THE IMPACT OF CURRENT FINANCIAL SERVICES ON A CUSTOMERS EXPERIENCE IN DEVELOPING COUNTRIES (THE CASE OF MALAWI) By Kondwani Barthuel Jabulani

Manda Background The importance of increasing access to credit, savings opportunities and other financial services as a means of reducing poverty has long been recognized in Malawi. The need for a comprehensive strategy to deepen financial access in Malawi was a specific recommendation of the Financial Sector Assessment Programme, conducted in 2007 by the Ministry of Finance with support from International Monetary Fund (IMF). And this led to the project called Financial Inclusion in Malawi (FIMA) established by the United Nations Capital Development Fund (UNCDF) and housed at the Ministry of Finance which was aimed at developing a national strategy for building an inclusive financial sector1. Consequently, a comprehensive market study called Finscope survey2 done by FinMark Trust, followed to understand the demand for financial services. Most importantly, the survey was used as a tool to assess financial access in the country and to identify the constraints that prevent financial service providers reaching the financially excluded. The research found that only 1 153 809 people (19%) out of 15,447,500 people have access and uses financial services3. The survey found that Malawi is a nation of savers because it was surprisingly ranked high for a country with low levels of income when compared to the other nations with higher

The Financial Inclusion Malawi (FIMA is a United Nations Capital development Fund (UNCDF) and Government of Malawi initiative to deepen and strengthen the Malawis microfinance sector so that access to financial services reaches out to the vast majority of Malawians particularly in rural areas who are still outside the formal financial sector. The initiative is about building an inclusive financial sector. FIMA provide grants to MFIs and facilitates lines of credit to MFIs for on lending to the public. MUSCCO started collaborating with FIMA in September 2009. FIMA has through UNCDF provided a grant of US$ 195,000 to MUSCCO for SACCO institutional strengthening programs particularly focus sing on women membership in SACCOs which is still very low at 23% of the total SACCO membership. Through FIMA, MUSCCO has also benefited from a line of credit extended by CORDAID meant to T to boost up MUSCCOs lending capacity to SACCOs. www.uncdf.org 2 The FinScope survey is an individual based survey representative of the adult population (rich and poor, urban and rural) which provides insights into how people source their income and manage their financial lives. It looks at the use of, and demand for, financial products and services (formal and informal) and how factors such as geographical access, the attitudes, behaviour, and quality-of-life of people impact on consumption patterns in various financial market segments. www.finscopeafrica.com/ 3 www.finmarktrust.org.za/

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levels of income. It further recommended that banks should seek the economically active but unbanked people4.

Problem Statement The FinScope survey indicates that there is still a great market potential for banking business in Malawi with only 19% of the population having access and using banking services. It is with the understanding that most banks have (ever since the information was released) embarked on activities to ensure that they get the unbanked population. Examples of these Banks include First Merchant Bank, Malawi Savings Bank, NBS Bank, Opportunity International Bank of Malawi and many others. These activities include opening of new branches in places where they had none, rigorous promotion activities such as advertisements etc. Apparently, acquiring customers is no longer the biggest challenge for most banks, however, retaining customers is. Severn (2012), argued that daily failures in customer management cost the Banks millions. These failures range from slow services, poor after sales service, high interest rates, unresponsiveness to customer queries, unfriendliness, e.t.c. Should we argue that Banks are more focused on expansion than on services being offered? Why do customers bank with other Banks on top of their initial Bank? This, nevertheless, is not to suggest otherwise. Muyeed (2012) argues that Commercial banks assaulted by the pressures of globalization, competition from non-banking financial institutions, and volatile market dynamics are constantly seeking new ways to add value to their services because financial services compete in the marketplace with generally undifferentiated products , service quality becomes a primary competitive weapon (Stafford, 1996). Currently technological changes are causing banks to rethink their strategies for services offered to both commercial and individual customers (Hossain and Shirely, 2010). However, this does not explain the market response to the changes in quality of services offered. Do Banks retain customers because of a service being offered or it is because of the quality of the service being offered? The role of research5 in the growth of Malawis financial institutions cannot be undermined. Thus, it has played a tremendous role in helping financial institutions grow their market by providing critical information regarding the banked and the unbanked population. But

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www.finscopeafrica.com/ This complements management functions of planning and control

