CHAPTER ONE

INRODUCTION
1.0 INTRODUCTION
This chapter will discuss, the back ground of the study, statement of the problem, purpose of the
study, research objectives and questions guiding the study, significant and scope of the study, the
definitions of the key terms, and conceptual framework.
1.1 BACKGROUND OF THE STUDY
Mobile banking offers millions of people a potential solution in emerging markets that have
access to a cell phone, yet remain excluded from the financial mainstream. It can make basic
financial services more accessible by minimizing time and distance to the nearest retail bank
branches (CGAP, 2006) as well as reducing the bank’s own overheads and transaction- related
costs. Mobile banking presents an opportunity for financial institutions to extend banking
services to new customers thereby increasing their market (Lee, Lee and Kim, 2007). (Simpson,
2002) suggests that e-banking is driven largely by the prospects of operating costs minimization
and operating revenues maximization.
In recent years banks have developed innovative products and offered a wide range of services in
an effort to increase efficiency which is the ultimate goal of banks. Mobile banking refers to the
access of banking services and facilities using electronic mobile devices such as mobile phones
and PDAs (MUNYOKI, 2015)). Although various, and at times competing, labels and definitions
have been used when discussing the provision of financial services through mobile phone
networks This study uses the increasingly popular term “mobile money” to refer to the
convergence of mobile telephone and financial services.
Mobile banking is a system that allows customers of a financial institution to conduct a number
of financial transactions through a mobile device such as a mobile phone or (Darrat, 1999).
Porteous, 2006 classified m-banking into two, firstly, transformational m-banking, which is the
provision of banking services using mobile phones to reach unbanked population. Secondly
additive M-Banking, in which mobile phone is simply an additional channel that is used to
improve banking services to the already banked.
Through internet and mobile banking, financial organizations are in a position to offer banking
services online and via mobile devices, this has also enabled the customers to have access to
simple and readily available financial services and other remunerations, M banking also

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facilitates quicker and economical monetary transfer, increasing the volume of trade and access
to finance for a large portion of the unbanked in developing countries (Maimbo, 2010).
Globally, banks that are aided by technological improvements have resorted to the various
encounters by implementing various innovative strategies, which systematically highlight on
making an effort to increase the customer satisfaction rate. This can be done through providing
better products and services while at the same time doing what is necessary to reduce the
operational costs (Shanmugham, 2003).
During a conference presentation in Istanbul, Turkey, Tiwari, Buse, and Herstatt (2006)
indicated that various studies have shown that in order to be in line with the dynamics in the
operating environment, banks and other financial institution having to embrace mobile banking
in order to satisfy the customer demands, therefore, up-and-coming partnerships in financial
institution and other service providers has led to the growth of mobile banking as the different
customers can conduct their daily banking needs through their mobile devices (Mohamed, 2019).
Using a case study of India, (Gupta, 2015) opine that commercial banks have already begun
investing in mobile technology and security. They are introducing and developing smartphone
apps, introducing various new features such as remote deposit of checks, and educating
consumers among others. Therefore, this indicates that mobile banking acceptance among
consumers has been increasing when compared to the situation of mobile banking penetration a
year ago. In reference to Campbell and Frei (2013), several banks believe that the mobile
banking channel will be of great support in reducing transaction costs as well as increasing
customer commitment and retention. This has been indicated as to be quite comparable to the
envisioned benefits of online banking that were set out many years ago.
In South Africa, Masinge (2010) examined the factors influencing the adoption of mobile
banking by the Bottom of the Pyramid (BOP) in South Africa, with a special focus on trust,
perceived cost and perceived risk including the facets of perceived risks: performance risk,
security/privacy risk, time risk, social risk and financial risk. Data from this study was collected
through a physical hardcopy survey in townships around Gauteng. The research found that
customers in the BOP considered adopting mobile banking as long as it was perceived to be
useful and perceived to be easy to use (Mohamed, 2019).
Successful mobile banking penetration in developing economies has been witnessed in South
Asia and Africa. Sub-Sahara Africa had more unique subscribers than Latin America by late

