Research studies

Planning the use of financial information systems and their impact on the profitability of microfinance institutions

 

Prepared by the researcher  :  Riyadh Hassoon Jabbar-  Imam Al-Kadhum College (IKC)

Democratic Arab Center

Journal of Afro-Asian Studies : Fifteenth Issue – November 2022

A Periodical International Journal published by the “Democratic Arab Center” Germany – Berlin.

Nationales ISSN-Zentrum für Deutschland
ISSN  2628-6475
Journal of Afro-Asian Studies

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Abstract

The aim of our research is to study the concept of financial information systems, highlight the great importance of using financial information systems within different business organizations, in addition to showing the importance of proper planning for the use of financial information systems on the profitability of microfinance institutions. The questionnaire method was used and a sample of 50 employees was selected and by the simple random sampling method, where the study was carried out on this sample and the results were circulated to the rest of the community. Our research reached a number of results, the most important of which are:

  1. Financial information systems are of great importance and intrinsic to the work of various business organizations.
  2. Financial information systems reduce the percentage of waste in the work of the microfinance institution, saving many unnecessary costs during the work of the organization.
  3. Financial information systems enable the microfinance institution to obtain accurate information of high quality and in a timely manner.
  4. Financial information systems assist in the planning necessary to make various financial and administrative decisions within microfinance institutions.
  5. Information systems have a key role to play in increasing the profits of microfinance institutions and improving their financial position

Introduction

In recent years, many developments and changes have emerged in various technical fields and the field of communications from increasing the speed of communication and economic openness between countries and the establishment of many free trade zones between countries and globalization, all of which have led to an increase in the amount and speed of exchange of information between countries and between different economic business organizations, but those large amounts of information scattered around the world have become a challenge for business organizations on how to select the best information that is related to the work of the organization and how to process it appropriately. The speed required to obtain the best outputs that the business organization can exploit and turn into a competitive advantage improves its position within the market.

As is known, microfinance institutions seek to achieve the planned objectives, which are to maximize profits and increase their revenues in order to improve their financial position, expand their business and economic activities within the current market and even work to expand to other markets and compete in them, and work to provide the necessary financing for emerging projects, which contributes to the achievement of economic development as well. It must use advanced and modern financial information systems that can help it achieve its financial objectives in the best possible way, by helping it to collect large amounts of information useful to the work of the organization, which helps the management to properly plan the work of the organization and work to implement it in the best possible ways to achieve high profitability and continuity in its work.

Methodology 

Problem 

Due to the great changes taking place in the world economy and the rapid technological developments that have occurred over the past few years, which necessitated business organizations in general to develop their administrative system and to properly plan their strategic objectives and how to reach those goals by the best means according to the changes taking place in the economy, through the use of advanced financial information systems, including programs, computers and individuals trained and qualified to use them as required, in order to reach the planned goals and achieve the highest  Profitability is possible. Therefore, we can express the problem of study with the following main question:

What is the impact of planning and using financial information systems on the profitability of microfinance institutions?

This is where the following questions branch:

  1. What is the impact of the planning and use of financial information systems on the financial flows of microfinance institutions?
  2. What is the impact of the planning and use of financial information systems on the competitiveness of microfinance institutions?

Importance 

The importance of research highlights the great importance of using financial information systems in business organizations in general and microfinance institutions in particular because of their fundamental role in accessing the information required to perform business and processing it according to the latest technical methods and technological means, which ensures the implementation of the business accurately and quickly, which helps to reduce waste in the components used or the time required to complete the work and reach sound outputs and accurate and clear financial reports and all this is done through proper planning of Before the management of the institution so that the use of information systems is optimal, in addition to the existence of an important theoretical importance lies in enriching the Arab library with important and influential research to help researchers continue their research and develop it more in the future.

Objectives 

The research seeks to achieve a set of objectives represented by the following points:

  1. Clarifying the concept of financial information systems.
  2. Highlighting the great importance of using financial information systems within various business organizations.
  3. Demonstrate the importance of proper planning for the use of financial information systems on the profitability of microfinance institutions.

