QUEENS COLLEGE SCHOOL OF

GRADUATE STUDIES MBA PROGRAM

THE PRACTICE, CHALLENGES AND

OPPORTUNITIES OF MOBILE BANKING SERVICE
IN HIBRET BANK S.C

BY

BELAY DESALEW

April, 2021

Addis Ababa

1
ABSTRACT

This study attempts to analyze practices, challenges and prospects of Mobile Banking
service in Hibret Bank S.C. This research sought to obtain opinions about mobile
banking system of bank users in Addis Ababa. The study has employed a descriptive
research design. In order to the required data gather for this research were both
primary and secondary sources. Primary data was collected directly from bank staff
or officers through questionnaire survey method. Secondary data collected from
relevant ratify legislation in related with the topic, journals, as well as published
articles are used. A sample size of 86 is used from the total population of 110 grade A
branch staff in Addis Ababa. To ensure the representativeness of branches, a
purposive-non random sampling technique was adopted. Multiple regression analysis
was conducted to assess the relative predictive influence of the independent variables
on the dependent variable. The statistical package for social sciences (SPSS) is
employed in the different analyses conducted.

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 ACKNOWLEDGEMENT
I am deeply indebted to Tesfaye Hirphasa(Phd) my research advisor, for his
valuable comments, guidance and suggestions during the course of this study.

I also appreciate the management and staff of Hibret Bank S.C. for the vital
information they furnished me with. Most importantly, I would like to express my
deep gratitude to the staff of the bank who participated in this study during the
primary data collection process.

Last but not least, my heartfelt gratitude goes to Ato T/mariam Girma for his
support throughout this study.

Table of Content

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s
ABSTRACT.............................................................................................................................2
ACKNOWLEDGEMENT........................................................................................................3
ACRONYMS...........................................................................................................................7
CHAPTERONE........................................................................................................................8
Introduction..............................................................................................................................8
CHAPTER TWO....................................................................................................................15
2.1. Theoretical Review.....................................................................................................15
1. Benefits to Customers.....................................................................................................17
2. Benefits to Banking Sector.............................................................................................17
2.2. Empirical Evidence.....................................................................................................26
2.3. Background of the organization..................................................................................27
2.4. Conceptual Framework...............................................................................................30
CHAPTER THREE................................................................................................................31
3.1. Research Design.........................................................................................................31
3.2. Research approach......................................................................................................31
3.3. Source of Data............................................................................................................31
3.4. Target Population........................................................................................................31
3.5. Sample Size and Sampling Technique........................................................................32
3.5.1. Sample Size............................................................................................................32
3.5.2. Sampling Technique...............................................................................................33
3.6. Methods of data collection..........................................................................................33
3.7. Data analysis and interpretation..................................................................................33

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 ACRONYMS

ATM Automated teller machine

BLMT Broadband local money transfer

E-Banking Electronic banking

ICT Information communication technology

M-Banking Mobile Banking

PIN Personal Identification Number

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 CHAPTERONE
Introduction
1.1 Background of the study

Banks are financial intermediaries that accept deposits and make loans. Banks offer several
advantages in connecting borrows and lenders. By pooling the funds of thousands of
different depositors they are able to make large loans beyond the means of any individual
investor. In addition, because they deal in such a large volume of loans, their costs to
making a loan are smaller than for a single investor (James P., 2020). A strong banking
industry is an important element in every country and can have a significant effect in
supporting economic development through efficient financial services (Salehi and Azary,
2008).

Banks play an important function in the economy of any country. They are the main
intermediaries between those with excess money (depositors) and those individuals and
businesses with viable projects but requiring money for their investment (creditors). Banks
have at least the following functions: lending money, depositing others’ money, transferring
money locally or abroad and working as paying agent (Tefere, 2013). When various banking
products are made available to customers through an electronic distribution channel, it is
collectively referred to as M-banking (Allen et al, 2001).

Mobile Banking refers to provision and availability of banking and financial services with
the help of mobile telecommunication devices. The scope of offered services may include
facilities to conduct bank and stock market transactions, to administer accounts and to
access customized information. In other words, mobile banking offers the possibility to use
e-banking services via a mobile phone (Bećirović, 2011).

Mobile banking is a facet of Electronic banking, a practice which can simply be defined as
the provision of financial services through a mobile device. This broad definition
encompasses a range of services, including payments, finance, and banking. In practice, a
variety of means can be used such as sending text messages to transfer value or accessing
bank account details via the mobile Internet. Special “contactless” technologies are available
that allow phones to transfer money to contactless cash registers (Donovan, 2012).

According to Nyangosi, Arora & Sumanjeet (2009), banking through electronic channels

6
has gained popularity in recent years. This system, popularly known as “E-Banking”,
provides fast delivery of banking services to a wide range of customers. Now a days,
internet is one of the most successful innovations in the world, that has created number of
opportunities as well as threats for organizations in various business and service sectors,
forcing them to depend on it (either willingly or unwillingly) support their products or
deliver their services ‘online’ using the Internet as the distribution channel (Chau& Lai,
2003).

The banking industry in Ethiopia is underdeveloped and therefore, there is an all immediate
need to embark on capacity building arrangements and modernize the banking system by
employing the state of the art of technology being use anywhere in the world (Gardachew,
2010).

However, NBE Directive, (2012) as a cited in Elfagid Aregahegne (2015) “The use of
technology and innovative financial service delivery channels such as mobile devices and
agents have significant contribution in deepening financial service accessibility to the wider
section of the population at an affordable price”, the National Bank of Ethiopia (NBE)
issued a directive on “Regulation of Mobile and Agent Banking Services”, Directive
No.FIS/01/2012 which allows financial institutions to conduct the Mobile and Agent
Banking Services.

