On the Effectiveness of Bank Innovations on Financial Performance of Bank of Kigali Ltd in Rwanda (2009-2016)

Thesis (M.A.), 2017

118 Pages, Grade: DISTINCTION









1.1. Background of the study
1.2. Statement of the problem
1.3. Purpose of the study
1.4. Objectives of the study.
1.4.1 General Objective
1.4.2 Specific Objectives
1.5. Research Questions
1.6. Research Hypothesis
1.7 Scope of the study
1.7.1. Time scope
1.7.2 Scope in terms of domain
1.7.3. Limitations in space
1.8. Significance of the study
1.8.1. Personal interest
1.8.2. Academic and scientific interests
1.8.3 Social interest
1.9 Definition of Terms:
1.10 Structure of Dissertation

2.1 Introduction
2.2. Theoretical perspectives
2.2.1 Schumpeter Theory of Innovation
2.2.2 Innovation Diffusion Theory
2.2.3 Task Technology Fit (TTF) Theory
2.2.4 Technology Acceptance Model
2.2.5 Financial Performance of BANK OF KIGALI LTD
2.3 Conceptual Framework
2.4 Related case studies
2.4.1 Bank Innovations and Income
2.4.2 Bank Innovations and Profitability
2.4.3 Bank Innovations and Return on Assets
2.4.4 Bank Innovations and Customer Deposits
2.4.5 Internet Service and Performance
2.4.6 Mobile Phone Service and Performance
2.5 Research gaps

3.1. Introduction
3.2 Research design
3.3. Population of the study
3.4. Sampling method and sample size
3.5 Data collection Instruments
3.6. Validity and reliability tests
3.5.1. Reliability test
3.5.2. Validity test
3.6. Data Processing and Analysis
3.7. Research limitations
3.8. Ethical considerations

4.1 Introduction
4.2 Study Preliminaries
4.2.1 Response Rate
4.2.2 Sample Demographics Age Departments Banking Sector Experience
4.3. Effect of Bank Innovations on the Income of Banks
4.3.1 Automated Teller Machines (ATMs)
4.3.2 Debit and Credit Cards
4.3.3 POS Terminals
4.3.4. Mobile Banking
4.3.5 Internet banking
4.3.6 Electronic Funds Transfer (EFT)
4.3.7. Digital Innovation
4.4. Effect of banking innovation on performance of Bank of Kigali
4.4.1. Profitability ratio Loan to assets ratio Loan to deposit ratio Return on assets (ROA) Return on equity (ROE) Trend of customers Increase in Customer’s deposits Trend of net income BANK OF KIGALI LTD
4.4.2 Liquidity ratios Current Ratio
4.4.3. Leverage ratio (Solvency ratio) Debt to equity ratio Debt to asset ratio
4.5. The comparative of performance of Bank of Kigali before and after innovation
4.6. Hypothesis verification with correlation analysis

5.1 Introduction
5.2 Summary of Findings
5.2.1 Preliminary Findings
5.2.2 To determine the effect of bank innovation on income of Bank of Kigali Ltd
5.2.3 To find out the financial profitability of bank innovation in Bank of Kigali Ltd
5.2.4 To establish the comparison of performance of Bank of Kigali before and after implementation of bank innovations
5.2.5. To determine the correlation between of bank innovations and performance of Bank of Kigali Ltd
5.3 Conclusion
5.4 Recommendations
5.4.1 Influence of bank innovations on income.
5.4.2 Influence of bank innovations on return on assets
5.4.3 Influence of bank innovations on profitability
5.4.4 Influence of bank innovations on bank deposits
5.4.5 Moderating influence of mobile phones and internet on bank financial performance
5.5 Areas for Further Research



With love and gratitude, I dedicate this research project to:

My late parents

My sisters and brothers

Mrs. UMUBYEYI Diane,


Friends and classmates

I dedicate it to them for their love, support, encouragement and kindness.


First of all I would like to thank the Almighty God who gave me the courage, health, and energy to accomplish my thesis and without whose help this study which required untiring efforts would have not been possible to complete.

The present work is the fruit of combined effort of many people. Acknowledgements and thanks are due to those who have assisted me in different ways for the achievement of this work. I address my recognition to Prof. Dr. RWIGAMBA BALINDA the founder and President of ULK and all their lecturers for equipping me with the knowledge that enabled me to succeed this dissertation.

I am indebted to Dr. NDAYIZEYE Gervais for his assistance and willingness to supervise the present research. I also owe my deepest sense of gratitude to my fellow classmates for their assistance and encouragement during the studies.

Acknowledgement would be incomplete without extending my gratitude to the BANK OF KIGALI LTD’s staff there at all levels of head office particularly to the finance employees, for their cooperation in providing the needed data and explanations where necessary.

Finally, my heartfelt thanks go to my family member and my friends for their love and patience during this endeavor.



