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NATIONAL UNIVERSITY OF SCIENCE AND TECHNOLOGY

FACULTY OF COMMERCE

Department of Banking

RESEARCH PROJECT

Evolution of Banking in Underdeveloped economies. Implications on Financial

Inclusion. A Case of Zimbabwe (2009-2013)

By Ngonidzaishe Makaha (N0107068H)

SUPERVISED BY MR. S. O. DHLAMINI

Submitted in partial fulfillment of the requirements of Bachelor of

Commerce Honours Degree in Banking April 2014

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DEDICATIONS

To Catherine, Edward and Tabitha.

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TABLE OF CONTENTS

DEDICATIONS ........................................................................................................................................... i

TABLE OF CONTENTS ............................................................................................................................... ii

ACKNOWLEDGEMENTS .......................................................................................................................... vi

ABSTRACT .............................................................................................................................................. vii

LIST OF ACRONYMS .............................................................................................................................. viii

LIST OF TABLES ....................................................................................................................................... ix

LIST OF FIGURES ...................................................................................................................................... x

CHAPTER ONE ......................................................................................................................................... 1

INTRODUCTORY CHAPTER ...................................................................................................................... 1

1.1 INTRODUCTION ............................................................................................................................. 1

1.2 BACKGROUND TO THE STUDY....................................................................................................... 1

1.3 STATEMENT OF THE PROBLEM ..................................................................................................... 3

1.4 RESEARCH OBJECTIVES ................................................................................................................. 4

1.4.1 Primary Objective ................................................................................................................... 4

1.4.2 Secondary Objectives ............................................................................................................. 4

1.5 RESEARCH QUESTIONS .................................................................................................................. 4

1.6 JUSTIFICATION OF THE STUDY ...................................................................................................... 5

1.6.1 The financial regulators ......................................................................................................... 5

1.6.2 The financial institutions ........................................................................................................ 5

1.6.3 The policy makers (Government)........................................................................................... 6

1.6.4 The researcher ....................................................................................................................... 6

1.6.5 The Community ...................................................................................................................... 6

1.7 SCOPE OF THE STUDY .................................................................................................................... 7

1.8 LIMITATIONS OF THE STUDY ......................................................................................................... 7

1.9 ORGANISATION OF THE STUDY ..................................................................................................... 8

1.10 CONCLUSION ............................................................................................................................... 8

CHAPTER 2 .............................................................................................................................................. 9

LITERATURE REVIEW ............................................................................................................................... 9

2.1 INTRODUCTION ............................................................................................................................. 9

2.2 DEFINITION OF TERMS .................................................................................................................. 9

2.2.1 Financial Inclusion ................................................................................................................ 10

2.2.2 Evolution of Banking ............................................................................................................ 11

2.3 KEY CONCEPTS .......................................................................................................................... 12

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2.3.1 Evolution of Banking ............................................................................................................ 12

2.3.2 Financial Inclusion ................................................................................................................ 13

2.3.3 Why financial inclusion? ...................................................................................................... 14

2.3.5 Trends in financial inclusion ................................................................................................. 15

2.3.6 Measuring financial inclusion .............................................................................................. 16

2.3.7 Financial Inclusion and Technology ..................................................................................... 16

2.4 BANKING AND FINANCIAL INCLUSION IN UNDERDELOPED ECONOMIES ................................... 17

2.4.1 Banking in Underdeveloped Economies .............................................................................. 18

2.4.2 Financial Inclusion in Underdeveloped economies ............................................................. 19

2.4.3 Evolution of Banking and Financial Inclusion ....................................................................... 21

2.5 EMPIRICAL EVIDENCE .................................................................................................................. 22

2.5.1 ICT, financial inclusion and growth-evidence from African countries ................................. 22

2.5.2 Financial Inclusion in Kenya ................................................................................................. 23

2.6 CONCLUSION ............................................................................................................................... 23

CHAPTER 3 ........................................................................................................................................ 25

RESEARCH METHODOLOGY .............................................................................................................. 25

3.1 INTRODUCTION ........................................................................................................................... 25

3.2 RESEARCH DESIGN ...................................................................................................................... 25

3.2.1 Justification of the research design ..................................................................................... 25

3.3 TARGET POPULATION ................................................................................................................. 26

3.3.1 SAMPLE SIZE ......................................................................................................................... 26

3.3.2 Sampling Techniques ........................................................................................................... 27

3.4 DATA COLLECTION INSTRUMENTS .............................................................................................. 28

3.4.1 Primary Data ........................................................................................................................ 28

3.4.2 Questionnaire Design ........................................................................................................... 28

3.4.3 Secondary data .................................................................................................................... 29

3.6 CONCLUSION ............................................................................................................................... 30

CHAPTER FOUR ..................................................................................................................................... 31

DATA PRESENTATION AND ANALYSIS ................................................................................................... 31

4.1 INTRODUCTION ........................................................................................................................... 31

4.2 RESPONSE RATE AND DEMOGRAPHICS ...................................................................................... 31

4.2.1 Questionnaire 1: Banks ........................................................................................................ 31

4.2.2 Questionnaire 2: General Population/Bank Customers ...................................................... 33

4.3 TRENDS AND INTENSITY OF BANK EVOLUTIONS ........................................................................ 35

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4.3.1 Technological and Service Evolutions adopted by the banking sector ................................ 35

4.3.2 Technological evolutions...................................................................................................... 36

4.3.3 Service evolutions ................................................................................................................ 37

4.4 IMPLICATIONS OF EVOLUTIONS IN BANKING ON FINANCIAL INCLUSION .................................. 39

4.4.1 Uptake rate of bank evolutions/innovations by existing and new customers .................... 40

4.4.2 Existing Customers ............................................................................................................... 40

4.4.3 Uptake of technological evolutions versus uptake of service evolutions ............................ 42

4.4.4 Tech evolutions .................................................................................................................... 42

4.4.5 Service evolutions ................................................................................................................ 43

4.4.6 New Customers .................................................................................................................... 44

4.4.7 Uptake rate of Bank evolutions and Financial Inclusion ...................................................... 45

4.4.8 Customer Relationship Management (CRM) as a Service Evolution and Its Contribution to

Financial Inclusion ......................................................................................................................... 46

4.4.9 The most appealing products and services which entice the financially excluded to take up

financial services ........................................................................................................................... 48

4.4.10 Bank products which attract people to seek financial services ......................................... 49

4.4.11 Correlation with findings from bankers ............................................................................. 51

4.4.12 Bank products and financial inclusion ............................................................................... 52

4.5 NATURE OF THE RELATIONSHIP OF EVOLUTIONS IN BANKING AND FINANCIAL INCLUSION .... 53

4.5.1 Platforms mostly used for transactions by customers ........................................................ 53

4.5.3 Customer opinions on bank evolutions and Impact on Banking Experience ....................... 56

4.5.4 Tech evolutions .................................................................................................................... 56

4.5.5 Service evolutions ................................................................................................................ 56

4.5.6 Impact of Evolutions on Banking Experience ....................................................................... 56

4.6 CONCLUSION ............................................................................................................................... 59

CHAPTER 5 ............................................................................................................................................ 61

CONCLUSIONS AND RECOMMENDATIONS ........................................................................................... 61

5.1 INTRODUCTION ........................................................................................................................... 61

5.2 SUMMARY OF FINDINGS ............................................................................................................. 61

5.3 CONCLUSIONS PER RESEARCH OBJECTIVE .................................................................................. 63

5.3.1 Implications of evolution of banking on financial inclusion ................................................ 63

5.3.2 Nature of the relationship between banking evolution and financial inclusion.................. 63

5.3.3 Trends in the adoption and implementation of bank evolution ......................................... 63

5.3.4 Intensity of bank evolution and financial inclusion in Zimbabwe ........................................ 63

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5.4 RECOMMENDATIONS.................................................................................................................. 64

5.4.1 Recommendations to the government ................................................................................ 64

5.4.2 Recommendations to the financial regulators .................................................................... 64

5.4.3 Recommendations to the financial institutions ................................................................... 64

5.4.4 Recommendations to the multi-lateral development institutions ...................................... 64

5.4.5 Recommendations to the community ................................................................................. 65

5.5 SUGGESTIONS FOR FURTHER RESEARCH .................................................................................... 65

5.6 CONCLUSION ............................................................................................................................... 65

REFERENCES AND BIBLIOGRAPHY ......................................................................................................... 68

APPENDIX 1-QUESTIONNAIRE TO BANKS ............................................................................................. 70

APPENDIX 2-QUESTIONNAIRE FOR THE GENERAL PUBLIC ................................................................... 74

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ACKNOWLEDGEMENTS

“I do not know what I may appear to the world; but to myself I seem to have been only like a

boy playing on the seashore, and diverting myself in now and then finding a smoother pebble

or a prettier shell than ordinary, whilst the great ocean of truth lay all undiscovered before

me.” - Sir Isaac Newton.

I am grateful to the supervisor, Mr S. O. Dhlamini for his invaluable contribution towards the

successful compilation of this research project. My heartfelt appreciation goes to my parents

who have been a pillar of strength and oasis of hope towards the realisation of my dreams.

Ignoring the support of the ordinary citizen and bankers who took part in the survey of this

study would be a travesty to rationality. I am truly humbled by their distinguished support.

Above all I thank the Heavenly Father for love and life which he has always granted us!

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ABSTRACT

Financial institutions have constantly evolved from a traditional banking system to a modern

banking model which has been largely facilitated by technological and service evolutions like

the adoption of internet banking, customer relationship management and banc assurance

among a host of evolutions. This study was premised on the need to ascertain the implications

of bank evolution on financial inclusion. Banking in underdeveloped economies like the Sub

Saharan Africa has evolved over the years, adopting new technologies and products.

However, according to the World Bank only 23% of the total adult population in Sub Saharan

Africa have bank accounts. Four objectives were drawn around the research topic. The

primary objective was to ascertain the implications of bank evolution on financial inclusion.

Secondary objectives of the study were to determine the trend of banking evolution and

financial inclusion, ascertain the nature of the relationship between evolution of banking and

financial inclusion, and analyse the intensity of bank evolution in Zimbabwe. Findings of

other scholars in issues relating to the subject topic under review were also integrated in the

review of literature. Most literature argued that evolutions and innovations in the banking

sector are a catalyst to financial inclusion. An exploratory and descriptive research design

was used for the study. The target population for the survey was made up of commercial

banks, building societies, investment banks and the bank customers. Stratified random

sampling was used to come up with seven commercial banks, three building societies and one

investment bank which became the prime focus for the survey. Data was collected using

questionnaires which were divided into two classifications- one intended for the banks and

the other for the general public or bank customers. The questions presented by the

questionnaires were built around the research questions and objectives of the study. The

research findings indicate that bank evolutions aid financial inclusion. The research also

found out that most Zimbabwean banking institutions have adopted technological evolutions

more as opposed to service evolutions. Further indications show a positive relationship

between bank evolutions and financial inclusion. Indications from the findings also show that

it is technological evolutions which aid financial inclusion more as opposed to service

evolutions. The conclusion drawn from the study is that banks should adopt more

technological evolutions as they are a catalyst to the incorporation of the financially

marginalised in the mainstream financial system. Recommendations presented by the study

calls for the financial regulators to initiate a sustainable environment for the smooth adoption

of bank evolutions by financial institutions as they are vital to the eradication of financial

exclusion. Further to that there is need for multi-lateral financial institutions seized with

matters on financial inclusion to insist on the need for banking institutions to constantly

evolve their service scape. On suggestions for further research it is essential that the

relationship between bank evolution and economic growth be explored. Furthermore there is

need to ascertain the impact of bank evolutions in the developed economies on financial

inclusion and compare results with the underdeveloped economies.

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LIST OF ACRONYMS

ATM- Automated Teller Machines

CABS- Central Africa Building Society

CRM- Customer Relationship Management

CSO- Customer Service Officers

FBC- First Banking Corporation

IMF- International Monetary Fund

ITM- Intelligent Teller Machines

MBCA- Merchant Bank of Central Africa

MFI- Micro Finance Institutions

NGOs- Non-Governmental Organisations

NMB- National Merchant Bank

RBZ- Reserve Bank of Zimbabwe

SME- Small to Medium Enterprises

USD- United States Dollar

WB- World Bank

ZimStat- Zimbabwe Statistical Agency

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LIST OF TABLES

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Table 3.1: Sample Classification……………………………………….. 27

Table 3.2: Sample of Banks…………………………………………….28

Table 4.1: Working experience of respondents………………………… 33

Table 4.2: Response rate………………………………………………... 34

Table 4.3: Adoption rates of bank evolutions………………………....... 36

Table 4.4: Adoption rate of bank evolutions among surveyed banks….. 39

Table 4.5: Uptake rate of bank evolutions by banking public………….. 41

Table 4.6: CRM as a service evolution…………………………………. 47

Table 4.7: Conduits for deposit transactions……………………………. 54

Table 4.8: Conduits for withdrawal transactions……………………….. 54

Table 4.8: Bank evolutions and their contribution to the

ease of banking……………………………………………… 58

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LIST OF FIGURES

Figure 2.1: Comparison of financial inclusion between

Sub-Saharan Africa and non-African

developing countries………………………………………… 20

Figure 4.1: Constitution of respondents from banking

sector………………………………………………………… 32

Figure 4.2: Respondents positions or workstation capacities…………… 32

Figure 4.3: Response sample (in terms of banking

institutions…………………………………………………... 35

Figure 4.4: Tech evolutions adopted by banks…………………………... 37

Figure 4.5: Service evolutions adopted by banks………………………... 38

Figure 4.6: Tech evolutions uptake rate…………………………………. 43

Figure 4.7: Service evolutions uptake rate………………………………. 44

Figure 4.8: Uptake rate of bank evolutions by new customers…….......... 45

Figure 4.9: Appealing factors and feature when marketing

banks to the financially excluded………………………........ 48

Figure 4.10: Importance of bank products when choosing a

financial institution………………………………………….. 50

Figure 4.11: Usage of bank products……………………………………… 55

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Figure 4.12: Impact of evolutions on banking experience…………........... 57

Figure 4.13: Bank evolutions and their contribution to

the ease of banking………………………………………….. 59

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CHAPTER ONE

INTRODUCTORY CHAPTER

1.1 INTRODUCTION

The primary goal and aim of this research study was to evaluate the impact of the banking

sector evolution on financial inclusion with key focus on the underdeveloped economy. This

chapter looks at the background, scope and organisation of the research study under review. It

gives the background and introductory focus to the research. Limitations faced in the study

and the various groups to which this study is helpful are also spelt and discussed in this

chapter. Most financial institutions have shifted from traditional methods of service delivery,

product design and process endorsing several techniques to increase efficiency but this has

not translated to eradication of financial exclusion especially in underdeveloped countries

where it is rampant. The study aimed to achieve a practical philosophy which gives a proper

guide on how evolution in banking translates into the integration of ordinary citizens in the

financial system.