Hypotheses 

  1. There is a statistically significant relationship between financial information systems and the performance of microfinance institutions.
  2. There is a statistically significant relationship between financial information systems and the planning necessary for decision-making.

Data

A sample of 50 male and female employees was selected by a simple random sampling method, where the study was carried out on this sample and the results were circulated to the rest of the community.

Statistical methods and computer programs used in the study:

The statistical program spss was used to analyze the answers received by the questionnaires retrieved ready for analysis. Where the arithmetic mean and variance were calculated, in addition to the range and standard deviation in addition to the graphs and shapes that illustrate the study.

Previous studies

1-A study (Abdul Rahman, 2016), entitled:

The Impact of Accounting Financial Information Systems on the Profitability of Financial Institutions

This study aimed to research the impact of accounting financial information systems on the profitability of financial institutions, and sought to identify the status of accounting financial information systems within financial organizations, and the extent of obstacles they face to carry out their work as required, and the study has reached a number of results, including that the use of the features of analysis provided by financial and accounting information systems helps in reaching honesty in the information and conclusions on the basis of which the institution can plan and carry out its work in a way that increases the Its profits, in addition to the fact that financial and accounting information systems contribute to the prediction of future events and thus the possibility of making decisions more accurately and clearly.

2-A study (Bakheet and Ezz El-Din, 2018), entitled:

The Impact of Electronic Accounting Information Systems on Profitability – An Applied Study on Industrial Companies Active in the Egyptian Exchange during the Period 2007-2017

The study aimed to show the impact of the use of electronic accounting financial information systems represented in the readiness of financial and accounting information systems, safety of operations of accounting information systems, security of accounting information systems applied within industrial organizations and their impact on profits estimated at rates of return on assets and rates of return on rights to property.

The analytical descriptive approach was followed in addition to the inductive approach on the study sample of 22 active industrial companies that were registered on the Egyptian Stock Exchange, where a questionnaire was used and analyzed for the data collected by it, and a number of practical statistical methods were used such as correlation test, causality tests and multiple regression.Causal relationships have been found.

 3- A study (et al,2020 Al-waeli), entitled:

 Impact of Accounting Information System on Financial Performance with the Moderating Role of Internal Control in Iraqi Industrial Companies: An Analytical Study

The Impact of the Accounting Information System on Financial Performance with Intermediaries – The Role of Internal Control in Iraqi Industry Companies: An Analytical Study

This study aimed to investigate the impact of the accounting information system on financial performance while taking into account the role of internal control as an intermediary, and the information was obtained through the questionnaire that was distributed within 18 industrial companies to 90 workers.

The results indicated that there was a significant impact of the accounting information system on the timeliness, accuracy and verification of financial performance, while no significant impact on financial adequacy was shown.

Internal control was found to be positively moderate between the relationship of adequacy, accuracy and financial performance, as the internal control system showed no effect on the relationship between verification, timing and financial performance.

 The concept of financial information systems:

Financial information systems are defined as the group of subsystems that work in high coordination with each other, such as warehouse control systems, sales and procurement systems of the organization, and other different financial and accounting systems used by the business organization, so that the various financial information that is related to the activity of the organization is collected and processed appropriately to reach the best possible outputs that help the organization to improve its financial performance and increase its profits, such as processing receivables and payments automatically, in addition to conducting operations Automated inventory of inventory, follow-up of its validity and warning of the decrease in the stock of one of the basic materials entering production. (Salama, 2010: 43)  The American Information Systems Association has also defined it as an automated system that collects, organizes, communicates and presents financial information in the best possible way, so that this is reflected in the performance of the organization in full so that that information is delivered to the staff of the organization to be used in the planning of operations and control of the various activities of the organization and work to achieve its strategic objectives and increase its profits. (King,2007: 67 & Ismail)

