Professional Documents
Culture Documents
PRESENTED BY
This dissertation has not previously been accepted in substance for any degree and is not
The thesis is a result of my investigations, except where otherwise stated. All sources used in
production of this thesis are acknowledged by appropriate citation and explicit references and
I hereby declare that the preparation and presentation of this study were supervised in
accordance with the guidelines and supervision laid down by Methodist University College.
This thesis is submitted for examination with the full knowledge and acceptance of my
supervisor.
i
ABSTRACT
Microfinance encompasses the provision of financial services and the management of small
amounts of money through a range of products and a system of intermediary functions that
are targeted at low income clients. This is designed aid in the provision of small loans and
other facilities like savings, insurance, transfer services to poor low-income household and
microenterprises. Microcredit also refers to a small loan to a client made by a bank or other
institutions. The main purpose for this study is to assess the impact of client drop out on
not new in Ghana. Traditionally, people have saved with and taken small loans from
individuals and groups within the context of self-help to start businesses or farming ventures.
Available evidence also suggests that the first Credit Union in Africa was established in
assessment of the factors that contribute to client drop out at microfinance institutions,
ascertaining the correlation that exists between client drop out and portfolio management at
management and reducing client drop out at microfinance institutions. A simple survey is
design to descriptive study the issue. To achieve the purpose of this study, both primary and
secondary types of data is collected. The research is also made with the use of observations.
The population of the study consists of some staff and customers of microfinance institutions
in Ghana from which a sample of eighty respondents were drawn using the purposive
sampling technique. From the research, it is discovered that customers drop out on a yearly
basis is due to the lack of good managerial relationship coupled with lack of motivation, staff
training on efficient customer service and high interest rate are causative factors fueling
dissatisfaction among customers and causing them to leave the financial institutions.
ii
ACKNOWLEDGEMENT
I would like to express my special thanks of gratitude to my Supervisor, Dr. King Salami who
gave me the golden opportunity to do this wonderful project as well as my technical advisor
iii
DEDICATION
This project is dedicated to my family (mother, sisters, and brothers) who helped in financing
my research, friends who gave me big support especially (Bright Dordzi), and to whom ever
iv
DECLARATION i
ABSTRACT ii
ACKNOWLEDGEMENT iii
DEDICATION iv
LIST OF TABLES ix
1.6. Limitations 5
v
2.4.2.2. Business Strategy 23
2.4.2.6. Governance 24
vi
CHAPTER FOUR: RESULT AND DISCUSSIONS 40
vii
4.3.5. Are challenges made known to the organization? 53
5.2. Conclusion 57
5.3. Recommendations 57
REFEREENCES 61
GLOSSARY 66
Appendix A 66
Appendix B 70
LIST OF FIGURES
viii
LIST OF TABLES
1 Gender of respondents 40
4 Status of Respondents 42
14 Effectiveness of policies 47
15 Gender of Respondents 48
16 Age of Respondents 48
17 Educational Background 49
18 Respondents sectors 49
19 Ownership of Business 50
20 Length of Service 50
22 Causes of Dissatisfaction 51
ix
23 Factors Causing Customers to Leave Organization 52
x
CHAPTER ONE
INTRODUCTION
provision of financial services and the management of small amounts of money through a
range of products and a system of intermediary functions that are targeted at low income
clients. Microfinance refers to provision of small loans and other facilities like savings,
also refers to a small loan to a client made by a bank or other institutions. The concept of
microfinance is not new in Ghana. Traditionally, people have saved with and taken small
loans from individuals and groups within the context of self-help to start businesses or
farming ventures. Available evidence also suggests that the first Credit Union in Africa was
Microfinance is financial service mostly small loans and other related services for poor and
low-income clients offered by Micro Finance Institutes. These institutions commonly tend to
use unconventional lending methods developed over the last 35 years to deliver very small
loans to unbanked marginalized poor, taking little or no collateral. The methods include
group lending and solidarity group liability (cross guarantee among group members), pre-
loan savings requirements (depositing before accessing the loan or up-front deduction from
the loan), gradually increasing loan sizes in subsequent loans, and an implicit guarantee of
ready access to future loans, if present loans are repaid fully and promptly. The use of group-
lending was motivated by economics of scale, as the costs associated with monitoring loans
and enforcing repayment are significantly lower when credit is distributed to groups rather
1
1.2. Problem Statement
Over the last three decades, microfinance has captured the attention of donors and policy
makers for its ability to provide credit to the poor who have no access to commercial banks.
The purpose is that with the additional income and determination, poor people can set up
income generating activities in order to reduce their vulnerability and combat poverty (Claire,
n.d). According to UNDP report, using microfinance for creating wealth and reducing
poverty in developing countries has been recognized as one of the strategies for achieving the
first Millennium Development Goal (MDG) (UNDP, 2003). This is because microfinance
services can assist the poor to accumulate assets, reduce risk and vulnerabilities, facilitate
activities to earn livelihood, protect against income shocks, build social capital and improve
quality of life. To accomplish these roles successfully, the MFIs are required to be
financially sustainable through enhancing employee productivity, cost efficiency and through
establishing long banking relationships with clients so that improved revenue can be
generated from repeat clients who borrow relatively higher loan size.
However, there are various reasons that compromise the financial sustainability of
microfinance institutions. Among many other contributing factors: High default rates, setting
the interest rate below costs recovery levels, poor management and inefficient allocation of
resources, high fixed costs, inefficiency and staff productivity and significant client dropout-a
phenomenon when client quits from the banking relationship, are the major few causes often
(Dackauskaite, 2009). Among the various reasons that compromise the sustainability of
There is no doubt that, MFIs have much to gain from a quality, long-term banking
relationship if causes of discontinuation of clients are identified and managed. The followings
2
are among several benefits that can be drawn from long-term banking relationships: as the
relationship matures the lender benefits from lower screening and monitoring costs, increased
revenue assuming loan balances grow over time, and improved lending decisions given that
risk decreases as more information about the borrower is revealed. Benefits to the client
include a continued and often expanded access to credit, a cost reduction in capital as terms
and conditions improve over the long run, and an opportunity to establish a valuable
Dackauskaite (2009).
The general objective is to assess the impact of client drop out on portfolio management in
i. To examining the factors that contribute to client drop out at non-bank financial
institutions.
ii. To find ways of improving portfolio management and reducing client drop out at non-
iii. To ascertaining the correlation that exists between client drop out and portfolio
institutions.
v. To identify and examine the profile and characteristics of the exited clients and to
In order to meet the stated objectives, the research questions that have been formulated were
as follows:
i. What are the personal profile and characteristics of the exit clients?
iii. What are the factors that lead to client drop out at non-bank financial institutions?
iv. What is the correlation that exists between client drop out and portfolio management
institutions?
vi. What are the ways of improving portfolio management and reducing client drop out at
vii. What changes and improvements should MFIs undertake to meet the needs of the
i. The researcher will be enlightened on the current state of client database of non-
banking institutions and will also have the opportunity to contribute to the
ii. the findings of the study will bring to the fore the relationship between client database
iii. The study will reveal the prospects and challenges that client drop out and portfolio
management pose to non-banking institutions and their operations, need for strong
client database in the non-banking institutions and the effect on portfolio management
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iv. The findings of the study will also serve as a guide for the implementation of policies
v. This would help the governments and the Central Bank to enhance their monitoring
and supervision of the operations of these non-banking institutions via the findings of
the study.
vi. With the recent reports of non-banking institutions folding up and the inability of
clients complaints of receiving their savings or loans, this study will serve as a form
of eye opener and clients will be abreast with the how influential portfolio
vii. The options in choosing non-banking institutions with better policy on client database.
viii. To the academia, this study is would serve as a source of current literature to future
1.6. Limitations
i. Since some of the questions were focused in identifying causes of drop out that could
be related with clients performances and on service providing MFIs staff, it was
becoming biased when responding. Accordingly, the following issues were identified
and tried to minimize their impacts through developing confidences of clients who
were interviewed by explaining the purpose of the research and by convincing them
ii. Though efforts were made to minimize the impacts of the issues, it is difficult to
confirm whether clients were responded genuinely on some of the questions that are
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Clients who have left because they were unhappy with program staff may be
uncomfortable saying so
The ex/active clients might misuse the opportunity as revenge due to previous
conflict (if any) in making MFIs staff accountable for their exit
Similarly, MFIs staff might hide some information while discussion was made
to cover their inefficiency and poor service delivery that have pushed clients to
iii. The study was limited to five microfinance institutions operating in Accra. This is
because the researcher found it easy to access information from the chosen
to the dissemination of information for the study due to bureaucracy and improper
organizational structure.
iv. Again, there was a challenge with the sampling of the microfinance organizations as
there are many microfinance organizations. Due to time constraint, the researcher had
The study assessed the impact of client drop out on portfolio management on Dwadifo
Adanfo, Jislah Financial Services, Beige Capital, Melbond Financial Services and Ezi
Savings and Loans. The study focused on only five microfinance institutions due to time and
financial constraints.