Abbildung in dieser Leseprobe nicht enthalten


Table 3.1: Sample Frame

Table 3.2: Evaluation of mean

Table 3.3: Evaluation of standard deviation

Table 3.4: Evaluation of correlation

Table 4.1: Distribution by Age in Years Age Bracket

Table 4.2: Distribution of respondents by departments

Table 4.3: Distribution of respondents by years of services

Table 4.4: Automated Teller Machines and Bank Income

Table 4.5: Debit and Credit Cards and Bank Income

Table 4.6: POS Terminals and bank income

Table 4.7: Mobile Banking and Bank Income

Table 4.8: Internet Banking and Bank Income

Table 4.9: Electronic Funds Transfer and Bank Income

Table 4.10: Digital Innovation

Table 4.11. Effect of banking innovation on Performance of Bank of Kigali Ltd

Table 4.12. Total loan to total assets ratio

Table 4.13. Loan to deposit ratio

Table 4.14: Return on Assets

Table 4.14: Return on Equity

Table 4.15: Trend of customers

Table 4.16: Trend of deposit

Table 4.17: Trend of net income Bank of Kigali Ltd

Table 4.18: Current ratio

Table 4.19: Analysis of leverage ratio

Table 4.20: Debt to asset ratio

Table 4.21: Comparative of performance of Bank of Kigali before and after innovation

Table 4.22: Correlation between Automated Teller Machine and performance of BK

Table 4.23: Correlation between Debit and credit cards and performance of Bank of Kigali Ltd retention Pearson Correlation

Table 4.24: correlation between POS Terminals and performance of Bank of Kigali

Table 4.25: Correlation between Internet Banking and performance of Bank of Kigali

Table 4.26. Correlation between Mobile Banking and performance of Bank of Kigali

Table 4.27: Correlation between Digital Innovation and Performance of Bank of Kigali 93


Banking innovation has played an important role in improving service delivery standards in the Banking institution. In its simplest form, Automated Teller Machines (ATMs), POS, credit cards, mobile banking and other deposit machines now allow consumers carry out banking transactions beyond banking hours. The main objective of the study was to establish the effectiveness of bank innovations on financial performance of BANK OF KIGALI LTD in Rwanda.

The population under study is 35 staffs of Bank of Kigali Ltd to be given questionnaires and interviewed. A descriptive survey research design was adapted where a total sample of 35 respondents was selected. The primary data were collected using structured questionnaires and interview to address the effect of banking innovation on financial performance of Bank of Kigali. Consequently, both qualitative and quantitative data were collected. The first hypothesis of the study was analyzed on effect of bank innovation on income of Bank of Kigali Ltd. The findings shows 35 staffs of Bank of Kigali Ltd have responded to the administered questionnaire, their mean on the ATM, POS, credits and debit cards, mobile banking internet banking, electronic fund transfer, and digital innovation are strong and their standard deviation are heterogeneity. The second hypothesis was verified where the bank innovations performance were indicated that customers, deposits, incomes increased year to years, loans to assets respect the standard of BNR which says that loans does not exceed 80% of customer deposit and ROE ratio is the following: 29%, 19%, 16%, 19%, 21%, 20%, 21% and 24% respectively. The third hypothesis of the study was to establish the comparison of bank innovations and performance of Bank of Kigali Ltd where before innovation where before innovation number of customers were 135,564 from 2009 while after establishing innovation become 262,284 in 2016. The branches, POS, Mobibank, and ATM have been increased after implementation of innovation in Bank of Kigali. The fourth hypothesis which determines the correlation between bank innovation and performance of Bank of Kigali revealed that there is a strong relationship between two variables which means banking innovation contributed to the performance of Bank of Kigali.

Key concepts: Bank, banking innovation and financial performance



This chapter broadly aims to show the main parts of chapter one such as background of the study, Statement of the problem, purpose of study, objectives of the study, research questions, research hypothesis, scope of the study, significance of study, limitation of the study as well as the structure of study.

1.1. Background of the study

Innovation consists of firms developing new products or new production processes to better perform their operations, in which case the new products could be based on the new processes (Lawrence, 2010).

In the financial services industry, innovation is viewed as the act of creating and popularizing new financial instruments, technologies, institutions and markets, which facilitate access to information, trading and means of payment (Solans, 2003).

The new millennium brought with it new possibilities in terms of information access and availability simultaneously, introducing new challenges in protecting sensitive information from intruders while making it available to others. Today’s business environment is extremely dynamic and experience rapid changes as a result of technological improvement, increased awareness and demands Banks to serve their customers electronically. Banks have traditionally been in the forefront of adapting technology to improve their products and services (Aladwani 2001).

The Banking industry of the 21st century operates in a complex and competitive environment characterized by these changing conditions and highly unpredictable economic climate. Information and Communication Technology (ICT) is at the centre of this global change curve of Electronic Banking System in Africa today (Stevens 2002).