1.2 BACKGROUND TO THE STUDY

Zimbabwe is largely a bank based economy as evidenced by the sizable number of

commercial banks operating within the country. Prior to its independence in 1980

Zimbabwe’s banking sector was largely made up of foreign banks of British roots with

Barclays and Standard Chartered commanding the chunk of the market share. In the infancy

of Zimbabwe’s commercial sector, urban dwellers were the main beneficiary of financial

services since most financial institutions were domiciled in urban areas. The rural folk largely

depended on the Post Office for banking services. The situation remained the same until the

liberalization of the Zimbabwean economy in the early 1990’s when other banks mainly

indigenous were given licences to operate in the economy.

From the mid-1990s up to 2003 a number of indigenous banks sprouted and before the bank

crisis of 2004 more than twenty banks and building societies were in operation against a

recommendation of just six banks by the International Monetary Fund (IMF). In 2004 a

number of banks, building societies and discount houses were closed due to inappropriate

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trading, capital inadequacy, flouting of regulation and poor corporate governance practices. A

number of Zimbabweans had been absorbed into the mainstream financial system but the

bank closures of 2004 created a dent on confidence in the financial system.

Soon after the Reserve Bank of Zimbabwe (RBZ) reigned in on the errant financial

institutions in 2004, the economy took a nosedive and up to the year 2009 Zimbabwe was

operating in a hyperinflationary environment. The cash shortages experienced during the

period inevitably made citizens seek financial services.

In 2009 the multi-currency system was adopted to curb inflation and the United States dollar

became the dominant mode of exchange in the economy. The period 2009-2013 has not been

spared of bank failures but it is also during this period that Zimbabwe’s banking sector has

witnessed a paradigm shift whose inclination towards financial inclusion is the subject under

review in this project.

Currently there are seventeen (17) commercial banks, one (1) savings bank, four (4) building

societies, one (1) merchant bank and one (1) development bank which make up the whole

banking sector. All these institutions account for just over USD 4 billion worth of deposits.

According to Reserve Bank of Zimbabwe an estimated USD3 billion is believed to be

circulating outside the formal banking systems. However capital inadequacy and structural

defects still affect the viability of some banks and since 2009 five banks (Interfin, Trust,

Royal, Genesis and Renaissance) were closed or placed under curatorship due to this

deficiency. During the period 2009-2013 banks have also evolved to embrace new systems

and technologies whose end chain value has got an impact on financial inclusion.

From this history of the Zimbabwean banking sector it is clearly evident that financial

exclusion was rampant in the country before the attainment of independence due to

discrimination and a low branch network of existing banks. However the problem persisted

even after independence largely due to financial illiteracy and the negative economic cycles

experienced in the late nineties up to the year 2008.

The Reserve Bank of Zimbabwe in 2006 acknowledged that financial exclusion is detrimental

to socio-economic development, especially in developing nations, which rely heavily on

banking sector finance. Soon after the turn of the millennium the apex bank in Zimbabwe

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tried vigorously to implement financial policies that were pro poor but the economic crisis the

country found itself in overshadowed these efforts. Banks continue to respond to changes in

the operating environment but the translation of their innovations into financial inclusion are

largely minimal or non- existent at all.

After the dollarization of the Zimbabwean economy in 2009, it can be established that the

levels of financial inclusion are still low as confirmed by FinScope (2011) which ascertains

that only 24% of adult are banked clearly making the other 76% excluded or depended on

informal financial services. Such alarming figures of financial exclusion manifest themselves

when the banking sector is moving away for traditional methods of banking to non-

traditional methods of banking.

It is therefore the purpose of this study to ascertain how evolution of banking translates to

financial inclusion in an underdeveloped economy like Zimbabwe.

1.3 STATEMENT OF THE PROBLEM

While most banks have embraced various techniques ranging from technology and structural

adjustments in shunning away from traditional methods to non- traditional methods of

banking, it is a concern to note that financial exclusion still rears its ugly head in Zimbabwe.

To note that only 24% of adult Zimbabweans use banking services is a phenomenon which

requires special attention especially when banks are constantly devising and implementing

new strategies that seek to make the financial sector efficient.

Financial inclusion has become one of the most influential tools of development in all

economies and the degree with which it is embraced has a bearing on the economic

performance of a country and inasmuch as it has become a topical issue, financial service

provision or banking in general has evolved over the years to suit current challenges and it is

the nature of this relationship which creates a problem we seek to evaluate.

The opening up of financial space in the 1990s resulted in a number of Zimbabweans being

incorporated in the mainstream financial system but it is the banking crisis of 2004 which left

the whole financial system reeling from confidence crisis. The Reserve Bank of Zimbabwe

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has been quite phenomenal in driving the concept of financial inclusion but confidence in the

banking sector is quite low, hampering all its efforts.

Through innovation banks have continuously evolved and tried to embrace financial

inclusion but factors such as employment, income levels and negative perception on financial

institutions are adverse forces. The mere fact that there is close to USD3 billion

circulating outside the confines of the financial system clearly indicates that there are

problems which require scrutiny and thorough analysis. It is the goal of this research problem

to dig deeper into the problem and seek answers and recommendations.

1.4 RESEARCH OBJECTIVES

1.4.1 Primary Objective

i. To examine and determine the implications of bank evolution on financial inclusion

from the period 2009-2013 in Zimbabwe.

1.4.2 Secondary Objectives

ii. To determine the factors which drive bank evolution and ascertain their strengths in

driving financial inclusion.

iii. To determine the direction of the relationship between bank evolution and financial

inclusion.

iv. To determine the trend of banking evolution and financial inclusion in Zimbabwe

from 2009 to 2013.

v. To determine the intensity of bank innovations or evolution in Zimbabwe and the

impact it has had on financial inclusion.

1.5 RESEARCH QUESTIONS

The fundamental questions which seek answers from this research project are:

1. Has there been any improvement in financial inclusion as the nature of banking

business has evolved.

2. What is the impact of bank evolution on financial inclusion in Zimbabwe?

3. What has been the degree of financial sector evolution during the period 2009-2013 in

Zimbabwe?

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4. Are there opportunities for financial inclusion being presented by the evolution of

banking?

5. Are there any threats on financial inclusion being presented by the evolution of

banking?

6. What is the impact of technology as an evolution tool on financial inclusion?

7. Do the ever changing financial models embrace financial inclusion especially in

underdeveloped economies with Zimbabwe as the case point?

1.6 JUSTIFICATION OF THE STUDY

The study is useful to different groups within the economy including those seized policy

making, advocates for financial inclusion and the general populace who feel the direct effect

on a daily basis. The study benefits:

1.6.1 The financial regulators

In Zimbabwe the RBZ is at the apex of financial regulation. During the Sunrise project of

2006, it noted deficiencies in financial inclusion especially within the rural population. This

point marked an extensive campaign for financial inclusion by the apex bank. The contents of

this study are therefore helpful to the RBZ in that a relationship between dynamic banking

systems and financial inclusion is determined. Since the apex bank is seized with matters to

do with financial regulation, it can also ascertain whether the evolution or the dynamic modes

of banking are supportive of financial inclusion.

1.6.2 The financial institutions

Although some banks and microfinance institutions in Zimbabwe are relatively profitable,

they face a huge liquidity crisis. Part of this crisis is stemming from the fact that there are lot

of funds circulating outside the formal banking sector. This clearly shows a greater level of

financial exclusion. Since it is the purpose of this study to picture the relationship of financial

sector evolution to financial inclusion, it can be useful to banks as they determine the effect

of their innovations or dynamics towards the incorporation of citizens in the mainstream

economy. The study provides a recommendation on what needs to be done in the future.

Furthermore literature has argued that high levels of financial inclusion inevitably relate to

increased banking activity thus leading to profitability.

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1.6.3 The policy makers (Government) and NGOs

It is the duty of the government to ensure a vibrant and prosperous economy. As a tool of

developmental economics, financial inclusion is by and large becoming a fundamental tool in

economic growth and poverty alleviation. According to FinMark Trust (2011) financial

inclusion is an essential factor to economic growth. It is the objective of this study to

determine financial inclusion in relation to evolution of banking and some research points can

be useful to the central planner (government) and NGOs in the crafting of policies that

enhance financial inclusivity in the face of a dynamic financial system.

In addition the government can also enact policies towards financial literacy on its citizens.

The pursuit of this will lead to the absorption of the once marginalised communities into the

mainstream economy thus leading to increased citizen participation in economic and

developmental affairs.

1.6.4 The researcher

Being an individual filled with passion and zeal for developmental economics, I feel this

research project enhances my knowledge capacity. Through exploring various research

techniques this research project provides the researcher with a clear understanding of gaps

and opportunities presented by the evolution of banking to financial inclusion. The researcher

gets a full view on the recommendations which can be used to answer various research

questions.

1.6.5 The Community

The Zimbabwean community is largely motivated by enterprise which is the reason why over

70% is not into formal employment but self or informal employment rather. This means there

is a lot of Small to Medium Enterprise (SMEs) which is driving the Zimbabwean economy.

However most of these SMEs are financially excluded and therefore this research project is

relevant to their plight.

The problem of financial exclusion is not just limited to the SME sector only but it extends to

the rural and high density suburbs populace. According to the national statistics, 51% of the

Zimbabwean rural populace is excluded (without factoring in informal financial services) and

this research is of fundamental importance on how such communities can be formally

absorbed in the mainstream financial system.

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1.7 SCOPE OF THE STUDY

This study was limited to Zimbabwe’s main economic centres which are Harare and

Bulawayo. The geographic zones are unique in that they incorporate low density, high

density, medium density, central business districts, industrial areas and the peri-urban centres

which provide a diverse study and research base. Zimbabwe is an underdeveloped economy

with USD9 billion worth of Gross Domestic Product. This scenario resonates well with the

analytical approach on how banks have been evolving in underdeveloped economies.

Financial exclusion is rife in the low income areas of the urban centres where most small to

medium enterprise activity is more predominant.

Furthermore Zimbabwe is a country which is still trying to catch up with broad based

financial inclusion, which basically places the choice for geography well. Most marginalised

areas of Harare and Bulawayo which include the high density suburbs and peri- urban areas

have high prevalent rates of financial exclusion and this makes the geographic zone of the

research well placed.

The study was limited to the post dollarization era (2009-2013) for simplicity purpose,

considering all the complexities which resonate with the pre dollarization era.

1.8 LIMITATIONS OF THE STUDY

The study of this nature was subject to a number of limitations. The big stumbling block

towards this research study is the limited time scale to which it was undertaken. To fully

exhaust all underlying issues to the research questions presented by this study requires

adequate and ample time of study and analysis. Whilst there was every effort to

accommodate every detail within the six months of study, there is need to note that the time

scale was limited. To overcome this challenge, specific geographical zones were chosen from

the total sample size so as to counter limited time.

A study which requires human input faces a lot of challenges which include

misrepresentation and non-committal to surveys. This was evident especially in the

methodology used in this research which factored questionnaires. This problem was also

exacerbated by banks which cited confidentiality privileges whenever they were confronted

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with serious questions which they deem “sensitive”. To overcome this challenge,

questionnaires were carefully drafted to minimise data which can be deemed “sensitive”.

1.9 ORGANISATION OF THE STUDY

The research study was carried out using various apparatus which range from existing

literature, questionnaires, empirical evidence and observations. The research was divided into

five distinct chapters with Chapter four (4) being the focal point of the study. The study is

organized as follows:

All the underlying factors which bind the project are spelt out in chapter one (1). The

research objectives are clearly outlined together with the statement of the problem which

creates the basis for the need to undertake a research study of such nature. Chapter 2 analyses

various literature which has been developed in order to understand the subject topic under

consideration. Any gaps, arguments or conclusions presented by previous researches are

critically analysed in accordance with the research objectives for this project. Chapter 3

highlights the methodology that was used to carry out the study. It spells out the research

design , the sample population and the research method used for data collection. It

concludes by developing, explaining and justifying the presentation plan for chapter four. All

the data which is gathered is presented and analysed in this Chapter 4. This forms the basis

for the research findings, conclusions and recommendations executed in the Chapter

5.Chapter 5 gives the research findings and the recommendations out of the findings

gathered. This chapter is largely conclusive in nature.

1.10 CONCLUSION

This chapter introduced the study by explaining the statement of the problem and giving the

research objectives which the study seeks to achieve. The introductory nature of this chapter

sets the tone for the execution of the various chapters which it precedes. The next chapter will

review the various journals, publications and papers on the subject of evolution of banking

and financial inclusion. The review of this literature is of assistance to the research project in

that it gives a guide and appreciation of how some authors have tackled on evolution of

banking and financial inclusion.

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CHAPTER 2

LITERATURE REVIEW

2.1 INTRODUCTION

A lot of study has been carried out on financial inclusion, evolution and innovations in

banking and it is the purpose of this chapter to critically assess some of the existing literature

and point out to some gaps that may exist. Arguments and recommendations provided by

previous studies to the research objectives specified in the introduction to this project are

carefully aligned in this chapter.

Since most of the literature does not specifically relate to the exact subject matter which this

research specifically points out to there is need to break down the three important sub

elements: (evolution of banking, banking in the underdeveloped economies and financial

inclusion) and review some of the existing literature on these principles. Interconnection of

literature between the three elements pointed above can give a guide on some of the

objectives of this research. The literature selected is based on the research problem and

research questions presented in chapter one. After all the literature has been analysed a

summary to the findings will be laid out in the form of a conclusion.