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1.8. Organization Structure
The study comprises five chapters. Chapter One gives the introductory aspect of the study in
terms of background of the study, statement of the problem, objectives of the study, research
questions, significance of the study, scope and limitation of the study, and organization of the
study. Chapter Two reviews relevant literature in the subject area extensively what others
have said and written about the topic. Chapter Three shows details of the research
methodology with the main research instrument as the questionnaire. Chapter Four explains
the presentations and the analysis of data obtained through the administration of
questionnaires. Chapter Five, which is the last chapter, gives the summary, conclusions and
recommendation for the management of microfinance institutions in the area of client drop
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CHAPTER TWO
LITERATURE REVIEW
This chapter focuses on the review of the relevant literature on the current study. In this
chapter, efforts are made to explore the previous studies on the portfolio management and its
impact on clients and micro finance institutions. More attention is given to both theoretical
and empirical, with regard to the client drop out and portfolio management.
Commonly referred to as drop-outs, clients who have left an MFIs program can provide
very valuable information about the MFIs overall performances as well as indicates whether
the MFI has customer friendly products. On one level, drop-outs may represent the MFIs
failures, e.g., clients for whom the service was not suitable or who suffered a negative
experience and chose or were forced to leave. In some cases, where the client has graduated
beyond the need for the MFIs services, drop-outs may represent a success. In either case
understanding the reasons and processes leading to clients exits can provide valuable
Among several advantages and implications of identifying the causes of dropout the
followings are extracted from IMP-ACT journal: first, knowing who is leaving can be an
indication of whether MFIs are meeting their social mission goals. If they aim to target and
retain poor clients but these poor clients tend to leave, this may be an indication that the
products need to be tailored to suit this group, or that institutional changes need to take place.
Second, knowing who quitted clients are and why they leave is an important part of market
research; it helps MFIs to monitor client satisfaction. If clients are leaving because they are
unhappy with some aspect of the program, managers can use this knowledge to make changes
8
and improve the program. If clients are drawn to the competition, managers will benefit from
knowing what the competitors offer that their program does not (IMP-ACT, 2004).
Pagura (2003) has reported that a broad spectrum of stylized facts emerges on reasons of
client exit on various available literatures. The following taxonomic framework is developed
to organize these facts: 1) those reasons defined as adverse push factors; and 2) those reasons
defined as market driven pull factors. Adverse push factors can then be divided into three
subcategories: organizational design and policy failures, idiosyncratic shocks and systemic
shocks. Market driven pull factors highlight client maturity and healthy competition in the
microfinance industry.
The details of Adverse Push factors and Market Driven Pull factors are summarized in the
Figure 2.1: Summary of Push and Pull Factors, Source: Pagura (2003)
9
Similarly, Micro-Credit Ratings International Limited (M-CRIL) introduced the causes and
Figure 2:2 Causes and effects of client dropout, Source: M-CRIL (2007)
The reasons for dropout have been explored by different researchers. Among the findings of
many researchers the followings are illustrated here below. The reasons for drop-out are,
in the words of Morduch and Haley (2002), multidimensional. Indeed, the unifying theme
of the studies on the subject is that the reasons for drop-out are complex. They also noted in
particular causes related to lack of easy access to savings, the excessive emphasis on credit
discipline, the frequent policy changes and conflict among Village Organization members.
Sixteen reasons for drop-out were catalogued by Hasan and Shahid (1995) as cited by
Morduch and Haley (2002). Of these, four related to social pressure, four to resource
constraints, and four to the organization itself. The remaining four were migration, death,
joining another NGO and no access (as hoped) to Vulnerable Group Development cards.
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2.2. Client Exit Issues Worldwide
Pagura (2003) had discussed client exit factors by region conducting over 20 field studies
using the taxonomic framework presented above. Overall, most people are pushed out of
MFOs, especially in Africa, due to adverse push factors. Market driven factors, however, also
play a role in pulling clients away from MFOs, especially in Latin America and Asia, where
In Africa, organizational failures were cited frequently as reasons for client exit. Clients
complain of inappropriate loan sizes and repayment schedules, complicated and poorly
explained lending regulations and dissatisfaction with the joint liability system as key factors
for leaving. (Painter and MkNelly, 1999; Wright 1999; Kuwik and Mashaba, 2000; and
In addition, compulsory and inaccessible savings as well as group dynamic issues, such as
absenteeism, personality conflicts among members, and frequency of group meetings prompt
client attrition. (Kashangaki, 1999; Maximambali, 1999; Painter and MkNelly, 1999; Wright
et al., 1999; Kuwik and Mashaba, 2000; Churchill and Halpern, 2001) as cited by Pagura
(2003). Idiosyncratic shocks, such as business problems like cash flow issues, seasonality
factors, and lack of business skills caused clients to exit. (Maximambali, 1999; Wright et al.,
1999; Kuwik and Mashaba, 2000; Simanowitz, 1999; Churchill and Halpern, 2001) as cited
by Pagura (2003).
Researchers in Africa also found that client exit is provoked by systemic shocks. Some of the
studies document natural disasters, e.g., drought or excessive rains, the closing of key
industries, and general macroeconomic downturns as factors that provoke client exit
(Kashangaki, 1999; Maximambali, 1999; Wright et al., 1999; Simanowitz, 1999) as cited by
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Pagura (2003). Very limited evidence exists on clients being pulled out of MFOs in Africa
due to market driven factors. In one program in Uganda clients left because they wanted to
rest or seek larger loans elsewhere (Painter and MkNelly, 1999; Wright et al., 1999) as cited
by Pagura (2003). In contrast to the other two regions studied, it appears that clients of
African MFOs are less likely to leave due to competition from other institutions.
The African microfinance industry, especially in East Africa, is much younger and smaller
than those in Asia and Latin America (Pagura 2003). Musona and Coetzee (2001)
investigated the causes and potential impact of client drop-out in microfinance on product
design in Zambia. The main purpose of their study was to improve understanding of why
MFIs in Zambia suffer high level of drop out among their client and thus to facilitate MFIs
effort to address the problem. The study used qualitative research methods of Focus Group
Discussion (FDG) and Participatory Rapid Appraisal (PRA) techniques to gather data on
management, credit officers, clients and quitted client from three MFI institutions. The study
found among other things that young people are particularly prone to exit than their older
counterparts. It was also found that men are more likely to exit because they do not like to
work in groups. The study further identified the following factors as common reasons for
client exit: delay in loan disbursement, reallocation of loan funds, overburdened by debt as a
result of group liability, repayment schedules that mismatch client business cash flow and the
In addition Hulme (1999) also investigated client exit from East Africa microfinance
institutions with the view to determining who dropout from MFIs and why; who does not join
MFIs and why. The main objective of the study was to improve the understanding of the
extent to which and why client dropout in East African MFIs. This study employed
qualitative research methods, in particular, in-depth interview with client of various MFIs and
people who are no longer members of these MFIs. He found that MFIs clients in East Africa
12
exit for many reasons. The MFIs reported that clients exit increase when there is adverse
climatic condition for agriculture. The field staff also identified seasonality as the main
reason for client exit. Particularly, they cited predictable period such as before and after
Christmas, the Eid period, the period before harvest in the rural areas and the time for
payment of school fees. The study further revealed that client exit in East Africa is partly due
to the organizational policy, such as changes in agency policy or concern about sustainability
which led to a rapid forced exit of large number of clients. Clients also drop out due to
management problems and staff involvement in fraud and MFIs inability to disburse
In a similar study, Maximambali (1999) looked at clients exit among Tanzanian microfinance
institutions. The main purpose of the study was to ascertain the main reasons for client exit in
interview of exit clients and Focus Group Discussion. The study reveals several reasons for
client exit. The major reasons that led to client dropping out include: rigidity of products, the
narrow range of product and services, group dynamics and time consuming group meeting.