Assert that they have over the time, been using electronic and telecommunication networks for delivering a wide range of value added products and services, managers in Banking industry in Rwanda cannot ignore Information Systems because they play a critical impact in current Banking system, they point out that the entire cash flow of most fortune Banks are linked to Information System.

The application of information and communication technology concepts, techniques, policies and implementation strategies to banking services has become a subject of fundamental importance and concerns to all banks and indeed a prerequisite for local and global competitiveness Banking. The advancement in Technology has played an important role in improving service delivery standards in the Banking industry. In its simplest form, Automated Teller Machines (ATMs) and deposit machines now allow consumers carry out banking transactions beyond banking hours.

With online banking, individuals can check their account balances and make payments without having to go to the bank hall. This is gradually creating a cashless society where consumers no longer have to pay for all their purchases with hard cash hence improving customer relationship management system. For example: bank customers can pay for airline tickets and subscribe to initial public offerings by transferring the money directly from their accounts, or pay for various goods and services by electronic transfers of credit to the sellers account.

As most people now own mobile phones, banks have also introduced mobile banking to cater for customers who are always on the move. Mobile banking allows individuals to check their account balances and make fund transfers using their mobile phones. This was popularized in Rwanda first by bank of KIGALI; customers can also recharge their mobile phones via SMS. E-banking has made banking transactions easier around the world and it is fast gaining acceptance in Rwanda. For the purpose of this study the researcher has chosen BANK OF KIGALI LTD as a case study in order to study the effectiveness of bank innovations on financial performance of BANK OF KIGALI LTD in Rwanda.

1.2. Statement of the problem

Despite the undeniable importance of financial innovation in explaining banking performance, the impact of innovation on performance, is still misunderstood for two main reasons, first, there is inadequate understanding about the drivers of innovation and secondly innovations’ impact on bank’s performance remains lowly untested (Mabrouk and Mamoghli, 2010).

In Rwandan financial sector, according to Finscope survey Rwanda 2012, 28 percent of the population is still excluded from financial services and this does not mean that they are unable to save the issue is to mobilize these peoples by explaining them the importance and benefits related to savings. The banks must have adequate deposits to meet the lending volume required by the public and at the same time maintain extra cash for withdrawals by depositors. The bank cannot achieve this, if there are no clear strategies of mobilizing more people to make deposit and do savings.

The cash reserve is a component of liquidity reserves which measure the ability of the bank to meet its expected withdrawals and recurring withdrawals. The withdrawals made from the reserves are oddly-offset against new deposits which the banks should continuously mobilize. The inability to get sufficient deposits could result in negative fund situation. The level of deposits growth also indicates the bank’s performance in relation to customers’ satisfaction on interest payout and services rendered.

According to National bank of Rwanda (NBR Report, 2012) there is delay in payment of checks between banks; time wasted in banks as people line in queue waiting for service, errors as a result of manual work and fraud related cases was common. As a result some clients complain of the above, it is upon this that is why the researcher would like to examine the contribution of E-banking towards banking on performance of banking Institutions because researcher believes that adoption of electronic banking will ease banking transactions and woe customers basing on experience from other developed countries.

1.3. Purpose of the study

The researcher wanted to show the role of bank innovations on financial performance of BANK OF KIGALI LTD in Rwanda.

1.4. Objectives of the study

This section outlines the objectives which the study addresses.

1.4.1 General Objective

The main objective of this study was to establish the effectiveness of bank innovations on financial performance of BANK OF KIGALI LTD in Rwanda

1.4.2 Specific Objectives

The study pursued the following specific objectives;

1. To determine the bank innovations implemented by Bank of Kigali Ltd .
2. To find out the financial profitability of bank innovation in Bank of Kigali Ltd
3. To establish the comparison of performance of Bank of Kigali before and after implementation of bank innovations.
4. To determine the correlation between of bank innovations and performance of Bank of Kigali Ltd.

1.5. Research Questions

The study will be guided by the following research questions:

1. What are bank innovations implemented by Bank of Kigali Ltd?
2. What are financial profitability of bank innovation in Bank of Kigali Ltd?
3. What is performance comparison before and after implementation of bank innovations in Bank of Kigali Ltd?
4. What are the correlation between bank innovations and performance of Bank of Kigali Ltd?

1.6. Research Hypothesis

This study sought to address the following pertinent research hypotheses;

H01: There is no effect of Bank innovations on total income of Bank of Kigali Ltd,

H02: there is no financial profitability of bank innovation and financial performance of Bank of Kigali Ltd

H02: There is no comparison before and after implementation of bank innovation and performance in Bank of Kigali Ltd

H04: Bank innovations have no correlation between banking innovation and performance of Rwandan Bank of Kigali Ltd.

1.7 Scope of the study

This research present a very big study on matters of concern with the effectiveness of Bank innovations on total income of BANK OF KIGALI LTD in Rwanda, but due to the problem of time, material as well as financial means the research was limited in time, space and domain.

