CHAPTER ONE1.0 INTRODUCTION1.1 BACKGROUND INFORMATIONA Savings and Credit Cooperatives (SACCOs) is an association of individuals with similar interest and registered by the ministry of cooperative development and marketing in Kenya. This is according to the ministry of cooperative (2009).Each and every SACCO in Kenya is governed by the SACCO by-laws. These by-laws state the objectives of the SACCO, membership, capital share, structure of the organization, management and lending regulations of the SACCO.SACCO Society Regulatory Authority (SASRA) is the body involved in coming up with the by-laws to govern the SACCOS.
In most SACCOs, there is a professional management team that reports to a committee. This committee is usually elected by the members to the SACCO. Most of these SACCOs in the country have restricted membership to certain sectors or industries of working. For example there may be one offering services to farmers or teachers only.A Savings and Credit Cooperatives is a type of organization whose goal is to enhance savings for its members and then provide them with credit services (UN-HABITAT, 2012).
The general goal of SACCOs is to grow its members’ wealth.In Kenya, SACCOs are currently among the best sources of credit for socio-economics development (Alila & Obado, 2013). The history of SACCOs in the country began in the year 1908 where membership was only to the white colonial settlers. It was until the late 1944 where blacks were allowed to form their own cooperatives (Gamba & Koma, 2012).SACCOs seem to be looking at a possible failure since there has been a slow-adoption of modernization and micro-finance institutions have embraced computerized systems or in other words, the digital system.SACCOs on the other hand have been seen to be at a stagnant position with this adoption. A recent technology meeting that was held for SACCOs chief Information Officers said that SACCOs have begun to rise up to the new digital world. It has reached a point where SACCOs have no option but to catch up if they want to stay in business (Kariuki, 2019).1.1.1 PURPOSE OF SACCOSCooperatives are deposit and a superb way to tunnel your savings. They accept deposits from members and in turn lend them out or invest in authorized ways for example treasury bills and bonds, purchasing shares and also in real estates. The purpose to which these cooperatives are established is to coordinate and build up the economic welfare of its members in accordance with increasing their wealth. In addition, the following are the objectives of SACCOs: To build up confidence in its members by accruing their savings and deposits in order to enable issuing of loans at reasonable interest rates. This enables the members to use and manage their money for their own good and the well-being of the SACCO. To create awareness to members through education program on proper management of loans and also ways to reduce poverty. To provide a platform where each member can improve their economic and social situations. To safeguard members funds through different programs like risk management and insurance schemes.126.96.36.199 INTERNAL CHALLENGES Inadequacy of skilled man-power. Poor management and governance. Poor technology. HIV/AIDs. 188.8.131.52 EXTERNAL CHALLENGES Competition. Social factors. Economic factors. Government policies.1.1.2 TOWER SACCO SOCIETY LTDTower SACCO was first registered in the year 1976. Its purpose was to offer services to teachers only. It was originally founded by 10 members. This number has drastically risen as compared to today’s 90,000 members and with over 20 branches countrywide.It was initially known as Nyandarua Teachers SACCO until 2012 when they decided to change the name to Tower SACCO and the policies so as to incorporate all members of the society not only teachers. The SACCO has two departments:a) Back Office SACCO Activity (BOSA).Only shareholders of the SACCO enjoy these services. It concentrates in issuing BOSA members loans that include Normal loans, Emergency loans, School fees loans, Salary advances including others.b) Front Office SACCO Activity (FOSA).This department includes both the shareholders and the non-shareholders. It has services like; Savings account, Save as you borrow, Stop gap account, Current account among others.Tower SACCO is now adopting technology and has brought up a mobile banking system allowing members to transact via the mobile phones at their convenience. This service allows withdrawal, deposits, balance, request for mini statement, and change of pin. The SACCO is in the process of improving its system to having members apply for loans online.1.2 STATEMENT OF PROBLEMRecently, there has been an amazing rise in the use of ICT more particularly in the banking sector. Information Communication Technology includes brands like security, internet banking and electronic payments (Berger, 2016).In Kenya, the rural areas remain a challenging objective that is provision of sustainable financial services. Micro Finance Institutions (MFIs) have been trying to curb with this challenge since commercial banks have neglected these rural areas in the country. In the country, SACCOs are known to play a considerable role I providing these financial services to the rural areas.According to (KIPPRA, 2017), as of 2007, savings via SACCOs stood at Kshs. 29 Billion and the advances were at Kshs. 22 Billion. This shows how SACCOs are effective as financial intermediaries.The recent trends in adoption and utilization of ICTs like Management Information Systems (MIS), smart cards, mobile phones and others make it possible for cooperatives to offer services to their customers more efficiently and effectively through the reduction in the amount of paper work, information access and the ability to compute complex analysis.There has been a digital split between rural and urban SACCOs. There seems to be a bias favoring the urban cooperatives. Inadequate networking and telecommunications network particularly in rural areas has seriously tampered with the exchange of information and communication.In Kenya, cooperatives face serious difficulties and since commercial banks and macro finance institutions threaten to put them out of business.Tower SACCO has computerized its services and it’s able to network its departments. It however faces some challenges due to infrastructure and competition from commercial banks.The SACCO has adopted and still adopting latest technology with the aim of improving the quality of services provided to its members. 