Other reasons identified include natural calamities, competition, seasonality factors, over all
poor economic conditions, frequency of repayment schedules and lack of access to savings.
Repayment problems due to client as a result of diversification of loan fund, lack of business
skills, lack of financial discipline and extravagance and seasonal business were also found to
In a related study, (Garuba 2004) designed a client exit study for Lapo, a microfinance
institution in Nigeria. The prime objective for designing the study was for it to serve as a
learning process towards the development of impact assessment system for AIMS project.
However, Lapo had interest in the study because of the fact that it was experiencing
increasing exit rate. The study adopted quantitative method to gather data for analysis. The
13
major findings revealed by the study were that in Lapo client exit mainly because they feel
the loan amount is too small and the interval between payments is too short. Other reasons
such as inefficient disbursement of loan and the burden of paying for others who had
defaulted also accounted for client exit. Some of client exited because they were either
expelled from their union or had poor business performance. Some exit clients also
In a case study of client exit in Piyeli, a Malian MFI, Pagura (2003) used quantitative method
design to establish the reasons for client exit in group loan schemes. She found that
repayment frequency too rapid was the most important reason for client exit in Piyeli. Other
factors such as loan length too short, repayment amount high, fees and interest rate too high
and group problems contributed to the client exit in Piyeli. In a study to explore in more
detail how useful impact information can be gained from client exit interview and to present
some ideas from the experience of the Small Enterprise Foundation (SEF) in South Africa,
Simanowitz (1999) used two-stage qualitative approach, based on the understanding of the
The main findings of the study were categorized into: personal, business failure, problems in
the group and the problems with the group policy and procedure. Personal reasons that
caused exit were death and illness in the family, moving away from the area and found new
job. Business reasons that caused exit include too much selling on credit, money for business
diverted into household expenditure, inappropriate loan size and money not reinvested into
business. Problems in the group included paying for other members default, poor group
formation and expelled from the group. Finally, the problems that caused exit as a result of
the organizations policy and procedure included repayment schedule inappropriate, high
transport cost, loan too small and didnt like the loan utilization checks.
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Kashangaki (1999) as cited by Asmah (2008) investigated drop out among Kenyan MFIs.
The main purpose of the study was to shed light on the perceived high client exit rate in East
Africa as well as to identify the reasons why clients exit in Kenya. In order to ascertain the
reasons for drop out different methods were employed; detailed FGD with group leaders,
detailed interviews with credit officers, individual group members and actual drop out
themselves. Participatory Rapid Appraisal Technique was also used. The study found that the
reasons for client exit are varied and complex and depends on a variety of different
circumstances. Many clients drop out because they were unhappy with or unable to comply
with the program requirements. Drop out also occurs due to illness and migration. Others
drop out because they were forced out due to problem of repayment or disagreement with
loan officers/other group members. Painter and MkNelly (1999) as cited by Asmah (2008)
found that client exit is attributed to factors internal and external to program policy and
practice. They found that early-cycle exit is more tied to lack of compliance with group
regulations, whereas late-cycle exit is linked with inconveniences of group meeting and
limited savings access. Specifically, the study found that seasonality, migration or poor
market or economic activity, dissatisfaction with weekly payment; illness, small loan size,
inaccessible savings, repayment problems and group guarantee requirement are the major
Musona and Coetzee (2001) posted causes of quitting out from MFI program in the following
manner. The surprisingly high dropout rates experienced by East African MFIs may be
indicative of a mismatch between client attributes and conditions (overall market attributes)
and product design and delivery. This may be due to many reasons, inter alia, the inflexible
financial services MFIs provide to their clients, dissatisfaction with the quality of financial
services being offered by the organization or better services being offered by another MFIs..
15
They also found clear gender differences among quitting clients; men are more likely to
dropout because they do not like to work in groups. They also further found a seasonal
pattern to dropout with the highest incidence in the first two months of the year. Recognizing
that as the reasons for dropout could vary among clients and institutions, Musona and
Group liability
Loan Amount
Weekly Repayment
Customer Service
Multiple Borrowing
Product Design (the products on offer are inflexible and not client responsive)
The Focus Series (2000), was also conducted the research on causes of client drop out in East
African MFIs referring and basing itself several researches conducted before. The series
posted the following facts on the issues of clients termination from the loan program:
initial period of member training. Some also experience many dropouts after the first
few loan cycles. This is due to two factors: product testing by clients and weeding-
out by MFIs. Typically, dropout incidence also tends to rise during the later loan
cycles; this, however, arises primarily from clients facing problems with higher
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Most field staff can identify periods in which dropout rates are higher: typical
problem times are religious festivals (Christmas, Eid, etc.), the period before
Most MFIs have experienced at least one major shake-out when changes in policies
problems, such as fraud, or cash flow difficulties that prevented the MFI from
Poorer clients tend to drop out when the average size of loans within the joint liability
group rises to high levels and they take the risk of guaranteeing much larger loans
than they themselves can take. In addition, poorer clients are particularly vulnerable
induced risk, when coupled with the general vulnerability to economic downturns
faced by the poor, leads to dropout. By contrast, wealthier clients of MFIs also show a
i. The desire for larger loans as the maximum loans given by MFIs are too small for
ii. Annoyance at having anticipated loans delayed because of other group members
iii. Frustration with the amount of time spent in group meetings and in trying to
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2.3 Commercial Implications of a Rising Exit Rate
A rising exit rate may indicate major problems for an MFI and even threaten its survival.
Clients may be unhappy with terms and conditions and the leadership, or may be unhappy on
the way staff treated them. They may be switching to competitors, or overall the financial
services demand may be declining due to a change in the economic climate. The short-run
financial cost of losing a client is obviously equal to the loss of future revenue less any
related costs.
Musona and Coetzee (2001) posted causes of quitting out from MFI program and its cost
implications in the following manner. Members dropping out or leaving an MFI are costly
preparation, in terms of the opportunity costs of losing the older, more experienced members
most likely to take larger loans. In the longer-term, changes in exit rates also affect reputation
and goodwill. Leavers may spread stories that deter others. High exit rates associated with
adverse welfare effects on users may also scare away potential investors (from the private
sector as well as donors) who are jealous of their reputations. This may raise the cost of
capital and possibly also costs of compliance with regulation. An increase in exit rates may
also be a lead indicator of a more widespread loss of goodwill among users, which may
A key determinant of commercial viability is staff productivity, and high exit rates are likely
to reduce this because of fixed costs associated with induction and screening of new
members. To put the same point another way, high exit rates increase the effort required to
achieve organizational level economies of scale by increasing the total portfolio (Copestake,
2002).
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2.4. Portfolio Management
Portfolio Management is the process of actively, and dynamically selecting, prioritising and
tracking investments. The process is used to ensure investments align with the strategies,
goals and objectives of the business. The Portfolio Management Process facilitates:
investments.
Portfolio Management Process A strategic planning process that requires new program
opportunities to develop business cases to assess their alignment with business strategies,
goals, and objectives and to prioritise investment opportunities. It is the process of actively,
and dynamically selecting, prioritising and tracking investments (Hassan & Chalid, 2005).
identifies the areas of risk and the level of Risk Mitigation associated with:
ii. Degree of Interdependence with other Projects (both inside shared services and
Cost Savings -- This should be measured as total After Tax/Net Present Value of the expected
savings. Savings would be based off of the existing cost structure at the start of the project.
Starting cost basis and expected savings per year must be provided in the Business Case. The
source of these savings may be the result of any number of reduced expenditures including,
19
but not limited to, product acquisition, labour, facilities, consumables, support services and
Multiple Portfolios -- There are actually multiple investment portfolios in a shared services,
or other business, environment. These multiple portfolios create a tiered structure in the
actual management of the investments. This tiered structure al-lows the investment decisions
to be made at the appropriate level, while utilizing agreed-to criteria to guide a project or
proposal to placement in the correct portfolio. All portfolios use the same processes and
many of the same tools, including the development of a business case to enable a decision to
According to Association for Social Advancement (2006) there are several categories of
drop-out amongst those that leave MFIs in most developing countries. Some leave
voluntarily and others are pushed either by the MFIs credit officers or by group members.