Currently the Ethiopian commercial banking system is composed of 2 state owned banks
and 16 private banks. Though it is true that traditional banking has grown steadily over the
years, in terms of technological based financial service/product the Ethiopian banking sector
didn’t fully benefit from ICT in general and M-banking in particular, although Considering
the low extent of development of ICT infrastructure in developing countries, when
compared with the developed countries E-Banking has not really been able to diffusion to
society given the low rate of internet access (Banji & Catherine, 2004).

United Bank is a share company established in 1998 that stands among the few prominent
private Banks in Ethiopia; operating all over the country with more than 360 branches and
provides an array of banking services that include: conventional, interest free and multi-
Channel banking products through various services (Annual report of United Bank, 2020).

Therefore, more and detail studies are still required to analyze and evaluate the challenges
and opportunities of E-banking in the country. Thus, to fill this some gaps and contributes to
the literatures on the electronic banking service in Ethiopia. The study will focus on the
7
practice, challenges and opportunities of mobile banking service in banking industry
specifically Hibret Bank S.C.

1.2 Background of the organization

United Bank was incorporated as a Share Company on 10 September 1998 in accordance

with the Commercial Code of Ethiopia of 1960 and the Licensing and Supervision of
Banking Business Proclamation No. 84/1994. At the time of its establishment, UB's
authorized capital was Br. 100 million, out of which Br. 20,863,100 was fully subscribed
and paid-up in cash by 335 founder-shareholders (Hibret Bank Annual report, 2020).

Currently the bank has around 360 branches, which are divided into four by their
deposits, which are divided into grade A, B, C and D. that grade A 17%, grade B 20%,
grade C 25% and grade D 38% have shares from the total branches. Therefore, the
researcher will use only grade A which are almost 60 branches, in addition to that the
Bank provides a full-fledged commercial banking service in all its branch outlets to
above 1,137,560 customers through the country with its networked 360 branches (ibid).

The Bank obtained a banking services license from the National Bank of Ethiopia and is
registered with the Trade, Industry and Tourism Bureau of the Addis Ababa City
Administration. Over the years, United Bank built itself into a progressive and modern
banking institution, endowed with a strong financial structure and strong management,
as well as a large and ever-increasing customers and correspondent base.

United Bank's priority in the coming years is to strengthen its capital base, maximizing
return on equity and benefit from the latest technology in order to keep abreast with the
latest developments in the local and international financial services industry. Now a day
the bank changed his name and they call Hibret Bank S.C. not only that they changed
their logo and replace it by new one (ibid).

Banks play an important function in the economy of any country. They are the main
intermediaries between those with excess money (depositors) and those individuals and
businesses with viable projects but requiring money for their investment (creditors).
Banks have at least the following functions: lending money, depositing others’ money,
8
transferring money locally or abroad and working as paying agent (Tefere, 2013). When
various banking products are made available to customers through an electronic
distribution channel, it was collectively referred to as M-banking (Allen et al, 2001).

In the face of rapid expansion of electronic payment systems throughout the world, the
Ethiopian financial sector cannot remain an exception in expanding the use of the system
(Garedachew, 2010). M-banking plays a crucial role in the banking industry by creating
value for banks and customers. M-banking has enabled banking institutions to compete
more effectively in the global environment by extending their and services beyond the
restriction of time and space (Turban, 2008).

1.3 Statement of the problem

A strong banking industry is an important element in every country and can have a
significant effect in supporting economic development through efficient financial
services (Salehiand Azary, 2008). Banking through electronic channels has gained
popularity in recent years. This system, popularly known as “E-Banking”, provides fast
delivery of banking services to a wide range of customers (Nyangosi, Arora &
Sumanjeet, 2009).

Banks play an important function in the economy of any country. They are the main
intermediaries between those with excess money (depositors) and those individuals and
businesses with viable projects but requiring money for their investment (creditors).
Banks have at least the following functions: lending money, depositing others’ money,
transferring money locally or abroad and working as paying agent (Tefere, 2013).
When various banking products are made available to customers through an electronic
distribution channel, it is collectively referred to as M-banking (Allen et al, 2001).

In the face of rapid expansion of electronic payment systems throughout the world, the
Ethiopian financial sector cannot remain an exception in expanding the use of the system
(Garedachew, 2010). M-banking plays a crucial role in the banking industry by creating
value for banks and customers. M-banking has enabled banking institutions to compete
more effectively in the global environment by extending their and services beyond the
restriction of time and space (Turban, 2008).

Mobile Banking is a form of banking, where funds are transferred mobile banking
9
system between financial institutions, instead of cash, checks, or other negotiable
currencies. The ownership offends and transfers of funds between financial institutions
are recorded on computer systems connect by telephone lines. Customers are identified
by access code, such as a password or Personal Identification Number (PIN), rather
than signature on a check or other physical documents. Mobile Banking involves
personal and corporate clients, and includes bank transfers, payments and settlements,
documentary collections and credits, corporate and individual lending, card business
and some others (UNCTAD, 2002).

In Ethiopian there was a limitation of researches, which are conducted in mobile

banking particularly in Bank industry of Ethiopia. Although, some prior researchers
like Vicky M. Kisuli, (2016), Gardachew, W (2010), Ebisa Beyene, (2020), Berhan
Behailu, (2018), Abebe Zeleke (2016) and Elfagid Aregahegne (2015) have tried to
make research on mobile banking even though most of the studies indicated above are
addressed, factors like practice challenge and opportunity specially in Hibret bank were
not addressed which this study has planned to observe in this bank case.

In addition to that, the literature on mobile banking is becoming rich very fast, so far,
no comprehensive study has been undertaken regarding the practice challenges and
opportunity of mobile banking in Hibret bank. The present study is devoted to fulfill
this gap and also to propose some suggestions for further development of mobile
banking in the country.

