Microfinance services have been provided since the 1970s to alleviate poverty by creating jobs and increasing income. This has been done on the basis of the assumption that by integrating the poor into productive economic activities, development would be promoted automatically through microfinance (Aguilar, 1999). Even if MFI started in 1970s the development of microfinance institutions in Ethiopia is a recent phenomenon. According to Wolday, (2000) the proclamation, which provides for the establishment of microfinance institutions, was issued in July 1996. Since then, different microfinance institutions have legally been registered and started delivering microfinance services.
In spite of the many clear return of using technology by financial service providers including MFIs, and others also due to the fact that the expenditure of hardware and connectivity is falling, successful use of technology in microfinance is still the exemption rather than the rule. Several challenges that remains and reduce the widespread implementation of technology to broaden financial service delivery across vast distances and to millions of people quickly.
Capacity of financial service providers: Financial institutions, particularly MFIs, have inadequate capacity to absorb technology. Financial service providers of all types tend to Focus on their own needs, rather than developing a solution that really works for their clients.
Infrastructure: Financial institutions in countries that need strong telecommunications and electric infrastructure may have a hard time implementing technology solutions that rely on internet connectivity or even electricity.
Sound information systems: Institutions should invest in advanced delivery technologies only if their foundation, the information system, is already sound. Yet, in many markets, these systems are not available or they are costly to develop. MFIs continue to fight with integrating baseline technology into their function for a number of drive: a number of microfinance institutions lack the technological know-how to make knowledgeable investment decisions when it comes to technology; commercially available software products can be costly and sellers often do not supply sufficient local maintain to ensure efficient realization of the system; microfinance institutions perceive their operations as unique and, therefore, prefer to build custom applications which are difficult and costly to develop.
Policy environment: When an electronic banking develop, governments and regulatory bodies struggle to sort out the implications, for instance, of neighborhood shops taking deposits from the public without a formal license to do so. On the other hand, governments can help MFIs increase access by issuing national identification systems or by distributing welfare payments, pensions, and salaries through electronic networks.
Consumer literacy: Illiterate and uneducated clients do not always trust technology. Efforts to educate them may be necessary.
M- Banking Microfinance impact assessment studies have been undertaken at different levels such as individual, household, institutional and community levels. For instance, the conventional evaluation of performance of microfinance institutions (MFIs) with emphasis on financial Sustainability and outreach give overriding emphasis to financial criteria. This unadventurous understanding states that clients will automatically follow if the services of microfinance institutions are available, and high rates of repayment and repeated borrowing can be taken as proxies of client satisfaction and are indicators of positive valued service (Cohen and Sebstad, 1999).This approach suggests that financial performance indicators are sufficient to show whether or not the MFIs are doing a good job, arguing that if clients are willing to pay for service, it can, then, be assumed that they are happy to pay for the services because they are doing them good.
Mobile banking is relatively a new technology which is still being adopted at a rate. With the improvement of mobile technologies and devices, Mobile banking users are able to conduct banking services at any place and any time.
M.O.S.S has attached M-BIRR financial services to its vast mobile services network taking advantage of its customer base. M.O.S.S like Vodacom (VTL) of Kenya is profit driven firm competing with rival mobile money services (MMS) providers (such as hello cash and CBE BIRR).
Despite the remarkable expansion of microfinance institution in the country, the service is not supported by information technology. Hence the technological problems become one of the holdups of the microfinance institution where the institutions are not supporting their service through the use of technology.
The writer notes that …Mobile banking (M-BIRR) is a powerful tool that can be used to deliver financial services to millions of Ethiopians who have a mobile phone but do not have a bank account due to challenges associated with accessing financial services.
1.4 Basic Research Questions
The main purpose of the study is the role of mobile banking (M-BIRR) on the productivity of small and large micro finance would be to get a deeper understanding on the extent of technological use by Microfinance Institutions in Ethiopia as general and in selected microfinance sectors in particular to the use of mobile Banking technology in microfinance institutions. As a result the researcher will address the following research questions.
1. Is M-Birr mobile money financial services more accessible compared to other non mobile finance services?
2. Does microfinance institutions can increase productivity by using of m-birr mobile money service?
3. What is the extent of mobile technology use by MFIs?
4. Is M-Birr transaction costs cheap compared to other non mobile microfinance services?
1.5 Objective of the study
1.5.1 General objectives of the study
The general objective of the study is to assess the role of Mobile banking (M-BIRR) on the productivity of small and large Microfinance institutions in Ethiopia.
1.5.2 Specific objectives
In order to achieve the stated general objective the study will be design the following specific objectives:-
1. To compare accessibility of M-BIRR financial service to other non-mobile financial services.
2. To show the productivity of microfinance institution by using of m-birr mobile money services.
3. To show the extent of mobile banking technology use by microfinance institutions
4. To show M-BIRR transaction costs and compare with other non mobile microfinance services.