Literature was drawn from many sources including journal papers, reports, newspaper

publications, bulletins and public research work. There was much emphasis and attention to

empirical evidence as it provides a strong foundation to the data collection phase which this

chapter precedes.

2.2 DEFINITION OF TERMS

It is important to look at how various authors have defined the main issues which this study

aims to cover on. Various researchers have different definitions of evolution of banking and

financial inclusion and it is of importance to look at how the varying definitions converge or

diverge.

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2.2.1 Financial Inclusion

Whilst a lot of debate has took centre stage on financial inclusion there has not been a

universal definition of this principle as some scholars, researchers and policy makers have

gone an extra mile rather than terming it as a simple access to financial services.

According to a report by Thorat (2006) financial inclusion is defined as the provision of

affordable financial services, viz., access to payments and remittance facilities, savings, loans

and insurance services by the formal financial system to those who tend to be excluded.

Kumar (2011) goes a step further when he states that financial inclusion is not just equity in

provision of financial services alone but should be a representation of reliable access to

affordable savings, loans, remittances and insurance services.

Another simple definition of financial inclusion can be drawn out of the World Bank

definition which classifies financial inclusion as the proportion of individuals and firms that

use financial services. According to Demirgüç-Kunt et al (2008), for the most part, more

extensive availability of financial services allows individuals and firms to take advantage of

business opportunities, invest in education, save for retirement, and insure against risks. The

World Bank also clearly states that mere ownership of a bank account might not constitute

financial inclusion as some of these bank accounts just lie dormant.

Worth noting from the definitions given so far is the fact that there is consensus and harmony

in the idea that financial inclusion is the delivery of financial services to all sections of the

community without any form of discrimination. However the question which begs scrutiny is

the mechanism in which financial inclusion has to be attained. This comes from the fact that

some authors and researchers argue that financial inclusion should caption affordability and

easy accessibility while some authors are content with mere accessibility to financial services

like just owning a bank account.

From a development economics perspective it is important that financial inclusion is

comprehensive enough to incorporate economic agents lacking access to affordable financial.

Essentially financial inclusion should be targeted at the disadvantaged members of the society

as Leeladhar (2006) rightfully put it across when he states that, financial inclusion is the

delivery of banking services at an affordable cost to the vast sections of disadvantaged and

low income groups.

11

Another captivating explanation of financial inclusion comes from Demirguc-Kunt et al

(2008), who states that financial inclusion allows individuals and firms to take advantage of

business opportunities, invest in education, save for retirement and insure against risk

2.2.2 Evolution of Banking

This research paper specifically looks at how evolution of banking in an underdeveloped

economy has affected financial inclusion.it is therefore important to look at how scholars and

researchers have penned out and defined this concept.

The history of banking and its ultimate evolution can be traced back to the history of money.

Beattie (2011) briefly illustrates the stages of how banking has evolved over centuries

beginning with the divine deposits right through to the coming in of Adam Smith and his

invisible hand theory which was a limit to the state involvement in bank regulation and

practise. He goes further to incorporate the entry of merchant banks, JP Morgan and the

monopoly factor and how World War Two saved the day for most banks.

Inasmuch as Beattie appreciates the evolution of banking, he argues that banks still perform

their primary function- credit provision.

Worthy to note from Beattie’s propositions is the fact that there is acknowledgement that

banking practises have constantly evolved over time even though most financial institutions

are still confined to their primary role of credit provision. However from the analysis given

by Beattie there is no concrete acknowledgement of the recent innovations in the banking

sector which include credit cards, internet banking and mobile banking among others.

Most literature does not give a clear definition of evolution of banking but there is harmony

in the various stages to which authors and researchers believe to be the phases of bank

evolution. There are a lot of similarities in the assertions of Beattie (2011) and Greenspan

(1997) that baking has evolved even though most financial institutions still stick to their

traditional activities. Greenspan (2011) explores the closely similar various stages of bank

evolution in his remarks on the Evolution of Banking in Market economies.

12

2.3 KEY CONCEPTS

The key concepts in this study are evolution of banking, financial inclusion and banking in

the underdeveloped economies. As such it is important to analyse various literature on these

key elements

2.3.1 Evolution of Banking

Evolution of the banking industry is mainly underpinned on the rapid technological

advancements which have been occurring of late. Kumar (2011) states that radical

transformation of the banking sector is based on many innovations in products, processes,

services, systems, business models, technology, governance & regulation. Kumar also points

out the fact some of the innovation in the banking sector has come from the adoption of

Customer Relationship Management by banks.

The above assertions are useful to this research project in that they point to some of the recent

factors which have facilitated the diversion from the traditional banking systems of deposit

taking and loan creation. However they fall short in giving a detailed timeline of innovations

which have seen banks exploring other trades apart from deposit taking and loan creation.

Greenspan (1997), gives a more detailed chronological order in which banking has evolved

beginning with the roots of banking and explaining through the coming in of charted banking

and how we have come up with the new dispensation. However the critique of Greenspan’s

views when looking from this research point of view is that most of his assertions are on the

evolution of the American and European banking systems. Most banks in Africa were

established just a century ago and they started with loans and deposit taking and slowly

evolving into diversified financial institutions which have adopted new technologies.

Corrocher (2002) illuminates the impact of internet and other technological driven

innovations on traditional banking. Out of the research on Italian banks Corrocher noted that

large banks are the first to adopt new technologies as opposed to small banks. In the research

findings Corrocher also alluded to the fact that medium banks are the quickest in adopting

new technologies. Looking at the Zimbabwean situation at a glance Corrocher’s research

findings can be applied in terms of evolution from traditional to non-traditional banking

methods.

13

When analysing the evolution of banking most authors have pointed out two standout

innovations which have changed the course of banking- mobile banking and internet banking.

Edwards and Mishkin (1995) bring a new dimension when they argue that over the years

deposits have diminished in importance as banks have ventured into non-traditional methods

of doing business. Edwards and Mishkin (1995) observed that the proportion of non-interest

income to interest income on most US banks was rising. Instead of focusing entirely on

deposit taking and loan creation banks have diversified into derivative trading which entails

one form of how banks have evolved over the years.

Edwards and Mishkin (1995) also argue that competition has also driven most banks from

traditional to non-traditional banking. The need by banks to stay afloat in light of rising

competition has driven banks to adopt some systems and processes which are parallel to the

usual traditional banking systems. Other variables which Edwards and Mishkin point out to

be drivers for the adoption of non-traditional banking channels include the rise of the money

market and mutual funds. This phenomenon is largely evident in the developed countries as

opposed to the developing or underdeveloped nations. A case example is that of Zimbabwe

where the money market is subdued due to low investment returns coupled by a non-existent

derivative market.

As most authors attribute, Edwards and Mishkin (1995) also pointed out financial innovation

and deregulation as some of the factors which have also acted as catalysts in the evolution of

banking. Financial innovation includes the adaptation of technologies like ATM, mobile

banking and internet banking. Most banks have embraced these technologies and the face of

banking has changed ever since the adaptation of these systems. Deregulation of the markets

has brought about the liberalisation of financial markets and most banks have manipulated

and taken advantage of this condition by adopting non-traditional banking channels.

Liberalisation has greatly influenced the evolution of banking.

2.3.2 Financial Inclusion

Financial inclusion has become a topical issue for a lot of policy makers in the world as it has

been seen to be one of the gateways to economic growth and development. As such a lot of

scholarly work has been carried out on this subject. Most of the literature on financial

inclusion is more to do with the measure, impact and ways to overcome vices that hinder

financial inclusion.

14

The recent report by the World Bank (2013), gives comprehensive literature source which

illuminates a wholesome picture on the trends and challenges of financial inclusion faced

globally. One myth which this report debunks is the myth that mere ownership of a bank

account does not constitute financial inclusion. It quotes the example of South Africa where 6

million accounts where opened over a period of four years but nearly 2.5 million of those

accounts lie dormant.

Other than the account access to finance can now be obtained by some innovations in the

financial sector including mobile phones and the internet. Empirical evidence from Cihak

(2012) and World Bank (2012a), “78 per cent of the financial sector practitioners surveyed

indicated that, in their assessment, access to finance in their countries had improved

substantially in the last five years”. Inasmuch as this assessment may be accurate there is

need to tread cautiously as more than 50% of the global adult population has no formal bank

accounts according to the Financial Development Report-Financial Inclusion (2014).

2.3.3 Why financial inclusion?

Most questions have been posed as to why financial inclusion is an important phenomenon.

Honohan (2004), states that there is a casual link between financial depth and financial

inclusion. Ramji (2009) weighs in when he gives the contribution that a vibrant financial

system can alleviate poverty. This means that access to finance can increase the welfare of

both households and corporates. However the pertinent which lies from the assertions given

is the determination of the variable which facilitates the other (Economic growth and

financial inclusion). Some authors argue that financial inclusion facilitates economic growth

whilst others are of the view that economic growth facilitates financial inclusion.

A view penned by Levine (1997) is more leaned towards the argument that financial

development facilitates economic growth. His views are based on the argument that the

presence of information and transaction costs facilitates the need for financial markets which

will in turn solicit funds from excess economic units and advance those funds to deficit units

through credit. This argument clearly brings out the link of why households and firms need to

be incorporated in the mainstream financial system which is the hub for credit and savings. In

other words the model by Levine calls for financial inclusion.

15

2.3.4 Drivers of financial inclusion

Most authors have pointed out the adoption of technology as the main driver to financial

inclusion. In Africa mobile banking is mainly cited as most people are now able to transact

using mobile phones.

Rhyne (2012) gives a forecast of some of the key drivers of financial inclusion by the year

2020. Apart from technological innovations Rhyne points out to social and environmental

factors. From the analysis which Rhyne puts across, rising urbanisation, rising lower middle

class and environmental vices will push people towards financial inclusion as the demand for

financial services will be widespread.

2.3.5 Trends in financial inclusion

According to the World Bank (2013), data shows that there is wide dispersion of financial

inclusion in the world. User indicators such as the number of adults who own a bank account

vary from 1% in Turkmenistan to 99% in Denmark. The face of this data clearly indicates

that financial exclusion is widespread in less developed countries. The provider based

indicators such as branch network density and ATM density also vary from country to

country.

The same World Bank report shows that in developed economies 89% have a bank account

whilst the average for low income countries is 24%. Globally, it states that, 50% of the adult

population which is more than 2.5 billion people have no formal accounts. The financial

inclusion trend also follows the social trends in any given society. Top 20 of the wealthiest

adults are more than twice as likely as the poorest adults to get a bank account (Demirguc-

Kunt, and Klapper, 2002)

Rhyne (2012) gives a forecast of the factors which will probably drive the future trends of

financial inclusion by the year 2020.

Through analysis of literature based on the trends of financial inclusion it is evident that

financial inclusion is correlated to economic development. Vibrant economies have witnessed

high levels of financial inclusion whilst poor countries have witnessed widespread financial

exclusion. However the pertinent question lies in the variable which facilitates the other. It

can be argued that financial inclusion leads to economic growth as there is greater

16

participation in the mainstream financial system but some might argue that the reverse is true.

The reverse argument is premised on the fact that economic growth results in the increase of

incomes and welfare thereby injecting more savings in the formal financial system.

2.3.6 Measuring financial inclusion

From the definitions of financial inclusion already given in this chapter it can be noted that

the measurement of financial inclusion is not an easy. However the most popular yardstick

for measuring financial inclusion is ownership of a bank account. At a summit on I July the

leaders of the Group of 20 (G20) came up with what they termed the, “G20 Basic Set of

Financial Inclusion Indicators”.

These indicators include the Financial Access Survey, Global Findex Database, and the

Enterprise Surveys. Since banking has constantly evolved other forms of payment and

transaction systems like mobile banking and internet banking have been incorporated.

The World Bank lists and analyses variables which it uses to measure the extent of financial

inclusion. These include savings, credit, payments, insurance and ownership of accounts.

However some researchers like Beck and De La Torre (2006) argue that inasmuch as

financial inclusion should signify access to a range of different financial services, the

percentage of people in a given area with access to a bank account is the typical measuring

stick for breadth of financial services.

2.3.7 Financial Inclusion and Technology

The G20 has adopted what it terms the nine (9) basic principles of financial inclusion. Of

those nine there is one principle based on innovation. This serves to confirm that there cannot

be any comprehensive and meaningful financial inclusion without technology and innovation.

This principle was developed with the idea of providing effective and efficient infrastructure

for people to access financial services.

According to Kumar (2011) Information Communication Technology (ICT) solutions have

made financial inclusion initiatives possible at a relatively low cost. Kumar also introduces

the concept of e-Financial Inclusion where he explained it as innovative applications of ICT

for delivery of financial & payment services and adequate credit where needed, at an

affordable cost to the vast section of disadvantaged and low-income groups, who currently

17

are unbanked. A notable phrase from Kumar’s definition is the fact that he clearly explains

that the ICT applications should be targeted to the disadvantaged and low income groups.

Looking at most of the innovations pursued by banks there is a worrying gap in they have not

been inclusive in nature.

The journal Achieving Financial Inclusion by leveraging Mobile Technology, states that

technology is the obvious choice for banks to drive financial inclusion. The same journal

points out to ATM based solutions as one of the best way to facilitate financial inclusion. The

same advantage provided by ATM based solution includes a low cost transaction system. The

advantages of technological approaches to financial inclusion can be more pronounced by the

repo effect in the use of technology like mobile phones. The same journal cites the example

of Kenya which has been able to transact 10% worth of its GDP through the conduits of

mobile banking.

However there are some contrasting views on how mobile banking has changed the face of

banking. Although mobile banking has changed the economics of banking the aggregate

volumes of mobile banking are still small as compared to traditional payment systems (Jack

and Suri, 2011). Jack and Suri quote the example of Kenya’s M-Pesa where the value of

transactions it has facilitated is 700 times less than the value facilitated by the conventional

and traditional banking systems in Kenya.

