is a system that allows customers of a financial institution to conduct a number of financial transactions through a mobile device such as a mobile phone or personal digital assistant.

Mobile Financail Service or the phrase Mobile commerce was originally  coined in 1997 by Kevin Duffey to mean "the delivery of electronic commerce capabilities directly into the consumer’s hand, anywhere, via wireless technology."

Financial institutions in Kenya have adopted mobile services to provide crucial
banking services to customers in Kenya.

Business practices in Kenya have gone through many changes , the most important being the introduction of Information communication technology (ICT).

The mobile phones have being a key ICT product that has affected business practices . This is manifest in various areas  including advertisement, marketing , and emergency of new products and new methods of payments. This study will also helps us understand how the introduction of these services can create more jobs in Kenya.  It helps us understand how the introduction of these services can create more  jobs in Kenya, bring insurance to more people and increase our GDP. While the results of our study are not absolute, they give an indication of what is possible with the appropriate regulatory framework and governmental support.

A global telecommunications operator like Safaricom has a unique role to play in the development and expansion of mobile financial services. We hope that through a better under-

standing of how these services can affect the world, the tele-communications industry can contribute to the prosperity and economic prowess of the nations in which it operate.  

MFSs have the power to create opportunities for the rural poor by increasing financial security and reducing the cost of transactions. It supports the government’s goal to keep children in school, as it is easier for families to keep children in school through better money management.

Mobile financial services also leads to: improved access to healthcare through simpler payments and health insurance, increased opportunities for women to access

banking and control allocation of funds within the household, and increased transparency through fewer cash transactions

A comprehensive regulatory framework must be in place in Kenya, one that extends freedom of action for the non-banks, in order for mobile financial services to become widespread. Kenya has already shown great progress in regulating mobile financial services by allowing financial institutions to engage with different types of agents and acknowledging the mobile operator as a type of agent. Pakistan has prioritized consumer protection in its regulations, suggesting customer awareness programs and holding banks liable for any fraudulent behavior of its agents. The regulatory challenge remains to improve flexibility. One potential barrier is that the policies covering anti-money laundering and the prevention of financing terrorism currently apply to banks only, and have not yet been customized for mobile financial services or branchless banking activities. In addition, the requirements for the registration of potential customers is currently a challenge, namely due to the fact that approximately 20% of Kenyans mostly the Youth, do not possess a national identity card. Limits on transaction amounts can also present a hurdle for widespread adoption of mobile financial services, as a reduced transaction amount can lessen the appeal for customers. Financial inclusion can help support Kenya’s goal  to be a strong, developed and united nation. Mobile financial services is a direct answer to reducing the barriers for the rural poor to access banking services, and it can also serve as a toolkit to support human  capital development and help poor individuals avoid the worst outcomes. Financial exclusion and poverty are highest in the rural  areas of Kenya. Overall, 50% of Kenyans live in poverty, largely concentrated in rural settings where a

large portion of the population is entirely unbanked (KNBS 2009). However, poverty is not limited to the rural areas . Many urban workers are equally at risk, as a significant number of these individuals live off of low wages. The urban poor typically take advantage of informal means of financing, such as borrowing from friends and relatives or seeking help from illegal moneylenders. These informal methods of acquiring money could be alleviated through loans that are remitted directly via mobile financial services. Mobile financial services can also stimulate female empowerment in Kenya. Increasing women’s access to funds is shown to have positive effects on children’s health and education. Currently 45% of Kenyan women do not make health decisions for the family; however studies show that women are more likely to allocate money for a child’s health, education and household than men. Mobile financial services can make it easier for a woman to have control over the family’s needs, namely through access to direct loan distribution and savings accounts.