Components of Financial Information Systems

Financial and accounting information systems consist of the following: (Muhammad and Ramahi, 2009: 90)

  1. Data Collection Unit: In this component, the collection of data from the environment surrounding the organization, or using the method of data feedback, is carried out and this collected data is of importance to the work of the organization and to make sound financial decisions.
  2. Data Processing Unit: Here within the financial information systems the processes of processing the data obtained from the previous component, where many calculations, financial and accounting operations are carried out to process the data in the best possible way in order to obtain the most accurate and clearest information and provide it to the relevant parties.
  3. Data and Information Storage Unit: Here the data and information that have been processed in the form previously requested are stored, so that they are ready for use in a timely manner.
  4. The unit for the dissemination and distribution of information: In this part of the information systems, the final information is produced in the form of tables, shapes, graphs, maps, numbers, percentages and other classified and clear information in order to make the most of it in making various decisions of the organization.
  5. Making financial and administrative decisions in the organization: by differentiating between a number of available alternatives obtained using the organization’s modern financial information systems, which in turn will constitute feedback data for the next financial cycle.

Financial and Accounting Information Systems Jobs

Information systems within the organization perform a number of important functions as follows: (Hamdan, 2014: 51)

  1. Compilation of necessary work data, which is the first step in the work where important inputs to the work of the organization are searched for, recorded, and ensure their appropriateness and not decrease, and these data may be internal or external or resulting from feedback.
  2. Operate the data in the appropriate manner in accordance with the nature of the data and the need of the organization.
  3. Information systems manage the data and ensure that it is stored appropriately and work to update and modify it continuously.
  4. It is also one of the basic functions of financial information systems to play a supervisory role over financial data within the organization, in order to protect those important data from loss and verify their accuracy and quality, and this is done through a number of procedures carried out by information systems such as examination, audit and others.
  5. Finally, financial information systems ensure the provision of essential information that is important and necessary for the work of the Organization in its various departments, as well as its importance to external users and interested parties.

Objectives of Financial and Accounting Information Systems

Among the most important objectives that the Financial Information System seeks to achieve are the following: (Hassan, 2006: 94)

  1. Providing the necessary information to carry out the activities and various tasks of the organization.
  2. Provide the necessary information to make administrative and financial decisions in the organization.
  3. Conducting continuous evaluation of the performance of the various departments of the organization.
  4. Provide the necessary information to control the activities of the organization and the implementation of its functions in order to achieve the planned objectives.

Microfinance institutions: These are the institutions that provide microfinance to the people who request it, and microfinance can be defined as follows:

It is a microcredit that is provided to families or individuals in extreme poverty for the purpose of helping these families to start establishing certain productive activities or for the purpose of development of existing small enterprises. (Ghanem, 2010: 58)

The services provided by microfinance institutions have expanded beyond lending and include savings, insurance operations, advisory and many other financial services with the aim of providing financial services to individuals who are difficult to benefit from larger financial institutions such as banks and insurance companies. (Alattar et al,2009: 81)

Planning the use of financial information systems and their impact on the profitability of microfinance institutions

Financial information systems have a significant and important impact on the performance of microfinance institutions and on the increase in their profits achieved, as evidenced by the important basic functions provided by financial information systems to microfinance institutions, as financial information systems allow microfinance institutions to analyze various financial information and obtain accurate and clear results, which gives those results a high degree of confidence so that many detailed management decisions are built on them, and the outputs that result from financial information systems have A key role in helping the management of the institution to anticipate future results and thus make administrative and financial decisions accordingly in order to increase profits now and in the future, as it is necessary to mention the important supervisory role played by financial information systems on various departments within the microfinance institution, and work to reduce waste The timely delivery of information to the management of the enterprise, all of which significantly increases the profitability of microfinance institutions that use financial information systems. (Ramli, 2012: 30)

Practical framework

Where the researcher here conducted a questionnaire applied to Al-Thiqa Microfinance Company, and the sample size of which the study was applied to them was 50 workers within the company Al-Thiqa and we circulated the results to the entire community represented by all employees in the company, and we tested the hypotheses of the study using the test of Kai Square by comparing the probability value with the common value of p, which is 0.05.

