The Use of Information Technology to Transform the Banking Sector in Developing Nations

Editorial Introduction Sherif Kamel Associate Editor

School of Business, Economics and Communication, The American University in Cairo, 113 Kasr El Eini Street, P.O. Box 2511, 11511 Cairo, Egypt. E-mail: skamel@aucegypt.edu

1. INTRODUCTION Information technology (IT) is increasingly becoming an invaluable and powerful tool driving development, supporting growth, promoting innovation, and enhancing competitiveness. Emerging information technology offers opportunities for developing nations to leapfrog earlier stages of development. It is also important to note that with an increasingly global environment less limited by time or distance, nations around the world need to get connected and join the global networked community. Otherwise, they may fall further behind and the gap they have with the developed world could get wider. Additionally, there is growing evidence that information technology is becoming an increasingly powerful tool when used as part of an overall development strategy coupled with partnerships between governments, business, and civil society (World Bank, 2003). Information and communication technology coupled with knowledge management hold much potential for propelling the development process (Okpaku, 2003). The vital role information and communication technology is playing is felt across many industries and sectors, affecting both economic development and growth at large in many societies. The resulting implications have had a major role in transforming such sectors and have affected the economic-development process in developing nations. The banking sector is an example in which information-technology infrastructures have had implications on the economic development of many nations in the developing world. It is important to note that the banking industry was one of the very rst to utilize information technology back in the 1960s, and has thus a record of inuencing the development process through the technology. There are many examples of information-technology applications in the banking sector that have helped build new markets and fuel the economy. For example, automated teller machine (ATM) technology adoption has increased community efciency, which led to a reduction in costs, improvement of quality, and increase in the added value to customers. However, some of the implementations of information technology in the banking sector in
Information Technology for Development, Vol. 11 (4) 305312 (2005) Published online in Wiley InterScience (www.interscience.wiley.com).
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the context of developing nations are often hindered by a number of challenges, including (but not limited to) lack of stability of the legislation, weak nancial sector, poor technological infrastructure, and relatively small Internet and computer penetration (Gurau, 2002). In recent years, developing nations are increasingly investing in building up and improving their technology infrastructure. For example, Nigeria is investing heavily in building its technology infrastructure. Among the areas they focus on are electronic commerce, electronic banking, and electronic learning (Akpan, 2003). Despite the potential of information technology to contribute to development, other factors, such as forming a community of users, are vital in order to realize potential role of information technology and take advantage of the opportunities created. In that respect, there is a need for the policies that enable the much-needed framework that can help realize the benets of information technology across different sectors. For example, the World Bank has developed a range of lending instruments to support governments in activities in the telecommunications, Internet, information technology, postal, and broadcasting sectors as well as ICT applications in other sectors (World Bank, 2003). Moreover, the International Finance Corporation (IFC) provides long-term nancing for private providers of information and communications infrastructure and services in developing countries, and invests with a focus on building successful information technology businesses in emerging markets (World Bank, 2003). There are a number of ways in which information technology is transforming the banking sector to enable development. It enables access to information, loans, and microcredit for poor farmers in rural communities. An example could be drawn from the case of the Grameen Bank, which was founded in 1976 in Bangladesh. The problem prevailing at the time was the virtual impossibility of the poor in rural Bangladesh to obtain the necessary credit from banks to start businesses and work to improve their socioeconomic conditions. The solution provided by the Grameen Bank was that it reversed some of the conventional banking practice by removing the need for collateral and created a banking system based on a mutual trust, accountability, participation and creativity. With the growing success of the model, more diversied operations were introduced in an attempt to improve the overall economic performance of the country (Haqqani, 2003). The role of information technology in the case of the Grameen Bank could be felt through its 68 different information management centers, each providing computer access to three of the banks branches; 10 of the 15 zone ofces have Internet access. The success of the bank could be measured through the 1 billion U.S. dollars it lent to over 2 million borrowers, virtually becoming the best-known microcredit program in the world; a model that is now replicated in 50 countries. According to a number of studies conducted by the World Bank, about 50% of the borrowers of the bank managed to get out of the poverty bracket, with more expected to follow suit (Haqqani, 2003). The model of the bank rendered the average household income of its members 25% higher than that of nonmembers. Another example could be drawn from the Grameen family of organizations that serves women at the village level in Bangladesh. Villagers, mostly women, eligible for microcredit, are given loans to purchase mobile phones (Village Phones). They subsequently provide telephone services for the villagers in their community, and through such services they earn enough money to repay the Grameen Bank loan. Each operator expects to earn more than 1,000 U.S. dollars per year in comparison to the countrys average of 380 U.S. dollars. The implications and added value of this project include remarkably reducing the cost of making a call for the rural community, who used to travel to nearby cities prior to the provision of such services. Also, owning mobile phones empowers rural women and them with economic independence and a more prominent role in their communities. Since