This study will be quantitative in nature. It also discusses the effect of process, product and technological development on delivery of the mobile banking service. Its impact on financial performance of financial institutions in Kenya as well as the provision of services from banks’ perspective and ultimately its effect on economic growth of our country.
This study seeks to help quantify the profitability of mobile banking in Kenya.
It discusses the basic motive of banks to adopt M-banking services which has been
facilitated by increased competition in the market and the need to provide more and
better service delivery to customers.
This study aimed at bringing out the positive and negative contributions of mobile
banking in the banking industry and the general impact of it on the nation’s financial
performance. The results show 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. For banks, the main motive to introduce mobile banking is to increase their clientele, to
retain their customers, reduce costs and make profits.
The research was conducted through a survey design and secondary data from
financial statements of seven banks in Kenya. Data collected was quantitative. Some qualitative analysis was done to be able to
establish the opportunities that mobile banking has helped in attaining financial
performance.
The research shows that mobile banking to a larger extent impacts the financial
performance of commercial banks in Kenya in that it helps reduce unnecessary cost, increase efficiency and improves on service delivery to customers. This on the other hand increases the banks profits in the long run.
The study concludes that Adoption of mobile banking is very important in the
improvement of financial capital adequacy of commercial banks and profitability.
Mobile banking is being used to improve financial operations. The banks have put in
place measures become more competitive by training its staff, investing in research
and development of technology.
The study recommends that for all the commercial banks to earn more profit, increase
the number of customers and for their businesses to grow further, they have to invest
more as well as embrace the adoption of market innovative strategies.
It also recommends that banks should adapt the new technologies being introduced in
order to cope with the fast changing technology like use of tablets. To theory this
study recommends that research into the innovation theories should be done with an
aim of validating the theories to the current operating environment of banks. For
further research the study suggests that commercial banks should investigate the
effects of innovation strategies. The same study can also be conducted in other
types of industries.

1.2  Statement of the problem

Development and the introduction of mobile banking to Kenya had a revolutionary impact on the scope of business and how day to day transactions are carried out. Currently, Kenya prides herself with the services of over 45 commercial banks of which most of them have mobile and agency banking departments.  The performance of most of these banks with regards to profitability, liquidity, loan disbursement, customer netting among other performance indicators has being rated satisfactory.  The performance of mobile banking as a model has been very successful in propelling the performance of commercial banks in many developing countries. Success stories have being reported in many developing countries like India, Peru, Bangladesh, Nigeria and Brazil.  As such and owing to the accelerated competition of banking services in Kenya today, at least 8 out of the 45 Kenyan commercial banks have embraced mobile banking model. Also, the 4 main network providers in Kenya; Safaricom, Airtell, Orange and YU are the major pioneers of this important sector.

Safaricom introduced MPesa services in 2008 and since then the service has attracted more than 17 million subscribers. MPesa allows clients with a national ID card or passport to deposit ,withdraw and transfer money easily with only a mobile phone device.  Furthermore, with the introduction of MSHWARI by Safaricom and Mkesho by Equity Bank has enabled users to save and also to have access to soft loans hence providing an enabling environment for microfinance to thrive.

However, some retail business operators like M-pesa lack sufficient information  on factors that determine the profitability of their investments. The reasercher will explore these factors in detail , for instance the effects of security concerns that make M-Pesa retail operators not to keep sufficient cash for transactions in their shops and hence they are unable to effect large sums of money transfers.  This leads to loss of profits and customers are not fully satisfied.  (Ratan 2008)

Inspite of the success of mobile banking globally and good performance of commercial banks in Kenya, there are a number of challenges facing the agency banking model. To begin with, many of the banks that have embarked on mobile banking roll-out have found that agents lack the capacity to handle large transactions of cash and that they are not spending enough on security measures leading to poor performance of mobile banking. (Melinda 2012)

Several research studies have being done on agent banking: Omumi (2010) did a study on agency banking and use of agents including Postal Corporations of Kenya: Mauricio and Mandrile did a study on a new agent model for agency banking in Colombia.

However, in Kenya, how the utilization of mobile banking has contributed to the performance or non performance of these banks is not documented. Also, it not yet documented the effect of mobile banking on the economy and poverty reduction struggles in Kenya.

It is against this background that the researcher will conduct a study on how mobile banking affects the performance of commercial banks in Kenya, the country’s overall GDP and the poverty reduction process.

1.3  Research Questions

i.                    How has mobile banking contributed to the country’s overall GDP?

ii.                  What were the impacts of mobile banking on the cost of doing business in the country?

iii.                How has mobile banking improved the lives of the poor and the marginalized in the country?

iv.                 What are the effects of security of security on the performance of commercial banks attributable to mobile banking?