From the practical study we have shown the following: Demographic Characteristics:

Table 1 Regarding the gender variable:

    
Frequency Percent Valid Percent Cumulative Percent    
28 52.8 56.0 56.0    
22 41.5 44.0 100.0 Valid  
50 94.3 100.0      
3 5.7                     Total

Missing   System

Total

 
53 100.0        

Source: Researcher

From the outputs of spss, we note according to the table that the largest group participating in the answer to the axes of the questionnaire under study was from the male texts, where their percentage reached about 52.8%, and what remained was the share of females by 14.5%.

Table 2Age variable

 
  Frequency Percent Valid Percent Cumulative Percent
Valid 35 – 25 7 13.2 14.0 14.0
45 – 36 16 30.2 32.0 46.0
52 -46 20 37.7 40.0 86.0
52 7 13.2 14.0 100.0
Total 50 94.3 100.0  
Missing System 3 5.7    
Total 53 100.0    

Source: Researcher

From the table we note that the most participating age group is 52-46 years old with a percentage of about 37.7%, followed by the category of 45-36 years with 30.2%, and the lowest participation group is 35-25 years old with about 13.2%.

 Table 3Educational level

 
  Frequency Percent Valid Percent Cumulative Percent
Valid   5 9.4 10.0 10.0
  31 58.5 62.0 72.0
  10 18.9 20.0 92.0
  4 7.5 8.0 100.0
Total 50 94.3 100.0  
Missing System 3 5.7    
Total 53 100.0    

Source: Researcher

Most of our participants were holders of a university degree with a percentage of about 58.5%, followed by holders of a master’s degree with 18.9% and the lowest participation category of holders of a high school diploma with 9.4%.

Table 4 Job Experience

 
  Frequency Percent Valid Percent Cumulative Percent
Valid 5 5 9.4 10.0 10.0
10 – 6 19 35.8 38.0 48.0
15 -11 22 41.5 44.0 92.0
16 4 7.5 8.0 100.0
Total 50 94.3 100.0  
Missing System 3 5.7    
Total 53 100.0    

From the controversy we note that the most participation category is the category of 15-11 years with about 41.5%, followed by the category of 10-6 years with 35.8%, and the lowest participation category of the category of 5 years with 9.4%.

To test hypotheses:

The Kay Square test was used in order to test hypotheses as shown by us:

To test the first hypothesis:

There is a statistically significant relationship between financial information systems and the performance of microfinance institutions.

Table 5 to test the first hypothesis

The value of a square kai Probability value Phrase
37.400 0.000 Profitability analysis can be used through financial information systems which in turn provides honest facts to its DZR in improving the performance of the enterprise.
20.890 0.000 Systems computing reduces the role of administrators from bias in the preparation of financial statements.
15.120 0.000 Management can rely on the outputs of the financial system in analyzing profitability to reduce costs.
32.750 0.000 The use of profitability analysis through financial information systems helps to speed up the receipt of information.
31.500 0.000 Management can rely on the outputs of the financial system in analyzing profitability to reduce costs.
30.970 0.000 Management can rely on the outputs of the financial system in analyzing profitability to reduce costs.

Source: Researcher

We can see from the table that the sig value of all statements is equal to 0.000 and therefore is less than 0.05 and therefore here we accept the null hypothesis and reject the alternative hypothesis.

Null Premise:

“There is a statistically significant relationship between financial information systems and the performance of microfinance institutions”

To test the second hypothesis:

“There is a statistically significant relationship between financial information systems and the planning needed to make a decision.”

Table 6 to test the 2 hypothesis

The value of a square kai Probability value Phrase
29.480 0.000 Electronic financial systems have a role in the timely delivery of financial information to management.
30.460 0.000 Information generated by financial systems is considered by management to be good and useful information in the future.
31.200 0.000 The outputs of financial systems contribute to helping management predict future results in order to make decisions.
32.920 0.000 The use of profitability analysis through financial information systems reduces management’s skepticism about the quality of the information and reports submitted to it.

