Customers' Retention in Micro Finance Banks: An Analysis of Drivers and Inhibitors

Article excerpt

Abstract

The general purpose of this study was to examine those service characteristics that impact on customers' etention within the context of micro finance institutions in Akwa Ibom State of Nigeria. Regression model was used in analyzing the data received from 90 respondents patronizing 13 licensed micro finance banks in the State. Simple percentages were used to analyse the demographic characteristics of micro- finance customers tabulated in a bi-variant frequency table. The paper identifies a number of drivers and inhibitors of retention behaviours and underscored the need for their proper understanding. Pro-active and reactive retention measures were recommended as necessary conditions for improving retention and general business performance among micro finance banks.

Keywords: micro finance banks, customer characteristics, customer retention, customer inhibitors

1. Introduction

Customer retention refers to customer's stated continuation of a business relationship with the firm (Timothy, Bruce, Larzan & Jao, 2007). Unlike the conventional commercial banking sector in Nigeria which is matured and sophisticated, the micro-finance institutions particularly in Akwa Ibom State is presently fragmented. Small-scale retail banking dominates the sector with low or poor customers loyalty and technological innovations. Despite its massive appeal in recent years, the sector has not expanded structurally due to lack of customers' confidence. Also, there is lack of documentation of academic analyses of the performance of the sector. These have caused negative perceptions about the sector. The combination of academic indifference and loss of customers' confidence suggest that there is a dearth of data on published research about the sector in Nigeria. Therefore, based on such low academic involvement in the sector and lopsided customers' confidence, customer retention has become a major challenge to micro finance institutions. It is therefore of utmost importance that micro- finance institutions in Akwa Ibom State do understand and appreciate those service attributes that appeal to their customers in order to satisfy them and ultimately retain them for continuous business.

The sheer absence of studies about the sector suggests that this would have profound effect in the future on customer retention. However, there is less evidence to suggest that customers' retention strategies are being implemented by most micro-finance institutions particularly in a developing economy like Nigeria. This study therefore attempts to address this need by providing answers to the following research questions:

(a) What are the demographic characteristics of micro finance bank customers in Akwa Ibom State?

(b) What are the key service drivers that can lead to retention as practiced by the micro finance banks?

1.1 Objectives of the Study

The major objective of this study is to identify those factors that are most likely to drive customers' retention among micro finance banks in Akwa Ibom State. The specific objectives are to:

(i) Describe the demographic characteristics of micro finance bank customers in the study area.

(ii) Examine service characteristics affecting customers' retention in the study area.

1.2 Justification of the Study

A study of customers' loyalty to firms and its impact on retention behavior of customers is very important in the micro finance institutions for a number of reasons; namely; micro finance banks in Nigeria are relatively very young and are passing through developmental challenges and there is little or no data available on the sector, particularly in the field of consumer behavior. Secondly, a thorough understanding of consumers' motivation to patronize the banks is very essential and needs to be examined in the context of micro finance banks. Thirdly, it is hoped that this study will help micro finance managers to formulate more coherent and targeted strategies aimed at attracting, growing and retaining customers. …

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