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October 2003, more than 39,000 Village Phones have begun operation in nearly 28,000 villages (World Bank, 2003). Further examples can be drawn from the experience of the Khula Retain Finance Intermediaries in South Africa, which is considered an investment intermediary that was established in 1997. The company provides loan and equity capital to small and medium-sized enterprises, a range of guarantee products to commercial banks and private sector nancial institutions that offer services to small and medium-sized enterprises, and a technology transfer guarantee fund to provide loan guarantees to small and medium-sized enterprises for the purpose of acquiring manufacturing technology, including information technology (Haqqani, 2003). According to the World Bank (2003) report on ICT and the Millennium Development Goals, information technology reduces transaction costs per customer and enables banks to provide small loans and services to a larger number of rural customers. For example, in the case of Brazil, although the poverty level dropped dramatically in the mid- 1990s, around 40 million people (25% of the population) still live on less than 80 U.S. dollars per month. The government of Brazil, therefore, used information technology in collaboration with the banking sector to identify the needy and make sure resources reach them. In that respect, the beneciaries can collect their income transfer from the bank through electronic cards, which not only reduces the possibility for corruption but also enables the provides information for designing, targeting, and monitoring programs with an objective to end hunger before 2007 (Social Policy in Brazil, 2003). In that respect, there are a number of elements that need to be provided for the community of developing nations to have access to the Internet, including education, language prociency, telephone access, computing facilities, and the ability to pay the associated expenses. Statistics document the fact that high-income economies households are ve times more likely to be using the Internet than those in lowest income economies households. Moreover, minorities, low-income persons, less-educated citizens, and children, especially in rural areas, are among the groups that lack access to information resources. It is important to note that the use of information technology represents a platform for business and socioeconomic development. The speed, direction, and determinants of information technology infrastructure directly inuence productivity, cost effectiveness, and competitiveness in industries (Antonelli, 1991). Technology can be used as a means to an end and not an end in itself; if so it could leverage and improve the developmental process of a nation, let alone a developing nation, if the infrastructure is enabled and effectively used (Kamel, 1998). However, between the north and the south, alternatively labeled developed and developing nations, there is a gap between those who have access to the Internet (information) and those who do not, also known as haves and have-nots (Kamel, 2001). Such a growing digital divide between the haves and have-nots already existed before the Internet evolution and has grown further, attracting increasing attention and awareness to the problem and spurring several initiatives and projects (Steinberg, 2003). There are a number of factors that are contributing to this divide. Segmented Internet accessibility along social class and educational capabilities is a signicant one. Statistics show that almost 10% of the worlds population now has access to the Internet. However, the majority are concentrated in the north, that is, in the developed world. There are, though, some changes in the global Internet, where, for the rst time, Europe has the highest number of Internet users, followed by the Asia Pacic region. But the digital divide between developed and developing nations is still wide, although some studies indicate some signs of improvement. For example, during the period 19952000, the digital divide appears to be