Grace et al (2003) take the economic view of how network effects on financial technology

such as telephone banking can lead to phenomenal growth. The simple explanation lies in the

repo effect which technological advancement provides ion terms of the number of new users

incorporated in a network. According to Roller and Waverman (2001), ICT affects economic

growth when the penetration rate reaches 40% which explains why most African countries

with low mobile penetration rates are still experiencing low mobile banking growth.

2.4 BANKING AND FINANCIAL INCLUSION IN UNDERDELOPED ECONOMIES

Banking in underdeveloped economy lacks the sophistication and tenacity compared to the

developed countries and it is important to look at how various authors have crafted their

thoughts and observations of banking and financial inclusion in the underdeveloped

economies.

18

2.4.1 Banking in Underdeveloped Economies

Many thoughts have been presented on the nature of banking and financial inclusion in

underdeveloped economies. This research will be confined to Zimbabwe and many

conclusions have been drawn out by various authors and researchers. Beck and Cull (2013)

acknowledge that the financial sector in Africa was largely non-liberalised up until the 1990s.

Honohan and Beck, (2007) and Beck et al, (2011) point out to four specific characteristics

that make banking in Africa more difficult than any other region. The four characteristics

include small economies, the informal sector, volatility which increases costs and undermines

risk management and governance.

It can be noted that the four characteristics specified above are not peculiar to the

Zimbabwean financial system. The informal sector has grown significantly over the past few

years becoming one of the most financially excluded group in the Zimbabwean economy.

Beck and Cull (2013) assert this informal group does not have the necessary formal

documentation that facilitates financial transactions, such as enterprise registration, land titles

and even formal addresses which increases the costs and risks for financial institutions and

ultimately excluding large segments of the population from formal financial services.

Of interest to this research study is that Beck and Cull (2013) allude to the fact that to

overcome financial exclusion Africa has got to embrace technological innovations. They

point out to some of the innovations like mobile banking and of particular the assertions by

Weill and Mbiti (2011) whose study on Kenya’s M-Pesa product has proven that many forms

of informal savings have since been curbed through the introduction of this product.

Another significant study of how banking is done in the underdeveloped economies comes

from Kusoraki (1964) in his journal paper. Kusoraki (1964) argues that the social structure of

a country has a bearing on financial structure. This point makes a lot of sense especially when

viewed from the Zimbabwean point of view. Zimbabwe is one of the poorest nations in the

world with unemployment sitting at 80%. The resultant factor is low incomes and a rampant

informal economic activity. This has had a bearing on the financial services sector which has

found it more expensive to service the lower income groups thereby exacerbating financial

exclusion.

19

Kusoraki (1964) also points out to the fact that underdeveloped economies are largely made

up of unorganised exchanges. In relation to the study under investigation this statement

clearly points out to the fact most of the liquidity does not flow in the formal money market

which is a hindrance to the growth of the financial service sector. This has been a major

threat to the survival of the Zimbabwe financial sector as the Reserve Bank of Zimbabwe

recently admitted that more than USD 3 billion was not circulating in the formal financial

institutions against USD 4 billion held by banks.

2.4.2 Financial Inclusion in Underdeveloped economies

Closer home ZimStat (2011) gives a shocking revelation of 40% who are financially

excluded against a meagre figure of 24% banked adults. These figures are a shadow of a true

vice called financial exclusion being witnessed in underdeveloped countries.

Thorat (2006) explores the importance of financial inclusion in attaining the Millennium

Development Goals. Most underdeveloped economies have not attained the millennium

development goals and Thorat stresses the importance of an inclusive financial in attaining

this phenomenon. On this issue Thorat states that financial inclusion has to be viewed as a

business strategy for growth where banks position themselves accordingly.

Kusoraki (1964) identifies what he terms a non-monetized sector characterised by

unorganised money markets. Kusoraki (1964) further explains that unorganised money

exchanges are an obstacle to economic development. From a simple analysis of Kusoraki’s

assertions it is evident that financial inclusion is far from being attained in the

underdeveloped countries given some of the characteristics which he explains above. The

short term nature of finance in the underdeveloped is one of the characteristics which hinder

the development of capital markets as explained by Kusoraki (1964). The non-development

of capital markets ultimately leads to financial exclusion.

“Africa’s banking systems are not only shallower than banking systems in non-African

developing countries, they are also less inclusive”, Beck and Cull (2013). This statement

clearly illustrates the dearth of financial awareness or a lackadaisical approach financial

inclusion in the underdeveloped countries. Even compared with some non-African

developing countries Africa’s statistics on financial inclusion are way behind as per data

provided by the World Bank’s, Global Financial Development Indicators.

20

This is shown on the graphical exposition given on the next page.

Figure 2.1: Comparison of financial inclusion between Sub-Saharan Africa and Non-

African Developing countries

Source: Global Financial Development Indicators, World Bank

Financial inclusion in the underdeveloped economies like Africa also tracks the some social

trends. According to Demirguc-Klunt and Klapper (2012), men are more likely to have an

account at a formal financial institution although the gender gap is relatively small in other

regions.

Demirguc-Klunt and Klapper (2012) also note some of the main barriers to financial

inclusion in Africa like insufficient documentation, rampant financial exclusion in rural areas,

poor infrastructure and telecommunications systems. Demirguc-Klunt and Klapper note the

example of Uganda where checking account costs the equivalent of 25% of GDP per capita

annually and 54% of non-account holders cite cost as a reason for not having an account.

Barriers faced by both households and enterprises also tend to be lower in countries with

more competitive, open, market oriented and well regulated financial systems with more

developed contractual and informational infrastructures (World Bank, 2008).

0

10

20

30

40

50

60

70

80

90

100

Bank accountsper 100 adults

Bank branchesper 100 000

adults

Firms with lineof credit to

total firms (allfirms) (%)2009-11

Adults withaccount at a

formal financialinstitution to

total adults (%)

Non African Developingcountries

Sub-Saharan Africa

21

However some authors also point out to the positive developments and steps taken up by

some financial institutions in ailing economies or the underdeveloped world. Chikoko and

Mangwendeza (2012) explore some of the innovations made by Zimbabwean banks in

promoting financial inclusion. In their findings they note mobile banking innovations like

Tetrad Investment Bank’s E-mali and Kingdom Bank’s Cell Card. Similar innovations have

been adopted in countries like Kenya, Somalia and South Africa. This illustrates that the

underdeveloped countries have made some effort and strides in promoting financial inclusion

although it is beleaguered by a lot of challenges.

2.4.3 Evolution of Banking and Financial Inclusion

Evolution of banking can be loosely defined as the movement of banking business from

traditional practises to innovative and non-traditional practises. A lot of literature has

explained how innovative banking has eased financial exclusion. One of the key pillars of

financial inclusion according to the G20 Principles for Financial Inclusion is innovation. This

clearly outlines the need for banks to constantly evolve and create platforms which

incorporate the financially excluded in the mainstream financial system.

The scope of financial inclusion can be expanded through voluntary effort by the banking

community itself for evolving strategies to bring within the ambit of the banking sector to the

large strata of society, Leeladhar (2006). Leeladhar’s assertions clearly underline the

importance of new strategies by banks in the facilitation of financial inclusion.

Evolution of banking cannot be a complete topic without mentioning technology. The

Alliance for Financial Inclusion’s (2013) points out to the harnessing of new technology as

one of the key policy area for the attainment of financial inclusion. This means that the new

technological innovations being implemented by banks since the era of traditional banking

are inextricably linked to the attainment of broad based financial inclusion.

Cetorelli et al (2012) explore the relationship between financial intermediation and evolution

of banks. They analyse factors like loan origination and liquidity and credit enhancement

under the traditional and evolved banking regimes. If their analysis on loans is to be

contextualised in the Zimbabwean context it can be manifested that credit provision has

become more stringent unlike before. This factor explains the negative side of evolution of

banking on financial inclusion.

22

Personal banking is one of the new systems developed by banking institutions over the years.

However, Collard et al (2001) argue that from the research findings they gathered the design

of bank accounts were not favourable to low income groups. Furthermore they point out to

mistrust in the banking sector as one of the factors which hinder people from using bank

services. This is also one area where evolution of banking has not facilitated much into

financial inclusion but has instead led to financial exclusion.

Marcos Bader (2012) looks at the distribution logistics in banking and he states that

diversification and development of banking distribution channels has promoted dynamism in

financial services provision and a new competitive scenario has been created where financial

and non-financial agents work together to provide financial services. In his analysis such

trends have shifted the traditional paradigm for distribution of financial services, leading to a

more virtual and more inclusive stage. This analysis by Bader clearly illustrates how new

banking channels have contributed significantly to the ease of doing banking business whilst

at the same time promoting financial inclusion.

2.5 EMPIRICAL EVIDENCE

2.5.1 ICT, financial inclusion and growth-evidence from African countries

Adrianaivo and Kopdar (2011) look at the contribution of financial inclusion to growth via

the impact of technologies such as mobile banking. This is important to analyse given that

this research study looks at the technological innovations adopted by banks and their

contribution to financial inclusion. According to Adrianaivo and Kopdar (2011), the

increasing use of mobile telephony in developing countries has contributed to the emergence

of branchless banking services, thereby improving financial inclusion. They argue that this

increased access to financial services for underserved people helps narrow the financial

infrastructure gap, especially in developing economies, where the costs of distance and time

are very high for formal banking services.

On technological innovations like mobile banking, Adrianaivo and Kopdar (2011) argue that

financial services on mobiles remain underdeveloped in African countries and are available

only in a few African countries. On financial inclusion and economic growth the two authors

assert greater financial inclusion is associated with higher economic growth in African

economies.

23

The facts brought about by Adrianaivo and Kopdar (2011) clearly illustrate the importance of

technology in driving financial inclusion in Africa. However, the two authors bemoan the low

rate at which technological banking products are being adopted in Africa, one reason why the

continent still lags behind in terms of financial inclusion.

2.5.2 Financial Inclusion in Kenya

From the study carried out by Hannig (2013) Kenya’s flexible financial regulatory stance

allowed certain evolutions like agent and mobile banking to be adopted without much

hindrance. To that effect Kenya has become one of the countries where mobile bank accounts

outnumber conventional bank accounts. According to the Alliance for Financial Inclusion

Kenya has got close to 900 000 agents for mobile banking which can facilitate the integration

of 23 million people (74% of the total adult population to use financial services. This

illustrates how some bank evolutions are important in taming financial exclusion. In this case

there is a potential integration of 74% of the total adult population which in itself is a great

stride in taming financial exclusion.

Kenya has also moved to integrate traditional banking services like loans to tech innovations

and Hannig (2013) points out to M-Shwari, a loan and savings product offered via the mobile

phones by M-Pesa. According to Hannig, technological innovation reduces costs and

increases usage of financial services and quotes the Kenyan example of Safaricom (Kenyan

mobile phone operator) and Commercial Bank of Africa partnership where bank accounts can

be opened over the phone and credit scoring is based on voice calls and phone bills. This

phenomenon led to the saving of more than USD 10 million in costs. This shows how

evolution in the technological side has led to the integration of the financial excluded in

Kenya.

2.6 CONCLUSION

Most literature reviewed concurs to the fact that financial inclusion is not just access to

finance but a systematic process in which access to finance is both affordable and reliable.

Although most of the literature does not have synchronisation with evolution of banking, a lot

of importance has been placed on the latter if greater financial inclusion is to be achieved.

Form the analysis presented by most of the literature evolution of banking is basically the

24

transition of banking systems, models and delivery channels from the traditional methods to

more innovative methods.

The interconnection between evolution of banking and financial inclusion is the foundation

for the pertinent question which seeks to analyse how innovations in the banking sector have

contributed to financial inclusion. Some sections of the literature subscribe to the idea that

bank innovations like mobile and internet banking have contributed much to the

incorporation of communities in the mainstream economy. Another section of literature

disputes this fact and instead points out to other vices like lack of trust in the financial sector

as some of the hindrances to financial inclusion no matter the significant strides made

through innovation of the banking sector.

However it is important to note that a lot of contributions made by vast literature used in this

chapter is phenomenal in executing and undertaking the research problems and questions

presented by this study.

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CHAPTER 3

RESEARCH METHODOLOGY

3.1 INTRODUCTION

For a holistic address to the research objectives and research questions posed by this study

there is need to gather data through various instruments like questionnaires, interviews and

secondary data apparatus like recent journals, the internet, textbooks, published annual

financial reports from development institutions like the World Bank and national statistics

compilations. This chapter provides a platform on how data collection was executed,

analysed and the sources of data which were targeted. Addressing all such issues before data

collection is essential as it provides a platform for smooth data collection rather than

executing these aspects in retrospect.

3.2 RESEARCH DESIGN

The research design for this study was more descriptive and explanatory in nature as it gave a

proper guide on how evolution of banking has had an impact on financial inclusion. A

descriptive research design is important in that it seeks to classify without expressing

judgement. Explanatory research is helpful in that there are lot of suggestions to be aired out

in data collection on a subject topic which has been rarely explored. Both qualitative and

quantitative research methods were explored but much emphasis was placed on qualitative

research and analysis. The researcher used survey research because surveys can provide a

large amount of data in a short time at a fairly low cost result.

3.2.1 Justification of the research design

The case of evolution of banking against a largely financially excluded community requires

scrutiny through explanatory research. A more descriptive research design is also essential as

it clarifies a lot of issues surrounding financial inclusion against an ever changing (evolving)

banking system. A descriptive research design provided an in depth view of the problems,

research questions and objectives outlined by this research.

Matters to do with financial inclusion incorporate a lot of statistics and it is therefore essential

that an element of qualitative research be employed in this research study. It is also important

26

to factor in the during the data soliciting, capturing and analysis phases as it is the basic

foundation for all factors outlined above.

3.3 TARGET POPULATION

The main target population for this research study is the banking institutions themselves

together with their customers. One of Zimbabwe’s main commercial hubs (Bulawayo) was

the centre of geographical focus for this study. There was effort to focus on all types of

banking institutions ranging from investment banks, building societies and commercial

banks. All banking units (commercial, investment and building societies) which operate in

Zimbabwe are represented in Bulawayo. This research was therefore looking at a total

research population of fifteen (15) commercial banks, three (3) building societies, one (1)

investment bank and one (1) savings bank. Customer Service Officers (CSO) were the main

bank employees targeted by this study due to their interface role between the bank and the

customers.