1.4  objectives of the study

The broad objective of the study was to investigate how the innovation and the introduction of mobile banking in our today’s society impacted on the fight against poverty in Kenya.

Other objectives of the study include:

i.                    To establish how mobile banking has contributed to the country’s overall GDP and consequently, its income per capita.

ii.                  to find out how mobile banking improves the lives of the low and middle income earners in the economy

iii.                To determine how mobile banking has impacted on the real time and the cost of doing business.

iv.                 To evaluate the effect of security on the performance of commercial banks attributable to mobile banking.

1.5        importance of the study

Mobile Banking plays a crucial role in both the economic and social welfare being of the Kenyan people.  This study will inform Kenyan commercial banks on the actual contribution of mobile banking to their performance or non performance with a view of sustaining the gains thus made and addressing any weakness that may be observed.

Moreover, many financial institutions in Kenya (Equity Bank, KCB, Post Office and the Corporative Bank) have turned to mobile and branchless banking methods such as agency banking in their efforts to increase their competitive advantage over their rivals.

Mobile banking in Kenya is still at its early stages with a limited number of providers that are operational.  There is a risk that an IT failure could interrupt services, preventing access to mobile banking, limiting customers’ access to their money and undermining consumer confidence in these services. Mobile banking services like MPesa and Mshwari experience frequent and prolonged delays and hence demands urgent attention, which therefore justifies the relevancy of this study in providing guidance in mobile banking.

1.6  scope of the study

The purpose of this study was to evaluate the role mobile banking in the performance of Kenya’s economy. The target population was 45 commercial banks and 100 MPesa agents distributed all over Kenya.

1.7  Limitations 

This study was limited to the role of mobile banking in the performance of the overall Kenyan economy.

The researcher reckoned that these are not the only indicators of performance. Indeed many more factors contributed to the performance of Kenya’s economy which includes existing legal framework, and political stability among other factors. To this end, study targeted managers of respective banks and telecommunication companies that offer mobile banking services.

The study was limited to Kenya only due to financial, time constraints and other logistics.

1.8  Assumptions of the study

The sampled mobile operators and banks represent the entire population of mobile banking institutions in Kenya.

The interviewees gave all the information without any reservation and with at most sincerity.

1.9  chapter summery

 

CHAPTER TWO

Literature review

2.0  Introduction

Mobile Banking means Electronic banking that uses mobile phone technology (or other wireless devices) to deliver electronic financial services to consumers. It has been taunted as a powerful new marketing consumer relations method for financial services companies (Sinisalo 2007). This is true because mobile phones make it simple to communicate with the target market and establish a stronger relationship as banks provide market compelling- needed services (the World Bank 2009).

Also mobile devices improve the quality of the service because clients can perform transactions at their convenience wherever and whenever they want it, provided there is connection.

The study will look at the factors influencing mobile banking in Kenya and its role in economic development in various sectors.  Related literature was reviewed in the following areas.

2.1  Impact of Mobile Banking on Kenyans in the Rural areas.

 For individuals in Kenya’s rural areas, mobile financial services provides easy accessibility to banking services that have previously been unavailable. The costs of the services are typically lower, transactions can be made instantly from anywhere, and customers no longer need to be so reliant on cash. Increased financial inclusion will lead to Kenya’s GDP growth of 3% by 2020

(primarily through increased entrepreneurship. This will

also contribute to the creation of one million additional

jobs.

2.2  The Impact of Mobile Banking on Unemployment

Mobile Banking sector is one of the biggest employer of youth.  With Safaricom leading the way, the mobile banking sector employs over 100 000 Kenyans.  Safaricom has over 40 000 M-Pesa outlets countrywide and each one is run by at least one agent.       

