ASSESSING THE EFFECTIVENESS OF DIGITAL BANKING ON THE GROWTH OF SMALL AND MEDIUM ENTERPRISES IN YAOUNDÉ, CAMEROON

CHAPTER ONE

INTRODUCTION

Background of the Study

Digital banking is an electronic innovation in the banking sector that leverages mobile networks and mobile technology to connect mobile phones and other digital devices, enabling a banking system that offers various financial services via mobile interfaces such as short messaging services (SMS) (Shaikh & Karjaluoto, 2018). This new mode allows customers to access financial assistance at any place, time, and situation, thereby altering the dynamics of inter-bank competition. However, banks now prioritize providing professional and personalized services over expanding coverage and increasing the number of outlets. The rapid advancement in technology-based systems, particularly those connected to the internet, has significantly changed customer interaction within companies (Baptista & Oliveira, 2019). The adoption of digital banking impacts the performance of small and medium enterprises (SMEs), which involves developing enterprises that consistently show improvements in overall performance, including revenue, sales volume, profit, and asset growth, or maintain steady development quality and level (Tidd & Bessant, 2018). Furthermore, an enterprise's ability to grow rapidly, healthily, and continuously indicates its potential for economic success. Any organized effort intended to generate profit or economic outcome by providing services or products to an external group is referred to as an enterprise, requiring capital and time investment to develop, grow, or improve business activities (Hillary, 2017). In sub-Saharan Africa, specifically Cameroon, SMEs are recognized as engines of economic growth and key contributors to the sustainable gross domestic product (GDP) of all countries, including those in the Middle East and North Africa (MENA) region. These businesses mainly operate in the manufacturing and service sectors, creating employment opportunities for both skilled and unskilled workers. However, market conditions and regulatory environments often do not support SME growth, and access to formal finance remains one of the main obstacles they face. In Cameroon, the performance of SMEs has significantly improved due to digital banking services, attributed to high-tech innovations in a competitive environment. According to  Islam, Muzi & Meza (2018) digital banking services have experienced massive development and unprecedented growth in recent years, becoming a primary catalyst for economic and social growth. Despite some reported cases of digital money transfer theft, there is a solid foundation of innovations ensuring the success of SMEs through the digital banking sector. Many SME operators find traditional bank accounts inconvenient, as they require leaving their businesses to make transactions at the bank. This necessity has led to the adoption of mobile banking among SME operators. Since the launch of the mobile money transfer system in 2007, the mobile payment system has become popular with both the unbanked and the banked populations (Martin & Kinoti, 2017).  Additionally, digital banking has significantly contributed to the economic development of countries through innovative technology, consistently cited as one of the greatest challenges faced by SMEs worldwide (Akeem, 2019). Technology is recognized for improving efficiency, accuracy, increasing outreach, and reducing costs. However, many SMEs lack sufficient funds to invest in suitable backend technologies or operate in regions with limited access to critical infrastructure such as the internet. Others invest in poor technology choices or choose not to invest, limiting their ability to grow and compete (Khalique, Bontis, Abdul Nassir bin Shaari & Hassan, 2015). Therefore, a survey will be conducted in order to assess the effectiveness of digital banking on the growth of small and medium enterprises in Yaoundé, Cameroon.

1.2 Statement of the Problem

The Small and Medium Enterprises (SMEs) sector is crucial for the Cameroonian economy, especially in terms of job creation. The adoption and use of technological advances, such as the digital banking model, have the potential to greatly enhance the performance of small and medium-sized enterprises (SMEs). These technologies simplify financial transactions and alter the competitive landscape of businesses. The current situation among small and medium enterprises(SMEs) is that while there is a consistent growth in the acceptability of digital banking, not all SMEs are utilising it. Instead, they utilise the conventional banking approach. However, Ciravegna, Kundu, Kuivalainen, and Lopez (2018) discovered that while digital banking is available to all, not all companies utilise it. Another factor contributing to the lack of growth in SMEs is their limited access to financial resources. The presence of negative views about individuals affects their ability to access financial services offered by financial institutions. The traditional financial sectors consider them unsuitable clients due to their tiny transaction amounts. According to Brennan, Blumenthal, Goodman, Seidman, and Meixell (2017), small and medium-sized enterprises (SMEs) face difficulties in accessing financial institutions due to limited capital, insufficient revenue, and a lack of financial and asset records to secure financing from banks. These challenges negatively impact the growth of SMEs. Furthermore, digital banking offers technological solutions that effectively save expenses, enhance revenue, and expand accessibility and flexibility. These online platforms can facilitate the expansion of social and business networks and serve as a direct replacement for physical travel. This is particularly beneficial for brokers, traders, and other professionals involved in business transactions (Kirui & Onyuma, 2015). Although there are existing studies, the most of them focus on examining the factors that influence the acceptance and usage of online banking transactions, rather than investigating the impact of online banking transactions on the performance of small and medium firms (Matata & Namusonge, 2015). Hence, it is in the light of these that the study seeks to assess the effectiveness of digital banking on the growth of small and medium enterprises in Yaoundé, Cameroon.