3.3.1 SAMPLE SIZE

The sample size is the fraction of the whole population which is picked to represent the views

of the total population. As explained above, Zimbabwe is made up of 19 financial institutions

from across the banking units (commercial, investment, building societies and savings

banks). For a fair and inclusive cross sectional sample the study targeted ten banks of which

seven(7) are commercial banks, two (2) are building societies and one (1) is an investment

bank.

Considering that the general population apart from bankers is also an important element of

this study there is also need to incorporate them in this study accordingly. Matters to do with

financial touch across the whole societal divide but it is important that empirical evidence

from low income countries suggests that financial exclusion is rife among poor and some

middle income groups. Questionnaires were also directed to fifteen bank customers who were

picked randomly.

3.3.1.1 Justification of the sample size

Out of fifteen commercial banks it was essential to at least pick close to half of them (seven

in this case) so as to have a wide audience of the questions posed by this research.

27

Furthermore operations amongst banks differ in significant ways and it is vital to have a large

number of respondents so as to factor in such issues. Incorporation of investment banks and

building societies gives a true representation of the wider banking sector.

Social behaviour among high density dwellers is mostly common and five high density

dwellers give the vital response of how they perceive evolution of banking on financial

inclusion. The same was also applied for SME practitioners where incomes are the same and

information is less asymmetric. Therefore five respondents per each class are representative.

3.3.2 Sampling Techniques

On picking up banks stratified sampling was largely used with a fusion of random sampling.

There are four groups to which banks were classified into. Tags, each bearing a name of a

commercial bank were created and grouped according to the strata illustrated below.

TABLE 3.1: TOTAL SAMPLE

Deposit Base Low tier Foreign Historical importance

CBZ Kingdom Stanbic Standard Chartered

Banc ABC Metropolitan Standard Chartered Barclays

Stanbic Allied Barclays ZB Bank

Agribank Ecobank,

Capital MBCA

NMB

Steward

After having classified according to the groups defined above the tags, in their strata were

placed in a hat. Tags where then picked at random to come up with two banks per each

stratum except the old banks category where only one bank was picked. There was no

sampling for investment banks and building societies and investment banks as the total

population was picked. The banks which were targeted are specified in the Table 3.2.

28

Table 3.2: SAMPLE CLASSIFICATION

COMMERCIAL BANKS INVESTMENT BANKS BUILDING SOCIETIES

CBZ Tetrad ZB

BancABC CABS

Stanbic FBC

Ecobank

Kingdom

Steward

ZB

3.4 DATA COLLECTION INSTRUMENTS

Data collection incorporated both primary and secondary data and there were different

techniques used for each.

3.4.1 Primary Data

Questionnaires were the prime tool for collecting primary data to the targeted population.

Questionnaires are important in that they allow for free style investigation and they also

produce highly structured and standardised data

3.4.2 Questionnaire Design

For this study two sets of questionnaires were created. The first was targeted at banking

institutions and the second set of questionnaires was targeted at the general population with a

strong bias towards the SME sector. The questionnaires directed to financial institutions were

largely aimed at addressing most of the objectives stated in this study. These questionnaires

were created with the prime aim of ascertaining the innovations of the financial sector which

have facilitated financial inclusion and those which have acted as impediments to financial

inclusion (see Appendix 1 and 2).

3.4.2.1 Justification of using the questionnaires

The quality of responses offered by questionnaires is largely high compared to other data

collection methods because questionnaires allow respondents to complete them at their own

29

time. Furthermore this research study was more convenient with questionnaires because of its

requirement to gauge the views of the general population who may not find any other kind of

data collection method desirable.

The questionnaires used in this study were guided rather than structural which made it faster

and easy to administer. The questions and responses given in the questionnaire were

standardised which allowed a standardised analysis of responses. Closed end questions were

a large feature of these questionnaires to avoid the incorporation of unbaked opinions. The

questions presented in the questionnaire were largely built around research questions and

objectives.

3.4.2.2 Limitations of Questionnaires

However questionnaires have their own limitations and these include the time factor as some

respondents would be reluctant to attend to questionnaires due to time commitments. To

overcome these challenges questionnaires were distributed three weeks prior to the data

collection phase.

The banking sector is highly volatile especially when it comes to inside information. Due to

the confidentiality clauses governing some bank employees there might be resistance

especially when the questionnaire requires some sensitive information. To overcome this

challenge questionnaires were designed in such a way that sensitive information deemed

sensitive was minimal in the questions asked.

Commitment of respondents was difficult to determine and as such there might be a tendency

or degree of falsified information as respondents are only motivated by the need to complete

the questionnaire without due diligence.

3.4.3 Secondary data

Secondary data is vital in this study and as such it was be used extensively although emphasis

was placed largely on primary data. The sources for secondary data was the internet, recently

published journals and developmental reports by institutions such as the World Bank, IMF,

International Finance Corporation among a host of others. The advantage of secondary data is

that it is expensive to collect and is easily available as compared to primary data. However

30

reliability on secondary data is put into question especially when the scope of the study is

different to what secondary data is offering.

3.6 CONCLUSION

This chapter emphasised on how the sample was arrived at clearly illustrating the strata used

in the survey whose results were analysed in the preceding chapter. The next chapter analyses

and presents data collected from the strata specified in this chapter

Having collected all the necessary data, analysis and presentation is the next phase to the

study. Charts, graphs, Microsoft® Excel spread sheets and computer applications were of

paramount importance in analysing data in the next chapter. Data analysis and presentation

sets the tone for the recommendations and conclusion for the study under review which is the

prime focus of Chapter 5.

31

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

4.1 INTRODUCTION

The focal point of this chapter is on the presentation and analysis of data collected from

various group of respondents and survey groups spelt out in Chapter 3. Analysis of such data

is useful in deriving the conclusion and recommendations to this study. Analysis and

presentation was done in line with research objectives and research questions. As illustrated

in Chapter 3, presentation of data was done according to each set of questionnaires (i.e.,

questionnaire for banks and bank customers). Presentation and analysis of data sets the right

precedent to the recommendations which this research aims to propose.

4.2 RESPONSE RATE AND DEMOGRAPHICS

The response rate and demographics shows the rate at which questionnaires were successfully

completed and also gives a picture of the type of banks and respondents picked.

4.2.1 Questionnaire 1: Banks

The respondents for the first set of questionnaires (questionnaire for bankers) were drawn

from the three set of banking units in Zimbabwe (commercial, investment and building

societies). Seven (7) commercial banks, one (1) investment bank and two (2) building

societies make up the research population and their names have already been provided in the

previous chapter. This is shown graphically on Figure 4.1.

32

Figure 4.1: Constitution of respondents from the banking sector

Source: Primary data

Respondents drawn from the various institutions hold varying positions as depicted below.

Figure 4.2: Respondents positions/workstation capacities.

Source: Primary data

0

1

2

3

4

5

6

7

8

COMMERCIAL INVESTMENT BUILDING SOCIETY

Positions of respondents

Customer Relationship Officer

Personal Bankers

Credit Analysts

Branch Manager

33

Out of the ten respondents six (6) or 60% were Customer Relationship Officers, three (3) or

30% are Personal Bankers and one (1) a Credit Analyst. The research questions presented by

this study require the input of bank employees who deal with customers on a daily basis and

it is befitting that most of these respondents deal with customers almost on a daily baily basis.

The timeline for this research is the period 2009-2013 and the work experience of the

respondents is given below.

Table 4.1: Working experience of respondents

Working experience (number of years) Number of employees (out of 10)

3-5 years 5

5-10 years 3

Over 10 years 2

Source: Primary data

This research study is confined to the timeline between 2009 and 2013 and the table above

clearly illustrates that 100% of the respondents are have been employed in the banking sector

for at least three years. This increases the accuracy levels of this survey.

4.2.2 Questionnaire 2: General Population/Bank Customers

Respondents from the general public were drawn on a random basis but emphasis was placed

on the need to clearly focus on the high density dwellers and the SMEs as they make up the

most financially excluded groups in Zimbabwe. Response rate from the respondents was

90.47% indicating a high survey response rate. Table 4.2 gives an outline of how the

respondents contributed to the survey.

34

Table 4.2: Response rate (Questionnaire 2)

SURVEY GROUP NUMBER OF

INDIVIDUALS IN

SURVEY GROUP

QUESTIONNAIRES

SUCCESSFULLY

COMPLETED

RESPONSE RATE

(%)

SMEs 7 5 71.4

High Density

Dwellers

5 5 100

Random bank

customers

5 5 100

Source: Primary data

From the total sample the average response rate is 90.46% and the main stumbling block to

the attainment of a 100% response rate is the reluctance of some individuals to disclose

information on their personal or business banking information as they deem it too sensitive to

disclose. Apart from SMEs which recorded a 71.4% response rate other survey units like high

density dwellers and random bank customers recorded a 100% response rate.

Majority respondents confirmed that they have bank accounts but there are high dormancy

levels of such bank accounts especially with high density dwellers and SMEs most of whom

concurred that they have shifted their banking transactions to the EcoCash platform. The

chart below illustrates the banks which the respondents who were part of the questionnaire

group use.

From the sample used respondents mainly use low cost banks such as Kingdom, P.O.S.B and

Steward (which all claim a 13% representation apiece). Other banks are represented in this

survey with the exception of CABS, Capital Bank, Stanbic, Barclays and Metropolitan Bank.

Given that there has been a deliberate strategy to focus on customers with low incomes, the

case as to why most upper tier banks are not much represented in this target survey group

might be justified.

Figure 4.3 gives the graphical exposition to the percentage of banks represented by this

target group of bank customers.

35

Figure 4.3: Response sample (in terms of banking institutions)

Source: Primary data

A trend already observed is that most of the banks which are part of the survey presented by

Questionnaire 1 are also represented in Questionnaire 2 and therefore it will be important to

discover if there is a correlation between what bankers perceive on matters to do with

financial inclusion and what the bank customers themselves deem to be the effects of

evolution of banking on financial inclusion.

4.3 TRENDS AND INTENSITY OF BANK EVOLUTIONS

The trends and intensity of bank evolutions give a picture of the direction of evolution of

banking together with the impact of evolution of banking on financial inclusion.

4.3.1 Technological and Service Evolutions adopted by the banking sector

One of the questions posed by the questionnaires intended for the bankers was aimed at

ascertaining the adoption rate of technological and service innovations in their service scape.

This is aimed at analysing the intensity of evolution of banking in Zimbabwe. To effectively

Banc ABC7%

Barclays0%

CABS0%

Capital0%

Ecobank7%

FBC7%

FBC Building Society7%

Kingdom13%

MBCA7%

Metropolitan0%

P.OS.B13%Stanbic

0%

Standard Chartered7%

Steward13%

Tetrad7%

ZB Bank7%

ZB Building Society7%

Respondents

36

analyse this phenomenon, tech and service evolutions have been grouped separately as

discussed below.

4.3.2 Technological evolutions

From the pool of questions presented, respondents provided the technological and service

innovations which have been adopted by their institutions recently. The findings depict a high

adoption of technological innovations as opposed to service innovations. The average

adoption rate for service evolutions is 50% whilst tech evolutions adoption rate is 76.67%.

This is shown in Table 4.3.

Table 4.3: Adoption rates of bank evolutions.

Evolution Type Total Adopted

Evolutions (per

bank)

Evolutions still to be

adopted (per each

bank)

Adoption

rate (%)

Technological (out of 30,

i.e. 3 per each of the 10

banks)

23/30=

90%

7/30=

10%

76.67

Service (out of 40, i.e. 4 per

each bank)

20/20=

50%

20/20=

50%

50

Source: Primary data

Most evolutions in banking have been driven by commercial banks in comparison to the

building societies and investment banks. At least five commercial banks have embraced tech

evolutions representing 50% of the total research sample have embraced all technological

evolutions, together with all the two building societies which represent 20% of the total

research sample. The reason for the high adoption rate among commercial banks as opposed

to other banking units might be due to the high number of customers they service in

comparison to investment banks and building societies. As such commercial banks might

have adopted technological evolutions more than any banking unit to cut on costs.

ATMs and or ITMs make up the technological evolution which has been adopted most by

banks with 90% (9 out of 10 banks) concurring that they use ATMs in their services. Eight

37

(8) out of ten (10) which is 80% of banks surveyed have also adopted mobile/SMS banking

with the lowest adoption rate being registered in internet banking where 40% (four (4) out of

ten (10) banks) of the banks surveyed have not yet embraced that evolution. The fact behind

this phenomenon is largely supported by the corresponding uptake rate by customers on these

evolutions. Tech evolutions are more reliable compared to service evolutions and this might

be a factor to consider also.

The graphical presentation of technological evolutions adoption rate is shown on Figure 4.4.

Figure 4.4: Technological Innovations adopted by Banks (Responses)

Source: Primary data

The graph illustration above shows a relatively high adoption of tech evolutions in banking as

more than 50% of all banks surveyed have embraced tech evolutions. The average uptake rate

of tech evolutions stands at 76.67% as already illustrated by Table 4.3.

4.3.3 Service evolutions

Service evolutions or innovations adoption rate is relatively lower than adoption of

technological products. The reason stems from the impact of technological evolution which is

more pronounced than service evolution and as such banks prefer the technological side of

evolution. Agent banking, which is one essential factor to the financial inclusion has not been

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

ATMs/ITMs Mobile/SMS Banking Internet Banking

BANKS WHICH HAVE NOTADOPTED

BANKS WHICH ADOPTED

38

embraced fully in Zimbabwe as evidenced by the survey results which show that only two

banks (Steward and Kingdom) which is 20% of the total survey use agents. The reason to this

anomaly is mainly associated with the additional costs of employing agent bankers.

Information on the adoption of service evolution is shown graphically below.