1.4 Basic Research Questions

The main question of this study tries to what are the practices, challenges and prospects
of Mobile Banking service in Hibret Bank S.C. Based on the above stated objective, the
following research questions were raised:
1. What is the current practices and extent of Mobile Banking service in Hibret
Bank S.C.?

2. What are the driving forces towards the adoption of Mobile Banking service in
Hibret Bank S.C.?

3. What are the major challenges for the adoption of Mobile Banking service in
Hibret Bank S.C.?

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 4. What are the existing opportunities for the adoption of Mobile Banking service in
Hibret Bank S.C.?

1.5 Objectives of the Study

1.5.1. General objective

The main objective of the study tries to determine the current practice of Mobile
Banking Services and its benefits and challenges in Hibret Bank S.C.

1.5.2. Specific objectives

This study on Mobile Banking in Hibret Bank S.C: Practice, Challenges and
Opportunities assume the following specific objectives:

1. To identify the benefits realized by Hibret Bank S.C in the practice of mobile
banking to complement their service delivery channels.

2. To identify the major challenges for the adoption of M-banking service in

Hibret Bank S.C.

3. To identify the existing opportunities for the adoption of mobile banking service
in Hibret Bank S.C.

4. To identify the benefits of adopting mobile banking service from the viewpoint
of the bank.

1.6 Significance of the Study

The study will be focusing on the practices, opportunities and challenges of mobile
banking in the country and forward constructive recommendations on identified
problems which needs to be improved. Moreover, this study will help

 Banks policy or decision makers to adoption and modify this technology. In

addition, the findings of

 To increases the level of understanding of the staff members and customers on

the mobile banking challenges.

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  Give insight to researchers and students about the problem and stimulate
further investigation of the issue.

1.7 Scope of the Study

The study proposes to describe the practices, opportunities and challenges of mobile
banking in Hibret Bank S.C. The only data that was obtained from Hibret Bank S.C.
will use in this study. Although there are different commercial banks in Ethiopia,
this study were target on the Hibret Bank S.C. branches found in Addis Ababa
Town. Specifically, the research was concern and select solely on 3 of 60 grade A
branches of Hibret Bank, all providing mobile banking services through ATM s, and
Internet Banking channels.

1.8 Limitation of the Study

The proposal try to show descriptive studies that are limit in scope and sample size.
The geographical coverage is limit to Addis Ababa and the numbers of branches try
to select for the study is also limit. Thus, the findings of this study may not give a
real reflection of the Ethiopian scenario in respect of the provision of Mobil Banking
business for financial inclusion. However, it give the above-mention limitations the
proposal have try to provide clear picture through making proper analysis of the
different variables considered against the practices, opportunities and challenges of
mobile banking.

1.9 Organization of the Study

The proposal paper is organized into three chapters. Chapter one deals with
introductory part consisting of background of the study and organization, statement
of the problem, basic research questions, objective of the study, significance of the
study, scope and limitation of the study and organization of the paper. The second
chapter reviews literatures related to the study. Under the third chapter methods and
design of the research are discussed.

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 CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.1. Theoretical Review

2.1.1. Introduction to Mobile Banking

Mobile Banking refers to provision and availability of banking and financial services
with the help of mobile telecommunication devices. The scope of offered services
may include facilities to conduct bank and stock market transactions, to administer
accounts and to access customized information. Small Businesses can be defined
according to nature and size. In terms of nature a small business as one run by an
individual like in a sole proprietorship or a group of between two and twenty
individuals like in a partnership.

Mobile banking is said to be a system which allows customers of a given financial

institution to conduct a number of financial transactions through the use of a mobile
device. Quick, C. (2009) stated that mobile banking is a facility that provides banking
services like balance enquiry, funds transfer, bill payment, and transaction history via
mobile phones. It is averred that the earliest mobile banking services were offered
over short messaging service (SMS) banking.

Upon the inception of smart phones with WAP support in1999, the first European
banks commenced offering mobile banking on this platform to their customers. It is
posited that since then hitherto, mobile banking has mostly been offered through SMS
or the mobile Web. Mobile banking services are broadly grouped into three
categories: account information, investments, support, and content services (Sidel, R.,
2013).

2.1.2. Trends in Mobile Banking

The advent of the Internet has revolutionized the way the financial services industry
conducts business, empowering organizations with new business models and new
ways to offer 24 hour accessibility to their customers. The ability to offer financial
transactions online has also created new players in the financial services industry,
such as online banks, online brokers and wealth managers who offer personalized
services, although such players still account for a tiny percentage of the industry.

13
Over the last few years, the mobile and wireless market has been one of the fastest
growing markets in the world and it is still growing at a rapid pace. According to the
GSM Association and Ovum, the number of mobile subscribers exceeded 2 billion in
September 2005, and now exceeds 2.5 billion (of which more than 2 billion are
GSM).

According to a study by financial consultancy Celent, 35% of online banking

households will be using mobile banking by 2010, up from less than 1% today.
Upwards of 70% of bank center call volume is projected to come from mobile
phones. Mobile banking will eventually allow users to make payments at the physical
point of sale. "Mobile contact less payments” will make up 10% of the contact less
market by 2010. Many believe that mobile users have just started to fully utilize the
data capabilities in their mobile phones. In Asian countries like India, China,
Bangladesh, and Philippines, where mobile infrastructure is comparatively better than
the fixed-line infrastructure, and in Europe countries, where mobile phone penetration
is very high (at least 80% of consumers use a mobile phone), mobile banking is likely
to appeal even more.