1.7.1. Time scope

This study took into consideration the period from 2019 to 2016. The year 2009 has been taken into consideration, because of available data and, 2016 meet with the period of the research.

1.7.2 Scope in terms of domain

This study is in domain of financial institution by looking the role of Bank innovations on total income of BANK OF KIGALI LTD in Rwanda

1.7.3. Limitations in space

This study was carried out central bank of Rwanda, because it has good performance, it is my favorite bank and it is easy to collect data.

1.8. Significance of the study

According to Per Amin (2005), the significance section of a proposal sates “how the results of the research was influenced the institution (the context) or society in question; why the study is worth the time, effort, and expense” The significant of our study is based on three interests, namely personal interests, academic and scientific, and lastly social interests. The effectiveness of bank innovations on financial performance of BANK OF KIGALI LTD in Rwanda

1.8.1. Personal interest

This study helped the researcher to acquire a Master’s degree in the field of Finance. This study will facilitate the researcher to acquire more added skills and knowledge upon management of foreign currencies. This work is an important intellectual, convenient exercise and practical training that helps the researcher to emerge the acquired theoretical knowledge, with the reality of field practice; it allowed the researcher to understand

1.8.2. Academic and scientific interests

To the scholars, the study is value-added to the existing body of knowledge as it recommends ways for improvement of financial performance by leveraging on technology innovations. Nevertheless, this study serves as a stepping stone for newer research on financial innovation.

1.8.3 Social interest

This study helped the government of Rwanda as it seeks to leverage on technology to grow the financial services sector and enhance financial access and inclusion. One of the key drivers of change in Rwanda is information technology and innovations. Through the findings of the study, the government of Rwanda is able to appreciate which areas of innovation to support the banking sector by either waiving taxes or other non-monetary incentives. This study helped banks in evaluating the importance of financial innovation on their performance in terms of bolstering profitability. Banks, especially commercial ones, are swiftly becoming more aware of the importance of financial innovation in this era and this study adds impetus to knowledge on the link between innovation and performance.

1.9 Definition of Terms:

Commercial bank is a financial institution that provides services, such as accepting deposits, giving business loans and auto loans, mortgage lending, and basic investment products like savings accounts and certificates of deposit.

Innovation is the application of better solutions that meet new requirements, in articulated needs, or existing market needs.

Automated teller machine (ATM), also known as a Cash Point, Cash Machine, is a computerized telecommunications device that provides the clients of a financial institution with access to financial transactions in a public space without the need for a cashier, human clerk or bank teller

Credit card is any card that may be used repeatedly to borrow money or buy products and services on credit.

Debit card is a card which allows customers to access their funds immediately and electronically

Point of sale (POS) terminal is a retail payment device which; reads a customer's bank's name and account number when a bank card or credit card is swiped (passed through a magnetic stripe reader).

Mobile banking is performing banking transactions through a mobile device such as a mobile phone or Personal Digital Assistant

Internet banking is a system which allows individuals to perform banking activities via the internet

Electronic funds transfer is a system of transferring money from one bank account directly to another without any paper money changing hands

Real time gross settlement (RTGS) is a system for settlement of large-value transactions between banks and other financial institutions

Financial performance is a measure of how well a firm can use assets from its primary mode of business and generate revenues.

Income is revenue for a particular period normally for one year

Profit before tax is a profitability measure that looks at a company's profits before provision of corporate income tax.

Return on assets is the total resources owned and controlled by a Bank divided by profit before tax

Customer deposit is money placed in a Bank for safe keeping and it is a liability by the Bank owed to the depositor.

1.10 Structure of Dissertation

Considering content scope, this Research Project is divided into five chapters as follows:

- Chapter One deals with general introductory remarks including the background of the study, objective of the study, problem statement, research questions, significance of the study, and scope of the study.
- Chapter Two examines pertinent literature review introducing concepts, theories and models and reviews past studies from the global point down to the economic context.
- Chapter Three explains the research design and methodology comprising target number to analyze, statistical design, data collection and analysis.
- Chapter Four presents and gives the interpretation of research findings, and
- Chapter Five brings the paper to a conclusion. It summarizes what was already discussed and draws conclusions. Based on these conclusions, the paper additionally makes recommendation.


2.1 Introduction

This chapter reviews literature on bank innovations. It discusses the key theories underlying bank innovations, develops a conceptual framework and expounds on the research gaps on bank innovations and financial performance.

2.2. Theoretical perspectives

A theory is a reasoned statement or group of statements, which are supported by evidence meant to explain some phenomena. A theory is a systematic explanation of the relationship among phenomena. Theories provide a generalized explanation to an occurrence. Therefore a researcher should be conversant with those theories applicable to his area of research (Kombo and Tromp, 2009).

According to Trochim (2006) a theoretical framework guides research, determining what variables to measure, and what statistical relationships to look for in the context of the problems under study. Thus, the theoretical literature helps the researcher see clearly the variables of the study; provides a general framework for data analysis; and helps in the selection of applicable research design.