A third category are simply resting from the rigours of taking a loan repayable on a strict
weekly instalment basis and do not think that they have dropped out at all, and indeed are
Hanford (2005) admitted that a good way to begin understanding what portfolio management
is (and is not) may be to define the term portfolio. Hanford continued that in a business
context, one can look to the mutual fund industry to explain the term's origins. However,
If a firm owns more than one security, it has an investment portfolio. The firm can build the
portfolio by buying additional stocks, bonds, mutual funds, or other investments. The goal is
to increase the portfolio's value by selecting investments that you believe will go up in price.
According to modern portfolio theory, a firm can reduce their investment risk by creating a
diversified portfolio that includes enough different types, or classes, of securities so that at
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least some of them may produce strong returns in any economic climate. Hanford (2005)
ii. Owning a portfolio involves making choices -- that is, deciding what additional
stocks, bonds, or other financial instruments to buy; when to buy; what and when to
Hanford (ibid) further stated that over time, other industry sectors have adapted and applied
This refers to the practice of managing an entire group or major subset of software
because they require development (or acquisition) costs and incur continuing maintenance
costs. Also, organisations must constantly make financial decisions about new and existing
additional applications, and when to sell -- that is, retire -- an obsolete software application.
Businesses group major products that they develop and sell into (logical) portfolios,
management decisions about what new products to develop (to diversify investments and
investment risk) and what existing products to transform or retire (i.e., spin off or divest).
21
i. A specific (and limited) collection of needed results or work products.
ii. A group of people who are responsible for executing the initiative and use resources,
such as funding.
Cooper, Edgett, Kleinschmidt, Elko (2001) were of the view that managers can group a
number of initiatives into a portfolio that supports a business segment, product, or product
line. These efforts are goal-driven; that is, they support major goals and/or components of the
initiatives (i.e., manage the organisation's investments), selecting those that best support and
enable diverse business goals (i.e., they diversify investment risk). They must also manage
initiatives to undertake, which to continue, and which to reject or discontinue (Cooper et al.,
2001).
Looking at some basic concepts and components of portfolio management practices, Kendall,
Kendall and Rollins (2003) indicated that a portfolio is: one of a number of mechanisms,
constructed to actualize significant elements in the Enterprise Business Strategy. Kendall and
Rollins (2003) continued that it contains a selected, approved, and continuously evolving,
collection of Initiatives which are aligned with the organizing element of the Portfolio, and,
which contribute to the achievement of goals or goal components identified in the Enterprise.
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2.4.2.2. Business Strategy
The basis for constructing a portfolio should reflect the enterprise's particular needs. For
example, you might choose to build a portfolio around initiatives for a specific product,
As noted earlier, a portfolio structure identifies and contains a number of portfolios. This
structure, like the portfolios within it, should align with significant planning and results
boundaries, and with business components. If you have a product-oriented portfolio structure,
for example, then you would have a separate portfolio for each major product or product
group. Each portfolio would contain all the initiatives that help that particular product or
This is a new role for organisations that embrace a portfolio management approach. A
portfolio manager is responsible for continuing oversight of the contents within a portfolio. If
an individual or a firm has several portfolios within portfolio structure, the firm or that
individual will likely need a portfolio manager for each one. The exact range of
responsibilities (and authority) will vary from one organisation to another, but the basics are
as follows:
iii. The portfolio manager periodically reviews the performance of, and conformance to
iv. The portfolio manager ensures that data is collected and analysed about each of the
individual initiatives.
As initiatives are executed, the organisation should conduct periodic reviews of actual
organisation managers specify the frequency and contents of these periodic reviews, and
individual portfolio managers oversee their planning and execution. The reviews should be
multi-dimensional, including both tactical elements (e.g., adherence to plan, budget, and
resource allocation) and strategic elements (e.g., support for business strategy goals and
A significant aspect of oversight is setting multiple decision points for each initiative, so that
managers can periodically evaluate data and decide whether to continue the work. These
via the periodic reviews) of a given initiative's continuing value, expected benefits, and
strategic contribution. Making these decisions at multiple points in the initiative's lifecycle
helps to ensure that managers will continually examine and assess changing internal and
2.4.2.6. Governance
that typically involves developing new capabilities to address new work efforts, defining (and
filling) new roles to identify portfolios (collections of work to be done), and delineating
continuing direction, and oversight and control for all portfolios and the initiatives they
24
encompass. That is where the notion of governance comes into play. The view of Dye and
Pennypacker (2009) states that governance is: an abstract, collective term that defines and
contains a framework for organisation, exercise of control and oversight, and decision-
making authority, and within which actions and activities are legitimately and properly
executed; together with the definition of the functions, the roles, and the responsibilities of
Dye and Pennypacker (2009) added that portfolio management governance involves multiple
dimensions, including:
ii. Defining and maintaining a portfolio structure containing all of the organisation's
iii. Reviewing and approving business cases that propose the creation of new initiatives.
iv. Providing oversight, control, and decision-making for all on-going initiatives.
develop and approve plans, continuously adjust direction, and exercise control through
A good governance structure decomposes both the types of work and the authority to plan
and oversee work. It defines individual and collective roles, and links them to an authority
scheme. Policies that are collectively developed and agreed upon provide a framework for the
exercise of governance. The complexities of governance structures extend well beyond the
scope of this article. Many organisations turn to experts for help in this area because it is so
critical to the success of any business transformation effort that encompasses portfolio
management. For now, suffice it to say that it is worth investing time and effort to create a
25
sound and flexible governance structure before you attempt to implement portfolio
management practices.
Every practical discipline is based on a collection of fundamental concepts that people have
identified and proven (and sometimes refined or discarded) through continuous application.
These concepts are useful until they become obsolete, supplanted by newer and more
effective ideas. For example, in Roman times, engineers discovered that if the upstream
supports of a bridge were shaped to offer little resistance to the current of a stream or river,
they would last longer. They applied this principle all across the Roman Empire. Then, in the
middle ages, engineers discovered that such supports would last even longer if their
downstream side was also shaped to offer little resistance to the current. So that became the
practitioners have documented fundamental ideas about its exercise. Recently, based on our
experiences with clients who have implemented portfolio management practices and on our
research into the discipline, we have started to shape an IBM view of fundamental ideas
essentials that are, in turn, grouped around a small collection of portfolio management
themes. For example, one of these themes is initiative value contribution. It suggests that the
value of an initiative (i.e., a program or project) should be estimated and approved in order to
start work, and then assessed periodically on the basis of the initiative's contribution to the
goals and goal components in the enterprise business strategy. These assessments determine
(in part) whether the initiative warrants continued support. This theme encompasses the
notion that initiative value changes over time. When an initiative is in the proposal stage, it is
possible to quantify an anticipated value contribution. On this basis (in part) the proposed
26
initiative becomes an approved initiative. But what about an initiative that is a large program
effort, with a two-year duration? It is highly unlikely that the program's expected value will
remain static during the entire two-year period, so continuous value monitoring is necessary.
From this, it can be derived that an essential statement: Initiative value changes and requires
iii. Programmes and projects are managed consistently to ensure efficient and effective
delivery
managers.
management
selection;
27
iii. Benefits realisation is maximised to provide the greatest return (in terms of strategic
iv. How project and programme success can be enhanced by adopting a Portfolio
perspective to delivery.
Loan portfolio management determines the goal of loan recovery which is reflected
on organisations revenue performance and increase in the customer base for the same
product (Dimmizer, 1997). Antonio (2000) observed that portfolio management is intended
to minimise the risk of default resulting from misuse of disbursed loans. To Yunus (1996), it
is intended to advise the clients on how to best use the loaned money and how best the
loaning institution can recover the money. The profits or losses as another measure of loan
cost of a loan and the value of a loan is the ultimate measure of loan performance and
hence recovery of the loaned money, this is the pricing mechanism of the loan
portfolio and this helps in cost allocation (Microfinance Forum, 2000; Martin 2001).