 1.3  Objectives of the Study

The main purpose of this study is to assess the effectiveness of digital banking on the growth of small and medium enterprises in Yaoundé, Cameroon. Specifically, the study will;

1.Determine the extent to which SMEs in Yaoundé have adopted digital banking services.

2.Investigate the factors that influence the adoption of digital banking services among SMEs in Yaoundé.

3.Investigate the relationship between the use of digital banking services and the growth of SMEs

4.Investigate the challenges faced by SMEs in Yaoundé in adopting digital banking services.

1.4  Research Questions

The following questions have been prepared for the study:

To what extent have SMEs in Yaoundé adopted digital banking services?

What factors influence the adoption of digital banking services among SMEs in Yaoundé?

What is the relationship between the use of digital banking services and the growth of SMEs in Yaoundé?

What challenges do SMEs in Yaoundé face in adopting digital banking services?

1.5 Research Hypotheses

H0: Digital banking has no significant effect on the growth of small and medium enterprises in Yaoundé, Cameroon.

Ha: Digital banking has significant effect on the growth of small and medium enterprises in Yaoundé, Cameroon.

1.6 Significance of the Study

This research will assist bank executives and SMEs owners in making well-informed decisions regarding investments in digital technology, optimizing their service offerings, and formulating plans to strengthen their competitive edge in the digital era. Additionally, the research findings will help customers understand the benefits and potential challenges of digital banking, leading to more informed decisions about using these services.

Moreover, subsequent researchers will use it as a literature review. This means that other students who may decide to conduct studies in this area will have the opportunity to use this study as available literature that can be subjected to critical review. Invariably, the result of the study contributes immensely to the body of academic knowledge with regard to the effectiveness of digital banking on the growth of small and medium enterprises in Yaoundé, Cameroon.

1.6 Scope of the study   

The scope of this study is boarded on the effectiveness of digital banking on the growth of small and medium enterprises in Yaoundé, Cameroon. Empirically, this study will determine the extent to which SMEs have adopted digital banking services, investigate the factors that influence the adoption of digital banking services among SMEs, the relationship between the use of digital banking services and the growth of SMEs and the challenges faced in adopting digital banking services.

Geographically, the study will be delimited to SMEs in Yaoundé , Cameroon.

1.7 Limitation of the study

In the course of carrying out this study, the researcher experienced some constraints, which included time constraints, financial constraints, language barriers, and the attitude of the respondents. In addition, there was the element of researcher bias. Here, the researcher possessed some biases that may have been reflected in the way the data was collected, the type of people interviewed or sampled, and how the data gathered was interpreted thereafter. The potential for all this to influence the findings and conclusions could not be downplayed. More so, the findings of this study are limited to the sample population in the study area, hence they may not be suitable for use in comparison to other schools, local governments, states, and other countries in the world.

 1.9 Definition of Terms

Digital banking services: encompass various electronic methods used by customers to conduct banking transactions. 

Mobile Banking: a mobile app to perform banking transactions.

Internet Banking: conducting banking transactions via a web-based platform.

Performance: the process of developing enterprises that retains the likelihood of just and steady development of general ranks performance (inclusive of: revenue, sales volume, profit and asset gross) or keeps achieving improvement of overall performance and development quality and level (Tidd & Bessant, 2018).