2.3  The Impact of Mobile Banking on Money Transfer Companies

A number of papers have documented the impacts of mobile phones causing reduced price variation in markets. Jensen (2007) and Aker(2010) find that the introduction of mobile phones

reduced price dispersion in fish markets in India and grain markets in Niger respectively. In these instances the mobile phone technology has increased information flows, which has resulted in price reductions. In contrast,the development and introduction ofM-pesa can be viewed as a "disruptive technology" (Bower and Christensen, 1995) or an example of "creative destruction" (Schumpeter, 1942 and Aghion and Howitt, 1992)

, where M-Pesa revolutionized the money

transfer industry. M-Pesa became the dominant money transfer mechanism within 2 years of its inception. Ethnographic work by Morawczynski (2009) suggests that M-Pesa's popularity has been driven by its speed, safety, reliability, extensive network of outlets, and its price relative to the alternatives. Prior to the introduction of M-Pesa, Kabbucho etal (2003) document that the cost of instantly sending US$100 through formal channels ranged between US$12 (MoneyGram) and US$20 (bank wiretransfer), while the cost slower formal channels ranged from $3 (bus companies) to$6 (postal money order). Compared to these alternatives M-Pesa offered a significantly cheaper method of instantly transferring funds, wherethe cost of sending US$100 to a non-registered user by M-pesa was approximately US$2.50 in

early 2008, while the cost of sending to a registered user waseven less (Safaricom, 2008).

The dominance of M-pesa can also be observed in the the financial statements of the

competitors. Gikunju (2009) examines the financial statements of the Postal Corporation of

Kenya and finds that revenues and profits for its PostaPay money transfer service declined rapidly after the introduction of M-Pesa and suggests that Western Union’s and MoneyGram’s

profits have also declined over the same period. Faced with obsolescence, money transfer

companies such as Western Union and MoneyGram have responded by cutting prices, even

though they are still unable to match M-pesa's superior convenience (Gikunju, 2009)

 On average, the commission (defined asprice to send money divided by the amount sent) charged for money transfers fell from approximately 7% in 2003 to 3% in 2010. However,

we cannot entirely attribute this decline to the competitive pressures induced

by the M-Pesa revolution as other factors such as general technological changecould reduce transaction costs and thus reduce prices. Therefore, simple before-and-after comparisons of the price changes will not be sufficient to identify the competitive impact of M-Pesa on the prices of competitors. For example, Central Bank Regulations placea maximum transaction limit of 35,000 Kshs on M-Pesa, while the transaction limits of MoneyGram and Western Union transactions exceed 500,000 Kshs. Given these transaction limits, we would expect to see greater competitive pressures due to M-Pesa on transactions below the M-Pesa threshold of 35,000 Kshs compared to transactions above that threshold. Figure 5 provides some suggestive evidence of this effect.

Focusing on Moneygram, we see that the prices for smaller transactions decreased dramatically,while those for large transactions remained more static.

While M-Pesa has forced money transfer companies to lower prices, M-Pesa has also

induced these firms and other financial firms to improve their products and services. In some cases, firms have partnered with M-Pesa to offer an integrated service. For example, Western

Union recently partnered with M-Pesa to offer international money transfers in which migrants in the diaspora can now send remittances to their friends and family via M-Pesa with Western Union serving as an intermediary. Pesa-Point, an independent network of ATMs, allows M-Pesa

users to withdraw cash using its large network of ATMs. Commercial banks in Kenya were

initially opposed to M-Pesa and lobbied the government to regulate M-Pesa and other mobile

money platforms under the commercial banking regulations (Njiraini and Anyanzwa, 2008).

After these efforts failed, banks partnered with M-Pesa to offer better services to customers and in some cases became M-Pesa agents. There is also suggestive evidence that M-Pesa has

increased the efficiency of the banking system. According to a 2009 newspaper article, the advent of M-Pesa has caused commercial banks to work hard toward speeding up the check clearing process, which took a minimum of three days.

This has led to a more competitive market which is necessary for an economic growth.

2.4 The impact mobile banking on Investment Returns

Impact investing refers to investments made based on the practice of assessing not only the financial return on investment, but also the social , economical and environmental impacts of the investment that happen in the course of the operations of the business and the consumption of the product or service which the business creates.  An impact investor seeks to create social good or improve  the health of the environment, as well as achieve financial returns. The more profits these mobile banking institutions record , the more tax the government will collect and there will be positive change on the country’s GDP.

2.5  Impact of Mobile Banking on Governments Service Delivery

The government can also benefit from mobile financial services, using it as a less costly means

to distribute welfare and subsidies, as well as enable e-government services such as passport applications and social security requests, for example. Through inclusive economic growth and reduced inequality, stimulated by mobile financial services, families and business will be better equipped to withstand the unexpected and improve their lives through education, health and entrepreneurship. As such, Mobile financial services directly supports Kenya’s Vision 2030.