From the table we note that the probability value of all the paragraphs of the axis is 0.000 and therefore is less than 0.05 We accept the null hypothesis that is:

“There is a statistically significant relationship between financial information systems and the planning needed to make a decision.”

Conclusions and recommendations

From our research, we have a set of important findings that we mention as follows:

  1. Financial information systems are of great importance and intrinsic to the work of various business organizations
  2. Financial information systems reduce the percentage of waste in the work of the microfinance institution, saving many unnecessary costs during the work of the organization.
  3. Financial information systems enable the microfinance institution to obtain accurate information of high quality and in a timely manner.
  4. Financial information systems assist in the planning necessary to make various financial and administrative decisions within microfinance institutions.
  5. Information systems have a key role to play in increasing the profits of microfinance institutions and improving their financial position

Based on the results of the research, the following recommendations were proposed:

  1. Highlighting the importance of financial information systems for business organizations in general.
  2. Training employees to use financial information systems with high efficiency.
  3. Holding seminars and workshops that contribute to clarifying the importance of financial information systems, how they work and the great benefits of using them within the organization
  4. Seeking to update the financial information system used periodically and follow up the latest global developments in this field.

References

  1. Abdul Rahman, Muhannad Jaafar Hassan (2016). The Impact of Financial Information Systems on the Profitability of Financial Institutions, Field Study on Shikan Insurance and Reinsurance Co. Ltd., Supplementary Research for Master’s Degree in Accounting, Shendi University, Sudan
  2. Bakhit, Muhammad Bahaa al-Din and Izz al-Din, Aser Hassan Yusuf (2018). The Impact of Electronic Accounting Information Systems on Profitability – An Applied Study on Industrial Companies Active in the Egyptian Exchange during the Period 2007-2017, Alexandria Journal of Accounting Research, Faculty of Commerce, Alexandria University, Egypt.
  3. Hamdan, Hossam Issa Abdel Rahman (2014). The Impact of the Development of Financial Accounting Systems on Financial Performance, Master’s Thesis, Department of Accounting and Finance, Faculty of Graduate Studies, Islamic University, Gaza, Palestine.
  4. Hassan, Bassel Jabr (2006). Factors Influencing the Profitability of Commercial Banks Operating in Palestine, Field Study on the Palestinian Banking System, Islamic University, Faculty of Graduate Studies, Gaza.
  5. Ramli, Fayyad Hamza (2012). Impact of the Use of Financial Information Systems Accounting, International House of Accounting, Auditing and Financial Consulting, Khartoum, Sudan.
  6. Salama, Mustafa Saleh (2010). Financial Information Systems Accounting, Future House for Publishing and Distribution, First Edition, Amman, Jordan.
  7. Mohammed, Nawaf and Ramahi, Abbas (2009). Design and Analysis of Accounting Information Systems, Dar Al-Safaa Publishing, First Edition, Amman, Jordan.
  8. Alattar, J., Kouly, R. and Innes, J., (2009), ” Management accounting information in micro enterprise in Gaza “, Journal of Accounting and Organizational Change, Vol. 5, No. 1.
  9. Al-waeli, Abbas Jumaah; Hanoon, Raad Naser; Ageeb, Hayder Ali (2020). Impact of Accounting Information System on Financial Performance with the Moderating Role of Internal Control in Iraqi Industrial Companies: An Analytical Study,  Article in Journal of Advanced Research in Dynamical and Control Systems • July 2020 DOI: 10.5373/JARDCS/V12I8/20202471
  10. Ismail, Noor Azizi ; King, Malcolm, (2007). Factors influencing the alignment of accounting information systems in small and medium sized Malaysian manufacturing firms, Journal of Information Systems & Small Business, Vol. 1 Issue ½:1-20.
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