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2014, placing the region third behind Asia Pacific and Europe. By the end of 2015, SSA unique
subscribers had risen from 200 million in 2010 to 386 (Rouse, 2016). Recently, The Africa
Development Bank (2017) estimated that mobile money account adoption in Sub-Saharan Africa
had outpaced growth in the rest of the world. The report signals a growing trend for M banking
on the continent.
Financial institutions have had difficulty providing profitable services through traditional
channels to poor clients, today Mobile banking is viewed as the ‘fifth channel’ of banking such
that it has become a channel of its own and not an appendage of online banking hence a greater
integration with back end core banking systems, as a result many unbanked population have been
brought on board to main banking stream thereby enabling banks tap on the resources much
needed to grow their revenue base as well as their customer base as occasioned in the recent
launch of Mshwari partnership between Commercial Bank of Africa with Safaricom which has
improved financial performance (Ivatury, 2008).
In Somalia, The lack of effective government in Somalia affected the necessities of the life.
However, telecommunication, industry filled the governmental gap by introducing revolutionary
technologies (Osman, 2012).The industry provides several services such landline, mobile
phones, internet and mobile banking. The mobile banking or what we can refer to mobile money
transfer is very popular with the most sophisticated and active people in Africa with regard to
mobile phone payment (Osman, 2012)
According to (Osman Sayid, Abdelghani Echchabi , 2013) studied the attitude of Somali
customers towards mobile banking services, based on the technology acceptance model. The
questionnaire used in this study was distributed to 100 Somali customers, the results indicate that
perceived ease of use has a significant positive influence on the perceived usefulness of mobile
banking services, and both the variables have a significant positive influence on the attitude
towards mobile banking. Furthermore, attitude and perceived usefulness are found to have
significant positive influence on the Somali customers’ intention to adopt mobile banking
services. This is the first study to be conducted on mobile banking services in Somalia, the study
uses technology acceptance model and it reports findings based on this approach.
According to (Mohamed Ahmed Mohamed (Burtinle), 2019) On the other hand, one of
successful histories in Somalia is the telecommunication sector that was developed by private
companies. These private companies provide affordable fixed-line, mobile phone and internet

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services in every major city in Somalia with a lowest international calling rates and high quality,
which are not available in many parts in the continent (Istanbul Conference on Somalia, 2010).
Due to having access and rapid growing of telecommunication, Hormuud Telecom in Mugdisho,
Golis Telecom in Bossaso and Telesom in Hargeisa have introduced a mobile money (M-money
thereafter) service in the first time in 2009, which is known as Zaad and EVC-plus financial
Service allowing customers using their mobile phone to transfer money, to pay bills and to
purchase goods and services. Within a very short period, this product becomes more popular in
the Somalis community from Ras kamboni to Rascaseyr due to its reducing risk of carrying cash
around and eliminating the need to use money transfer companies to transfer money within the
country.
According to (Dalmar, 2015) mobile money reduces the transaction cost. For example, before the
introduction of mobile money, if someone who is in Galkayo wanted to buy merchandise from
Bossaso, he or she was forced to travel with a sack of cash from Galkayo to Bossaso, spend a
day for travelling; risk the loss of money through robbery, spend money for a hotel while in
Bossaso, go through the trouble of counting bundles of dirty banknotes. Now within seconds,
you send the money through the telephone and save money and time that you can use for
improving the productivity of your business. This, in turn, will help the whole economy to grow.
1.2 PROBLRM STATEMENT
The introduction of a myriad of mobile money services (MMS) by various mobile money service
providers to customers has become common in the recent years as a way of gaining competitive
advantage (Tchouassi, 2012). The roll out of these services in developing countries has generated
a lot of interest among various players in the financial sector of the economy. In order to attain
competitive advantages and to manage their operational costs, commercial banks have been at
the forefront of adopting mobile money technology and integrating it into their core operations.
Mobile banking offers millions of people a potential solution in emerging markets that have
access to a cell phone, yet remain excluded from the financial mainstream.
It can make basic financial services more accessible by minimizing time and distance to the
nearest retail bank branches as well as reducing the bank’s own overheads and transaction-
related costs, there is need to evaluate the influence of the adoption of mobile money services by
commercial banks since this trend has been operating for the better part of the past decade.
Commercial banks are entering into partnership with companies that provide utility service,