Kasekende (2001) found out that in order to address bank failures in Uganda, the
government had to change strategy and focus on institutional building measures, these
included strengthening the central bank to enable it enforce the regulatory framework
government holdings in commercial banks and the mechanism of resolving the problem of
bad debts. Kasekende (ibid) also suggested that proper loan portfolio management and
reinforcing the regulatory framework were found to be part and parcel of the solution to the
problem of bad debts and poor loan recovery Kasekende (ibid) also suggested that proper
28
client selection and the sector of financing an institution is willing to engage in should be
the leafing part of its loans portfolio control to avoid tying up of non-performing assets and
loss of funds to defaulters which was a common mistake committed by most banks in Uganda
between 1998 and 1999 that witnessed the closure of some of them around this period
In her studies, Jackelen (2007) cited a varied list of factors leading to clients dropouts.
Jackelen (ibid) has grouped them into three mains groups: supply reasons, demand reasons
and environmental reasons in order to show which group of reasons affected more client exit.
This group of factors refers to in-adapted products, staff attitude offered by microfinance
institutions, and the competition of the financial sector (formal and informal institutions).
Many authors in microfinance literature found that financial services of MFIs are inflexible.
Gurin (2009) has shown that MFIs still had difficulties to adapt their offer to the diversity of
clients needs. Hulme and Mosley (1999) have pointed to similar observations and therefore
have called MFIs to more diversification of products and segmentation of the clientele in
order to better serve them. In the same line of ideas, Wright (1999) has stated that MFIs
would gain by standardizing less their products and services. He has emphasised as has
Hulme et al. (1999) that, much of this standardizing problem is driven by the attempts to
replicate products and services from foreign cultures without taking into account the socio
economic environment into which they are being imported. Thus, when MFIs products and
services do not meet clients needs, there is a high dropout rate. Loan size, delays in loan
29
disbursement, repayment schedule, costs of loan, loan eligibility criteria, group lending issue
Hulme et al. (ibid) have pointed out that many clients voluntarily withdrew from MFIs due to
the loan amount. In fact, the group has shown that, when the loan amount is small, leading
wealthier clients to dropout. The opposite holds insofar that when the loan amount is
Musona and Coetzee (2001) have highlighted that the repayment schedule was perceived as
too rigid and therefore not adequately taking into account the realities of micro businesses.
Hulme et al. (ibid), in the same line of thought, have observed that a long period of waiting
for disbursement of a loan, most of the time, pushes clients out of MFIs (Hulme et al., ibid).
This means that the longer the loan disbursement takes the more clients exit from MFIs.
Problems related to group borrowing concerned group dynamics issue such as group size,
group liability and the lack of time for weekly meetings (Painter & Mc Knelly, 1998; Mustafa
In a study done in South Africa, Stark and Nyirumuringa (2002) have shown that the lack of
products and services information between management staff and clients lead to clients
dropouts. However, Urquizo (2006) has a different opinion about the quality of services. He
contends that the staff attitude rarely accounts for clients desertion, because the clients have
30
lower expectations towards it. He gets support from Dackauskaite (2009) whose study was
As far as the competitive environment is concerned, many authors have recognised that over
the past few years, microfinance sector has faced high competition. The so many institutions
which have been created over the last years and which are competing in the same market
account for the above. As observed by Wright (2001) and Pagura (2004), dropouts are
frequent because of dissatisfaction with the financial services being offered by one MFI and
the belief that other MFIs or other financial institutions can offer better facilities. Thus, they
In brief, in adapted products and competition have been unanimously recognised by the
This group is more related to crisis reasons, socio economic characteristics and clients
maturity.
It is stated by many practitioners that microfinance allows poor people to increase their
income and assets and decrease their vulnerability because households have better health
outcomes (Morduch & Hashemi, 2003; Armendriz & Morduch, 2007). Therefore,
microfinance is being seen as a virtuous circle which has increased well-being, economic,
social and political empowerment especially of women. However, sometimes, the reality is
often much complicated. Some studies have shown different results: over-indebtedness of
many clients, reallocation of loan, clients delinquency and the decrease of schooling levels
31
(Meyer et al., 1999). One reason for the conflicting results could be that the poor face
continual risks and unexpected events such as illnesses, death of a family member, the loss of
This group includes variables such as age, gender, location of residence and occupation as
PRIDE, a Tanzanias Arusha Branch has revealed that age clearly plays a role in those
individuals who are recruited and their likelihood to dropout. The 21 year olds and less
dropped out at the highest rate while 60 years old and more dropped out at the lowest rate.
However, most MFIs highlight that members must drop out of the organisation on retirement
Many studies have argued that one of the main reasons for the success of microfinance
institutions is because they target women (Armendriz & Morduch, 2007; Gurin et al.,
2009). In dropout issue, Schreiner (2004) has shown, with empirical evidence, that women
are less likely to exit than men and also that occupation is correlated with dropout. In the East
African research however, there was no clear evidence indicating that women were more or
less likely to drop out of MFIs that serve both men and women (Wright et al., 1999).
Moreover, while some credit officers in Uganda have claimed that women were more likely
to dropout than men (Hulme et al., ibid), other studies have implicitly argued that men can
Pagura (2004) and Lehner (2009) have shown that crisis reasons are generally the main
factors for dropouts. In Bangladesh and in Africa for instance, many clients migrate to other
32
areas because they are looking for better life conditions6 or news markets, therefore resulting
in dropouts. Other studies have just mentioned occupation and location of residence without
giving a real correlation between those variables and the causes of departure (Musona &
Coetzee, 2001).
Client maturity means that clients will take larger loans to expand or maintain the working
capital of their business or to finance asset acquisition (Wright, ibid; Simanowith, 2000;
Dackauskaite, 2009). Client maturity also means that clients will accumulate enough capital
and they do not need another loan (Dackauskaite, 2009). Therefore, this phenomenon can
also lead to clients exit. In the same of thought, Wright (ibid) has shown that there were two
schools of graduation: One held that after a limited number of subsidized loan cycles, the
beneficiaries would no longer need credit. However, for Wright, this was a supreme navet,
because there is scarcely a business in the world that does not use overdraft facilities. The
other school, more plausibly, believed that poor clients could graduate with enough wealth
In their East African studies, Wright et al. (ibid) has observed that socio economic
characteristics and crisis reasons play a tremendous role in the reasons that lead to clients
dropouts. However, based on the above development and considering that this study will be
done in Mali, one of the poorest countries in the world, Malian people will be more
vulnerable to financial difficulties due to crisis as illness, death of a member, or loss of job. It
seems scarce that client maturity be the reason of the high dropout rate. Therefore, Wright et
al. (ibid) stated drew conclusion that crisis reasons lead to dropout more than others.
33
2.4.3.12. Environmental reasons
Environmental reasons are linked to downturn in the national economy and adverse climatic
conditions. Clients generally served by MFIs have fewer assets and their income is not
diversified. Thus, the poor are more vulnerable to financial difficulties due to economic
downturns or other crises. All the African MFIs studies have reported that dropout rates
increase when there is a bad economic climate, seasonality and natural calamities (Wright et
al., ibid; Meyer et al., ibid), because clients have fewer ways of coping with such events and
are more likely to drop out. African countries as others faced climatic conditions these last
years. However, in Africa more than other countries, people who face economic downturns or
In conclusion, the reasons why clients decide to dropout of MFIs are diverse and each reason
may be the highest leading to dropout depending on the context. The main contribution of
this study is to find out the factors which mainly lead to members drop outs; to profile ex-
members and to establish a correlation between these reasons and the time a member stayed
in the MFI before quitting. This is empirically examined through data collected from a
Getting the best return from the total investment in change programmes and projects has
always been a challenge. Ensuring successful delivery and realising the full benefits in terms
of efficiency savings and contribution to strategic objectives is of key relevance across all
sectors. Management of Portfolios equips practitioners with the grounding to apply portfolio
organisational context and gives guidance on: the principles of effective portfolio
34
management; the key practices, including examples of how to implement portfolio
According to Karim and Osada, (2008) to be successful, organisations must evolve and this
means improving how they run their business on a daily basis (business as usual) and
make decisions about implementing the right changes to business as usual; those changes are
delivered via projects and programmes. It also provides a helicopter view of all change
activities both those in planning and those in delivery including providing a clear line of
sight about what is in the portfolio, what it is costing, what risks are faced, what progress is
being made, and with what impact on business as usual and the organisations strategic
Rather than representing a new discipline, portfolio management seeks to build on, and better
co-ordinate, existing processes such as strategic planning, investment appraisal and project
and programme management. Portfolio management is not concerned with the detailed
change projects and programmes from a strategic viewpoint, focusing on the key issues
outlined above
35
CHAPTER THREE
METHODOLOGY
This chapter discusses the study design, population of the study, sample and sampling
procedure, instruments, data collection procedure and data analysis. The population of the
study is the microfinance institutions in Ghana. About 385 microfinance companies have
made it onto the list of the Bank of Ghanas non-bank financial institutions in good standing.