Figure 4.5: Service Innovations adopted by Banks (Responses)

Source: Primary data

In store point of machines have the high adoption rate amongst all service innovations a

development which shows that banks are mainly concerned with evolutions which increase

convenience on the part of customers. Out of all ten (10) banks in the survey eight (8) or 80%

of them use In-store point of sale machines.

However there is startling trend between the adaptation rate of Banc assurance and bank

Micro Finance services. Only 40% of the banks confirmed to the adoption of micro finance

products yet 60% of the banks have adopted Banc assurance. There is a conspicuous increase

in the demand for credit as opposed to insurance in Zimbabwe but the survey results show

that most of the banks have adopted Banc assurance as opposed to bank Micro Finance

services. Competition offered by stand-alone Micro Finance institutions and banks’ own

0

2

4

6

8

10

12

AgentBanking

In StorePoint of

SaleMachines

BancAssurance

BankMicro

FinanceProducts

Any other None

BANKS WHICH DID NOT ADOPT

BANKS WHICH ADOPTED

39

conventional loan products might be the reason why banks are reluctant to adopt their own

Micro Finance institutions.

Only 20% of the total banks surveyed adopted agent banking in their service scape and

together with the limited adoption of micro finance services dragged down the adoption rate

of service evolutions to 50%.

Table 4.4 gives a summary of service and technological innovations adopted by banks

surveyed.

Table 4.4: Adoption of evolutions/innovations among surveyed banks

INNOVATION/EVOLUTION BANKS WHICH

ADOPTED

BANKS WHICH DID NOT

ADOPT

Technological

ATMs/ITMs 9 1

SMS/Mobile Banking 8 2

Internet Banking 6 4

Service

Agent Banking 2 8

In Store Point of Sale Machines 8 2

Banc Assurance 6 4

Micro Finance Service 4 6

Source: Primary data

4.4 IMPLICATIONS OF EVOLUTIONS IN BANKING ON FINANCIAL INCLUSION

One of the major objectives of this study is to assess the implications of evolution of banking

in financial inclusion and as such various questions were posed to the respondents on how

they have react to the evolutions or innovations adopted by banks. Various questions such as

those stated below were asked.

40

4.4.1 Uptake rate of bank evolutions/innovations by existing and new customers

To ascertain the implications of bank evolutions on financial inclusion it is essential to get a

clear picture of how existing and new clients use and consider evolutions or innovations

provided by their banks. A question on the uptake rate of bank evolutions were posed to the

bankers. Uptake rate of existing customers on bank evolutions is vital in that it gives a picture

of what bank customers value in their banking business, a phenomenon which has got repo

effects on the financially excluded. Uptake rate of new customer (especially the previously

unbanked as stipulated by the questionnaire) is more important in that it gives a clear picture

of what evolutions drive financial inclusion.

4.4.2 Existing Customers

The analysis given out so far has illustrated that banks have adopted more of technological

innovations as opposed to service innovations. The emphasis now is on how existing

customers have embraced these evolutions provided by banks. This will be of significance in

addressing one of this study’s objectives which seeks to establish or determine the

relationship between evolutions in banking and financial inclusion. Table 4.5 below gives the

summary of the uptake rate of all evolutions adopted by the Zimbabwean banking sector to

date.

41

Table 4.5: Uptake rate of bank evolutions by the banking public

PRODUCT UPTAKE

RATE

HIGH MEDIUM LOW NOT

OFFERED

Internet Banking 0 2 4 4

Mobile/SMS Banking 3 5 0 2

ATM 9 0 0 1

Banc Assurance 0 0 6 4

Micro finance services 4 0 0 6

TOTAL 16 7 10 17

% OF TOTAL RESPONSES

(40)

32 14 20 34

SECTORIAL

Technological evolutions 12 7 4 7

Service evolutions 4 7 6 10

Source: Primary data

From the data collected existing customers have embraced ATMs highly more than any

evolution with nine (9) out of ten (10) or 90% of banks concurring that ATMs are highly

embraced by customers than any form of banking evolution. The only bank which does not

subscribe to the same belief is Steward Bank which has not yet embraced ATMs. It therefore

signals that all banks which provide ATM services concur to the same assertion that ATMs

are highly used by customers than any other technological or service innovation. The reason

to this phenomenon is that ATMs offer flexibility, convenience and affordability.

Although Micro Finance services are adopted less compared to Banc Assurance as illustrated

earlier, there is high uptake of micro finance as compared to Banc Assurance. This means

that 100% of the banks in the survey agree to the assertion that bank micro finance products

have got a high uptake rate.

42

In contrast all banks which offer banc assurance concur that there is a low uptake rate in

insurance services offered through banks. This trend clearly shows that there is high demand

for credit services in Zimbabwe and high exclusion levels in the insurance sector which is

exacerbated by the reluctance of most people to take up insurance policies. This trend is

presented in the table and graph below where each level of uptake rate is assigned various

responses which fall within it.

The uptake rate of mobile banking services has been steady with 37.5% of the total

respondents agreeing to the assertion of high uptake rates in mobile banking by consumers.

However 62.5% of respondents who adopted mobile banking service are of the view that

there is medium uptake rate in mobile banking services. This can be attributed to the stiff

competition banks face from conventional mobile network operators like Econet through its

EcoCash platform who now engage in quasi banking activities.

4.4.3 Uptake of technological evolutions versus uptake of service evolutions

From the questions presented there was a question aimed at ascertaining the uptake rate of

service evolutions versus tech evolutions and the responses were as follows:

4.4.4 Tech evolutions

Figure 4.5 and Figure 4.7 illustrate the uptake rate on technological and service evolutions

where it is clearly evident that technological evolutions have a high uptake rate compared to

service evolution. The high uptake rates in technological innovations are largely driven by

ATMs as expounded earlier.

43

Figure 4.6: Technological innovations uptake rate

Source: Primary data

Amongst existing customers there is high uptake rate of technological evolutions with 52% of

banks subscribing to this idea. The low uptake rate of 17% is largely driven by internet

banking which has not been fully embraced by bank customers.

4.4.5 Service evolutions

Unlike tech evolutions the uptake rate of service evolutions is relatively low amongst existing

customers. There is a 60% low uptake rate in all service evolutions adopted by banks and a

40% high uptake rate in service evolutions as reflected by Figure 4.7. The low uptake rate in

service evolutions is largely weighed down by the corresponding low uptake rate in Banc

Assurance.

High52%

Medium31%

Low17%

Tecnological Evolutions Uptake rate: Existing Customers

44

Figure 4.7: Service innovations uptake rate

Source: Primary data

4.4.6 New Customers

The trend observed in the uptake of bank evolutions by existing customers is largely

consistent and similar with that of new customers. New customers have embraced ATMs

more than any innovation or evolution in banking, followed by microfinance products. This

high uptake rate on ATMs might be a factor of bank’s insistence on their customers to use

ATM services. Internet banking and Banc Assurance all have low uptake rates. The low

uptake arte on internet banking is attributable to the low internet penetration levels persistent

in Zimbabwe and the high costs attached to it. On Banc Assurance the low uptake rate can be

linked to two things, either people are using conventional insurance policies all there are high

exclusion levels in the insurance sector.

New customers also confirm to the findings observed on existing customers, where tech

evolutions are more preferred compared to service evolutions. The same with existing

customers there is 52% high uptake rate in tech evolutions. However there is a 30.43% of the

respondents’ purport that there is medium uptake rate in tech evolutions by new customers as

opposed to uptake rate of 21.21% by existing customers. This information is summarised in

Figure 4.8.

High40%

Medium0%

Low60%

Service Innovations or Evolutions Uptake Rate: Existing customers

45

Figure 4.8: Uptake rate of bank evolutions by new customers.

Source: Primary data

4.4.7 Uptake rate of Bank evolutions and Financial Inclusion

This study is mainly concerned with evolution of banking and its implications on financial

inclusion and the uptake rate of new customers on bank evolutions is vital in analysing how

the financially excluded population can be incorporated in the mainstream economy. As

observed earlier evolution on the technological side of banking are more embraced by

customers than evolution on the service side.

It then suffice to express that continued adoption of ATM services by Zimbabwean banking

institutions will go a long way in the incorporation of the financially excluded population into

the mainstream financial system. Considering the high uptake rate in mobile banking too,

clearly manifests that tech evolutions in banking can tame financial exclusion because of the

appealing nature they have on new bank customers. This high uptake rate is also facilitated

by the low cost structure they bear on financial transactions. However amongst all tech

evolutions adopted by banks, internet banking has got a very low uptake rate by customers

0

2

4

6

8

10

12

14

16

18

High Medium Low Not Offered

UPTAKE RATE

Micro finance products

Banc Assurance

ATM Services

Mobile/SMS Banking

Internet Banking

46

and this is due to the high costs attached to internet banking and the low digital penetration

levels in Zimbabwe.

Service innovations like Banc assurance have low uptake rates and the reason might be the

stiff competition banks face from conventional insurance companies. However it can also be

observed that potential bank customers are not just lured by banc assurance because mobile

banking faces a stiff competition in the form of mobile money transfers offered by

conventional cellular network operators but potential bank customers are have got a high

uptake rate in the mobile banking services offered by banks.

4.4.8 Customer Relationship Management (CRM) as a Service Evolution and Its

Contribution to Financial Inclusion

All the respondents (100% of the respondents) concurred that they have adopted customer

relationship in their service scape. In the traditional banking customer relationship

management was not fully idolised as a fundamental unit in banking services but the

evolution in marketing and banking has necessitated the adoption of this phenomenon.

According to the data collected all the respondents agreed that customer relationship

management is contributing to the incorporation of the previously banked population into the

mainstream financial system. Customer relationship has managed to facilitate direct

interaction between banks and their existing or potential customers and it is this factor which

banks argue has managed to tap in some of the financially disenfranchised population in the

conventional financial system. The summary of these findings is presented in the Table 4.6.

47

Table 4.6: CRM adoption rate and the contribution of bank evolutions to financial

inclusion.

FACTOR # of RESPONSES

YES NO

Banks which have adopted

CRM

10 0

TO A GREATER

EXTENT

TO A LESSER EXTENT

Contribution of

technological, service and

product innovations to

financial inclusion

10 0

YES NO

Contribution of bank

evolutions to the

incorporation of new and

previously unbanked

customers

10 0

POSITIVE NEGATIVE

Relationship between

banking sector evolution

and financial inclusion

10 0

Source: Primary data

Table 4.6 clarifies how bankers highly regard evolutions in the banking sector in taming

financial exclusion. All the respondents (100%) agree that there is a positive relationship

between evolution of banking and financial inclusion. However evolutions in banking do not

entice the financially excluded to take up financial services more than other factors like loans

as will be illustrated by Figure 4.9.

48

4.4.9 The most appealing products and services which entice the financially excluded to

take up financial services

A question was also presented to the respondents to ascertain the main factors which are

powerful in their marketing efforts to the financially excluded. The high demand for credit

was reaffirmed as the main factor which influences individuals to take up financial services.

Figure 4.9: Appealing factors and features to the financially excluded

Source: Primary data

The graphical exposition above clearly shows that loans amongst all products and services

stand out as the most appealing factor in attracting financially excluded population with 70%

(7 out of 10 banks) of the total response sample agreeing to this phenomenon. This factor is

largely driven by the increased demand in credit due to the persistent liquidity crunch in the

Zimbabwean economy.

Interesting to note is that bank soundness or capital and brand of the bank which do not

constitute evolutions in the banking sector are amongst some of the important factors taken

0 2 4 6 8

Internet Banking

Mobile Banking

Banc Assurance

Specialised Accounts

Loans

Credit Cards

Agent Banking

ATMs/ITMs

Customer Relationship…

Bank Soundness/Capital

Micro finance Products

Brand of the Bank

Appealing factors in marketing banks to the financially excluded

number of respondents whoagree

49

into consideration by the financially excluded when taking a decision to take up financial

services as supported by 50% of the total respondents.

However tech and service innovations like mobile banking and CRM are also highly

regarded. Out of the total respondents of ten banks 30% are of the view that mobile banking

is also highly regarded by the financially excluded. Banc assurance is one innovation which

has clearly failed to contribute to the incorporation of the previously unbanked population

into the mainstream financial system and from Figure 4.9 no bank is of the view that Banc

Assurance can drive financial exclusion. It is therefore evident that the demand for credit is

the main driver which make people seek financial services as opposed to tech and service

evolutions although their contribution is also phenomenal.

4.4.10 Bank products which attract people to seek financial services

Data collected from bankers has already indicated that demand for credit followed by tech

innovations like ATMs and mobile banking and other factors like the brand of the bank and

its soundness in terms of capital are the main factors which people consider as they seek

financial services.

At this stage it is important to factor how people quantify evolutions in banking as they are

confronted a decision to seek financial services. Among a host of bank products respondents

weighed their importance in the impact they had on their choices to own a bank account. The

summary of the findings is outlined in Figure 4.10.

50

Figure 4.10: Importance of bank products on choosing a financial institution

Source: Primary data

The graphical exposition above shows that bank customers and potential bank customers are

mainly concerned with the availability of credit facilities when seized with the choice of

using formal banking institutions or not. From a pool of fifteen (15) respondents, nine (9)

concurred that credit (loans) is an extremely factor considered when taking up financial

services. This is followed by availability of ATM services followed by Savings account and

SMS/Mobile Banking.

Customer relationship management, which is an evolution in banking also commands a

formidable scrutiny among bank customers and potential bank customers as ten(10) out of

fifteen(15) or 67% of customers consider it to be important or extremely important in making

choices with regard to taking up financial services. Banc assurance is the least considered

factor with nine (9) out of fifteen (15) or 60% of customers concur that it is not an important

factor and three (3) of out of fifteen (15) or 20% of customers saying it is somewhat

important.

0

1

2

3

4

5

6

7

8

9

10

Extremely Important

Important

Somewhat Important

Not important at all

51

4.4.11 Correlation with findings from bankers

As observed earlier the data collected from banks has shown the availability of tech

innovations (mobile banking and ATMs) and the availability of credit as the main factors

which lure individuals to take up financial services.

