CHAPTER ONE

INTRODUCTION

1.1 Background to the study

The banking system in Cameroon is highly competitive with banks not only competing among each other, but also with other financial institutions. Most of these financial institutions provide similar services, such that they can only distinguish themselves based on factors like service quality, corporate image, trustworthiness which makes their organizations to be of high standards.

By so doing, customers are proud to belonging and also by offering prompt services to ensure customers satisfaction and thus retention. This service quality can be assessed through the various constructs (dimensions) such as service reliability, service responsiveness, service assurance, service empathy and service tangibility.

Every business enterprise including banks or micro finance institutions exist to serve customers. The customer defines the business. Therefore, to satisfy the customer should be the mission and purpose of every business. Commercial banks that perceive the importance of, and do not undervalue customer satisfaction and retention have a dominant place to begin in achieving competitive advantage and have major profits to gather (Bazan, 1998).

The growing banking industry in Cameroon has led to competition for as many customers to raise funds from the public as possible. There are about 450+ micro finance institutions in Cameroon.  It increases the difficulty of reaching new customers and becomes a challenge to retain current customers. Service quality, customer satisfaction and corporate image leads to opportunities to achieve new customer loyalty and retain current customers. Companies that have been successfully marked promising consumer growth and always generate loyal customers.

Today, customers have the power of choosing, better at processing information and asking for the highest value for them. Levitt (1960) stated that consumers are unpredictable, highly varied, ever-changing, short-sighted, stubborn and generally troublesome. The bank must understand the current situation and immediately leave a bad habit that is ignoring the interests of its customers to be satisfied through the quality of its services.

When this is ruled out, then the bank is preparing to accept the worst thing that could happen, that is abandoned by its customers. Customers who have been achieved are treated as well as possible in order to grow their loyalty to the bank. Therefore, the strategy to customers is adjusted to the business model and mission of the bank so that the bank can recognize its customers better.

Service quality has become one of the most important topics in the service sector today especially the banking sector. With pressure to increase access while containing costs, financial institutions are trying to find ways to achieve these goals without letting the quality of service suffer. Thus, maintaining or even improving the quality of service while reducing costs is a critical dilemma with which finance institutions can adapt to satisfy their customers.

Customer satisfaction is an important measure of service quality in the financial sector. Customers’ perception about financial services seems to have been largely ignored by micro finance institution managers in developing countries. Customers’ voice must begin to play a greater role in the design of financial service delivery processes in the developing countries. The banking system faces major challenges in improving quality, increasing access, and reducing   costs in order to make customer satisfied (Bazan, 1998).  While all three elements are important, there is growing evidence that the perceived quality of the banking services has a relatively greater influence on customers behaviours (satisfaction, referrals, choice, usage, etc.) compared to access and cost. This study is, therefore, customer-centered and will identify the service quality constructs that are determinants to customer’s satisfaction; it will also examine their links to customer satisfaction in the context of micro finance institutions.

In recent years, major external factors such as socio-economic, regulatory and technological issues have shaped both the structure of service firm and also the nature of competition within service firms. Due to the changing marketplace, financial institutions, for example are forced to concentrate more intensively on customers and relationship.

The banking sector in Cameroon is highly competitive, with banks not only competing among each other, but also with other financial institutions. Most banks not also provide similar services; as such they can only distinguish themselves based on factors like service satisfaction. Trustworthiness, corporate image so as to make their customers to be proud to belonging and also by offering high service quality ensuring customers satisfaction and thus retention. This retention is an effective and important tool that financial institutions can used to gain advantage and survive in today’s ever increasing banking competitive environment.

A great deal of research exists on service quality in the banking sector. To measure service quality and identify the dimensions that customers consider in evaluating bank services, the most commonly used research instrument is SERVQUAL (Parasuraman et al., 1988). The subject of service quality and customer satisfaction is relatively a global issue. It is more rational and economical to keep existing customers instead to go looking for new ones.

The costs of acquiring customers to replace those who have been lost are high. Therefore service firm especially in financial institutions need to offer high service quality in order for their customers to be satisfy and will therefore keep on purchasing their services. The expense of acquiring customers is incurred only at the beginning stages of the commercial relationship. In addition, when old customers are satisfied, they turned to buy more, and may create positive image for the company (Kotler, 2010).

The main factors of service quality that can lead to customer satisfaction are service quality tangibility, service quality reliability. Service quality assurance, service quality responsiveness and service quality empathy.

Financial system of Cameroon harbors the Bank of Central African States (BEAC), at the apex which is the central bank of all the member states of the Economic Community of Central Africa States (CEMAC) to which Cameroon belongs with headquarters being in Yaoundé. There are nineteen (19) commercial banks in Cameroon and about four hundred and fifty (450) Microfinance and Cooperatives Institutions. These figures give rise to high competition among these financial institutions because most of these microfinance and cooperatives offers banking services.