This opens up huge markets for financial institutions interested in offering value
added services. With mobile technology, banks can offer a wide range of services to
their customers such as doing funds transfer while traveling, receiving online updates
of stock price or even performing stock trading while being stuck in traffic.
According to the
German mobile operator Mobilcom, mobile banking will be the "killer application"
for the next generation of mobile technology.

Based on the study made in Kenya by Wambari Andrew in (2009), mobile devices,
especially smart phones, are the most promising way to reach the masses and to
create “stickiness” among current customers, due to their ability to provide services
anytime, anywhere, high rate of penetration and potential to grow. In the last ten
years, banks across the globe have invested billions of dollars to build sophisticated
internet banking capabilities. As the trend is shifting to mobile banking, there is a
challenge for CIOs and CTOs of these banks to decide on how to leverage their
investment in internet banking and offer mobile banking, in the shortest possible time.
The proliferation of the 3G (third generation of wireless) and widespread
14
implementation expected for 2007–2011 will generate the development of more
sophisticated services such as multimedia and links to m-commerce services.

2.1.3. Benefits of Mobile Banking

Pallab S. and Munish M. (2013) analyzed the benefits of online banking from the
viewpoint of customers and banking sector in general as per below.

1. Benefits to Customers

General banking customers have been significantly affected by the advent

of internet banking revolution.

a) A banking customer’s account is extremely accessible with an online account.

b) Through mobile banking customer can operate his account remotely from
his/her office or home. The need for going to bank in person for every single
banking activity is dispensed with.

c) Mobile banking lends an added advantage towards payment of utility bills. It

eliminates the need to stand in long queues for the purpose of bill payment.

d) Most, if not all, services that are usually available from the local bank can be
found on a single handset.

e) Sharp growth in credit card/debit card usage can be majorly attributed to

mobile banking. A customer can shop globally without any need for carrying
paper currency with him.

f) By the medium of m-banking, banks are available 24x7 and are just a finger
click away.

2. Benefits to Banking Sector

Pallab S. and Munish M. (2013) have also stated that, in addition to banking
customers, growth of E-banking infrastructure in general and mobile banking in
particular has proved to be extremely beneficial to banks and overall bank
organizations on account of following:
15
 a) The concept of mobile banking has immensely helped the banks in
putting a tab over their specific overheads and operating cost.

b) The rise of mobile banking has made the banks more competitive. It
resulted in opening of better prospects and avenues for banking
operations.
c) The mobile banking has ensured transparency of transactions and
facilitated towards removing the documentation requirements to a
major extent, since majority of records under an e-banking set up are
maintained electronically.

d) The reach and delivery capabilities of mobile, enabled banks, proves

to be significantly better than the network of physical bank branches.

2.1.4. Adoption of Mobile Banking

During the past decade, a considerable amount of research on mobile finance services
has emerged. Majority of these studies applied research models and frameworks
traditionally used within the IS literature (Hoehle& Huff, 2009). Among the different
models that have been proposed, the Technology Acceptance Model (TAM) (Davis,
1989), adapted from the Theory of Reasoned Action (TRA) (Ajzen&Fishbein, 1980),
appears to be the most widely accepted among information systems researchers. The
TAM posits that a user’s adoption of a new information system is determined by that
user’s intention to use the system, which in turn is determined by the user’s beliefs
about the system. The TAM further suggests that two beliefs – perceived usefulness
and perceived ease of use – are instrumental in explaining the variance in users‟
intentions. As Davis (1989) noted, future technology acceptance research must
address how other variables affect usefulness, ease of use and user acceptance.
Therefore, perceived ease of use and perceived usefulness may not fully explain
behavioral intentions towards the use of mobile banking, necessitating a search for
additional factors that can better predict the acceptance of mobile banking. Another
theory pertains to the adoption of new technology is the Diffusion of Innovation
Theory by Rogers (1983). According to Rogers (2003, p.175), there are five
perceived characteristics of innovation that can be used to form a favorable or
unfavorable attitude toward an innovation, namely: relative advantage, compatibility,

16
complexity, trial ability, and observe ability. Based on that, we will use Tan and Teo
(2000) and Rogers (2003) framework to test the influence of several factors on
mobile bank services adoption. Six factors were included and those factors are:

1) Self efficacy: An individual’s self confidence in his or her ability to

perform a behavior (Taylor and Tod,1995)

2) Trail ability: The extent users would like an opportunity to experiment with
the innovation prior to committing to its usage (Agarwal and Prasad,1997)

3) Compatibility: The degree to which an innovation is viewed as being

consistent with existing values of users (Agarwal and Prasad, 1997).

4) Complexity: The degree to which an innovation is considered relatively

difficult to understand and use (Taylor and Tod, 1995).

5) Risk: The perceived sense of risk concerning disclosure of personal and

financial information (Tan and Teo,2000).

6) Relative advantage: The extent to which a person views an innovation as

offering an advantage over previous ways of performing the same task (Taylor
and Tod, 1995).

2.1.5. Risks towards Mobile Banking

To understand the risks associated with mobile banking, it is necessary to separate

mobile banking from the broader arena of mobile financial services and products.
Mobile financial services involves the use of a mobile device for transfers
(originating wire or automated clearing house (ACH) transactions), marketing,
banking, or payments (person-to-person or person-to-business transactions), while
mobile banking allows customers of an insured depository institution to conduct
banking activities, such as checking balances, receiving account alerts, or making bill
payments, through a smart phone or tablet. Mobile financial services, of which
mobile banking is a subset, involve nonbank third parties. As such, this study focuses
only on mobile banking because of the unique and ongoing risks faced by financial
institutions that offer this service.
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2.1.6. Mobile Banking Risk Identification