4.4.11.1 Loans

The data presented in Figure 4.10 clearly manifest loans as the extremely important factor

people consider when taking up financial services. This is backed up by 60% of the total

survey. This is synonymous with the findings collected from banks presented in Figure 4.8

and 4.9 and Table 4.5 where 70% of all banks surveyed are of the view that loans are the

most appealing factor which pushes the financially excluded into the mainstream financial

system.

Seven (7) out of ten (10) banks are of the opinion that loans or the availability of credit is the

most appealing factor in marketing a banking institution (Figure 4.9) and that micro finance

products have got a high uptake rate from existing and new bank customers (Figure 4.8 and

Table 4.5). It therefore illustrates that loans are considered very important by banks and their

potential and existing customers.

4.4.11.2 ATMs

As an evolution in the banking industry it is important to ascertain its importance by factoring

in the views from the bankers and customers. Figure 4.10 shows that eight (8) out of fifteen

(15) or 53.33% of the bank customers in the survey concur that ATMs are an extremely

important factor to consider when faced with the choice of taking up financial services. From

the pool of respondents picked not a single of them classified ATMs as not important.

Data collected from banks is synonymous with this assertion with Table 4.5 and Figure 4.8

showing that all nine banks in the survey which offer ATM services concur that these

services command a high uptake rate from existing and new customers.

However there is a sharp contrast with the data presented in Figure 4.9 showing that among

the ten bank respondents only one agrees that the mention of the availability of ATM services

is an appealing tool when marketing banking services to the unbanked. The reason for this

52

anomaly might be the fact that people already know that banks offer ATM services and they

only see the value as they use such services.

4.4.11.3 SMS/Mobile Banking

Figure 4.10 shows that ten (10) out of fifteen (15) or 66.67% of bank customers believe that

mobile banking is either extremely important or important factors to consider when faced

with the choice of taking up financial services. This illustrates that mobile banking is a very

important evolution in banking which can tackle financial exclusion.

Three (3) out of ten (10) or 30% banks also concur that mobile banking has a high uptake rate

from existing and new customers (Table 4.5 and Figure 4.8). Relating these findings to those

of Figure 4.10 there is a positive correlation.

4.4.11.4 Internet Banking

Figure 4.10 shows that three only (3) out of fifteen (15) or 20% of respondents concur to the

fact that the availability of internet banking is an important factor to consider when taking up

financial services. This is also reaffirmed by the data collected from banking institutions

where only one (1) out of ten (10) or 10% of banks agree to the fact that availability of

internet banking is an appealing factor when marketing banks to the financially excluded

(Figure 4.9).

4.4.11.5 Banc Assurance

From all the respondents who subscribed to the second questionnaire none (0%) of them

considers Banc assurance when considering opening a bank account (Figure 4.10). This

justifies the fact that none (0%) of the banks considers Banc assurance to be an important

factor when marketing banks to the financially excluded (Figure 4.9).

4.4.12 Bank products and financial inclusion

What Figure 4.10 illustrates is that the availability of credit is the most important that can

attract the financially excluded to take up financial services. This is also affirmed by data

collected from banks in Figure 4.9 where seven out of ten or 70% of banks agree that loans

are the most appealing factor when marketing banks to the financially excluded.

53

Savings accounts are also very important together with tech evolutions like ATMs and

SMS/Mobile banking. Service evolutions like Customer relationship management are also

regarded highly by potential bank customers and as such they are important in taming

financial exclusion.

All this data confirms to the fact that evolution of banking is very important in taming

financial exclusion because of what can be deduced from the data already provide in Figure

4.10 and summarised as follows:

i. Availability of credit is being facilitated by the adoption of microfinance institutions

by banks. This is a shift from traditional banking and thus regarded as an evolution in

banking

ii. ATMs, Mobile Banking and CRM are all evolutions which have been embraced by

banks.

All extremely important factors presented in Figure 4.10 are facilitated by evolutions in

banking, directly or indirectly with the exception of savings account and it therefore confirms

evolution of banking as a vital tool in combating financial exclusion.

4.5 NATURE OF THE RELATIONSHIP OF EVOLUTIONS IN BANKING AND

FINANCIAL INCLUSION

Respondents also gave varying responses on how they view the nature of the relationship

between evolution of banking and financial inclusion. Questions were presented on the

conduits customers use for transactions and their general view of the evolution of banking

and financial inclusion. The findings are given as follows:

4.5.1 Platforms mostly used for transactions by customers

So far analysis has been placed on the products bank customers mostly desire when

confronted with choices to take up financial services but it is important to ascertain the

conduits they mostly use for transacting. This data is important in trying to ascertain the

effect to which bank customers can impart when transacting with their counterparties. For

example, when one uses mobile banking to transfer money to an opposite party, that opposite

party is forced to adopt mobile banking even if they did not desire to do so. Table 4.7 and 4.8

54

give a summary of the platforms mostly used by bank customers to withdraw and deposit

respectively.

Table 4.7: Conduits for Deposit Transactions

MODE USERS (OUT OF 15 RESPONDENTS)

RTGs 5

Cash/Over the counter 10

Mobile Banking 2

Internet Banking 2

ITMs 0

Source: Primary data

Table 4.8: Conduits for Withdrawal Transactions

MODE USERS (OUT OF 15 RESPONDENTS)

RTGs 1

Cash/Over the counter 11

Mobile Banking 4

Internet Banking 1

ATMs 10

Source: Primary data

Although ATMs command high usage on withdrawals it is important to note that Zimbabwe

is largely using “cash” based banking system with an average of 70% of the total respondents

confirming that they use cash or over the counter methods of transacting.

There are less transactions being channelled through the conduits of bank evolution like

RTGs, internet banking and mobile banking provided by banks (with the exception of mobile

banking provided by conventional mobile operators like EcoCash and TeleCash). This shows

that the network effects to be effected by bank evolution will be largely minimal. The least

used evolution in transactions is internet banking where 7% use it for withdrawals and 13%

use internet banking for deposits. However ATMs command a 67% usage rate in withdrawals

55

a phenomenon which is consistent with the findings presented in Table 6 which show 100%

of all the banks which offer ATM services concurring that there is a high uptake rate in ATM

services.

4.5.2 Extent to which innovations in banking evolutions are used by customers

Figure 4.11: Usage of bank products

Source: Primary data

Figure 4.11 shows the severity to which some bank innovations are used and as usual ATMs

command the highest usage rate as nine (9) out of fifteen (15) or 60% of respondents

confirm that they use ATMs on a regular basis. All innovations have a relatively reasonable

usage rate with the exception of credit cards, Banc assurance and agent banking. Agent

banking and credit cards have not yet been adopted and agent banking is only offered by two

banks on a regular basis. The dearth in the usage of Banc assurance services can be attributed

to factors alluded earlier.

0

2

4

6

8

10

12

14

16

Not Offered

Never

Distant intervals

Often

56

4.5.3 Customer opinions on bank evolutions and Impact on Banking Experience

Customer opinions on bank evolutions are vital as they give a clear picture of the extent to

which bank evolutions drive financial inclusion. In that regard a question was posed to

customers on how they view bank evolutions and the responses are given below.

4.5.4 Tech evolutions

Form the survey conducted all but one (14 out of 15) or 93.33% of respondents agreed that

evolution of banking on the technological is convenient and easy to use. This clearly shows

that the confidence levels on technological innovations in the banking sector are very high

and this can be manipulated for the enhancement of financial inclusion. Only one (1) out of

the fifteen (15) or 6.67% of respondents is of the view that tech innovations are sophisticated.

4.5.5 Service evolutions

Al respondents agree that service evolutions like customer relationship management, bank

adoption of micro finance services and agent banking are convenient and useful.

4.5.6 Impact of Evolutions on Banking Experience

Due to the adoption of bank evolutions most respondents (8 out of 15) or 53.33% are of the

view that their banking business has tremendously improved. It is in this vein that evolutions

in banking can tackle financial exclusion because the general view is that evolution improves

the banking experience of most individuals. This is presented in Figure 4.12.

57

Figure 4.12: Impact of Evolutions on Banking Experience

Source: Primary data

This can also be further affirmed by the high regard bank customers place on most tech

innovations in easing the way they do banking business. This is presented in Table 4.7 and

Figure 4.13. 78.57% of the total respondents are of the view that ATMs are extremely

important in easing banking business with 60% and 33.33% with the same view on mobile

and internet banking respectively. This trend is different from service evolutions where only

6.67% of the respondents believe money markets and agent banking is extremely important in

easing banking transactions. 40% and 13.33% view CRM and micro finance (in that

respective order) as extremely important but no respondent is of the view that Banc assurance

is extremely important.

0

1

2

3

4

5

6

7

8

9

No improvement at all Somewhat improved Tremendouslyimproved

Impact of Innovations on Banking Experience

Impact of Innovations on BankingExperience

58

Table 4.9: Bank evolutions and their contribution to the ease of banking

EVOLUTION IMPORTANCE IN

EASING

BANKING

Extremely

Important

(# of respondents)

Important

(#of respondents)

Somewhat

Important (#

of

respondents)

Not

Important (#

of

respondents)

SMS/Mobile Banking 9 3 2 0

Internet Banking 5 3 2 3

ATM 11 1 1 1

Banc Assurance 0 2 3 8

Money Markets 1 4 2 6

Agent Banking 1 3 3 6

Micro Finance 2 2 4 4

CRM 6 6 0 2

Source: Primary data

59

Figure 4.13: Bank evolutions and their contribution to the ease of banking

Source: Primary data

General views of the findings presented in Figure 4.13 and Table 4.9 indicate that it’s only a

few bank evolutions which are regarded as unimportant in easing the nature of doing

business. It can thus be established that evolution of banking is essential in the incorporation

of the financially exclude population due to the benefits it brings about. This is evident in the

manner in which bank customers view tech evolutions as has been alluded to earlier.

4.6 CONCLUSION

Evolutions in the banking industry can be manipulated in a positive way and aid in driving

financial inclusion. The observations drawn from the data collected illustrates that the impact

of bank evolutions on financial inclusion are phenomenal. This is backed up by data which

shows high levels of positive perceptions and usage which most individuals place on Tech

and social evolutions.

However it is important to also note that financial inclusion in underdeveloped countries like

Zimbabwe is largely driven by the availability of cheap and flexible credit. This is due to the

low incomes persistent in such economies hence people are only attracted to financial

0

2

4

6

8

10

12

14

16

Not Important at all

Somewhat important

Important

Extremely important

60

services given that credit is available. To this extent, tech and service evolutions in banking

can be deemed vital to the eradication of financial exclusion but a cautious and more

analytical view suggests that in underdeveloped economies availability of credit is the

essential ingredient to the eradication of financial exclusion as most individuals are

unwillingly forced to seek financial services.

The next chapter will deduce conclusions based on the data presented and analysed in this

chapter. Information already gathered in this chapter is summarised and further

recommendations to which this chapter proposes are aired out. The preceding chapter

navigates through areas which can be further researched on in terms of evolution of banking

and financial inclusion.

61

CHAPTER 5

CONCLUSIONS AND RECOMMENDATIONS

5.1 INTRODUCTION

The previous chapter illuminates and critically analyses data collected from the survey

population and it is the purpose of this chapter to derive a meaningful conclusion and propose

the necessary recommendations out of the findings presented in Chapter 4. The conclusion to

be drawn out of the collected data will be presented in a way which engulfs the purpose of the

study as spelt out by the research questions and objectives. This chapter proposes areas for

further research in issues regarding bank evolutions and the relationship which it imposes on

financial inclusion.

5.2 SUMMARY OF FINDINGS

On the implications of bank evolutions and financial inclusion it has been generally observed

that there is a positive relationship between evolutions in banking and financial inclusion.

This means that the higher the rate at which banks adopt bank evolution the higher the

positive impacts it exerts on taming financial exclusion. Technological evolutions are more

efficient in attracting the previously unbanked as opposed to service evolutions. This has

been largely observed in the uptake rate of tech evolutions by the previously unbanked

customers.

Inasmuch as bank evolutions are very much vital in taming financial exclusion there are other

factors which drive financial inclusion more than bank evolutions. As observed, the provision

of credit facilities is the main factor which entices people to seek and use financial services.

Other factors like brand and strength of financial institution also come in handy. The findings

have also proven that as much as banking evolutions have been adopted on a relatively high

scale by most of Zimbabwe’s financial institutions, they have not contributed significantly to

the eradication of financial exclusion and the main reason cited is that most people view

provision of credit facilities as the main driver to the use of financial services but the

constrained liquidity positions and a lean credit environment has kept financial inclusion at

alarming levels.

62

The nature of the relationship between is a more positive one as already explained. Usage of

bank evolutions by bank customers is relatively low and usage of such evolutions is more

leaned to tech evolutions as opposed to service evolutions. Regardless of the low usage in

bank evolutions respondents concurred to the fact that bank evolutions are convenient and

easy to use. This means that banking evolutions work in favour of financial inclusion to an

extent that if carefully manipulated by banking institutions they go a long way in taming

financial exclusion hence evolution of banking cannot be ignored as a catalyst to financial

inclusion as evidenced by the positive contribution it exerts on banking experiences.

Over the recent years most Zimbabwean banks have adopted bank evolutions at a relatively

high rate with technological evolutions constituting significantly to this high adoption rate in

bank evolution. However the trend has not been similar with regard to service evolutions

where the adoption rate has been weighed down by the impact they have on bank’s

economies of scale. The results from the findings state that commercial banks are the

pioneers of bank evolutions in Zimbabwe’s banking industry compared to building societies,

investment banks and development banks. Comparing tech evolutions and service evolutions

the former has been adopted most than the latter.

Secondary data as expounded by the FinScope Consumer Survey Zimbabwe, 2010 points out

to extreme financial exclusion in Zimbabwe by providing the unfortunate statistic that only

38% of Zimbabweans capable of holding a bank account have one.

Findings from the survey conducted also suggest that at least half of Zimbabwe’s commercial

banks have adopted all technological evolutions in use in the country’s banking system. This

proves that adoption of technological evolutions has been less intense although its usage or

adoption by banking customers has been relatively high. From the customers point of view

uptake rate of bank evolutions has been subtle due to the nature of Zimbabweans who are still

entrenched in the cash based system of banking. From the above assertion and the research

findings presented in Chapter 4 it is clearly evident that the adoption of bank evolutions by

financial institution is largely.

