Page 1 of 18
Journal for Studies in Management and Planning
Available at http://edupediapublications.org/journals/index.php/JSMaP/
e-ISSN: 2395-0463
Volume 01 Issue 11
December 2015
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 497
An Evaluation of the Application of E-Commerce
Models by Microfinance Institutions in Kenya
Nickson Moseti Ongaki, Dr. Samwel Makori Bosire, & Dr. Dorcas Kemunto Oirere
Jomo Kenyatta University of Agriculture and Technology P.O Box 62000 Nairobi, Kenya
E-mail: nickson.moseti@gmail.com
ABSTRACT
A couple of decades ago information technology
and the Internet were a preserve of a minority
group of the richest and most developed countries
in the world. Today, experts acknowledge that
exclusion from ICT is dangerous for both
developed countries and LDCs alike and that ICT
has become an indispensable commodity. The
penetration onslaught of ICT into the remotest
parts of society is unstoppable. Benefits of
commerce are being harnessed by the poorest of
society through radio, television, mobile phones
and lately, the Internet. It can confidently be said
that the Internet is a global phenomenon and so is
e-commerce.
This paper evaluates the application of e- commerce by Microfinance Institutions in Kenya.
It engages models that have been developed and
proven by various scholars to examine the impact
technology have had on business entities. The
models provide a framework for analyzing the e- commerce system success, system failures and
challenges in the context of a developing economy.
It should be noted this paper does not undermine
the importance of other Information Technology
models by narrowing to one but for purposes of
simplicity.
1.0 INTRODUCTION
It is claimed that developing countries’ firms can
increase and improve their performance through e- commerce. The argument is that e-commerce will
increase the availability of relevant and timely
information and reduce transactions times. This, in
turn, is expected to greatly improve developing
country firms’ access to markets. Given the
availability of an adequate infrastructure, firms are
expected to invest in e-commerce applications,
especially if they intend to trade with distant
customers and suppliers. UNCTAD (2001), for
example, argues that the least developed countries
(LDCs) can better position themselves to engage in
trade as a tool for development if they adopt e- commerce. Firms are expected to benefit for two
main reasons. First, the products produced by
firms in the LDCs are often uncompetitive because
of high transport costs and inefficient trade
procedures, the latter of which can be partially
overcome by the use of e-commerce. Second, e- commerce may allow firms in the LDCs to
diversify into new sectors where they can benefit
from their low cost labour. E-commerce is
expected to ease the entry of firms from
developing countries into global markets by
allowing them better access to information and to
overcome inefficiencies, thereby enabling them to
Page 2 of 18
Journal for Studies in Management and Planning
Available at http://edupediapublications.org/journals/index.php/JSMaP/
e-ISSN: 2395-0463
Volume 01 Issue 11
December 2015
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 498
make more advantageous decisions about their
participation in trade.
These arguments have been met with skepticism in
some quarters. The idea of seamless commerce
was that the e-commerce would eliminate the
middleman and get the best benefit. These
contrasting positions are difficult to reconcile
because there has been very little empirical
investigation into the operation of e-commerce in
developing country settings. Moodley (2000)
found that in South Africa, B2B e-commerce has
yet to come into its own. Rather businesses see it
as an extra investment cost with very uncertain
returns. Studies of e-commerce in developing
countries have emphasized the influence of
contextual impediments related to economic,
technological, legal, and financial infrastructure as
major determinants of e-commerce adoption.
Companies are making large investments on e- commerce applications but they are hard-pressed
to evaluate the success of their e-commerce
systems.
E-commerce
E-commerce consists primarily of the distributing,
buying, selling, marketing, and servicing of
products or services over electronic systems such
as the Internet and other computer networks. It has
revolutionized the way organizations provide such
information. Users can now specify what
information is to be presented, and in what order or
arrangement, using which colors and so on.
