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The Use of Information Technology to Transform theBanking Sector in Developing Nations

Editorial Introduction

Sherif KamelAssociate Editor

School of Business, Economics and Communication, The American University inCairo, 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 competi-

tiveness. 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 be-hind 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 first to utilize information technology back in the

1960s, and has thus a record of influencing 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 efficiency, 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)C

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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 financial sector, poor technolog-

ical infrastructure, and relatively small Internet and computer penetration (Gurau, 2002).

In recent years, developing nations are increasingly investing in building up and improv-

ing their technology infrastructure. For example, Nigeria is investing heavily in building itstechnology infrastructure. Among the areas they focus on are electronic commerce, elec-

tronic 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 ad-

vantage 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 benefits of information tech-

nology across different sectors. For example, the World Bank has developed a range of

lending instruments to support governments in activities in the telecommunications, Inter-

net, 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 financing for private providers of information and communicationsinfrastructure 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 bank-

ing 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 diversified operations were introduced in an attempt to improve the overall

economic performance of the country (Haqqani, 2003). The role of information technol-

ogy 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 offices 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 becom-

ing 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 householdincome 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 Interme-

diaries 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 enter-prises, a range of guarantee products to commercial banks and private sector financial

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 collaborationwith the banking sector to identify the needy and make sure resources reach them. In that

respect, the beneficiaries 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 proficiency, telephone access, computing

facilities, and the ability to pay the associated expenses. Statistics document the fact that

high-income economies households are five 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 influence 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 significant 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 first time, Europe has the highest

number of Internet users, followed by the Asia Pacific 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 worldwould 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 informa-

tion 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 financial

transactions and banking services. Information technology in developing nations is becom-ing 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 financial 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 financial institutions around the world. For example,

electronic banking is transforming the way banking services are being designed and de-

livered, with emerging technology channels and tools such as automated teller machines,

phones, the Internet, credit cards, and electronic cash. In the past, banks faced significant

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 information-

technology penetration in the banking sector in developing nations. Following is a briefdescription of each article. The articles include a wealth of issues related to information

technology for development, including the formulation of a new framework for next-

generation 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 finishing 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 first 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 findings 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 differentpathways, as well as a data model exploring e-readiness for e-banking in 10 different na-

tions. The authors explored alternative pathways toward e-readiness that are consistent with

their rejection of the proposition that one size fits all. Such pathways provided the basis for

addressing opportunity-driven assessments for application with reference to a specific 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 profiles.

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 specific applications within the scope ofopportunities 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 identification of commonali-

ties 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 op-

portunities, the theoretical approach used in the research is responsive to the realities of

a specific situation, but at the same time the conjunction of an operational definition 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 Multichan-

nel Banking in Romania covers the changes introduced in the Romanian economy in

general, and in the Romanian banking sector specifically, by the introduction of advancedinformation 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 im-

plementing multichannel banking strategies in transitional economies is complex and faces

many challenges, including workflow process, the development of the national telecom-

munication 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 profitable return. Gurau concludes bypredicting 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 difficulty 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 informationchannels 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 accep-

tance 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 ap-ply equally well in less-developed countries without some modifications 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 coun-

tries, 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 bank-

ing 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 findings of the research indicated that there are many barriers to computer

use in general, and specifically to the success of specific 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 specific studies such as

those of Internet banking adoption in different developing countries. The research findings

also led the authors to conclude that an extension to the technology acceptance model isneeded, 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 findings 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 final 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 Informa-

tion 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 followingreviewers: 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 in-

ception 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 thisproject.

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