63

5.3 CONCLUSIONS PER RESEARCH OBJECTIVE

5.3.1 Implications of evolution of banking on financial inclusion

With reference to the research findings evolution of banking is a vital element in the

incorporation of the financially excluded into the mainstream economy. It is therefore

essential for bankers to manipulate all service and technological modifications to incorporate

more customers in their service scape.

Since evolution of banking and financial inclusion is correlated it therefore illustrates that the

more banks adopt innovations especially technological innovations, the more financial

exclusion can be tamed.

5.3.2 Nature of the relationship between banking evolution and financial inclusion

Loans have been cited as the main factor which can entice the financially excluded into the

mainstream economy. Evolution of banking has recorded a high uptake rate from the

perspective the bank customers.

5.3.3 Trends in the adoption and implementation of bank evolution

Over the recent years technological innovations have recorded a high adoption rate amongst

banks compared to service innovations. The trend line shows that banks have mostly adopted

evolutions which create value along their service profit chain.

5.3.4 Intensity of bank evolution and financial inclusion in Zimbabwe

Most banks have adopted service innovations and evolutions but the corresponding uptake

rate from consumers has been unsatisfactory implying a less intensive innovative banking

system. Financial exclusion is still rife in Zimbabwe mainly due to negative perceptions

consumers have about bank governance coupled with an illiquid financial market.

64

5.4 RECOMMENDATIONS

As stipulated in Chapter 1, the research is of paramount importance to the policy makers

(government and multi-lateral development institution), financial institutions, regulators and

the broader community. The recommendations to these various sectors are drawn from the

findings gathered in this research.

5.4.1 Recommendations to the government

The government must create a conducive and flexible environment for the smooth adoption

of bank innovations by financial institution. Since innovation in banking are essential in a

sustainable environment for the adoption of bank evolutions.

5.4.2 Recommendations to the financial regulators

In Zimbabwe the RBZ, is at the helm of financial regulation and control and as such they

should be actively involved in the participation of the financially excluded in the mainstream

economy. One of the findings revealed by this study is the fact that apart from bank

evolutions, loan and credit provision is the main factor which drives financial exclusion and

as such it is essential that the financial regulators have to create an enabling environment for

non-stringent credit so as to eradicate financial exclusion

5.4.3 Recommendations to the financial institutions

Driven by the profit motive, banks in Zimbabwe have been fighting for a small customer base

and recently most competition has come from innovative non-financial institutions like

Econet (EcoCash) and Telecel (TeleCash) which have tapped into the financial system. As

the research findings presented in this study point out to a positive relationship between bank

evolution plus credit and financial inclusion it is important that banks adopt these factors as

they ultimately translate into monetary gains or profits.

5.4.4 Recommendations to the multi-lateral development institutions

Multi-lateral development institutions like the World Bank and the IMF have increasingly

expressed concern over the low levels of financial inclusion especially in underdeveloped

economies like Africa. The findings presented by this study clearly point out to credit

65

provisioning and the adoption of tech evolutions by banks as the main drivers to financial

inclusion. It is therefore important that these multi-lateral financial institutions extend

technical support to developing countries on how to positively manipulate the main drivers to

financial inclusion.

5.4.5 Recommendations to the community

Most often there has been reluctance by the community to fully accommodate any movement

from traditional banking and as such it is important to teach and emphasise to the broader

communities on how bank evolutions can lead to financial inclusion which in a significant

contributes to poverty reduction.

5.5 SUGGESTIONS FOR FURTHER RESEARCH

Fascinating results have been observed in this research and it is therefore important that some

areas which have not been extensively. One fundamental result observed in this research is

that availability of credit is the main driver to financial inclusion and it is important that this

subject be explored further. In summary suggestions for further research are:

i. The contribution of bank evolution to the growth of the economy.

ii. Contribution of a traditional system of banking versus the contribution of an evolving

banking system to financial inclusion.

iii. Implications of an evolving banking system in underdeveloped economies to financial

inclusion versus the implications of an evolving banking system in developed

economies to financial inclusion.

It is also important that a research similar to this one be conducted on a wider geographical

landscape so as to fully generate a concrete assertion on how evolution of banking has had a

bearing on financial inclusion.

5.6 CONCLUSION

Evolution of banking is a vital cog in the eradication of financial inclusion as it facilitates a

more convenient and affordable banking experience to the banking public and more

specifically the financially excluded. However, as observed earlier evolution of banking in

itself is does not guarantee financial inclusion especially in underdeveloped economies where

66

the appetite for financial participation is driven by the availability of credit. In that regard it

can be safely conclude that evolution of banking promotes financial inclusion but its impact,

especially in underdeveloped economies, is underpinned by the availability of credit.

67

68

REFERENCES AND BIBLIOGRAPHY

1. The Global Financial Development Report 2014- Financial Inclusion, The World

Bank 2013

2. V. Leeladhar (2006), Taking Banking Services to the Common Man- Financial

Inclusion, Reserve Bank of India Bulletin, January 2006

3. D. Makina (2009), Recovery of the Financial Sector and Building Financial

Inclusiveness, UNDP Working Paper Series, 2009

4. Rural Banking, Financial Inclusion and Empowerment of Small to Medium

Enterprises, The Reserve Bank of Zimbabwe, January 2007

5. K.S Venkateswara Kumar (2011), Innovations in Modern Banking and Innovative

Financial Inclusion-Issues and Challenges, July-December 2011

6. Frances X. Frei et al, Innovation in Retail Banking, Wharton Financial Institutions

Centre, Revised January 1998

7. Mihosonirina Andrianaivo and Kagni Kpdor, ICT, Financial Inclusion and Growth-

Evidence from African countries, IMF Working Paper Series

8. Thorsten Beck and Robert Cull, Banking in Africa, The World Bank Development

Research Group-Finance and Private Sector Development Team, October 2013

9. Duvvuri Subbarao, Financial Inclusion-Challenges and Opportunities

10. FinScope Consumer Survey Zimbabwe2011, Finmark Trust, Zimbabwe National

Statistics Agency and the Government of Zimbabwe

11. Ed Stevens (2000), Evolution in Banking Supervision, Federal Reserve Bank of

Cleveland, March 2000

12. Hideo Kurosaki, Characteristics of Finance in Underdeveloped Economies

13. The Power of Partnerships-IFC Annual Report 2013, International Finance Co-

operation

14. Putting Financial Inclusion on the Global Map. The 2013 Maya Declaration Progress

Report, Alliance for Financial Inclusion, September 2013

15. Nicoletta Corrocher (2002), Does Internet Banking substitute traditional banking?

Empirical evidence from Italy, November 2002)

16. Franklin R. Edwards and Fredrick S. Mishkin, The decline of traditional banking;

Implications for Financial Stability and Regulatory Policy

17. Nicola Cetorelli, Benjamin H. Mandel and Lindsay Mollineaux (2012), The Evolution

of banks and Financial Intermediation: Framing the Analysis, July 2012

69

18. Sharon Collard, Elaine Kempson and Claire Whyley (2001), Tackling financial

exclusion: An area based approach, 2001

19. Marcos Bader (2012), Distribution logistics in Banking: Trends, Opportunities and

Critical Success Factors in Financial Inclusion, June 2012

20. Financial Access 2009: Measuring Access to Financial Services around the world,

Consultative Group To Assist the Poor/ World Bank 2009

21. Financial Inclusion: how do we make it happen? WSBI Views and proposals,

October 2010

22. Asli Dermiguc-Kunt, Leora Klapper (2012) , Financial Inclusion In Africa: An

Overview, The World Bank Development Research Group, Financial and Private

Sector Development Team, June 2012

23. Patrick Mangwendeza, Laurine Chikoko (2012), Financial Inclusion by Zimbabwean

commercial banks in a liquidity constrained environment, Journal of Economics and

International Finance, October 2012

24. Roy Culpeper (2012), The role of the G20 in enhancing financial inclusion, The

Green Political Foundation, February 2012

25. Makshir Ramji (2009), Financial Inclusion In Gilbarga: Finding usage in access,

January 2009

26. Smt. Ushar Thorat (2006), Financial Inclusion and the Millennium Development

Goals, January-March 2006

27. Dr. Alan Greenspan (1997), Evolution of Banking in a Market economy, 12 /4/1997

28. Anita Gardeva, Elisabeth Rhyne (2011), Opportunities and obstacles to financial

inclusion, Centre for Financial Inclusion, 2011

29. Elisabeth Rhyne, Anita Gardeva, David Leval (2009), Mexico’s Prospects for Full

Financial Inclusion, Centre for Financial Inclusion,2009

30. Patricia Lee Devary (2006) Bringing Pro Consumer Ideals to the Client. A consumer

Protection Guide For Financial Institutions serving the poor, Centre for Financial

Inclusion, 2006

31. Alfred Hannig (2013), Bringing smart policies to life, Alliance For Financial

Inclusion (2013)

70

APPENDIX 1-QUESTIONNAIRE TO BANKS

PLEASE NOTE: Each question is followed by suggested responses. Read each question

carefully and answer by ticking the appropriate box that represents your response.

Where the question requires you to specify please give a short description.

1. Which unit is your banking institution classified in?

Commercial Bank

Investment Bank

Building society

2. What position do you hold in your bank?

……………………………………………………………………………………

3. For how many years have you been working in the banking industry?

3-5 years 5-10 years Over 10 years

4. Which of the following technological innovations has your bank adopted since 2009?

ATMs/ITMs Mobile/SMS Banking Internet Banking

5. Which of the following service delivery modifications or innovations has your bank

adopted?

Agent Banking In store Point of Sale Machines None

Any other

71

6. How has been the uptake rate by existing and new customers on the following

innovations?

Existing Customers

Product UPTAKE RATE

High Medium Low

Internet Banking

Mobile/SMS Banking

ATM Services

Banc Assurance

Micro finance products

New Customers

Product UPTAKE RATE

High Medium Low

Internet Banking

Mobile/SMS Banking

ATM Services

Banc Assurance

Micro finance products

7. Has your bank adopted customer relationship management techniques?

Yes No

8. If your answer in (6) above is “YES” how has customer relationship management

contributed to the incorporation of the previously unbanked population into your

financial institution?

To a greater extent To a lesser extent v

72

Not at all

9. Are technological, product and service innovations or modifications adopted by your

bank contributing to the incorporation of new and previously unbanked customers?

YES

NO, there are other factors.

How important are technological innovations adopted by your bank in attracting new,

previously unbanked customers?

Very Important Important

Somewhat important Not Important

10. Is your current banking system factoring all the innovations which it has adopted well

placed to support financial inclusion?

YES DIFFICULT TO ASSERTAIN

If your answer is yes please give a short summary to support your answer with

reference to technological, service and product innovations your bank has made

…………………………………………………………………………………………………

…………………………………………………………………………………………………

…………………………………………………………………………

11. What is the relationship between product, service and technological innovations

adopted by your financial institution on efforts to attract new customers especially the

previously unbanked?

POSITIVE NEGATIVE

NO RELATIONSHIP

73

12. From the following list of factors what are the most appealing when marketing your

bank to potential customers especially the previously unbanked? (PLEASE TICK A

MAXIMUM OF THREE FACTORS)

Internet Banking

Mobile Banking

Banc Assurance

Specialised Accounts

Loans

Credit Cards

Agent Banking

ATMs/ITMs

Customer Relationship Management

Bank soundness/Capital

Micro finance products

Brand of the Bank

Thank you once again for taking much of your time in completing this questionnaire

and being part of this survey. Your contributions will be strictly utilised for research

purposes and treated with utmost confidentiality.

74

APPENDIX 2-QUESTIONNAIRE FOR THE GENERAL PUBLIC

PLEASE NOTE: Each question is followed by suggested responses. Read each question

carefully and answer by ticking the appropriate box that represents your response.

1. Which bank do you use for financial transactions? Please tick one box

Stanbic ZB FBC

Tetrad CABS Kingdom

Allied ZB Building Society

Other None

2. If your answer above is “NONE” what is the main impediment on your desire to hold a

bank account?

Excessive bank charges

Lack of loans/ credit

Lack of innovations which make banking easier

Lack of confidence in the financial system

75

3. If you have access to financial services, how important were each of the following

factors to you in selecting the bank mentioned above. (Please tick only one response for

each factor)

4. Factor Extremely Important Somewhat Not Important

Important important at all

SMS/Mobile Banking

Internet Banking

ATMs

Banc assurance

Money markets/Mutual Funds

Savings account

Agent banking

Customer relationship

management/ Personal Banking

Loans

Factor

Loans

v

v

76

5. Which of the following platforms do you MOSTLY use for transactions?

Transaction Modes

Withdrawals RTG’s Mobile banking platform

Cash Online

ATM

Deposits Cash ITMs

RTGs Mobile Banking

Insurance Banc Assurance Not applicable

Conventional insurance policies

77

6. How often do you use the following products and services offered by your bank?(IF

SOME PRODUCTS LISTED ARE NOT OFFERED BY YOUR BANK YOU MAY

KINDLY IGNORE)

Product Often At distant intervals Never

Mobile banking

Internet Banking

Banc Assurance

RTG’s

ATM’s

Credit Cards

Bank agents

Money market investments

Microfinance products

7. What is your opinion on technological innovations offered by banking institutions for

transaction purposes?

Convenient and easy to use Sophisticated

Unsatisfactory

8. What is your opinion on product and service innovations provided by your bank since

2009?

Unnecessary Convenient

9. Has your banking experience improved due to innovations made by your bank?

Not at all Somewhat improved

Tremendously improved

78

10. How important are the following innovations provided by your bank in easing the way

you do banking business?

Factor Extremely Important Somewhat Not Important

Important important at all

SMS/Mobile Banking

Internet Banking

ATMs

Banc assurance

Money markets/Mutual Funds

Agent banking

Bank microfinance services

Customer relationship

management/ Personal Banking

Thank you once again for taking much of your time in completing this questionnaire

and being part of this survey. Your contributions will be strictly utilised for research

purposes and treated with utmost confidentiality.

v