1.3 OBJECTIVES OF THE STUDYThe research includes objective and specific objectives.1.3.1 GENERAL OBJECTIVETo determine the types and nature of ICT and to what extent it is adopted and utilized by Tower SACCO with the purpose of spotting gaps and come up with a strategy of effective adoption and utilization of ICT.1.3.2 SPECIFIC OBJECTIVE1. To establish the nature and types of ICT adopted by Tower SACCO.2. To investigate the extent to which ICTs have been used for service provision to customers.3. To find put the policies and regulations used to support adoption and utilization of ICTs by Tower SACCO.1.4 SIGNIFICANCE OF THE STUDYAccording to (Kinamba, 2016), cooperative banks have been setting up plans to assist centralization of SACCO operations. This could not be possible unless ICT is enhanced among SACCOs.The study has the following benefits:a) The study shall assist SACCOs in providing their customers with quality services. This in turn makes it possible to introduce new products ensuring they are on top of the competition.b) This study shall also help the government by becoming an eye opener to see the importance of SACCOs and the benefits that may come from empowering them.c) The SACCO members shall also benefit from this study. This is because they shall enjoy new and quality products and services through the right adoption and utilization of ICT.1.5 LIMITATIONS OF THE STUDYThe study had a limitation of focusing on one SACCO. It figured a way to overcome the limitations by picking a SACCO that has a large presence.Tower SACCO has a wide area of operation (more than 4 counties) and a huge number of members (over 90,000).There was narrow information about ICTs and SACCOs in Kenya but the study really tried to blend information from other developing countries with similar characteristics to Kenya.1.6 SOPE OF THE STUDYThe study has covered one Savings and Credit Society (Tower SACCO), located in Nyahururu, Laikipia County. It was a case study involving members and staff of the SACCO.The main sources of information of the study were; KUSCCO and The Ministry of Cooperatives and Marketing. They also included policy makers and managers involved in decision making of the SACCO.1.7 SUMMARYThis chapter introduces the research topic by describing the Savings and Credit Cooperatives Society. It also discusses the aim, objectives and limitations of the study.CHAPTER TWO2.0 LITERATURE REVIEW2.1 INTRODUCTIONThe contents in this chapter review the literature on ICT adoption and utilization by the micro finance institutions.It is divided into sections discussing theories that explain the reason and importance of adopting and innovating.Ways via which micro finance institutions use ICTs, the benefits they get and the challenges they face in adoption and utilizing ICT are also explained in this section.Topics covered include; Concept of acceptance, applications, adoption and utilization of ICT in micro finance institutions, benefits of computerized information systems to SACCOs, challenges faced by MFIs and ICT generally in the country.2.2 THEORETICAL REVIEWAccording to Cambridge Dictionary, a theory is a formal statement of instructions based on subjected study or ideas suggested to explain a fact, opinion or explanation.There are various theories that explain the adoption and utilization of ICT. The factor of accepting to adopt and utilize ICT is very crucial towards realizing the benefits if ICT.2.2.1 TECHNOLOGY ACCEPTANCE MODEL (ATM)According to (Davis, 2016), the Technology Acceptance Model comprises of variables including perceived ease of usage, perceived usefulness and attitudes towards the economy. These variables are often guided by external variables that explain changes in perceived usefulness and ease of use (Abdullar & Ward, 2016).These external variables reveal personal abilities next to circumstantial factors. Table 184.108.40.206 shows an analysis in the most important factors in Technology Acceptance Model. They refer to the extent to which an individual accepts that using technology could improve their job performance and it would make their job free from difficulty. TAM also comprises of an outcome variable which predicts the use of technology.However, the Technology Acceptance Model deals with the thought of the user, or perception instead of usage (Davis, 2016). He continues that it is the degree of one’s perception that brings an improvement in performance.Technology Acceptance Model explains that the attitude and perception of the users that finally affects efficiency and effectiveness of use and hence improved performance.Grandon and Person performed a research using Technology Acceptance Model in 2004. They compressed these issues into topics like Social factors are crucial in the decision to adopt electronic commerce, The industry is pressured by the government to adopt electronic commerce, without acknowledging other factors involved.The theory concludes that when an individual has an intention to use technology, that there are fewer limitations compared to when one does not use technology. In reality, there are other factors that affect this topic such as inadequate ability, time and organizational factors.It is therefore logic to conclude that lack of acceptance could lead to invaliding the rest of the theories. Acceptance is an initial phase and it shapes the attitude of adoption and utilizing ICT.Table 2.1 Overview of the TAM variablesTAM Main Variables Perceived ease of use (PEU) The extent to which an individual accepts that using technology would be free from difficulties. (Davis, 2016).Perceived usefulness. (PU) The extent to which an individual believes that using technology could improve job efficiency