The theories reviewed and which inform the study are, Schumpeter theory of innovation, innovation diffusion theory, task technology fit theory and technology acceptance model. The theories reviewed inform the source of the variables of the study and the interactions between the dependent and independent variables (Rogers, 2003).

2.2.1 Schumpeter Theory of Innovation

Aghion P. VanReenen (2009) argued that entrepreneurs, who could be independent inventors or R&D engineers in large corporations, created the opportunity for new profits with their innovations. In turn, groups of imitators attracted by super-profits would start a wave of investment that would erode the profit margin for the innovation.

However, before the economy could equilibrate a new innovation or set of innovations, conceptualized by Schumpeter as Kondratiev cycles, would emerge to begin the business cycle over again.

Berger (2003) emphasized the role of entrepreneurship and the seeking out of opportunities for novel value generating activities which would expand and transform the circular flow of income, but it did so with reference to a distinction between invention or discovery on the one hand and innovation, commercialization and entrepreneurship on the other. This separation of invention and innovation marked out the typical nineteenth century institutional model of innovation, in which independent inventors typically fed discoveries as potential inputs to entrepreneurial firms.

The author further saw innovations as perpetual gales of creative destruction that were essential forces driving growth rates in a capitalist system. Schumpeter’s thinking evolved over his lifetime to the extent that some scholars have differentiated his early thinking where innovation was largely dependent on exceptional individuals/entrepreneurs willing to take on exceptional hazards as an act of will. His later thinking recognized the role of large corporations in organizing and supporting innovation.

This resulted in his emphasis on the role of oligopolies in innovation and which later was falsely viewed as the main contribution of his work Castillo, J. (2009). Schumpeter drew a clear distinction between the entrepreneurs whose innovations create the conditions for profitable new enterprises and the bankers who create credit to finance the construction of the new ventures (Clarence, B. 2010). He emphasised heavily that the special role of credit-creation by bankers was ‘the monetary complement of innovations’ (Francesca, A. & Claeys, P. 2010). As independent agents who have no proprietary interest in the new enterprises they finance, bankers are the capitalists who bear all the risks (none is borne by the entrepreneurs). That requires having the special ability to judge the potential for success in financing entrepreneurial activities. Schumpeter emphasized that it is just as important to deny credit to those lacking that potential as it is to supply credit to those having it (Maholtra, 2002).

Schumpeter’s brief discussions of historical episodes of innovations in the field of banking might appear to suggest a positive role for financial innovations in financing the entrepreneurial ventures that produce the primary wave growth spurts.

The spread of joint stock banking was cited as one of the most important innovations that occurred in the early 1800s (Schumpeter, 2010). Schumpeter (2010) propositions particularly interesting allusion to innovations in the banking sector is found in Schumpeter’s discussion of the banking acts of the 1930s. He stated that the 1933 act introduced important reforms which included the strengthening the Federal Reserve’s power to regulate member banks’ extension of credit for speculative purposes and the separation of BANK OF KIGALI LTD and their security affiliates.

For all his insight on the role of innovation, Schumpeter still did not really explain the source of innovation. He was able to point to its importance and its role in timing economic cycles but did not address its source. This rather interestingly allowed Keynesian economics to argue that levels of investment were the cause of innovation. It was not until the 1960s that economists would begin again to search for the source of innovation. The importance of innovation was highlighted by researchers like Mian and Sufi (2008) who were able to demonstrate how little neo-classical economics was able to explain. Based on data on the United States economy from 1909-49, Solow showed that only 12.5 percent of the increase of per capita output could be traced to increased use of capital. This left a surprisingly large 87.5 percent residual that Solow attributed to technical change.

Schumpeter’s assertions have been supported by Porter (2002) that innovation is vital for a country’s long-run economic growth and competitive advantage. Mahammed (2009) argues that to compete effectively in international markets, a nation’s businesses must continuously innovate and upgrade their competitive advantages. Innovation and upgrading come from sustained investment in physical as well as intangible assets. Financial markets play critical roles in mobilizing savings, evaluating projects, managing risk, monitoring managers, and facilitating transactions.

2.2.2 Innovation Diffusion Theory

According to Rogers ( 2003), the factors which influence the diffusion of an innovation include; relative advantage (the extent to which a technology offers improvements over currently available tools), compatibility (its consistency with social practices and norms among its users), complexity (its ease of use or learning), trialability (the opportunity to try an innovation before committing to use it), and observability (the extent to which the technology's outputs and its gains are clear to see). These elements are not mutually exclusive thus unable to predict either the extent or the rate of innovation diffusion.

Roger (2003), ) and expanded the array of innovation characteristics to seven. Three of the seven innovation characteristics are directly borrowed from Rogers: relative advantage, compatibility, and trial ability.

