Abstract

This research investigated the effect of customer services on the profitability of microfinance institutions in Cameroon, with the case study of Ntarinkon Cooperative Credit Union Limited Cameroon. The study had as specific objective to analyse the effect of customer orientation, customer support, and automated customer service and customer self-services on the return on asset of this microfinance institution.

Based on a causal research design, data was collected and analysed using descriptive and inferential methods of data analysis. We found that the study was significant under analysis of variance test since the P-value (0.0000) is less than 0.5 as level of significant. The R-square was 73.6% meaning 73.6% variation in the profitability of this microfinance institution is as a result of variations in customer services. All variables of customer services exert a positive influence on profitability, with customer orientation exerting the most influence.

From these findings, we had to reject the null hypothesis and conclude that customer orientation, customer support, automated customer service and customer self-services have an effect on the return on asset of this microfinance institution. Based on these results, we recommended microfinance institutions to design adequate customer service practices and forms, strict enough to identify, and mitigate customer dissatisfaction and credit risk from the institution’s lending activities.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Business creation is hosted on generating an idea which can be in the form of a product or service with the main purpose of providing solutions to societal problems, which can be regarded as the needs/wants of a given market or customers (kanovska, 2011). Thus, businesses rely on these customers for survival since customer are the main consumers of a business product and the business main source of revenue. This fact makes it essential for a business to live up to its customers’ perceptions and expectations of customer service (Machando and Diggines, 2013). Customers have different needs, expectations and even satisfaction levels. The main objective of customer service, as an integral part of every business is customer satisfaction, good customer’s experience and customer loyalty.

Customer service is broadly defined as the combination of activities/strategies offered by businesses in an effort to increase service or product quality, i.e. a shopping experience that is perceived to be more rewarding (Duncan and Elliott, 2013) Customer service is an important means for organizations to gain a Competitive advantage in today’s service economy, in addition, customers who are satisfied tend to return for future business and sometimes assist in marketing service organization through word-of-mouth (Rahman and Areni, 2014).

The evolution of customer service can be traced far back to the period of the first industrial revolution in 1760 and accelerated in the 19th century when the phone was invented. It took approximately 50 years for the next big step in customer service to be developed: call centres and toll-free numbers. The late 1990’s were a game changer for communication channels, marketing and customer service with the introduction of E-mails, company website, help pages, helpdesk and live to foster customer support, customer care, customer self-service and after sales services. The glorious 2000s brought innovation, growth and launched brand-new approaches to customer services like the automated customer services (Mekonnin, 2015).

Nowadays many companies realize that all advantages, which they want to establish through their core products and services, are quickly wore away as others mimic them. Companies are always looking around them to find out some strategies to differentiate their production from their competitors because of fierce competitive climate. One possible and important strategy is focused on providing high-quality customer services. Services should try to lead companies to their success. Customer services can be one possible competitive advantage for companies in all resorts (kanovska, 2009). Customer services are all what company does for satisfaction of its customers. They help to gain higher profit from sold products. According to Bovée & Thill (1992), quality and customer services present strong barrier against the competition, ensure customer loyalty; help to differentiate product and decrease marketing costs and increase company profit.

Achieving excellent customer service is a continuous process that never stops. Any company that has any business sense will continuously re-design, tweak and improve its customer service. In a similar way, a company’s customers’ expectations will also develop and evolve over time, making it essential that service delivery coincides with those expectations (chijioke, 2016). Companies must continuously make an effort to also make sure that a company asks customers about their expectations and needs to ensure that they use this information as guidelines to improve and modify their business or service model accordingly.

Microfinance institutions according to the Banking Commission of Central Africa (COBAC) Law of 2002 is an institution that undertake microfinance activities, which are activities undertaken by authorized entities that are neither banks nor financial institutions but take savings or deposits, give out credits or loans and offer specific financial products to those generally excluded from banking networks.