and enhance performance.Attitudes towards technology. (ATT) Perceived behavior brought as a result of using ICT (p. Zhang, 2012).2.2.2 Resource-Based theoryThis theory came out as confusing at times. This is because the word resources can come out in different ways. It is therefore very crucial to differentiate strategic resources from other resources.When analyzing organizations, there are those resources that are important but are not strategic. For instance, cash and vehicles. They are very important to an organization but are not strategic. Therefore, an organization cannot hope to remain in a competition edge depending only on the common resources.A strategic resource can be described as an asset which is valuable, very rare, and hard to imitate or substitute.The Resource-Based theory strongly highlights the ability of any firm lies on adopting e-business and recognizes that the resources may or may not be used to their fullest potential.According to a study done by (Calderia and Word, 2013) shows that firms have performed better with e-business (ICT) since they use it to enhance their strategies and keep up with competition.Resource-Based theory does not explain decisions made in adoption of ICT in small businesses and for this it does not sufficiently explain the process involved in e-business adoption.2.3 Empirical reviewThe empirical review examines the factors influencing ICT adoption in organizations basing from the specific objectives.2.3.1 Adoption of ICT by SACCOsAs mentioned earlier in this study, cooperatives have been seen to pick up ICT by a slow pace. According to (Ali Noor, 2018), there have been many reported cases of cooperatives being robbed off their money or data to some system hackers. He also adds that the obvious way to handle with the associated risk is only adopt proper technology.An economic survey done in 2019 showed that there has been a significant increase because of the rapid developments in the banking sector.In 2018, there was an expansion in the output of the ICT sector by 12.9%. The growth was mainly supported by the improvement of the digital economy that includes mobile phones, internet and the coming up of e-commerce.In a publication made in The Kenya Yearbook 2011/2012 showed that SACCO sub-sector has been considered to be the fastest growing in the cooperatives society. SACCOs in Kenya are rapidly growing. They account for 64% and 63% country’s savings and loans respectively. They are relatively responding to the fast changes in the finance environment and also adopting ICT and the new models it brings with it.SACCOs face stiff competition from banks and other financial institutions and therefore have no other choice but to adopt and utilize the upcoming trends in technology (Martin, 2017).2.3.2 Extent to which SACCOs are using ICT for service provision to customers.(Narayan and Petesch, 2018) noted that the cooperative sector is evolving in the adoption and utilization of Information and Communication Technologies in their day in day out activities as technology rises from one level to another.The use of ICT was brought in cooperative societies purposely to cope with competition from banks and other financial institutions. The utilization of Information and Communication Technology has played a significant role in the SACCO performance in the service delivery and management has become effective and more efficient.In Kenya, the growth of ICT adoption in cooperatives have been often influenced by various ways like the number of mobile telephone lines, number of services offered, number of literate people, stations in the broadcasting sector and their corresponding share in the market.The proof from previous studies have portrayed that cooperative societies can perform more efficiently and effectively by using ICT. This in turn avails a number of benefits to the members. The following as some of the benefits to customers as a result of ICT:a) Connections between the members- Members can transact with other members from a different SACCO. This is through electronic transactions. In other words, E-commerce.b) Improvement in the accounting and administration models- ICT allows efficient record keeping that allows cooperatives to provide services transparently and much better.SACCOs have invested in ICT systems and hence improved the reputation to attract more members’ hence qualified staff and gaining trust and confidence from members.2.3.3 Policies and Regulations put in place to support use of ICT in SACCOs.In a circular released by SASRA (SACCO Societies Regulatory Authority), it is working hand in hand with other organizations to improve Management Information Systems (MIS) used in SACCOs.SASRA is putting in place policies and regulations which SACCOs shall take up and use ICT to benefit both the members and themselves. 2.4 Summary and gaps to be filled by the studyFrom a publication by The Ministry of Industry, Trade and Co-operatives state department of Cooperatives 2017, a policy with a theme Promoting Cooperative Enterprise of Industrialization calls cooperatives to adopt and use industrialization of the country as evidenced in Kenya Vision 2030.The study has proved gaps in the cooperative societies taking up ICT. Some of these gaps include the managers having little awareness with ICT; some SACCOs in the rural areas have inadequate access to proper technology and also government’s negligence to SACCOs.The study shall be useful in creating awareness to managers to realize the usefulness of adopting and utilizing ICT.The government shall also benefit such that it shall set aside funds to develop SACCO’s technology development since SACCOs play a major role in the economic development in the country.2.5 Conceptual FrameworkFigure 2.1 Conceptual FrameworkNature and type of ICT adopted. Extent to which ICT is used.Adoption and utilization of ICT. Dependent Variable.Policies and regulations. Independent variables. Source: Muchuiri (2019) 2.6 Chapter Summary.The chapter concludes that if ICT is adopted and utilized fully, rural micro finance institutions can really transform for the best.