Various attempts have been made to develop
frameworks and to explain the differences in the e- commerce views of existing research. The most
common and popularized use of e-commerce is to
replace or enhance traditional market channels by
opening Web-based storefronts. In this type of e- commerce, also commonly referred to as Business
to Consumer e-commerce (B2C), organizations
offer their products and services and generate
revenue from the actual sale of those products and
services to their customers. In another e-commerce
(B2B, businesses attract visitors to their Websites
by hosting comprehensive information of interest
to customers and generate their revenue from other
businesses that follow visitor eyeballs and
advertise their products and services on such
Websites (Wangui, 2007).
Microfinance Institution in Kenya
Microfinance is the provision of convenient
financial services and products to the poor, low- income households and micro and small
enterprises (Central Bank of Kenya, 2007). A
microfinance institution (MFI) is an organization
that provides financial services to the poor. This
very broad definition includes a wide range of
providers that vary in their legal structure, mission,
and methodology. However, all share the common
characteristic of providing financial services to
clients who are poorer and more vulnerable than
traditional bank clients. It is widely believed that
MFIs evolved out of the vacuum left by the
mainstream banks. It is said that about 50% of
Kenyans are classified as poor and have low
incomes not worth banking. Microfinance
institutions have proven that the poor are
“bankable” (PMT Kenya, 2001). Today, formal
institutions are rapidly absorbing the lessons
learned about how to do small-transaction banking.
Financial institutions were the early adopters of
automation for gathering, storing, and processing,
analyzing and disseminating information to satisfy
their customers, creditors, shareholders and the
public. The first challenge that jolted those
Page 3 of 18
Journal for Studies in Management and Planning
Available at http://edupediapublications.org/journals/index.php/JSMaP/
e-ISSN: 2395-0463
Volume 01 Issue 11
December 2015
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 499
institutions that introduced e-commerce then was
security. This set the era of encryption
technologies to be applied and the banks were the
first to embrace. The euphoria that set in later on
was unprecedented. In Kenya automation of the
financial institutions gained importance 15 years
ago when they realized that their labour intensive,
information handling process could be automated
by the use of the computer. These notable
exceptions aside, the e-commerce sector (and
Telecommunications and the Internet industry
more generally) have experienced immense
turbulence. Bankruptcies of high profile dot.com
companies, e.g. E-Toys, occurred frequently, and
many traditional “brick-and-mortar” companies
quickly pulled back from developing or integrating
e-commerce applications.
2.0 LITERATURE REVIEW
In using e-commerce systems, organizations
deliver information about their products and
services, their operation, their history, vision,
structure, policy and job opportunities to their
employees, members of the value chain,
shareholders, regulators, academics, industry
pundits or any interested visitor. Basically e- commerce systems respect the age-old rules of the
market, that is, supply and demand. It is indeed a
medium through which business can be taken to a
higher level. In the subsequent models the buyer
triggers the whole process by having a need for
goods or services. He will then take action by
looking for the goods and services to satisfy the
need. This simple process sets of activities that e- commerce systems have been developed and
applied to create maximum benefit for the
consumer. There are unlimited number of
components that can be listed when dealing with
electronic commerce. Let us consider the most
basic ones; consumer, seller, bank and the
supporting network.
Consumer – The consumer in this case can either
be a company or a person requiring a product or a
service from the supplier. The consumer is the one
who places the purchase order to the merchant.
Seller – This is a company or the person that
provides the goods or services that the consumers
may purchase, for example
www.eastafricanstandard.net where one can
subscribe for the daily newspaper. It is responsible
for handling purchase orders and sending products
to consumers.
Bank – This is the company that holds the revenue
for both the consumer and the seller. The seller and
the buyer do not necessarily have to use the same
bank. As part of the transaction, money will be
transferred from the buyer’s account to the seller’s
account.
Network – e-commerce is dependent on the
network for communication and information
transfer. This could be an intranet or extranet. A
lot of e-commerce transactions take place over the
Internet (Kalakota, 1997).
Some authors including Kosiour highlights that as
the list of components grow to include brokers,
marketing companies, advertisers, warehousing
and shippers, etc, this, the definition then suites
electronic business. Figure 2 below shows the
interaction of e-commerce components.
Figure 2 Electronic Commerce model (Cloete, 2004)
Buyer
Need
arises
Find
source
Arrange
terms Purchase
Use
article
Arrange Find Arrange Fulfil Support Seller