The history of microfinance institution is closely linked with poverty reduction. Although the beginning of cooperative savings and credit activities can be traced back as far as in 1849 with the foundation in Rhineland of the first cooperative society of saving and credit by Raiffeisen, it is truly with Yunus in 1976 with the creation of the Gramen Bank that one can situate the birth of “modern microfinance” (Blondeau, 2006). Microfinance was originally conceived as an alternative to banks, which in most developing countries serve only 5 to 20% of the population (Gallardo et al., 2003), and informal moneylenders. With the passage of time, the microfinance sector has evolved. Microfinance institutions now have more than 100 million clients and achieve remarkable repayment rates on loans (Cull et al, 2009).

In Cameroon, the history of microfinance dates back to more than one century in its traditional form popularly known as “Njangi or Tontine”1. The introduction of “modern” microfinance in Cameroon started in 1963 by a Catholic priest Father Alfred Jansen, in Njinikom in the North-West Region of Cameroon (Creusot, 2006). This idea of Credit Unionism spread all over the North-West and South-West regions of Cameroon and by 1968, 34 credit unions that were already in existence joined together to form the Cameroon Cooperative Credit Union League (CamCCUL) Limited. CamCCUL is therefore the umbrella organisation of cooperative credit unions and the largest MFI in Cameroon and the Communauté Économique des États de l’Afrique Centrale (CEMAC) sub-region (www.camccul.org). On a global note, the microfinance industry has realized important growth rate in terms of the number of microfinance institutions and customers.

Microfinance Institution (MFI) Performance is a subjective/objective measure of how well a MFI can use assets to attain its objectives. According to Akume & Ngongue (2017), the microfinance sector faces a dual objective usually referred to as the microfinance schism, that is, how to reach the maximum number of poor (social performance) while remaining financially sustainable (financial performance). Microfinance institutions have their products and services directed to a group of customers regarded as financially excluded from the main financial system. These group of customers are the poor, women, low income earners and micro enterprises. Thus MFI’s customer service should aim at ensuring satisfaction of these group of customer on their products and services. In order to achieve its financial objectives microfinance institution offer micro credit, savings and micro insurance while in order to achieve its social objectives, these institution offer services such as education, health, training, empowerment services as well as group formations.

The issue of how to improve customer services to boost microfinance abilities to achieve its objectives has a long history in the microfinance sector. The importance of customer service in the Cameroon microfinance system is absolutely essential for continuity in business and expansion given the competitive nature of products and services. Most successful microfinance institution have stated that the ability of providing an unbeatable customers services as sets them apart.

1.2 Statement of the Problem

Despite the increasing regulation of the microfinance sector in Cameroon and the constant efforts being made by the government authorities to enhance the performance of these MFIs, the sector still faces a lot of challenges (Akume & Ngongue, 2017).

Regular news about the microfinance sector in Cameroon is the constant close down of several microfinance establishments or the sudden and spectacular bankruptcy of some MFIs which reduce customers’ confidence and trust since these institutions are unable to meet their promises of financial and social sustainability which are highly related to customers (the financially excluded) and customer services. We still have in mind the COFINEST and FIFFA cases.

The sector is also criticized for poor or absent of customer service to the financially excluded at very bad conditions, forgetting their social responsibility of providing financial services to those who are excluded from the traditional banking system. According to the COBAC report on the microfinance sector (2008), the level of not performing loans and default rate are still very high in the sub-region and the front offices which are mostly in contact with customers were held responsible for poor customer orientation on microfinance products, inefficient Know-Your-Customer (KYC) policies and inadequate customer after sale services in terms of follow-up, monitory and recovery (Akume & Ngongue, 2017).

The issue of how to improve customer services to boost microfinance abilities to achieve its objectives has a long history in the microfinance sector. The importance of customer service in the Cameroon microfinance system is absolutely essential for continuity in business and expansion given the competitive nature of products and services. Most successful microfinance institution have stated that the ability of providing an unbeatable customers services as sets them apart.

1.3 Research Questions

To this effect, this study will seek to address the following research questions.

1.3.1 Main research question

What are the effects of customers’ service on the profitability of MFIs in Cameroon?

1.3.2 Specific research questions

1. What is the effect of customers’ orientation on the profitability of MFIs in Cameroon?
2. What is the effect of customers’ support/care on the profitability of MFIs in Cameroon?
3. What is the effect of automated customer service on the profitability of MFIs in Cameroon?
4. What is the effect of customers’ self-service on the profitability of MFIs in Cameroon?

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