Research On Customer Retention In Microfinance Institutes

The main objective of this study was to establish theoretic framework and get empiric findings on customer retention in microfinance institutes. The rationale behind this study was that Microfinance which is often referred as "Bank for the Poor", are loosing major chunk of their customers at first and second loan cycle. Considering that microfinance institutes are profitable on their customers only after fourth and fifth loan cycles, these early customer dropouts are considered detrimental for the long term survival of microfinance institutes. Therefore in this study effort has been made to identify the causes of customer dropouts and find out customers view point and satisfaction level about various aspects of microfinance programIn order to investigate the said issues case study approach was adopted and three microfinance banks operating in Pakistan were selected for detailed study. These three microfinance banks were the truly representative of microfinance sector in country. In addition to other methods of data collection, mainly survey technique was adopted to collect data from dropout customers. The information gathered was analyzed by using both qualitative and quantitative techniques to arrive at concrete conclusions.The research findings revealed that financial products, particularly small size of loan and group lending were the main reasons of customer dropouts, followed by customer's personal and business reasons. Further research revealed that a) the dropout customers utilized loan properly, b) the majority of dropout customers believed that loan did not help their family, c) the dropout customers in rural areas believed that group lending helped them where as dropout customers in urban areas believed group lending did not helped them at all, d) the dropout customers reported that it was easy and with in capacity to repay loan, e) majority of dropout customers were satisfied with the loan program., and f) majority of dropout customers were willing to rejoin and refer the loan program to other friends and relatives.On the basis of findings it was recommended that to increase customer retention rate microfinance institutes should select and qualify customers with due care, and groups should be formed considering the geographical proximity of customers. Further it was recommended that microfinance institutes should retain their field staff because they are the one who have first hand information about customers.