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closing for most developing nations, although minimally and unsatisfactorily, and it would probably take some time before a remarkable closing of the digital divide would take place (Sciadas, 2002). Forecasts indicate that the number of worldwide Internet users will reach 1 billion by 2005 (Computer Industry Almanac, 2001). It is important to note that with the increase in Internet and personal computer penetration, more users around the world would be ready to use the newly evolving information and communication technology tools and services offered by the banking sector, yielding a more informed user community that could help transform the role of the banking sector in economic development and growth on a global scale and especially in developing nations. Since inception, both the Internet and the World Wide Web have sparked an information evolution around the world, with millions of people relying on them for information interchange on a daily basis. Today, the Internet represents the global medium in the new millennium (Cerf, 1999) and is a major driving force of change and development in the global marketplace (Kamel, 1995). The Internet promises to improve peoples lives in the way they work, live, study, get entertained, and, more importantly, manage their nancial transactions and banking services. Information technology in developing nations is becoming a necessity for socioeconomic development (Press, 1999) and it can only be realized through a two-tiered approach where society will contribute in shaping the infrastructure and the infrastructure will help in shaping the society through appropriate sets of policies that include all major sectors, including the infrastructure of the nancial industry, with its banking-sector component. The evolution of information technology is affecting countries around the world, both developed and developing. This special issue of the Journal of Information Technology for Development addresses the evolving information technologies affecting the banking sector in developing nations. Such developments and evolution of technologies are leading to increasing competition in different nancial institutions around the world. For example, electronic banking is transforming the way banking services are being designed and delivered, with emerging technology channels and tools such as automated teller machines, phones, the Internet, credit cards, and electronic cash. In the past, banks faced signicant uncertainty regarding investments in advanced technologies, but today, they are investing heavily in technology to maintain a competitive edge, to contribute to the development of the community at large, and to demonstrate their added value to the society. 2. ORGANIZATION OF THE SPECIAL ISSUE There are four articles and a practice paper in this special issue that address informationtechnology penetration in the banking sector in developing nations. Following is a brief description of each article. The articles include a wealth of issues related to information technology for development, including the formulation of a new framework for nextgeneration electronic readiness, focusing on different electronic business applications in different economic settings in different developing nations, and moving to the assessment of the use of advanced information-technology applications in managing multichannel banking in Romania, and then to the experience of deploying Internet banking in India and the lessons learned, and nishing with a proposed extension and amendments to the technology acceptance model for its deployment in the context of Internet banking in Jordan among other developing nations. The rst article, entitled Global e-ReadinessFor What? Readiness for e-Banking, covers the rapid diffusion of the Internet worldwide and the considerable interest in

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various e-potentials of developing nations. The article reports on the ndings of a research project attempting with its theoretical and practical dimensions to answer the question of e-readiness for what? Maugis, Choucri, Madnick, Siegel, Gillett, Haghseta, Zhu, and Best developed a new conceptual framework for the next generation e-readiness, focusing on different e-business applications in different economic contexts with potentially different pathways, as well as a data model exploring e-readiness for e-banking in 10 different nations. The authors explored alternative pathways toward e-readiness that are consistent with their rejection of the proposition that one size ts all. Such pathways provided the basis for addressing opportunity-driven assessments for application with reference to a specic type of e-readiness opportunity in a particular domain. The guiding propositions of the authors included the following: 1. Different countries are characterized by different e-readiness proles. 2. There is a variety of variables that shape propensities for access and capacity with respect to different opportunities. 3. Such propensities enable the pursuit of specic applications within the scope of opportunities a developing country might have. The research focuses on 10 nations that are different in context, culture, size, and wealth, among other elements, with a set of goals including the identication of commonalities and variability in e-readiness requisites across countries, pathways to penetration for e-banking, and the related opportunities in e-banking applications. The article concludes that systematic measures are necessary for effective comparisons that are essential for improved understanding of e-readiness conditions. Moreover, based on value-driven opportunities, the theoretical approach used in the research is responsive to the realities of a specic situation, but at the same time the conjunction of an operational denition with a data model greatly enhances prospects for replicability, scalability, and validity, thus providing robust foundations for next generation e-readiness research, as indicated by the authors. Finally, the authors provide ideas for future research, where they indicate that there is a need to test the approach used in a wider range of issue areas and different situations, including a greater country coverage, extended data analysis, and a detailed application of the required data model, as well as the development of new tools needed to improve measurement and tracking, enhancing the overall coherence of e-readiness and providing a degree of predictive utility. The second article, entitled ICT Strategies for Development: Implementing Multichannel Banking in Romania covers the changes introduced in the Romanian economy in general, and in the Romanian banking sector specically, by the introduction of advanced information technology, and analyzes the progress of the Romanian banking system in managing a multichannel banking strategy. The research conducted by the author focused on exploring the market and organizational conditions needed for a successful development and implementation of multichannel banking services, the portfolio of channels within the Romanian banking system, and the strategies used by banks in Romania. The focus of the research was addressing the importance, feasibility, and challenges facing multichannel banking services implementation in Romania. The author concludes that the process of implementing multichannel banking strategies in transitional economies is complex and faces many challenges, including workow process, the development of the national telecommunication infrastructure, government support, and the quality of the banking services offered. The author also indicates that a number of banks in Romania have already started