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what has been the role of research on service offered and that of a customer experience with these services? The banking population has proved that Malawians love to save their money, and the fact that banks have grown their businesses to carter for almost everyone even those that were unbanked is very encouraging, nevertheless, one still wonders whether the current financial services are geared towards satisfying customer needs or they are there to serve the interest of these financial institutions. While most financial institutions are excited about the information Finscope survey brought, particularly on growth opportunities, very little has been done on customer satisfaction6, resulting in Banks having large customer base with minimum number of customers actually banking with them (thus Banks are registering more customers than the number of those that do bank or access any other services provided by the Banks)7. Can we conclude that Banks in Malawi have unappreciative customers or that Banks are failing to satisfy their customers? It is a common knowledge that Banks have to increase their profits in order to create new markets, to protect and develop their market shares and to survive in the face of intense competition and demographic chance levels. However, has the Banks wish to increase profit blinded them of their responsibility to satisfy customers? Has profit making become a priority over customer satisfaction? How do Banks keep up with the ever increasing number of customers and potential customers in the face of intense competition from various financial institutions? How do banks comprehend the fact that differentiation of population in the number and composition affect quality and attribute of customer who benefits from banking services (thus change in demographic structure)? What determines profit, the customer or the number of branches among other factors8? OBJECTICTIVES OF THE STUDY Main Objectives The main objective is to demonstrate the impact of current financial services on customers experience with the service provider.

On 21st April 2010, The Nation Newspaper carried an article whereby Consumers Association of Malawi (CAMA) was going to stage a demonstration against high interest rates by Banks 7 . 8 There are several other factors that determine profit including market forces, environmental factors, cultural factors e.t.c. but these are not relevant for this study

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Specific Objectives 1. To analyze the impact of auto teller machines (ATM) on customer acquisition and retention 2. To analyze the impact of interest rates on customer loyalty to a financial institution 3. To analyze the impact of service hours on customer needs. 4. To analyze the impact of number of branches on customer satisfaction 5. To demonstrate how financial institution can drive revenue through offering quality services. Hypotheses To investigate the above objectives the following null hypotheses will be tested; i. The presence of auto teller machines in every district affects the retention and number of customers of the Bank ii. Customers, apart from getting the desired service from a financial institution, they also focus on their return interests by virtue of banking with a particular Bank. iii. Service hours open to assist customers proves Banks commitment to satisfy customer needs iv. A Banks many branches is not a panacea to customers needs but tools for improving an institutions productivity v. Banks can drive revenue through offering quality services because this differentiate their homogenous products Justification of study Muyeed (2012) argues that, Banks that excel in quality service can have a distinct marketing edge since improved levels of service quality are related to higher revenues, increased cross-sell ratios, higher customer retention (Bennett and Higgins, 1988), and expanded market share (Bowen and Hedges, 1993). Therefore, banks should focus on service quality as a core competitive strategy (Chaoprasert and Elsey, 2004). Knowledge of Consumer characteristics plays an extremely important role in many marketing applications such as defining the market for the product or service, or deciding on the appropriate techniques to employ when a company targets a certain group of consumers (Solomon, 2009) The study of the impact of current financial services on customers experience in developing countries is necessary to fill in the gap that has been created by FinScope survey. The Page 4

survey does not address any information regarding a customers experience with a service provider nor does it question the services provided, but rather emphasizes on the need and how to get the unbanked population so that inclusive financial sector is created. Understanding consumers is good business. Thus basic marketing concept states that firms exist to satisfy needs. Consequently, a marketer should incorporate knowledge about consumers into every facet of a market plan (Blackwel RD, et al, 2006). It is the purpose of this paper to help remove the mentality of companies that institutionalizes customer churn by focusing more and more on acquisition but ignoring and milking existing customers (Thomas S. O 2011); which, consequently, affect the retention of customers thereby losing them to other players in the market. Furthermore, the paper intends to show that a lot is at stake e.g. brand loyalty, if corporations continue to focus on success and profit rather than customer and the service being offered, for these are vital factors that a company need if they are to grow profitably. It is the conviction of this paper that Banks are losing thousands of Kwachas through customers that defect to other Banks, or are banking with several banks thereby hindering profits and growth prospects of these financial institutions. Literature Review The report of FinScope Survey addresses key issues that need to be considered by any firm that wants to grow its market share, for instance, the statistics about the banked and unbanked population. It further puts into perspective the nature of peoples lives (housing, food etc). Such knowledge should provide firms with a basis of understanding their target market (customers) and hence helping them to offer competitive services or improving the quality of service so that it meets the needs of a customer. Nevertheless, the report does not address the experience of existing customers over the services being offered. And this could express why the level of indirect access to banking is high in Malawi with 22% of banked adults making use of bank accounts that are not registered in their names. Indirect banking access mainly occurs through the use of the account of a spouse, parent or child although the bank accounts of neighbours and friends are often used in rural areas.9