(Myjoyonline.com 2017). A sample of five (5) microfinance institutions were selected. They
are Melbond Financial Services, Ezi Savings and Loans, Dwadifo Adanfo Microfinance,
The study design used was a simple descriptive survey. This was because the research is
aimed at getting respondents to answer the same questions which involved many variables.
The descriptive survey design is directed towards determining the nature of a situation as it
exists at the time of the study. It is practical, in that it identifies present conditions. It focuses
on vital facts about people and the opinions, attitudes, motivations and comportment and to
The descriptive survey used involved the collection of qualitative and quantitative data. The
qualitative data focused on peoples experiences, their feelings and aspirations. The focus
was not on numerical data but subjective dimensions of the phenomenon under study as
described by respondents. This involved granting interviews to respondents to find out their
views on the topic. The quantitative data, on the other hand was based on numerical values of
the staff population of microfinance institutions in Ghana. Some of this was from the Human
Resource Department of the organizations in the sample. Also, data on the frequency on
36
customer drop out was collected. Quantitative data was in the form of the frequency of
The population of the study consisted of the staff and customers of microfinance institutions
in Ghana. The internal sources of data included 30 staff from the sampled microfinance
institutions and the external sources included 50 customers of the sampled microfinance
institutions. The sample size consists of eighty (80) respondents selected from the
organization including the customers. The respondents were limited to 80 because of time
constraints the researcher. Out of the eighty (80) respondents sampled, 5 respondents were
managers 25 respondents were staff and 50 were customers. The stratified sampling
technique was used. This was used to obtain information from key respondents like the
managers and the staff. This helped the researcher to divide the population into units to obtain
important information. In collecting data for this research, five (5) microfinance institutions
The research was conducted first, in collecting both qualitative and quantitative relevant data
and information through interviewing dropout and active clients using open and close-ended
semi structured questionnaires, second, FGD discussions were made with clients, loan
officers and managers of the selected branches, third, operational reports were referred and
organizational structure of MFIs were also used to assess facts that are relating with the
study, fourth, several researches on same topics and many literatures were reviewed and used
37
In designing the questionnaire, care was given to maintain and ensure the validity and
relevance of the questions in order the results drawn from the responses assist in attaining the
research objectives. Care was also taken to ensure the reliability of the responses in
The tools in the questionnaire that was prepared for the dropout clients have three main parts.
The first part of the questionnaire focused on the identification of the profile and
characteristics of the dropout client while the second part focused to find the reasons why the
clients left the program, and the third part asked suggestions to identify areas that need
change and improvements. Similarly, the questionnaire for active clients have also three parts
that the first part consists of data about personal profile and characteristics of the active
clients, the second part consists questions that help assessing the suitable/ unsuitable
attributes of the financial products and the third part asked suggestions to identify areas that
need change and improvements. One of the purposes of including active clients in the study
was to identify the suitability/unsuitability of the financial services that MFIs currently has
been providing in order to identify the potential push factors that motivate clients to quit from
the program.
Sufficient orientation and explanation were given to the data collectors on each question that
were prepared to quitted and active clients. In addition, to avoid respondent biasness
orientation was also given to the respondents focusing on the purpose of the study.
The data that that were collected by questionnaire survey have been presented through
frequency distribution, percentage and other tabulations. Indeed, a simple tabulation is made
38
in order to determine the ex-member profile and to identify the main causes of departure. It is
supported by cross tabulation to analyze the most frequent reasons leading to exit. The
qualitative data were intertwined with the quantitative data to further enrich and enhance the
39
CHAPTER FOUR
all, a total of 80 respondents were sampled from five micro-finance institutions. This
included six (6) staff each from the micro-finance institutions and ten (10) customers each
who patronise the five (5) micro-finance institutions. The sampled micro-finance institutions
included, Melbond Financial Services, Ezi Savings and Loans, Dwadifo Adanfo
In examining the gender distribution of the respondents, table 1 shows that 47% of the
respondents were males and 53% of the respondents were females. It can be concluded that
Table 2 shows the age grouping of the respondents. It can be seen from the table that majority
(33%) of the respondents were between the ages of 31-40, 30% of the respondents were
between 41-50 years and 20% of the respondents were between 21-30 years. Also, 17% of
the respondents were aged 51 years and above. From Table 2, it can be seen that majority of
the respondents were above 30 years which shows that the respondents were matured. Once
40
they are matured in terms of age, their level of maturity will reflect in their responses.
With respect to the educational background of the respondents, Table 3 shows that while
6(20%) of the respondents had Senior Secondary School Certificates (SSSCE) and 7(23%)
had diploma certificates. Also, 5(17%) of the respondents had post diplomas, 9(30%) had
bachelors degrees and 10% had masters degree. This means that the majority of the
respondents representing 30% had bachelors degrees and this is an indication that the
respondents were knowledgeable. This response would therefore reflect on the level of their
knowledge.
41
4.1.4. Status of Respondents
According to table 4 examining the position of respondents 7% of the respondents were in the
top management and head of department positions. Also, 3% were in the position of
supervisor and 83% were in other positions such as senior and junior staff.
The knowledge of respondents alone cannot be relied on for an accurate response but
respondents managerial, positions or status in their various areas of operation also counts.
The position or status of respondents can influence the response positively or negatively.
In assessing the years of service of respondents, while 50% of the respondents had been with
their organisation 1- less than 4 years, 30% of the respondents had served their organisations
4-less than 8 years and 20% of the respondents have served their organisation 8-12 years.
However, there were no respondents who had worked for more than 12 years. This indicates
that majority of the respondents have been with their organisations for at least one year and
42
Table 5: Years of Service of Respondents
According to table 6 dealing with the projected increase in customer base in a year, 17
respondents representing 23.3% indicated the projected increase is >700-1200 customers and
5 respondents representing 16.6% indicated that the projected increase is above 1200.
Majority of the respondents indicated that the projected increase in customer base is >300-
700 customers. This implies that in a year the projected increase in customer base at most of
Table 7 shows the reasons for the drop out of customers on a yearly basis. Sixty six percent
of the staff and management respondents indicated poor services, 16.6% indicated expansion
43
of operations and 16.6% indicated creation of new opportunities. Majority of the respondents
When asked whether management has made effort to mitigate the level of customer drop out,
out of the 30 employees, 67% indicated that indeed there has been effort but 33% of the
respondents indicated that the management has not made efforts to mitigate the level of
customer drop out. Majority of the respondents disclosed that yes management has made
efforts to mitigate the level of customer drop out. This implies that, management of
microfinance institutions have made efforts to mitigate the level of customer drop out. This is
depicted in Table 8.
44
4.1.9. The Extent of Customer Drop Out
From Table 9, staff were asked about the level of customer drop out in the organisation and
in response, 80% of the staff indicated between 1 10%, 10% indicated 11-20%, another
10% responded 21-30%. Majority of the staff indicated the extent of customer drop out is 1-
10%. The implication is that majority believe that customer dropout is between 1-10%
In responding to how long it takes for customers to be replaced as described in table 10, 60%
of the respondents indicated between 1 6 months but 40% of the respondents indicated
between 7 12 years. The indication is that most at times when the customer leaves, it takes
45
4.2. Major Challenges Faced by Management in Minimising Customer Drop Out
When asked about a major challenge with management in minimising customer drop out,
Table 11 shows that 27% of the staff indicated high motivation, 23% of the respondents noted
high interest rates and 50% of the respondents asserted that lack of good managerial
Table 11: Major Challenges Faced by Management In Minimising Customer Drop Out
On the efforts being made by the management to reduce customer drop, Table 12 indicates
that 27% of the respondents noted that management is making efforts to increase loan
portfolio, 13% of the respondents also indicated reduction in interest rates and 10% of the
respondents indicated employee training and development while 50% of the customers
46
4.2.2. Policy to Ensure Good Customer Retention
The respondents were asked to indicate whether management has a policy to ensure good
customer retention. Table 13 shows that out of the 30 respondents who answered the
questionnaire, 27(90%) of the respondents noted that there is a good customer retention
policy whiles 3(10%) of the respondents noted that there is no policy. This means that 10% of
the respondents are not aware of specific policies that organisation has on customer retention.