Mobile banking is one of the emerging Information and Communication

Technologies (ICT) elements that have changed the operations of the banking sector.
It refers to the execution of financial services using mobile communication
techniques together with mobile devices [International Telecommunications Union
(Geneva), 2013]. According to Devadevan, 2013, mobile banking services can be
classified into Short Message Services (SMS) Banking, Application (Software)
oriented, and Browser (Internet) based model. Banks are introducing m-banking in
order to take advantage of high mobile phone penetration around the world and more
specifically in Africa (Tiwari, 2006). However, in developing countries for example
both in Sub-Saharan Africa and North Africa, there are most frequently reported
obstacles. Globally, obstacles for mobile banking can mean the confronting events or
difficulties which hinder the adoption of certain technology or confronting events
which are contrary to the adoption of certain technology. For instance, 80% of adults
in Sub-Saharan Africa had no formal accounts and 60% in North Africa (Demirgüç-
Kunt, A., &Klapper, L. F., 2012). This implies that, apart from adoption of ICT for
financial services and especially mobile banking service still there are obstacles
facing the effectiveness of the technology.

A study of Laforet (2005) that focused on investigating consumers’ attitudes towards

online and mobile banking in China revealed that fear of security risks to be the main
Reason for the rejection of internet banking whereby, low computer technological
skills and Chinese traditional cash-carry culture are associated to be the main factors
for rejection.

Furthermore, a study by Iddris (2013), on Barriers to Adoption of Mobile banking in

Ghana states four main reasons contributing to the rejection of mobile banking by the
consumers to include: poor knowledge about mobile banking, low consumers’
attitude to learn about mobile banking, poor telecommunication network and
enormous consumers’ preference for traditional means of banking instead of mobile
enabled banking services.

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2.1.7. Mobile Banking Risk Assessment

Once bank management understands the risks posed by mobile banking and the
potential strategies for mitigating those risks at a high level, the final step in the
process is to apply those general concepts to the specific products and services
offered by the bank. This begins with completing a risk assessment based on bank-
specific factors. To complete an effective risk assessment, bank management should:

Understand the network architecture and mobile banking technology solution(s) being
used. Know how the mobile banking application is designed, understand what
features are being used, and be aware of the threats to the application. Identify the
wireless transmission protocols and data transmission media being used.
 Understand what data the application stores and processes, as well as how
this information is stored.
 Know the methods of attack to which the application is vulnerable and
which are the most common. Identify controls to prevent attacks and/or
data loss.
 Have a robust vendor management process. If a third party (or parties) is
involved in offering mobile banking, complete a thorough due diligence to
understand all the preceding risks assessment elements as they apply to that
third-party.

One possibility is to use a data-centric approach to risk assessment and ongoing risk
management. Data discovery and classification are two essential initiatives that lay
the foundation for protecting data no matter where this information resides. If a
financial institution does not know what kind of data it has or where they reside, it
cannot apply the appropriate policies and controls to protect this information. This
especially applies to mobile banking and the risks and controls discussed in this
article. The following table is a simple data classification chart that a bank can fill out
that could be used to identify critical data and associated control requirements based
on the implementation of a mobile banking solution.

2.1.8. Banking in Ethiopia Banking History in Ethiopia

A reference to the Ethiopian history reveals that the first bank in the country, Bank of
Abyssinia was founded during the reign of Emperor Menelik II in February 1905.

19
Due to a foreign domination of its management (mainly the British), the then Bank of
Abyssinia was forced to dissolve and in its place was established the Bank of Ethiopia
in 1931 whose management was still left to foreigners due to the then lack of skilled
manpower in the country. The Bank of Ethiopia was later replaced by the State Bank
of Ethiopia soon after the war with Italy. The latter was the first bank in the country
fully controlled and owned by the Ethiopian government. In the meantime, however,
a number of foreign banks had opened their branches in the country, most of them
with an interest
to have control over the nation’s economy. It was the State Bank of Ethiopia that gave
rise to the present Commercial Bank of Ethiopia (CBE) and National Bank of
Ethiopia (NBE).

However, following the 1991 takeover by the present government and accompanying
encouragement of private investment, a number of private banks have emerged in the
country’s financial sector. Accordingly, Monetary and Banking proclamation
No.83/1994 and the Licensing and Supervision of Banking Business No.84/1994 laid
down the legal basis for investment in the banking sector. Consequently, shortly after
the proclamation the first private bank, Awash International Bank was established in
1994 by 486 shareholders and by 1998 the authorized capital of the Bank reached Birr
50 million. Dashen Bank was established on September 20, 1995 as a share company
with an authorized and subscribed capital of Birr 50.0 million. 131 shareholders with
subscribed and authorized capital of 25 million and 50 million founded bank of
Abyssinia. Wegagen Bank with an authorized capital of Birr 60 million started
operation in 1997. The fifth private bank, United Bank was established on 10th
September 1998 by 335 shareholders. Nib International Bank was started business on
May 26, 1999 with an authorized capital of Birr 150 million. Cooperative Bank of
Oromia was established on October 29, 2004 with an authorized capital of Birr 22
million. Lion International Bank with an authorized capital of Birr 108 million started
operation in October 02, 2006. Zemen Bank started operation on June 17, 2008 with
an authorized capital of Birr 87.0 million. Oromia International Bank has started
operation on September 18, 2008 with an authorized capital of Birr 91 million. In
addition, recently Buna International Bank and Birhan International Bank are started
operation in the country (NBE, 2009).

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2.1.9. Review of Commercial Banking Practices in Ethiopia

In Ethiopia, 16 private and two state owned banks are operating at the end of May
2016. Despite a rapid increase in the number of financial institutions since financial
liberalization, the Ethiopian banking system is still underdeveloped compared to the
rest of the world. The use of checks is mostly limited to government institutions,
NGOs and some private businesses. Commercial banks in Ethiopia provide the same
services with the same operational style that they used to offer before decades. The
common banking functions provided by public and private banks in Ethiopia are
deposit mobilization, credit allocation, money transfer and safe custody. Banks in
Ethiopia are unable to improve customer service, design flexible and customized
products, and differentiate themselves in a market where product features are easily
cloned. Ethiopian banking is unable to come from long way of being sleepy to a high
proactive and dynamic entity.