www.finscopeafrica.com/

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Managers have been implored to consider their customers, and have consequently developed the customer satisfaction measurement. However, application of customer satisfaction measurement has fallen short of its promise as Dakta (1994) has observed, thus many organization have set goals to meet customer needs but only a few have rigorously measured their customer satisfaction. He further noted that most companies that measure customer satisfaction may not act on the results. And this is because satisfaction data sometimes does not correlate highly with organization performance, as indicated by customers who say they are satisfied but buy elsewhere (Jones and Sasser, 1995). However, does this justify an institutions failure to meet customer needs? Should customers suffer because they are not able to eloquently express their opinion about a particular product? Both Dakta (1994) and Jones et al (1995) fail to address the key issue of how questionnaires should be formulated to capture the real sentiments of customers. Mendes (2011), argues about retail banking citing that the top twenty percent of customers in retail banks generally account for more than ninety percent of a banks profits, however, he does not mention how he comes about with these statistics. This maybe the case in Australia but it definitely is not the case here in Malawi where banks make profits only through services charges. Muyeed demonstrates that the central issues involving the meaning of service quality have been well documented (Cronin and Taylor, 1992; Parasuraman, Berry, and Zeithaml, 1991b; Babakus and Boller, 1992; Carman, 1990). Of interest here are two aspects of service quality measurement; (1) the number of dimensions that constitute service quality and (2) the operationalization of the measurement. Previous researchers have been looking at the linear relationship between service quality and satisfaction judgments. In recent studies on satisfaction judgments, it has been suggested that the relationship should be in a non-linear form (Ding, 2004). According to Taylor (1997), there is evidence that suggests that evaluation of satisfaction should involve a curvilinear or higher order form as well as an interaction effect (Taylor and Baker, 1994). This has been confirmed by Oliva et al. (1992) who stated that the satisfaction function should not be in the linear form. A study by Edris (1997) on quality for business customers among Kuwaitis found that local ownership is one of the determinants for bank selection. He further argues that, on the contrary a study by Athanassopoulus (1997) showed that there is no global difference between private and the government-owned banks. There are many other researchers who concluded that service quality is the antecedent to satisfaction (Ahmad and Kamal, 2002; Cronin and Taylor, 1992; Yavas et al., 1997). Hence in this research, the question of which one is the antecedent will be studied. Using service quality as the antecedent to satisfaction is more logical and that why it has been taken into consideration. This is because satisfaction is an important goal to be achieved by bank marketers and if the banks want to Page 6

increase satisfaction, they can do it through service quality (Goode et al., 1996). However, the only disadvantage with this information is that it does not capture the Malawian market which is basis of this paper. Research Methodology This is a study based mainly on the primary data collected through scientifically developed questionnaire. The questionnaire will be personally administered on a sample size of 140, chosen from seven branches of a bank, two from the southern part of Malawi, one from the eastern region, two from cetral region, and two from northern region. The questionnaire will be designed on the basis of the study of scholars such as Parasuraman et al. (1985), Hossain and Shirely (2010). Parasuraman et al. (1985) and Hossain and Shirely (2010) identified eleven dimensions of service quality which are reliability, responsiveness, competence, access, courtesy, communication, credibility, security, competence, understanding the customer and tangibles. Upon considering the above studies, I have constructed four dimensions (reliability, competence, tangibles and empathy) which cover the 14 parameters/scale (Table 1). The degree of perception of customers on the parameters is quantified by using a 5point Likert scale. However, customer demographic information will be included in the questionnaire. Table 1 Service quality dimensions Reliability 14-item scale/parameters 1. Customer support 2. Good manners and hospitality 3. Maintaining of customer grievances 4. Imposing of service charge 5. Safety of customers' investment 6. keep confidentiality of account and transactions 7. Various kinds of service offered 8. Reputation of the bank 9. Infrastructure facilities like parking, ATM etc 10. Banking Network 11. Modern equipment and dcor 12. Easy to operating account 13. Convenience business hour 14. Providing prompt information to customers

Competence

Tangibles

Empathy

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Time- frame/table Table 2: Time-plan for completion of research report by

The project is expected to be finished within sixty days The final paper will be ready by 28 June 2012 Finalise proposal Gain approval Gather data Do data analysis Write report Finalise report 25-04 01-05 03-05 08-05 21-05 15-05 26-06 31-05 07-06 21-06 28-06 date date date date date Date date

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