The fourth characteristic, ease of use, is a close relative to Rogers’ complexity. It is worth noting that both relative advantage and ease of use are subjective characteristics since they can be viewed differently depending on an individual’s perceptions. Federsen (2002) concur, attitudes towards an object and attitudes regarding a particular behaviour relating to that object can frequently differ. Moore and Benbasat (2002) also derived three further characteristics. While Rogers (2003) included image as an internal component of relative advantage, Moore and Chang and Dutta (2012) found it to be an independent predictor of adoption. Image is the self-perception that adopting an innovation could result in enhanced social status.

By analyzing Rogers (2003) diffusion of innovation theory through the lens of the Dubin framework, some gaps in the theory emerge (Lundblad and Jennifer, 2003). Organizations are described as a social system, but within organizations, departments or teams can also serve as social systems. Yet the unique issues and elements of departments or teams within a larger organizational context are not addressed in terms of how these boundaries affect the adoption of innovation. In addition, boundaries are not addressed for instances when diffusion of innovation occurs across organizations, such as between schools of a school district or hospitals and clinics within a health care delivery system (Lundblad and Jennifer, 2003).

For diffusion of innovation theory in organizations, the only system state defined by the theory is what type of decision-making process is in place for adopting and implementing innovations, identified as optional, collective, authority, and contingent innovation-decisions. Rogers' theory does not tell us whether the system states of organizations need to be in normal operating mode in order for the theory to apply, or whether the theory holds in all types of organizations or only in certain types (Lundblad and Jennifer, 2003).

Specifically, the theory begins to describe the innovation-decision process within organizations, but not to the level of addressing whether and how the characteristics of an innovation interact to affect its adoption within organizations, or whether organizational type, size, or industry affect adoption. In addition, while there is an innovation-decision process described for individuals and within organizations, there is no description of how the variables interact when innovations are diffused across organizations (Lundblad and Jennifer, 2003).

2.2.3 Task Technology Fit (TTF) Theory

This theory contends that it is more likely to have a positive impact on individual performance and be used if the capabilities of Information Communication and Technology (ICT) match the tasks that the user must perform (Cicea C and Hincu D. 2009). As mention the factors that measure task-technology fit as; quality, locatability, authorization, and compatibility, eases of use/training, production timeliness, systems reliability and relationship with users.

The model is useful in the analysis of various context of a diverse range of information systems including electronic commerce systems and combined with or used as an extension of other models related to information systems outcomes.

According to the theory of task-technology fit, the success of an information system should be related to the fit between task and technology, whereby success has been related to individual performance (Cicea C and Hincu D. 2009) and to group performance Mugenda, O. (2003). For group support systems, a specific theory of task-technology fit was developed and detailed the requirements of group support systems to fit group tasks. For mobile information systems, task-technology fit has been shown to be generally relevant, but more specific questions regarding the applicability of task-technology fit to mobile information systems remain unanswered (Gebauer and Shaw, 2004).

The theory of task-technology fit maintains that a match between business tasks and information technology is important to explain and predict the success of information systems (Dardac and Barbu, 2005).

For various scenarios of task and technology, statistical significance has been established of a positive association between task-technology fit and information system success measures, such as use (Gall Gall and Borg , 2007) and impact on individual performance and on group performance (Zigurs et al., 2009).

The concept of task-technology fit promises to help identify aspects that are critical to support a given business task, and can, thus, contribute to the success of technology innovations (Junglas and Watson, 2006). One such innovation is represented by mobile technology to support an increasingly mobile workforce (Barnes, 2003).

Upon applying the theory of task-technology fit to mobile information systems, however, it becomes apparent that previous studies have focused mainly on the functionality that is provided by the technology, and have paid less attention to the context in which the technology is being used (Polasik and Wisniewski, 2009).

At the same time, however, usability studies suggest that the use-context may have a non-trivial impact on the conditions of task-technology fit (Perry et al., 2001). First, it can be observed that non-functional features, such as weight and size, play a more prominent role in mobile than in non-mobile use contexts (Gebauer and Ginsburg, 2006).

Second, functional requirements may shift as business tasks are often performed differently in mobile versus non-mobile use contexts (Gebauer and Shaw 2004). As a result of the observable changes of business tasks and related technology requirements, it becomes necessary to assess the applicability of the theory of task-technology fit to mobile technologies and mobile use contexts, and to carefully determine the needs for theory adjustments and extensions (Junglas and Watson, 2006).

2.2.4 Technology Acceptance Model

Theories and models used in studies related to the innovations, acceptance and use of new technology are many. For instance, focusing on the technological issues (Davis 1989) advances the Technology Acceptance Model (TAM). This model relates the individuals’ behavioural intentions and his/her ICT use.

It is suggested that, the actual behaviour of a person is determined by his behavioural intention to use, which is in turn influenced by user’s attitude toward and perceived usefulness of the technology. However attitude and perceived usefulness are both determined by ease of use.