However, with the majority indicating yes to the question is an indication that there are
In rating the level of effectiveness of policies on customer retention in the organisation, Table
14 shows that 3(10%) of the respondents believed that management had performed well in
ensuring that the policies were very effective. Also, 25(83%) of the respondents noted that
the policies were effective whilst 2(7%) of the respondents noted that the policies were not
effective. This means the microfinance institutions have effective customer retention policies.
47
Source: Survey data, 2017
In examining the gender distribution of the respondents, table 15 shows that 30% of the
respondents were males and 70% of the respondents were females. It can be concluded that
Table 16 shows the age grouping of the respondents. It can be seen from the table that
majority (50%) of the respondents were between the ages of 31-40, 20% of the respondents
were between 41-50 years and 16% of the respondents were between 21-30 years. Also, 14%
of the respondents were 51 years and above. From Table 17, it can be seen that majority of
the respondents were between 31-40 years which further implies that the respondents were
matured. Once they are matured in terms of age, their level of maturity will reflect in their
responses.
48
Source: Survey data, 2017
With respect to the educational background of the customers, table 17 shows that while 10%
of the respondents had SSSCE, 40% of the respondents had diploma certificates. Again, 16%
of the respondents had post diploma, 28% had their bachelors degrees and 6% had masters
From Table 18, 24% of the customers indicated they are currently working in the
production/manufacturing sector of the economy while 76% of the customers indicated they
49
4.2.8. Self-owned business
According to Table 19, 40% of the customers indicated that they own their own businesses
In assessing the years of service of respondents, 40% of the respondents had been with their
organisations between 1-3 years, 36% of the respondents have served between 4-7 years and
24% of the respondents have served the organisation between 8-12 years. However, there
were no respondents who had worked above 12 years. This indicates that majority of the
respondents have been with the organisation for at least one year and that shows that the
In examining whether customers were satisfied with the services of microfinance institutions
as shown in Table 21, 76% of the customers indicated they are satisfied with the services of
50
micro finance institutions but 24% of the customers indicated that they are not satisfied with
seen in Table 22 30% of the customers indicated dissatisfaction with interest rates, 12%
indicated the services were not challenging, 34% indicated lack of motivation as a factor.
Also, 14% indicated service not useful to the customers and 10% indicated other reasons such
as attitude of staff of the microfinance institutions. Majority of the customers indicated that
51
4.3.2. Factors Causing Customers to Leave Organisation
According to Table 23 dealing with factors causing customer to leave the organisation, 40%
of the customers disclosed high interest rate as a factor, 14% indicated limited customer
security while 20% indicated lack of better management customer relations. In addition, 10%
of the customers indicated non- conducive environment was a factor while 16% indicated
poor services. Majority of the customers indicated that high interest rate is a factor causing
Table 24 shows the responses from customers when they were asked to rate their relationship
with members of staff, 96% of the customers indicated their human relation is very good
while 4% of the customers indicated their human relation with members of staff is good.
52
Table 24: Relationship with Members of Staff
Out of the fifty (50) respondents, 5 representing 10% of the customers indicated limited
From table 26, 72% of the customers indicated they had indeed made their challenges known
to the financial institutions, however, 28% indicated had not made the challenges known.
53
Table 26: Are Challenges Known to The Organisation?
From table 27, 84% of the customers indicated that the challenges encountered would not
make them leave the organisation, however, 16% of the customers indicated that it would.
54
CHAPTER FIVE
recommendations for the management of the sampled organisations which include Dwadifo
Adanfo, Jislah Financial Services, Beige Capital, Melbond Financial Services and Ezi
The main objective of this study was to assess the impact of client drop out on portfolio
specific objectives included: Examining the factors that contribute to client drop out in
microfinance institutions, ascertaining the correlation that exists between client drop out and
management and reducing client drop out at non-bank financial institutions. Below are the
700. In Table 6, 50% represented projected increase in clientele base in the year.
Microfinance institutions are noted for providing credit (loans) to the poor, small
businesses etc. Who have no access to credit facility from the commercial banks,
therefore demand for microfinance services increases. But for certain poor services
and challenges customers face at the microfinance institutions, they leave to other
banks.
ii. Customers drop out on a yearly basis is due to poor services they encounter at
microfinance institutions.
iii. There has been a situation where customers leave due to their personal decisions.
55
iv. Management of the microfinance institutions have made efforts to mitigate the level
v. When the customer leaves, it takes about 6 months for to gain a replacement.
vi. Lack of good managerial relationship is a challenge in minimising customer drop out.
This usually creates dissatisfaction to customers and therefore leaves for the next
available bank.
drop out. Management of some microfinance institutions try to ensure that clients are
served well on daily basis but for poor attitude and service of officers, clients do not
viii. There are good policies for customer retention. Management will create good policies
to ensure clients retention but the executors are the officers or relationship managers.
If relationship managers are not well trained to properly execute the policies to
benefits customers, customers will still not be happy and therefore will leave for other
banks.
ix. Customers are satisfied with the services of microfinance institutions and that lack of
high as majority of the customers indicated they had no thoughts of leaving their
microfinance institutions`.
xi. The major challenge with the commitment of customers to their microfinance
56
5.2. Conclusion
underestimated. In the view of Forson (2011), clients drop out can only happen when clients
are not satisfied with services being provided. From the study, it was clear that clients drop
out was as a result of poor services by the microfinance institutions. This is supported by
Thompson (2008) that in most cases these customers leave due to their personal decisions.
lack of motivation and high interest rates are factors causing dissatisfaction among customers
and causing them to leave the financial institutions. This is supported by Bennor (2003). In
his view management of such organisations make the effort to influence dissatisfied
In this study, management of the financial institutions had made efforts to mitigate the level
of customer drop out. Furthermore, in an attempt to reduce customer drop out customer
satisfaction was being scrutinised by the management. Also, the major challenge with the
relations. Customers however, indicated they had no thoughts of leaving their financial
institution. Finally, with good policies in place for customer retention, customers are satisfied
5.3. Recommendations
The research revealed that high interest rates cause dissatisfaction among customers causing
them to leave. Management therefore, must reduce the lending rates so that it will be
57
beneficial to the customers and at the same time not cause any negative effect on the financial
institution.
Staff should be further educated on all issues relating to portfolio management to equip them
adequately with the knowledge and skills needed to assist customers properly when a
monitoring and recovery of loan defaults and loan repayment should be organised regularly.
From the findings of the study the customers disclosed that lack of motivation is a challenge.
portfolio management to customers. This will keep them informed of all issues relating to
portfolio management and this will further motivate them to stay on with the financial
institution. Also, managers and supervisors should intermittently speak with clients and find
out whether they are satisfied with products and services being offered to them. In an instance
where a client was dissatisfied, managers or supervisors could intervene and improve the
situation since a good service offered could increase the clientele base thereby enhancing
Credit and operational policies of microfinance institutions should have clear definition or
statement of customer protection by way of ensuring that customers are served to their best
satisfaction. This can be achieved when policies compel credit officers and management to
occasionally show appreciation to customers for doing business with their institutions. This is
important since the microfinance institutions could meet the expectations and needs of the
58
Undue delay in loan approval may discourage customers from transacting business with
that the turnaround time (delivery period) should be quick and positive. At least delivery
period of two or three days could meet the expectations of customers depending on the
competition among financial institutions and the flexibility of the requirements to open an
account or secure a loan. This is intended to have competitive advantage over other
microfinance institutions and also compel customers to have long lasting relationship with the
microfinance institutions.
Trust services are closely related to banking (client services) in that skills in maintenance of
records, safe keeping, deposit function, financial analysis and decision making are all
should ensure that there are highly competent and skilled personnel to take such sensitive and
enhance the society within which it operates. This responsibility also connotes and portrays
the image and the brand of the organisation. Some microfinance institutions in Ghana today
have ignored their corporate social performance which is seen as an important advertising
tool that also communicates the intents of organisation to clients. For example Cal Bank
Limited is sponsoring Beach Soccer League which has drawn all beach soccer fans or lovers
to know about the bank which has positively impacted their operations. Dwadifo Adanfo
Microfinance Limited has started realising its CSR by sponsoring the 2013 Golf League and
also setting up a communication centre for spare parts dealers association in Abossey Okai,
Accra. Management of other microfinance institutions will take a cue from what Cal Bank
59
and Dwadifo Adanfo are doing. It will enable them increase their clientele base significantly.
enable them increase their clientele base and impact their operations significantly.
