Implementing Management Information System in Libyan Islamic Financial Institutions

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IMPLEMENTING MANAGEMENT INFORMATION SYSTEM

IN LIBYAN ISLAMIC FINANCIAL INSTITUTIONS

Mohammed Abulqasem Eldlimi1

Muhammad Ridhwan Ab. Aziz2

Mohd Faisol Ibrahim3

ABSTRACT

Management Information System (MIS) is a management system that is used by many banks indeveloped countries nowadays to improve the banking service and support decision-making process. The

Islamic banking is considered as one of the fast growing industry in the financial and banking sector. InLibya the Islamic banks are still new and many traditional banks have opened Islamic banking

departments or separate branches to provide banking services according to Islamic law and Sharia. Thestudy will explore the impact of Management Information System on improving the banking service and

information quality North Africa Bank, and identify the main obstacles those hinders the implementationof MIS in Islamic banking. The methodology of MIS is qualitative research that aims to gather an in-

depth understanding to the role of Management Information System in Libya banks and evaluate theimpact of MIS on Islamic banking. The finding of this paper shows that Libyan financial institutes need

proper research to implement MIS.

Keywords: Management Information systems (MIS), Islamic Banking, Investment, Banking Activities,Information Quality, Decision-Making Process

1.

INTRODUCTION

Islam is a comprehensive way of life, which strikes the balance between the spiritual and the material

need of human being. One of the important aspects in human life is the need for a comprehensive systemin order to govern their life and to ensure all the needs are catered adequately including the material needs

such as the financial management. This aspect of life is closely related to the fast growing industry in theworld nowadays, which is the Islamic financial services industry.

Islamic banks are banks that practicing banking activities according to the principles of Sharia law in allfinancial transactions and utilizes the banking functions to develop the economy using the Islamic way.Sharia prohibits imposing fixed payment of specific interest or fees due to profit from specific loan, thistype of financial loan is known as usury (Riba). Islamic banking has the same purpose and functions as

conventional banking with the exception of lending money at interest and avoiding any kind of suspect infinancial transactions that may include usury (Riba).

Management Information System (MIS) is a system used by most of modern banks nowadays to provide

information at high quality and precision needed to manage the bank effectively. ManagementInformation System (MIS) provides the necessary reports and summarizes the bank’s basic operations tothe senior managers in the bank and support decision-making process. Other advantages of MIS aretransparency and efficiency of information provided for bank’s clients. Investors need for efficient

1 Phd student at Faculty of Economic and Muamalat (USIM) . Corresponding author : [email protected],3Lecturers at University Sains Islam Malaysia.


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information before they decide to invest in Islamic banks and they need quality in information, which canonly be provided using Management Information Systems.

Banks in Libya were trying to follow the latest development around the world in all ways in order to

achieve the desired goal but all these attempts still not yet accompanied with complete awareness on theimportance of Management Information Systems (MIS), and by considering MIS a vital and strategic

source for success in Islamic banking.

The Islamic financial services are considered as one of the fast growing industry in banking sector. InLibya the Islamic banks are still new and many Islamic banks that will be established in the coming fewyear. However, applying Management Information Systems in Islamic Banks is quite important todevelop the economy of Libya through effective banking system that attract investors from inside and

outside Libya who wish in invest using the Islamic way and invest their money in efficient Islamic banking systems with full satisfaction.

2.

BACKGROUND OF THE STUDY

The banking system plays a vital role in improving the national economy and represents the backbone ofany national economy, therefore this research attempt to find the best approach to implement themanagement information systems in Islamic banks and the remove the obstacles that prevent theimplementation of Management of Information Systems (MIS) in Libyan banks that include Islamic

banking. The study selected North Africa Bank in Libya as the focus of this study.

North Africa Bank provide different types of Islamic banking such as (Islamic funding for small projects,finance commercial projects inside and outside Libya, granting loans for hire purchase contracts,

financing real-estates projects) and other financial banking that comply with Islamic regulations andSharia law.

The current information services in North Africa Bank are not satisfactory to the management of the bankand to the clients as well. The senior management in this bank received many complaints from Libyan

investors and beneficiaries in which they describe their inability to deal with bank and benefit effectivelyfrom the Islamic banking services offered by North Africa Bank, and they showed weak interest to investdue to poor quality of financial information and poor banking service.

a. MIS in Banks

The measurement of success of any bank is by providing banking services with high quality based on thecapacity of the bank to meet the requirements of the client to financial information and satisfy these

requirements better than other competitors. The huge developments in information systems are strategicweapons in dealing with current conditions that are characterized by rapid changes and strong competitionamong financial institutions. Competition in the financial sector matters for a number of reasons. The

degree of competition in the financial sector emphasizes on the efficiency of production of financial

services, the quality of financial products and the degree of innovation (Manolis, & Winsor, 2000).