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mobile service operators with the aim of providing M-banking services. These Services have
seen an unprecedented development and growth during the last few years and it is becoming a
major catalyst for economic and social development in many countries (Munaye.H, 2009).
Mobile banking has continued dominate the Somalia financial space. However, despite the
continued adoption and implementation of Mobile banking by various banking institutions in
Somalia, evidence showing how mobile banking influences financial performance of these banks
remains limited. In order to invest in mobile banking, commercial banks need to know how it
influences financial performance and how banks can take advantage of these accruing benefits.
This research, therefore, aimed to bridge the existing gap by establishing the effect of adoption
of mobile banking on the financial performance of commercial banks in Mogadishu-Somalia.
1.3 RESEARCH OBJECTIVES
1.3.1 Main objective
To investigate the effect of mobile banking on the financial performance of commercial banks in
Mogadishu- Somalia using Salaam Ban as case study.
1.3.2 Specific objectives
1. To establish the effect of Mobile Banking Access on the financial performance of
commercial banks in Mogadishu-Somalia.
2. To determine the role of mobile banking adoption on financial performance of
commercial banks in Mogadishu –Somalia.
3. Establish the effect of Mobile Banking Risks on financial performance of commercial banks
in Mogadishu-Somalia.
1.4 RESEARCH QUESTIONS
1. What is the effect of Mobile Banking Access on the financial performance of commercial
banks in Mogadishu-Somalia?
2. What is the role of mobile banking adoption on financial performance of commercial
banks in Mogadishu –Somalia?
3. What is the effect of Mobile Banking Risks on financial performance of commercial banks in
Mogadishu-Somalia?

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1.5 SCOPE OF STUDY
This study will be concerned with “the effect of mobile banking on the financial performance of
commercial banks in Mogadishu- Somalia”. The study will conducted In Mogadishu, the capital
city of Somalia, using Salaam bank (one of the commercial banks in Mogadishu) as a case study.
1.6 SIGNIFICANCE OF THE STUDY
This study will inform the bank management on the financial effect of mobile banking on the
performance of their institutions. Through the findings of this study, the management will be
able to strategize on how to realize maximum benefits from mobile banking.
Academicians and researchers in the field of finance and banking will benefit from this study as
it will help build the knowledge base in the discipline by adding on the existing literature on
mobile banking and financial performance. The study will be used as a source of reference
material besides suggesting areas where future research may be conducted.
1.7 OPERATIONAL DEFINITIONS
Mobile banking - Mobile banking or M-banking can be defined as the use of mobile devices
such as mobile phones or tablets to execute banking transactions (Anyasi & Otubu, 2012).
Mobile Banking Access - Refers to the ease of accessing mobile banking services through
mobile devices or making banking services usable through a mobile device (Agbemabiese,
Anim, & Nyanyofio, 2015).
Financial Performance - Financial performance refers to the degree to which the return on assets for
commercial banks increase or decrease as a result of operations from mobile banking (Adam, 2014).
Commercial Banks - These are financial institutions that accept deposits, make loan and advances
for a short period of time through mobile platforms (Nakamura, 2012).
1.8 CONCEPTUAL FRAMEWORK
Independent variable (IV) Dependent variable (DV)

Mobile banking Financial Performance of

commercial banks

Mobile banking access

Mobile bank adoption Salaam bank

Mobile bank risk