Technology for Islamic microfinance’s disbursement and repayment system

Abstract

Purpose The purpose of this paper is to explore the implementation of a mobile network system for an Islamic microfinance institution, made in collaboration with a commercial bank in Malaysia. It also intends to highlight any emerging issues pertaining to the implementation of technology into the disbursement and repayment system of an Islamic microfinance institution from their clients’ perspectives. As Islamic microfinance industry is still growing in Malaysia, findings gathered throughout the course of study are also intended to boost further knowledge relating to this area. Design/methodology/approach By using a case study method, interview sessions were conducted separately with clients of the Islamic microfinance institution. The purpose of interview sessions is to identify the benefits and problem that surrounds the usage of mobile banking into the repayment system for Islamic microfinance products. Data triangulation with various public documents was conducted to enhance the credibility and reliability of data, also to support the claims that were made by the respondents. Findings It was found that clients are quite satisfied with the disbursement process through a mobile solution. However, the same cannot be said with the repayment process. The difficulties in using the mobile solution pose a major threat to its success. As most clients are not born to be technological savvy, the lack of easiness in methods for the usage of a mobile solution for their transactions pushes them away from further exploring the benefits that can be brought in by the function. Other risks which were highlighted include concerns towards breach of trust and risks of robbery. Clients of the case study, on the other hand, are concerned that the transfer of cash between their meeting venues to the bank would expose them to the public who might try to take advantage from the situation. Research limitations/implications As the current study had only focusses on mobile banking aspect of the repayment system for one Islamic microfinance institution, a multiple case study could be adapted to investigate various banking channels being implemented by different Islamic microfinance institutions in Malaysia and their current success. Practical implications By highlighting several issues through this study, it is hoped that this Islamic microfinance institution would consider applying other means of payment that are available in the market that is not only cost-efficient, but also beneficial for clients of the institution. Originality/value This study highlights the setbacks in the usage of technology by clients of Islamic microfinance institution in Malaysia. Although many approved to the diffusion of innovation in Malaysian banking sector, the same has yet to be achieved in the Islamic microfinance industry, which clients are mostly technology illiterate.

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“…The result is that AIM has a high-level customer orientation and coordination between functions and middle-level competitor orientation. Rozzani et al. (2016) explored implementing a mobile network system for Islamic microfinance institutions, created in collaboration with commercial banks in Malaysia.…”

“…(2014) Based on the findings of this study, AIM has a customer orientation and coordination between high-level functions and mid-level competitor orientation. Rozzani et al. (2016) Clients are pretty satisfied with the disbursement process via mobile solutions.…”

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“…Microfinance was introduced to solve the financing problem faced by poor and low-income groups which include access to financial services to develop skills and pursued business ideas. Nevertheless, the financial institutions like microfinance service providers (MSPs) have faced increasing operational risk such as fraud, system failure and abuse of operational procedure and guidelines (Delija, 2015;Kamukama et al, 2010;Mago et al, 2013;Ngari, 2017;Njuguna et al, 2017;Rozzani et al, 2016;Siminyu et al, 2017). Microfinance is an important topic for research of economic development.…”

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