             

           

 

2.6 CONCEPTUAL FRAMEWORK

The conceptual framework for this study was based on the effects of mobile banking on Kenya’s economy .   the study focuses on the factors that affect investment returns of Mobile Banking Sectors .  the framework comprises of the internal and external factors that affect the performance of Mobile banking outlets in Kenya. 

The dependent variable in this study is the investment returns measured by how much commission is received at the end of the month under various circumstances , that is, factors that affect the day to day operations  of the business. In this case,  independent variables are location, security, cash float, competition and the Bank commission ratio.  The intervening variables are government legislations, education levels of employees and honesty, Bank rules and regulations.

A schematic representation of conceptual framework is indicated below.

Diagram soon to be released

Source: researcher (2013)

                                             CHAPTER THREE

                                    RESEARCH METHODOLOGY

3.0 Introduction             

 In this section various methods that will be used in carrying out the study will be explained. The chapter is going to be organized in the following subsection. Research design, population, sample and sampling procedures, instrumentation data collection procedures and data analysis.

3.1 Research design 

Research design are plans and the procedures for research that span the decision from broad assumptions to detailed methods of data collection and analysis (John 2009)

Survey reaserch provides  a quantitative or numeric description of trends , attitudes  or opinions of a population by studying a sample of that population. It involves cross sectional and longitudinal studies using questionair or structural interviews for data collection with the intent of generalizing from a sample to a population.

This study will adopt an exploration approach using a descriptive design to investigate the factor that affects investment returns of mobile banking businesses , clients and its overall contribution to the economy in Kenya and other intervening factors , descriptive surveys , design are used in preliminary and exploratory studies (Luck and Ruben 1992) to allow the researchers to gather information ,summarize, present and interpret for the purpose of classification(Orodho , 2007).

The researcher collects data to make reference about the population of interest at one point in time (Paul, 2011)

The study will be descriptive in design. The study will use statistics like percentages, proportions correlation and graphs. The descriptive design will be applied because the study involves describing a relationship that exist between a set of variables. The study will aim at collecting information from managers and agents on factors influencing mobile banking, its roles, performance and contributions to the national economy.

3.2 TARGET POPULATION

The study will be carried out in Kenya on selected Mobile Banking branches. The target population and business sectors will be all the banks, small and microenterprises , the  unemployed, women  who have at least used mobile banking in the past 6 months.

As at December 2012, there were over 17 million  Safaricom subscribers , actively using the M-Pesa services, and at least another 5 million using Airtel Money, Equity and Orange Money.

3.3 SAMPLE AND SAMPLING PROCEDURE

Sample of around fifty (50)  Equity, Airtel and Mpesa agents across Nairobi, Kisumu and Mombasa will be used in this study. This is based on the recommendation by kathuri and pals (1996) who recommended a sample size of sub-groups of between 20 to50 for survey research. This number was taken to be fairly representation of population in all the 47 counties in the country. It will also be the number the available financial recourses could be able to cater.

3.4 DATA COLLECTION

This study will employ the use of both primary and secondary data.

Questionnaires, personal interviews and observation were used to collect data. The questionnaires will consist of both closed and open-ended questions. The questionair will have 2 sections ; one dealing with general information on the participants, and section two which seeks information on the factors affecting Mobile Banking, profitability and to what extent.  The questionair is going to be presented in the form of statement of a 1 to 5Likert scale for respondents to score statements that describe factors affecting the Mobile banking sector performance.  

3.5 DATA ANALYSIS

Data will be analysed using descriptive statistics. First step in the analysis will be to classify and tabulate the information collected. The questionnaires will be edited to ensure completeness and consistency. Coding of data will be done to convert responses into measurement that could be statistically analysed. Descriptive statistics will be used to describe data collected from the research. This will include the mean and standard deviation. Measures of central tendency will be used to determine the mean score from the group of scores in the study. The mean was then used to draw conclusion.  Measures of variability will be also computed to show variance within population and this will be done using standard deviation. Frequencies and percentages will be used to describe and summarize the data.