According to the Newsletter that has published on 2012 by making finance work for
Africa, Ethiopia's financial system is small and largely dominated by the state. Public
banks account for 67% of total deposits and 55% of loans and advances. Government
dominates lending, controls interest rates, and owns the largest bank, the Commercial
Bank of Ethiopia (CBE) whose assets represent about 70 percent of the sector total, as
of April 2012. The Central Bank, the National Bank of Ethiopia, has a monopoly on
all foreign exchange transactions and supervises all foreign exchange payments and
remittances. By June 2011 the private credit to GDP ratio for Ethiopia was around 9%
compared with the average of 30% for sub-Saharan Africa. The financial sector has
recently been experiencing a reversal of financial deepening. The broad money to
GDP ratio declined from 27 percent in 2007-2008 to 25 percent in 2008-2009, while
the ratio of domestic credit to GDP decreased from 32 percent to 27 percent over the
same period. Negative real interest rates (stemming from high inflation and low
deposit rates), high reserve money growth, bank-by-bank credit ceilings, and a lack of
competition in the banking sector have contributed to the economy's continued
demonetization in recent years, which is posing increasing risks to financial stability.
Authorities have made commitments to promote monetization, improve liquidity
management and achieve positive real interest rates in the financial sector, but
reversing demonetization remains a major challenge.

21
Ethiopia's banking sector included 16 commercial banks in 2012. While the state has
recently allowed the local private sector to participate in banking which brought about
a rapid expansion of private banks, foreign ownership and branch operations remain
strictly barred. Private Banks have generally outperformed their state-owned
counterparts and their market share of resource mobilization exceeds that of public
banks, with market share of loan collections and deposits rising to 49 percent and 52
percent in 2007-2008. However, the share of new loans disbursements controlled by
private banks for the same period decreased, and stood at 43.3 percent in 2007-2008.
The banking sector as a whole, while remaining relatively sound, is characterized by
excess liquidity. Non-performing loan ratio standing at 1.8 percent as of March 2012
appears unusually low, especially given the strong domestic credit expansion.

Mobile banking is an underserved sector with strong growth potential. Very low cell
phone penetration has prevented the rapid development of mobile banking, which has
taken place elsewhere in Africa. However, the mobile phone industry has just started
to discover Ethiopia as a relatively large, untapped market. A number of operators are
thus preparing to launch, or have already launched, payment and transaction systems
supported by mobile technology.

The total capital of the Ethiopian banking industry has surged by 19.0 percent in the
2014/15 budget year noted the National Bank of Ethiopia in its flagship publication;
Annual Report on Ethiopian Economy. According to the Report, the total capital of
the Ethiopian banking industry has reached 31.5 billion Birr by the end of June 2015.
That is a 19.0 percent surge as compared to the industry’s capital in 2013/14 budget
year. The reason behind such a rise in capital is explained by an injection of more
capital by a number of banks, the report said.

As a result, the share of private banks in total capital marginally increased to 56.5
percent from 55.4 percent last year while that of Commercial Bank of Ethiopia (CBE)
remained at 34.0 percent. Meanwhile the banks opened 485 new branches in the
budget year, raising the total branch network in the country to 2693 from 2208 last
year. As a result, bank branch to population ratio declined from close 1:39,834 people
to 1:33,448 in the period under consideration.

The significant branch expansion was undertaken by CBE with 127 branches,

22
followed by Awash International Bank with 55 branches. The remaining banks
opened less than 50 branches each. Despite more branch expansion by public banks,
their share in total branches slightly went down to 41.9 percent from 45.4 percent last
year. About 35.5 percent of bank branches were in Addis Ababa, during the review
period. Banks, insurance companies and microfinance institutions are the major
financial institutions operating in Ethiopia.

The number of private banks in the country has started to mushroom following the
downfall of the socialist regime 25 years ago. Now, the country is home to 18 banks,
of which 16 are private while the remaining two are state-owned.

2.1.10. Challenges of Adopting Mobile Banking in Hibret Bank

In his study, Gardachew (2010) mentioned that Ethiopian banking industry faces
numerous challenges to adopt electronic banking system and grab the opportunities
presented by ICT applications in general. The Key Challenges stated were:
Low level of internet penetration and poorly developed telecommunication
infrastructure: Lack of infrastructure for telecommunications, Internet and online
payments impede smooth development and improvements in e- commerce in
Ethiopia. Most rural areas of the country, where the majority of small and medium
businesses are concentrated, have no Internet facilities and thus are unable to engage
in e-commerce activities.
Lack of suitable legal and regulatory framework for e-commerce and e-
payment: The existing commercial laws of the country do not properly and clearly
address electronic contracts and signatures. Gardachew added that Ethiopia has not
yet enacted legislation that deals with e-commerce concerns including enforceability
of the validity of electronic contracts, digital signatures and intellectual copyright and
restrict the use of encryption technologies.
Inadequate banking system and political instabilities in neighboring countries:
Political and economic instabilities in Somalia, Southern Sudan, and Eritrea are
threatening traits that do not provide a very conducive environment for e- banking in
Ethiopia. Political instabilities inevitably disturb smooth operations of business and
free flow of goods and services.
High rates of illiteracy: Low literacy rate is a serious impediment for the adoption of
mobile banking in Ethiopia as it hinders the accessibility of banking services. For
23
citizens to fully enjoy the benefits of mobile banking, they should not only know how
to read and write but also possess basic ICT literacy.
High cost of Internet: The cost of Internet access relative to per capita income is a
critical factor. Compared to the developed countries, there are higher costs of entry
into the e-commerce market in Ethiopia. These include high start-up investment costs,
high costs of computers and telecommunication and licensing requirements.