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adopting multichannel strategies; some of them, especially branches of foreign banks, were introducing digital banking, creating a competitive advantage and pressuring local banks to move toward interactive banking as well. Finally, despite the relatively small client base adopting multichannel banking, banks are developing a reputation for being innovators and technology adopters, irrespective of the limited protable return. Gur u concludes by a predicting that the growth of the Romanian economy will gradually create more favorable conditions for further development of multichannel banking services. The third article, entitled Deploying Internet Banking and e-Commerce Case Study of a Private-Sector Bank in India, discusses the experience of a leading private-sector bank in deploying Internet banking and e-commerce in India. The article starts with an overview of the banking industry in India in terms of changing market conditions, leveraging information technology for competitive advantage, and the challenges faced by the industry, including the availability of a comprehensive core banking application system and the difculty in deploying a robust data communications network that would connect the branches of a bank to the data center hosting the core banking application system. Kannabiran and Narayan used an exploratory qualitative case study approach with the use of multiple information channels for data gathering. The authors studied the development of the bank since its inception, its business strategies, and its deployment of information technology, with a focus on the latest innovation, including Internet banking applications and the challenges faced related to Internet usage and electronic payment diffusion, as well as other issues related to trust and security and how the bank attempted to transform such challenges into opportunities for competitive advantage. The authors conclude that in emerging business environments around the world, banks have to be proactive offering products and services while aligning information technology with their business strategy, as well as integrating their internal business processes with external business partners. Moreover, according to the authors, the emergence of new business models for banks capitalizing on information technology has brought pressure on the government of India to review the business models of commercial banks to adopt more advanced technology levels and alternate delivery channels in order to remain competitive and maintain their leadership. The fourth article, entitled Toward a Model for the Acceptance of Internet Banking in Developing Countries, questions the appropriateness of the traditional technology acceptance model for the study of e-commerce in a developing country. The article focuses on research conducted in Jordan covering the penetration of Internet banking. Al Sukkar and Hasan attempt to provide more insights on the use of the technology acceptance model in the context of a developing nation, because previous research has mainly covered cases from the developed world. Currently, as noted by the authors, there is no empirical evidence that information-technology acceptance models established in developed countries can apply equally well in less-developed countries without some modications to account for the different context. This article attempts to identify the changes needed for the technology acceptance model to become as effective in developing countries as it is in developed countries, because at this point, despite its widespread use, the technology acceptance model is not universal in its applicability. As mentioned by the authors, the impact of culture is the most pervasive of the factors that could inhibit technology acceptance, because it controls peoples beliefs and shared values. The exploratory study of the diffusion of Internet banking in Jordan reported in this article will be used to suggest how the technology acceptance model could be enhanced to be useful in conducting further studies in different developing countries. The ndings of the research indicated that there are many barriers to computer use in general, and specically to the success of specic applications such as Internet

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banking; therefore, it is suggested by the authors that there is a need to develop and test potential explanatory models that may represent appropriate frameworks on which to base both the general studies of information-technology diffusion and specic studies such as those of Internet banking adoption in different developing countries. The research ndings also led the authors to conclude that an extension to the technology acceptance model is needed, including two sets of factors, such as cultural factors and trust from the consumer side and technology and quality-of-services issues from the banking side, which are factors that are not included in the original technology acceptance model. Finally, the authors indicate that the ndings of this research could be used as a model for more extensive empirical studies on Internet banking in Jordan, as well as in other developing nations. The nal practice paper by Larry Press provides a unique perspective on developing a global rural network. In drawing upon his experience in developing global rural networks, he lays out a strategy for providing high-speed Internet links in every rural village in the world. While this is a grand challenge, it appears to be attainable.

3. ACKNOWLEDGMENTS I would like to acknowledge all the authors of the articles and the help of all those who were involved in the collation and review process of this special issue of the Journal of Information Technology for Development. This special issue focusing on information technology penetration in the banking sector in developing nations could not have been satisfactorily completed without the support and assistance of all its contributors. The organization and delivery of a journal issue requires tremendous cooperation and assistance by all parties involved, and therefore I would like to express my sincere gratitude to all the contributors of this special issue, as well as to all the reviewers who contributed their feedback on the manuscripts submitted. I would like to acknowledge the contribution of the following reviewers: John Benamati (Miami University), Robert Davison (City University of Hong Kong, China), Galal Galal (Cairo University, Egypt), Gerald Grant (Carlton University, Canada), Calin Gurau (Groupe Sup. De Co. Montpellier, France), G. Harindranath (Royal Holloway College, United Kingdom), Helen Hasan (University of Wollongong, Australia), Hoda Hosny (The American University in Cairo, Egypt), G. Kannabiran (National Institute of Technology, India), Karen Loch (Georgia State University), and Khaled Wahba (Cairo University, Egypt). A special thank you also goes to Sajda Qureshi, the Editor-in-Chief of the Journal, whose contributions and support throughout the whole process from inception of the initial idea of the special issue to the publication have been invaluable. In closing, I wish to thank my wife and children for their love and support throughout this project.

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