Adopting the TAM model requires the understanding of end-users requirements regarding usefulness and user friendliness (Methlie and Thorbjornsen, 2002). From this model, usefulness and user friendliness affect users' attitudes towards any service (ibid.).

Thus suggest that it is important to value user requirements based on perceived usefulness and the user friendliness of the technology rather than other objective measure. Critiques of this model are directed to its inclination to the technological/technical aspects of the technology in question ignoring other factors such as social aspect of the users. In practice, constraints such as limited ability, time, environmental or organizational limits and unconscious habits will limit the freedom to act.

Wang, Wang, Lin and Tang (2003) were interested to identify the factors that determine acceptance of internet banking by the users. According to the Technology Acceptance Model (TAM), perceived ease of use and perceived usefulness constructs are believed to be fundamental in determining the acceptance and use of various Information Technology (IT). These beliefs may not fully explain the user's behaviour toward newly emerging IT, such as internet banking. Using the TAM as a theoretical framework, Wang et al. (2003) introduces “perceived credibility” as a new factor that reflects the user's security and privacy concerns in the acceptance of internet banking. Wang et al. (2003) examines the effect of computer self-efficacy on the intention to use internet banking. The results strongly support the extended TAM in predicting the intention of users to adopt internet banking.

It also demonstrates the significant effect of computer self-efficacy on behavioural intention through perceived ease of use, perceived usefulness, and perceived credibility (Wang et al., 2003).

2.2.5 Financial Performance of BANK OF KIGALI LTD

Performance measurement and reporting is now widespread across the private sector as well as public sector of many industrialized and industrializing countries (Williams, 2003).

The common tool that is used for this process, key performance indicators (KPIs), have been argued to provide intelligence in the form of useful information about a public and private agency’s performance (Williams, 2003).

Scholars like Modell (2004), have maintained that the implementation of performance measurement systems possess important symbolic value.

KPIs are viewed as a good management device and a socially constructed tool that makes sense (DeKool, 2004). The fact that KPIs tend to be quantitative has helped to promote their image of objectiveness and rationality. The image of KPIs is further enhanced by their widespread application across the many sectors of many countries. The importance of performance measurement is noted by Ingraham (2005) that it is important to expect that citizen’s see and understand the results of organizational programs.

Cicea and Hincu (2009) state that BANK OF KIGALI LTD represent the core of the credit for any national economy. In turn, the credit is the engine that put in motion the financial flows that determine growth and economic development of a nation. As a result, any efficiency in the activities of BANK OF KIGALI LTD has special implications on the entire economy.

The management of every commercial bank must establish a system for assessing investment performance which suits its circumstances and needs and this evaluation must be done at consecutive intervals to ensure the achievement of the Bank's investment objectives and to know the general direction of the behavior of investment activity in the past and therefore predict the future.

Profitability offers clues about the ability of the bank to undertake risks and to expand its activity. The main indicators used in the appreciation of the bank profitability are: Return on equity, ROE (Net income / Average Equity), Return on Asset, ROA (Net income /Total assets) and the indicator of financial leverage or (Equity / Total Assets) (Dardac and Barbu, 2005).

The indicators are submitted to observation along a period of time in order to detect the tendencies of profitability. The analysis of the modification of the various indicators in time shows the changes of the policies and strategies of banks and/or of its business environment (Greuning and Bratanovic, 2004)

A commonly used measure of bank performance is the level of bank profits (Ceylan and Emre, 2008). Bank profitability can be measured by the return on a bank’s assets (ROA), a ratio of a bank’s profits to its total assets. The income statements of BANK OF KIGALI LTD report profits before and after taxes. Another good measure on bank performance is the ratio of pre-tax profits to equity (ROE) rather than total assets since banks with higher equity ratio should also have a higher return on assets (Ceylan and Emre, 2008).

2.3 Conceptual Framework

A concept is an abstract or general idea inferred or derived from specific instances (Ivatury and Pickens, 2009).

Unlike a theory, a concept does not need to be discussed to be understood (Smyth, 2004). A conceptual framework is a set of broad ideas and principles taken from relevant fields of enquiry and used to structure a subsequent presentation (Ivatury and Pickens, 2009).

A conceptual framework is a research tool intended to assist a researcher to develop awareness and understanding of the situation under scrutiny and to communicate it. When clearly articulated, a conceptual framework has potential usefulness as a tool to assist a researcher to make meaning of subsequent findings. It forms part of the agenda for negotiation to be scrutinized, tested, reviewed and reformed as a result of investigation and it explains the possible connections between the variables (Smyth, 2004).

A conceptual framework for the present study shows the relationship of bank innovations on financial performance of BANK OF KIGALI LTD in Rwanda and has been depicted in the below Figure. The below figure conceptualizes that bank innovations (Automatic Teller Machines, Debit and Credit cards, Point of Sale (POS) terminals, mobile banking, internet banking and electronic funds transfer) influence on financial performance of the BANK OF KIGALI LTD ascertained through the total income, profitability, return on assets and customer deposits.