2.2. Empirical Evidence

This section reviewed empirical studies pertinent to challenges and opportunities of
mobile banking practice in Ethiopia. Some related studies are conducted by different
researchers in different parts of the world. However, there are limited numbers of
studies conducted in Ethiopia on mobile banking technology. The related one is done
by (Gardachew, 2010) which is conducted a research on the opportunities and
challenges of e- banking in Ethiopia. The study was focused on analyzing the status of
electronic banking in Ethiopia and investigates the main challenges and opportunities
of implementing e-banking system. There was an article on Birritu magazine No.119
which was published in February 2015. This research has referred these two related
studies for strengthen the empirical view.

2.2.1. Challenges and Opportunities of Mobile Banking Services

1. Challenges

Infrastructure is necessary for the successful implementation of mobile payments.

Proper Infrastructure for electronic payments is a challenge (Taddesse and Kidane,
2005). For electronic payments to be successful there is the need to have reliable and
cost effective infrastructure that can be accessed by majority of the population.
Electronic payments communication infrastructure includes computer network such as
the internet and mobile network used for mobile phone. In addition, banking activities
and operations need to be automated. A network that links banks and other financial
institutions for clearing and payment confirmation is a pre-requisite for electronic
payment systems.
Mobile network and Internet are readily available in the developed world and users
usually do not have problems with communication infrastructure. However, in Africa

24
mobile networks and internet are not easily accessible. Worku (2010) noted that low
level of internet penetration and poorly developed telecommunication infrastructure
impedes smooth development and improvements in e-commerce and mobile banking
in Africa. In a related work, by Mishra (2008) in Nepal, Telecommunication and
electricity are not available throughout the country, which negatively affect the
development of e- payments. According to Mishra (2008), the development of
information and communication technology in Nepal is a major challenge for e-
payments development. Since ICT is in its infant stages in Nepal, the country faces
difficulty promoting e- payment development.

2. Opportunities

The high growth and penetration rates of mobile telephony that is transforming cell
phones into banks in pockets in Africa is providing opportunities for countries on the
continent to increase affordable and cost effective means of bringing on board the
large numbers of the population that has been excluded from formal financial services
for decades. Such a transformation is of interest not only for banks and Mobile
financial institutions (MFIs) but also for governments and financial regulators as well
as development partners who are providing support to improve the livelihood of
African people through poverty reduction and sustained economic growth.

Boosting domestic savings through expansion of financial services to the poor and
rural populations Increased money transfers from the Diasporas at low costs – e.g., M-
PESAIMT. Reduction in financial transactions costs, leading to lowering cost of
doing business that will benefit SMEs and overall private sector development.
Increased government revenues as a result increased corporate revenues from
booming m-banking, improved corporate earnings, etc.

The main challenge to find proper and relevant empirical review for this research was
the non-availability of prior studies on the subject matter. This is considered as a gap
for this study and it will pave the way for researchers to conduct further studies on
this specific topic.

2.3. Background of the organization

United Bank was incorporated as a Share Company on 10 September 1998 in
accordance with the Commercial Code of Ethiopia of 1960 and the Licensing and
25
Supervision of Banking Business Proclamation No. 84/1994. At the time of its
establishment, UB's authorized capital was Br. 100 million, out of which Br.
20,863,100 was fully subscribed and paid-up in cash by 335 founder-shareholders.

The Bank obtained a banking services license from the National Bank of Ethiopia and
is registered with the Trade, Industry and Tourism Bureau of the Addis Ababa City
Administration.

Over the years, United Bank built itself into a progressive and modern banking
institution, endowed with a strong financial structure and strong management, as well
as a large and ever-increasing customers and correspondent base.  

United Bank provides a full-fledged commercial banking service in all its branch
outlets to above 1,137,560 customers through the country with its networked
360 branches.

United Bank's priority in the coming years is to strengthen its capital base,
maximizing return on equity and benefit from the latest technology in order to keep
abreast with the latest developments in the local and international financial services
industry.

Corporate Philosophy

Vision
To globally be the preferred financial services provider of innovative solutions across
Africa. 

Mission
Committed to exceeding the expectations of our customers and other stakeholders by
providing competitive financial solutions while ensuring efficient service delivery and
people empowerment. 

Aspirations 

 Top 5 Private Bank in East Africa

26
 To be one of top 5 private banks in East Africa based on Asset size

 Market Leader in Innovation & Digitization 

        To be the market leader through investment in impactful, transformation

innovation and digitization 

 Employer of Choice 

            To be the employer of choice in the financial industry 

 A Bank with Continuous Learning & Development Culture 

Creating and retaining a competitive and fulfilled workforce by driving

a culture of continuous learning and development 

 Leader in Customer Centricity

 To set the industry benchmark in superior customer centricity to

deliver outstanding customer value 

 Superior Value to Customers & Other Stakeholders 

To be an insight driven organization, delivering superior value to

customer and other stakeholders 

 Trusted partner across the entire value chain 

To be at the forefront of strategic partnership as trusted partner with

key players across the entire value chain 

 Known for inclusivity in the region and beyond

To be renowned for driving inclusivity across the region and beyond

by serving our customers without prejudice. 

Tagline

27
United, We Prosper!

2.4. Conceptual Framework

The research adopted a conceptual framework where determinant of tax compliance
will be taken as an independent variable while tax compliance was list as dependent
variable as illustrated in the Conceptual figure.