Management Information Systems (MIS) are not new to the banking sector. Since the early 80s, bankshave been using this terminology to refer to the process of generating various reports and analyses at the

Corporate/Head offices for their decision making for own use as well as for conveyance to authorities incharge of regulation.


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MIS in the present context of high availability of voluminous data on electronic media at diverselocations and on diverse platforms, has become more pertinent to banks’ decision-making process, thanks

to the availability of new tools of technology such as data warehousing, data mining.There are several definitions of the concept of MIS and may vary in expressions, but correlate in the

connection and implications, actually there is no explicit agreement among most researchers and expertsin the field of management science on one comprehensive definition for MIS.

A management information system (MIS) provides information that organizations need to managethemselves efficiently and effectively (Brien, 1999). Management information systems are typically

computer systems used for managing five primary components: hardware, software, data (information fordecision making), procedures (design, development and documentation), and people (individuals, groups,or organizations). Management information systems are distinct from other information systems, in that

they are used to analyze and facilitate strategic and operational activities (Lucey, 2005) Academically, theterm is commonly used to refer to the study of how individuals, groups, and organizations evaluate,

design, implement, manage, and utilize systems to generate information to improve efficiency andeffectiveness of decision making, including systems termed decision support systems, expert systems, and

executive information systems. Management information systems (MIS), produce fixed, regularlyscheduled reports based on data extracted and summarized from the firm’s underlying transaction

processing systems to middle and operational level managers to identify and inform structured and semi-structured decision problems (Laudon , 2010).

Most management information systems specialize in particular commercial and industrial sectors, aspects

of the enterprise, or management substructure.

2.2 The importance of MIS in banks

Management Information Systems MIS is very significant and fundamental for efficient banking service.

In many modern banks, there is a great role of Management Information system in providing accurateinformation related to customer requirement and data gathering and processing. MIS helps in many ways

the Bank for the better result and customer satisfaction.

Most banks consider information technology (IT) as a route for service quality improvement, while others perceive it as a cost-effective expansion strategy (Kim and Davidson, 2004). There is a general consensus

regarding the importance of understanding the patterns of IT adopted by bank customers (Pikkarainen etal, 2004), and several studies (Applegate, McFarlan and McKenney, 1999; Kim and Davidson, 2004)emphasize that financial institutions such as banks are distinguished from other businesses in their

reliance on IT. As early as the 1980s, Porter and Millar (1985) found that banking was one of the mostinformation intensive sectors. Banks tend to use IT to improve the quality of their services, increase

efficiency and customer satisfaction, and offer wider choices with lower costs to the customer. In otherwords, banks are using IT for competitive advantage.

The following are some of the benefits to financial institute that can be attained for different types of

management information systems (Pant, 2007):

Financial institutes are able to highlight their strengths and weaknesses due to the presence ofrevenue reports, employees' performance record etc. The identification of these aspects can helpfinancial institutes to improve their business processes and operations.

Giving an overall picture of the financial institute and acting as a communication and planning tool

between the departments of the bank.


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The availability of the customer data and feedback can help the financial institute to align their business processes according to the needs of the clients. The effective management of customer data

can also help the financial institute to perform direct marketing and promotion activities.

2.3 MIS in Libyan banks

Libya's centrally planned economy depends primarily upon revenues from the petroleum sector, whichcontributes practically all export earnings and over half of GDP. These oil revenues and a small

population give Libya one of the highest per capita GDPs in Africa. Since 2000, Libya has recordedfavorable growth rates with an estimated 8.1% growth of GDP in 2006. The Government is in the process

of preparing a financial sector reform program. Recent legislation setting corporate governance standardsfor financial institutions makes progress towards better management and greater operationalindependence of public banks. Over the past two decades, the banking industry in Libya has experiencedvery significant development, which was the direct result of various factors, one of the most important

being the implementation of new accounting information systems (AIS) and associated technologies.

However, Libyan public banks still lack management structures supported by skills in critical areas

like credit, investment, risk management and information services quality and control systems. Moreover,the majority of banks and financial institute in Libya did not apply the modern management information

systems and are still depending on old management systems and long routine using paper works toorganize the workflow the bank. The result was negative on clients’ perception and satisfaction aboutLibyan banks.

3.

THE RESEARCH PROBLEM

The importance of Management Information Systems that provide reliable information for bank’s clientshas much increased in recent years. Investors nowadays are much interested to use the new technologiesto support their investment decisions. Since Islamic banking is very much similar in its banking activitiesto other non-Islamic banking service, however, these banks needs to develop their internal functions to

follow the latest development in technologies specially applied for banks in order to provide effective banking service and high transparency for investors and clients.

Providing high quality of information is important to rationalize the decisions of investors. MIS can helpthe management in Libyan banks to make good and strategic decisions, but this target can’t be achieved

without implementing an efficient Management Information System. The information technology is vitalto the success of any banking institution including Islamic banks.