The central bank (BEAC) replaced the central bank of the states of Equatorial Africa which Cameroon became a member in 1972. In 1993 the member states of BEAC created a supervisory authority, known as Commission Bancaire de l’Afrique central (COBAC) whose role is to secure and regulate the region’s banking system (Mbinkar, 2021).

Formal banking in Cameroon is very recent, in fact less than 50 years old and its origin is traced back to the late era of colonization. The first bank in Cameroon was established way before independence. However, before the advent of modern banks small societies had some sort of banking carried out through in a primitive manner. Thrift and loan societies were being regulated by the customs and tradition. However the Cameroonian banking industry has evolved from the local practices to modern banking. Cameroon is a member of BEAC (Bank of Central African States) and also a member of CEMAC (Central African Economic and Monetary Community). The banking industry is governed by laws, enactments, ministerial orders and presidential decrees.

Due to the collapsed of these commercial banks, most micro finance institutions and cooperatives societies spring up and started carrying out banking operations which lead to intense competition in the banking sector. These financial institutions as well as cooperative societies strives for better service quality in order for their customers to be satisfied.

The generic scale for measuring service quality in a variety of service sectors is used in most studies of bank service quality (Arasli et al., 2005; Chi Cui et al., 2003; Lam, 2002; Mels et al., 1997; Othman and Owen, 2001; Zhou, 2004; Zhou et al., 2002). In addition to the SERVQUAL scale, alternative instruments are available for specific use in the banking sector (Avkiran, 1994; Bahia and Nantel, 2000; Aldlaigan and Buttle, 2002; Jabnoun and Al-Tamimi, 2003; Karapte et al., 2005; Guo et al., 2008), but they have not been used as extensively.

The first attempt to describe and define service  quality was the paradigm suggested by Grönroos (1984) who distinguished between technical quality (what is done) and functional quality (how it is done).The early work of Gronroos (1984) was later  extended by Parasuraman, Zeithaml and Berry (1985).They argued  that to fully understand service quality, the intangible, heterogeneous and inseparable nature of services must  be acknowledged and that service quality can be defined as the consumer’s overall impression of the relative inferiority/superiority of  the organization and its services (Bitner & Hubbert,1994) or as the customer’s assessment of the overall excellence or superiority of the service (Zeithaml, 1988). In these terms service quality means conforming to customer expectation.

The financial sector can attract customers by providing high quality services. Therefore, structural adjustment has led to banks that are able to carry out various activities which in turn, allow them to be more competitive even against non-bank financial institutions (Angur et al., 1999). In addition, Banks as well as micro finance institutions play a significant and vital role in financial development and economic growth in a nation.

1.2: Statement of the problem

The understanding of customer needs within current competitive financial institutions has become an important factor for service providers. Owing to that, companies have moved from product-centric to a customer centric position. Satisfaction has become of great interest to practitioners because it is important for customer retention (Patterson et al., 1997; Sedon, 1997).

Due to high level of competition in the financial sector, financial institutions are developing or putting in place different strategies that will enable them attracts and retains customers, thereby ensuring continuity and growth. One of these strategies is to improve on the quality of their services aimed at satisfying their customers. This is a typical case with micro finance institutions like credit unions.

Despite the improvement of service quality in micro finance institutions, some customers will still switch from one micro finance institution to another and also customers are still expressing dissatisfaction, hence a constant switch from one financial institution to another leasing to low income realised. So it is of interest to investigate the service quality of Ntarikon cooperative credit union limited in the North-West and South-West regions of Cameroon especially the Buea and Bamenda branches, if it’s affects their customer satisfaction. Due to customer dissatisfaction from service quality, it can lead to low income and profitability.

One can realize that despite the fact that the customers are the members of the financial institutions, these customers benefit on an annual bases interest on savings meanwhile they all buy shares to become members. As a shareholder in any company, dividends are paid to all shareholders at the end of an accounting period. But within these micro finance establishments like in the case of Ntarikon cooperative credit union, members are rewarded  interest for their savings.

This therefore implies that, if by the end of an accounting year, a member does not save anything; he/she is not entitled to any benefit financially. This poses a problem to investigate why these customers (members) are still loyal and committed to these cooperatives societies especially the Ntarikon cooperative credit union since 1972. The research work seek to know whether are the customers satisfied due to the service quality offered by Ntarikon cooperative credit union?.

1.3 Research Questions.

1. What is the effect of service tangibles on customer satisfaction in Ntarikon cooperative credit union?
2. To what extent does service responsiveness influence the satisfaction of customers in Ntarikon cooperative credit union?
3. How does service assurance affect customer satisfaction in Ntarikon cooperative credit union?

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