60
REFERENCES
1. Angelini, E., Berenbach, S., & Diego G. (1998). Savings mobilisation: The forgotten
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D.W. Adams, D. Graham and J.D. Von Pischke, (pp. 80-84). Boulder, CO: Westview
Press.
5. Berger, A., & Dell, H. (1995). Dropout in micro-credit operation, ASA Journal, 5(1),
227-252.
6. Best, S., & Kahn, R. (1998). Business research methods. London, UK: Bass
Publishers.
7. Christen, Robert P., Rhyne, E., Vogel, R. C., & McKean, C. (2006). Maximising the
Programs. Centre for Development Information and Evaluation. USAID Program and
University Press.
61
10. Dimmizer, S. (1997). Management information systems: New approaches to
organisations and the environment (4th intern. ed.). New Jersey, NJ: Pearson Prentice
Hall.
11. Dye, R., & Pennypacker, J. (2009). Wood conclusion, in who needs credit? poverty
and finance in Bangladesh (eds.) G.D. Wood and I. Sharif, Dhaka and Zed Books,
13. Elko, G. (2001). Managing credit for the rural poor: Lessons from the Grameen Bank.
14. Evans, T.G., M. Rafi, A. Adams, A., & Chowdhury, A.M.R. (2005). Barriers to
15. Forster, S. & Reille, X. (2008). Foreign capital investment in microfinance: balancing
http://www.cgap.org/p/site/c/template.rc/1.9.2584.
from: http://mpra.ub.unimuenchen.de/4317.
17. Gurin, E. Chaves, R., & Gonzalez-Vega, C. (2009). The design of successful rural
18. Hanford, B. (2005). Micro-finance evangelism, destitute women, and the hard
19. Hasan, G. M., &. Chahid, N. (2005). A note on reasons of dropout from Matlab
62
20. Hashemi Syed, M. (2007). Dropout and left-outs: The Grameen targeting of the
dropout features, extending outreach and how to reach the hard-core poor, BIDS.
Dhaka, Bangladesh.
21. Hulme, D., Mutesasira, L., Mugwanga, H., Kashangaki, J., Maximambali, F. Lwoga,
C., Wright, G., & Rutherford, S. (1999). Client drop-outs from East African
22. Hulme, D., & Mosley, P. (1997). Finance for the poor or the poorest? financial
innovation, poverty and vulnerability. Who needs credit? Poverty and finance in
Bangladesh. G.D. Wood and I. Sharif, eds. Dhaka, Bangladesh: The University
Press Limited.
www.microfinancenetwork.
24. Karim, M., & Osada, M. (2008). Dropping out: An emerging factor in the success of
257-258
Fountain Publishers.
26. Kendall, E., & Rollins, D. (2003). Micro-credit programmes: Methods for solving
dilemmas for credit expansion. Working Paper WP1997, Bergen, Norway: Christen
Michelsen Institute.
27. Khander, E. (2005). Drop-outs amongst Kenyan MFIs. MicroSave Africa Research
28. Martin, G. (2001). Portfolio management (5th Ed.). London, UK: Pitman Publishers.
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29. Matin, I., (2008). Informal credit transactions of micro-credit borrowers in rural
30. Meyer, R., Graham, D., & Pagura, M. (2001). Determinants of borrower drop out in
Fund. 6, 215-228.
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40. Rutherford, S. (2008). The Savings of the poor: improving financial services in
41. Schreiner, M. (2004). Scoring drop out at a micro lender in Bolivia. Centre for Social
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43. Stearns, K. (2001) Methods for managing delinquency: Tools for microenterprise
44. Urquizo, J. (2006). Improving and monitoring customer retention. (Paper prepared for
45. Uzzi, G. (1999). Microfinance systems: Designing quality financial services for the
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65
APPENDICES
Appendix A
I am final year student of Central University College and as part of the requirement for the
questionnaire is to help the researcher gathers data for the study and that it is purely for
academic purposes therefore, all information will be treated confidentially. Please feel free
2. Age:
a) 21 30 [ ]
b) 31 40 [ ]
c) 41 50 [ ]
d) Above 51 years[ ]
3. Qualification
a) SSSCE [ ]
b) Diploma [ ]
c) Post Diploma [ ]
d) 1st Degree [ ]
e) Masters [ ]
66
4. Position
a) Top management [ ]
b) Head of Department [ ]
c) Supervisors [ ]
a) 1 3 years [ ]
b) 4 7 years [ ]
c) 8 12 years [ ]
d) Above 12 years [ ]
a) 100 300 [ ]
b) 400 700 [ ]
c) 800 1200 [ ]
d) Above 1200 [ ]
7. Which of the following reasons would you assign to the drop out of customers on yearly
basis?
b) Poor services [ ]
c) Expansion of operations [ ]
8. Has there been a situation where customers leave from the organisation themselves?
a) Yes [ ] b) No [ ]
......................................................................................................................................................
67
10. If management of the organisation had the chance could the cause of customers drop out
be avoided?
a) Yes [ ] b) No [ ]
11. To what percentage would you ascribe to customer drop out in the organisation?
a) 1 10% [ ]
b) 11 20% [ ]
c) 21- 30% [ ]
d) Above 30% [ ]
12. How long does it take for a customer drop out to be replaced?
a) 1 6 months [ ]
b) 7 12 months [ ]
c) 13 months 2 years [ ]
d) Above 2 years [ ]
13. Which of the following would you say is a major challenge with management in
a) High motivation [ ]
b) High interest [ ]
14. Apart from these challenges which challenges also affect the organisation?
........................................................................................................................................
15. What efforts are being made to reduce customer drop out in your organisation?
68
c) Employee training and development [ ]
d) Customer satisfaction [ ]
16. Are the employees aware of the policies being put in place to ensure good customer
retention?
a) Yes [ ] b) No [ ]
a) Very effective [ ]
b) Effective [ ]
c) Not effective [ ]
.......................................................................................................................
........................................................................................................................
69
Appendix B
I am final year student of Central University College and as part of the requirement for the
This questionnaire is to help the researcher gathers data for the study and that it is purely for
academic purposes, therefore, all information will be treated confidentially. Please feel free
2. Age:
a. 21 30 [ ]
b. 31 40 [ ]
c. 41 50 [ ]
d. Above 51 years[ ]
3. Qualification
a. SSSCE [ ]
b. Diploma [ ]
c. Post Diploma [ ]
d. 1st Degree [ ]
e. Masters [ ]
4. Position
a) Top management [ ]
b) Head of Department [ ]
c) Supervisor [ ]
70
d) Others (Please specify).............................................................................
a) Yes [ ] b) No [ ]
a. Production/Manufacturing [ ] b. service [ ]
.............
a) Yes [ ] b) No [ ]
9. How long have you been doing your business or working with the organisation?
a) 1 3 years [ ]
b) 4 7 years [ ]
c) 8 12 years [ ]
d) Above 12 years [ ]
a) Yes [ ] b) No [ ]
b) Services unchallenging [ ]
e) Other (specify)............
13. If you are not satisfied why are you still with the organisation?
71
a) Still dialoguing with management to meet my needs [ ]
b) Acquiring experience [ ]
c) Enhancing my skills [ ]
d) Un-conducive environment [ ]
e) Poor services [ ]
15. Have you made your dissatisfaction known to the management of the organisation?
a) Yes [ ] b) No [ ]
a) Yes [ ] b) No [ ]
17. Which other financial institution or bank would you leave to?
18. Why would you want to leave to any of these banks/financial institutions?
c. Staff-customer relationship
a) Very good [ ]
b) Good [ ]
72
c) Bad [ ]
d) Very bad [ ]
a) Very high [ ]
b) High [ ]
c) Moderate [ ]
d) Low [ ]
e) Very Low [ ]
21. Which of the following do you find as a challenge with your commitment to the
organisation?
b) Limited security [ ]
d) Unconducive environment [ ]
a) Yes [ ] b) No [ ]
23. Do you think the challenges stated above would make you leave the organisation?
a) Yes [ ] b) No [ ]
..............................................................................................................................
..............................................................................................................................
73