The main problem that will be discussed in this research is the obstacles that hinder the implementation ofManagement Information Systems by North Africa Bank in Libya. Some of these obstacles are

managerial, while the lake of technological capacity and qualified personnel needed to operateManagement Information Systems is another obstacle that prevent swift development to new informationsystem. Most of the banks in Libya including these banks that include branches of Islamic banking are

using traditional and old way in doing daily banking activities and also most of their systems andcomputers are old and without advanced software and new computer applications, therefore this situation

produce real difficulties and obstacles to implement modern information systems which is part of theManagement Information System.


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Another problem that will be discussed in this study is the low level of knowledge about the managementinformation system by employees of the Islamic banks and how to raise the level of awareness and

understanding to use Management Information Systems in doing the daily banking activities by specialistemployees in North Africa Bank, who are qualified and capable to run and operate these systems.

4.

THE RESEARCH OBJECTIVE

1) To identify the main role of management information system MIS in banks and financial institutions.2) To explore the factors those affect the quality of information produced by the Management

Information System MIS.

3) To identify the major obstacles those hinder the implementation of Management Information System(MIS) in Islamic banks in general and North Africa Bank in particular.

5.

THE RESEARCH QUESTIONS

1)

How management information system MIS operates in banks and financial institutions?2) What are the factors those affect the quality of information produced by the Management InformationSystem MIS.

3) What are the major obstacles those hinder the implementation of Management Information System

(MIS) in Islamic banks in general and North Africa Bank in particular.

6.

RESEARCH METHODOLOGY

We applied a quantitative research that aims to gather an in-depth understanding to Management

Information System in Libya with accordance to the current information services provided by Libyan banks in general and North Africa Bank in particular. The qualitative methodology used in this researchwill investigates why these Libyan banks can’t adopt Management Information Systems swiftly, and howLibyan banks can improve quality of information and Islamic banking through adoption of ManagementInformation Systems.

7.

THE SIGNIFICANCE OF THE RESEARCH

This study is the first study to cover this subject in Islamic banks in Libya, the importance of this study

due to the immediate requirement to replace the traditional and old way in doing banking activities by proving the right plan to implement management information system in Islamic Banks help thesupervisors and managers in these banks to remove the obstacles that prevent the implementation of MIS.

This study attempt to improve the service quality of banking sector in Libya starting from the Islamic banks, and because most of Libyan clients prefer to put their money in Islamic banks due to religiousfactors, the banking sector is very important to the national economy in Libya, this study will contributeto the development efforts to the economy of Libya in the coming few years. Without efficient banking

systems, the banks in Libya in general and Islamic banks in particular will remain weak and attract fewinvestors to invest in these banks. A reliable and efficient Management Information System will help the

Islamic banks to achieve its goals


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The main contribution in this study is evaluating the relationship between the reality of managementinformation system in Libyan banks and its role in activation the financial market of Libya by evaluating

the current information sources provided by Libyan banks. The result of this study will enable theofficials in Libyan banks in general and other financial institutes like Libyan stock market to identify the

eeffectiveness of deploying information system and test its ability to follow up the new development in banking industry, moreover this study will make high effect on the scientific research in this field.

In addition to that the study will attempt to help North Africa Bank to develop the information servicethrough improving the information quality using Management Information Systems; therefore the bank

will be able to face the increasing challenges and competition with international banks.

8.

THE SCOPE OF THE RESEARCH

This study will conduct analysis in North Africa Bank in Libya and will focus on a group ofemployees and managers who are responsible to provide and manage Islamic banking activities in

North Africa Bank. The researcher believes that the only way to get precise answers to all thequestions arise from this study from the managers and specialist employees working in the IT

departments in the bank.

In addition to that the study will investigate the current level of information quality provided by NorthAfrica Bank in Libya because it is the first bank in Libya, who provided Islamic banking service, andconclude the best implementation plan that suite the financial environment in Libya according tomarket demands and the rapid development in the global economy and the high competitions imposed

by foreign non-Islamic banks.

9.

CONCLUSION

Management information system ensure high level of service quality and effective information sharing

between all the departments in the bank and provide accurate information to the senior managementinside the banks that help to make precise strategic decisions.This study concluded that the past experience and awareness of managers and employees was weak about

the function of MIS as well as the benefits of MIS on the overall performance of the bank and the servicequality provided to the clients. It is clear that training on using the functions of MIS will improve their

experience and ability to deal with these functions and good practicing on using these functions. Inaddition to that the perception and willingness of managers in the bank is very important to ensure swiftimplementation of MIS. Moreover the perception and willingness of managers to use and adopt MIS in

North Africa bank was not encouraging and weak, according to this study perception of managers is oneof the main obstacles that hinder swift implementation to MIS in North Africa Bank.

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Implementing Management Information System in Libyan Islamic Financial Institutions

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