Independent Variable Dependent Variable

Abbildung in dieser Leseprobe nicht enthalten

2.4 Related case studies

Empirical literature review is a directed search of published works, including periodicals and books, that discusses theory and presents empirical results that are relevant to the topic at hand (Zikmund et al., 2010). Literature review is a comprehensive survey of previous inquiries related to a research question.

Although it can often be wide in scope, covering decades, perhaps even centuries of material, it should also be narrowly tailored, addressing only the scholarship that is directly related to the research question (Kaifeng and Miller, 2008).

Through the use of a systematic approach to previous scholarship, literature review allows a researcher to place his or her research into an intellectual and historical context. In other words, literature review helps the author declare why their research matters (Kozak, S. 2005).

2.4.1 Bank Innovations and Income

In financial services, the lifeblood of a bank is determined by how well it can gather funds from the customers at the lowest cost; buy money, do something with the money, and then sell it to their profit (Dew, 2007).

Financial innovations enable firms from all sectors to raise money in larger amounts and at a cheaper cost than they could elsewhere (Lerner, 2006). It becomes obvious that there is a tendency for a bank to minimize costs and expenditures. The other major benefit from e-banking innovation is fee based income (Dew, 2007). If a bank joins in an ATM network, it can generate income from other banks’ customers that use its ATM machines or from third parties that cooperate with it.

The more transactions with a third party, the more fee-based income acquired, enforcing the bank to enrich the features of e-banking transactions, such as mobile telephone top-ups, ticketing, paying telephone or electricity bills, house taxes, etc. Joining a certain ATM network will also create customer awareness of that bank and influence the market share (Polasik Wiskniewski, 2009).

The relationship between IT expenditures and bank’s financial performance or market share is conditional upon the extent of network effect. If the network effect is too low, IT expenditures are likely to:

(1) Reduce payroll expenses,
(2) Increase market share, and
(3) Increase revenue and profit (Zigurs and Buckland, 2000). The evidence however suggests that the network effect is relatively high in the US banking industry, implying that although banks use IT to improve competitive advantage, the net effect is not as positive as normally expected. In a broader context, the innovation in information technology, deregulation and globalization in the banking industry could reduce the income streams of banks, and thus the strategic responses of the banks, particularly the trend towards mega-mergers and internal cost cutting, are likely to change the dynamics of the banking industry. Given these negative result due to possible network effect, the changing banking environment could still make it insufficient to offset any reduction in income (Nadia, Anthony and Scholnick, 2003).

After developing some innovations, and succeeding, a bank will find new opportunities that could be exploited further and that, in the end, will provide more income for the bank (Nofie, 2011). Based on the country level retail payment service data from across 27 EU markets, evidence confirms that banks perform better in countries with more developed retail payment services, as measured by accounting ratios and profit and cost efficiency scores (Iftekhar, Schmiedel and Song, 2009).

The EU provides a very good testing ground for the link between retail payments and bank performance because the current retail payment infrastructure in the European Union is still fragmented and largely based on traditional national payment habits and characteristics (Kemppainen, 2003 and 2008).This relationship is stronger in countries with more retail payment transaction equipment, like ATMs and POS terminals. Retail payment transaction technology itself can also improve bank performance and heterogeneity among retail payment instruments is associated with enhanced bank performance.

Likewise, a higher usage of electronic retail payment instruments seems to stimulate banking business. Additionally, findings reveal that impact of retail services on bank performance is dominated by fee income (Nofie, 2011).

Payment services are an important part of the banking industry, accounting for a significant part of its revenues and operational costs.

It is also considered as the backbone of banking activities as it is significantly associated with increased market share of other bank business, e.g. the provision of credit and the evaluation of associated risks (Boston Consulting Group (BCG), 2009).

BCG (2009) also reports that payments business accounts for 30-50 percent of bank revenues, and is actually considered the most attractive element of banking business, in terms of income generation, growth rates, and relatively low capital needs.

Hirtle and Stiroh (2007) find a significant link between retail focus by the U.S. banks (retail loan and deposit shares and extent of branching network) and bank stability although such focus also resulted to lower incomes.

Besides the direct impact on bank performance, retail payment transaction technologies have an intensifying effect on the relationship between retail payment services and bank performance. Advanced retail payment transaction technologies will foster innovation and growth in the retail banking sector. This will further create more value associated with retail payment services for banks.


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On the Effectiveness of Bank Innovations on Financial Performance of Bank of Kigali Ltd in Rwanda (2009-2016)
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effectiveness, bank, innovations, financial, performance, kigali, rwanda
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Eric Munyaneza (Author), 2017, On the Effectiveness of Bank Innovations on Financial Performance of Bank of Kigali Ltd in Rwanda (2009-2016), Munich, GRIN Verlag, https://www.grin.com/document/492258


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