Independent variables Dependent variables

 Practice
Mobile Banking
 Challenge

 Opportunity

28
 CHAPTER THREE

RESEARCH DESIGN AND METHODOLOGY

3.1. Research Design

The study employs descriptive research to achieve the researcher objectives the
research questions which are in the form of „„what‟‟, and to highlight the most
important factors that can negatively or positively affect the adoption and
development of mobile and agent banking in Ethiopia.

3.2. Research approach

The researcher will adopt mixed research approach. The rationale of using a mixed
approach is to gather data that could not be obtained by adopting a single method
(Creswell, 2003). Hence, the basis of such approach helps to neutralize the limitations
of applying a single approach in connection with the qualitative and quantitative
nature of the research questions.

3.3. Source of Data

The study will be conduct by using both primary and secondary sources. Primary data
are those which are collected a fresh & for the first time & happen to be original in
character.
Primary data will be collect from the respondents based on a structurally designed. It
will use open-ended questions. Secondary source of data are those which are made
available i.e. data which have already been collected & analyzed by someone else,
Secondary data will be collect from the websites of the bank, books, report and
published articles.

3.4. Target Population

In this study the researcher selecting a sample from the above mentioned population,
although, the choice of sample size has a bearing on the reliability of the result of a
study. However that sample size is one of the factors that contribute to the credibility
of the survey estimate. For the choice of sample size, different researchers have
different opinions. For instance, some researchers noted that the choice of sample size
is normally made after considering practical issues and available resources (e.g. cost

29
and time). If the sample is large, this method is the best way to obtain a sample
representative of the population (Fraenkel and Wallen, 2009).
The bank currently has 360 branches, which are divided into four by their deposits,
which are divided into grade A, B, C and D from that grade A 17%, grade B 20%,
grade C 25% and grade D 38% have shares. Therefore, the researcher will use only
grade A which are almost 60 branches within that select three branches randomly,
namely medanialem, legehar and bole lideta branches that have 4,173, 1,359, and
1,338 mobile banking users from the total customer 13,368, 8,038 and 13,742
respectively. Although above 375,608 customers are uses of mobile banking in the
whole Hibret Bank branches. Nevertheless,

3.5. Sample Size and Sampling Technique

3.5.1. Sample Size

The target total population is solely three grade A branch staffs that are 110 which is
42, 35 and 33 for Bole Medanialem, Lideta and Legehar branch as respectively (2021)
or (2013 E.C) budget year, while all branches are in Addis Ababa city. There are
several approaches to determine the sample size. In this study a simplified formula
provided by (Yamane, 1967), that applied to determine the required sample size at
95% confidence level, degree of variability = 0.05 and level of precision = 7%.

N
In compliance with Yamani, (1967). n= 2
{1+ ( Ne ) }
Where n= is the sample size
N= is population
e= is error limit (0.07 on the basis of 93% confidence level)

110
n= 2
1+110 (0.05)
110
n=
1.275

n=86

Using a total population under study of 110 grade A branches with an error limit of
30
5%, a sample size of 86 is consider adequate as computed above. This is because the
target population’s nature of homogeneity. The taxpayers are segmented as grade A,
B, C and D based on the total deposit and the common requirement of grade is annual
deposit of Birr above 60, 50-60, 30-50 and under 30 million correspondingly.

3.5.2. Sampling Technique

This study adopted a non-probability sampling technique. Non-probability sampling is

a sampling technique that does not use chance selection procedures. Rather they rely
on the personal judgment of the researcher (Mugenda & Mugenda, 2003).

Mugenda and Mugenda (2003) as a cited in T/mariam G. (2017), stratified sampling

involves selecting subjects ‘in such a way that the existing subgroups in the
population are more or less reproduced in the sample’. In this case the study will be
applying judgmental or purposive non probability sampling technique.

3.6. Methods of data collection

In this study, primary data is the major source of this research via questioners to
respondents as instruments in collecting primary data. Therefore the researcher will be
use open-ended questionnaire data collection. In order to collect information
regarding the adoption of e-banking technology thus, the respondents answer or filled
questionnaires collected from each respondent according to the time line provided for
data collection. The researcher will personally gives out the questionnaires.

The structure questionnaire is the respondents. The questionnaire is prepared in

English version and that had two parts. In the first part general characteristics of tax
payers is asked. In the next section contain the main determinant of large business
taxpayer tax compliance is measured. Eventually, questionnaires are attached as
Appendix.

3.7. Data analysis and interpretation

First of all, collects survey data were compile, edit for error and irregularity and then
coded. The analysis section is divided in to five parts. Part one presents the
background information of the respondents involved in the study. The second part
31
describes the actual practice of mobile banking in the bank, the third part explains
about challenge to adopted and implement it; and the fourth part also concern
opportunity of implementing.

Multiple regression analysis is conducted to assess the relative predictive influence of

the independent variables on the dependent variable. The statistical package for social
sciences (SPSS) is employed in the different analyses conducted. Moreover, tables
chart and figures are used to be the analysis complete by descriptive research method.

Faizal and Palil, (2015) as a cited in T/mariam G., (2017), multiple linear regression
analysis is used to test hypothesis 1 with model y = β0 + β1χ1 + ε in the
representation of y = mobile banking, χ1 = practice, challenge, and opportunity ε =
error. Multiple regression analysis is used to test hypothesis 1, 2 and 3 based on the
following model:

y = β0 + β1χ1 + β2χ2 + β3χ3 + ε

y = Mobile banking

χ1 = Practice

χ2 = Challenge

χ3 = Opportunity

ε = Error

The collected data was analyzed based on the nature of the objective. Descriptive
statistics has been used to analyze the data obtain from secondary as well as primary
sources. Analysis of the data had been conducted through the use SPSS software.
Tables and figures were illustrated to provide evidences of some of the most
important the findings of the study.

32
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