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METHODIST UNIVERSITY COLLEGE

IMPACT OF CLIENT DROP OUT ON PORTFOLIO MANAGEMENT

IN MICROFINANCE INSTITUTIONS IN GHANA

PRESENTED BY

MARIAMA SIRE BALDE

I.D. NO: MBAF/ED/158200

DISSERTATION SUBMITTED TO THE DEPARTMENT

FINANCE, IN PARTIAL FULFILMENT OF THE REQUIREMENTS


FOR AWARD OF MASTER OF BUSINESS ADMINISTRATION
DEGREE IN FINANCE
DECLARATION

This dissertation has not previously been accepted in substance for any degree and is not

being concurrently submitted in candidature for any degree elsewhere.

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

are included in the bibliography that is appended.

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.

Students Signature Date

(Mariama Sire Balde)

This thesis is submitted for examination with the full knowledge and acceptance of my
supervisor.

Supervisors Signature Date

(Dr. King Salami)

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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

portfolio management in microfinance institutions in Ghana. 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 established in

Northern Ghana in 1955 by Canadian Catholic Missionaries. The research includes an

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

microfinance institutions, to assess the effects of effective portfolio management on

microfinance institutions in Ghana and device meaningful ways to improving portfolio

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.

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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

Sylvester Delali Dordzi for guiding me throughout this work.

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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

this project will be beneficent for.

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DECLARATION i

ABSTRACT ii
ACKNOWLEDGEMENT iii
DEDICATION iv

LIST OF FIGURES viii

LIST OF TABLES ix

TABLE OF CONTENTS PAGE


CHAPTER ONE: INTRODUCTION 1
1.1. Background of the Study 1

1.2. Problem Statement 2

1.3. Objectives (Aim and Objectives) 3

1.3.1. General Objectives 3

1.3.2. Specific Objectives 3

1.4. Research questions 4

1.5. Significance of the study 4

1.6. Limitations 5

1.7. Delimitation of the study 6

1.8. Organization Structure 7

CHAPTER TWO: LITERATURE REVIEW 8


2.1. Theoretical Literature 8

2.2. Client Exit Issues Worldwide 11

2.2.1. Client Exit Issues-Africa 11

2.3. Commercial Implications of a Rising Exit Rate 18

2.4. Portfolio Management 19

2.4.1. Overview of portfolio management 20

2.4.2. Basic Concepts and Components for Portfolio Management 22

2.4.2.1. The Portfolio 22

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2.4.2.2. Business Strategy 23

2.4.2.3. The Portfolio Structure 23

2.4.2.4. The portfolio manager 23

2.4.2.5. Portfolio reviews and decision making 24

2.4.2.6. Governance 24

2.4.2.7. Portfolio management essentials 26

2.4.2.8. Benefits of management of portfolios 27

2.4.3. Relationship Between Portfolio Management and Loan Recovery 28

2.4.3.1. Factors that lead to clients drop-outs 29

2.4.3.2. Supply reasons 29

2.4.3.3. In adapted products 29

2.4.3.4. Loan size 30

2.4.3.5. Repayment schedule and delays in loan disbursement 30

2.4.3.6. Group lending 30

2.4.3.7. Staff attitude 30

2.4.3.8. Competitive environment 31

2.4.3.9. Demand reasons 31

2.4.3.10. Crisis Reasons 31

2.4.3.11. Client maturity 33

2.4.3.12. Environmental reasons 34

2.4.4. Impact on Portfolio Management on Microfinance Institutions 34

CHAPTER THREE: METHODOLOGY 36


3.1. Research Design 36

3.2. Population and Sampling Techniques 37

3.3. Types of Data and Tools/Instruments of Data Collection 37

3.4. Procedures of Data Collection 38

3.5. Methods of Data Analysis 38

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CHAPTER FOUR: RESULT AND DISCUSSIONS 40

4.1. Data Analysis 40

4.1.1. Gender Distribution of Staff Respondents 40

4.1.3. Educational background 41

4.1.4. Status of Respondents 42

4.1.5. Years of service of respondents 42

4.1.6 . Projected Increase in Customer Base in A Year 43

4.1.7. Reasons for Drop Out of Customers on Yearly Basis 43

4.1.8. Commitment of Management to Reduce the Level Of Customer Drop 44


Out

4.1.9. The Extent of Customer Drop Out 45

4.1.10. Time taken for customer replacement 45

4.2. Major Challenges Faced by Management in Minimizing Customer Drop 46


Out

4.2.1. Efforts by Management in Reducing Customer Drop Out 46

4.2.2. Policy to Ensure Good Customer Retention 47

4.2.3. Effectiveness of Policies 47

4.2.4. Gender distribution of respondents 48

4.2.5. Age Distribution of Respondents 48

4.2.6. Educational Background 49

4.2.7. Sector of economy currently working in 49

4.2.8. Self-owned business 50

4.2.9. Length of service 50

4.3.1. Factors causing dissatisfaction 51

4.3.2. Factors Causing Customers to Leave Organization 52

4.3.3. Relationship with members of staff 52

4.3.4. Challenges faced by customers 53

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4.3.5. Are challenges made known to the organization? 53

4.3.6. Do challenges make you leave the organization? 54

CHAPTER FIVE: SUMMARY, CONCLUSION AND 55


RECOMMENDATIONS
5.1. Summary of findings 55

5.2. Conclusion 57

5.3. Recommendations 57

REFEREENCES 61
GLOSSARY 66
Appendix A 66
Appendix B 70

LIST OF FIGURES

FIGURE DESCRIPTION PAGE

2.1 Summary of Push and Pull Factors, Source: Pagura (2003) 9

2.2 Causes and effects of client dropout, Source: M-CRIL (2007) 10

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LIST OF TABLES

TABLES DESCRIPTION PAGE

1 Gender of respondents 40

2 Age Distribution of Respondents 41

3 Educational background of respondents 41

4 Status of Respondents 42

5 Years of Service of Respondents 43

6 Projected Increase in Customer Base 43

7 Causes of Customer Drop-Out 44

8 Efforts by Management To Mitigate Customer Dropouts uses of 44


Customer Drop-Out

9 The Extent of Customer Drop Out 45

10 Time Taken for Customer Replacement 45

11 Major Challenges Faced by Management in Minimizing Customer 46


Drop Out

12 Strategies (Measures) In Reducing Customer Drop Out 46

13 Policy for customer retention 47

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

21 Satisfaction Level of Respondents 51

22 Causes of Dissatisfaction 51

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23 Factors Causing Customers to Leave Organization 52

24 Relationship with Members of Staff 53

25 Challenges Faced by Customers 53

26 Are Challenges Known to The Organization? 54

27 Challenges, A Cause of Leaving the Organization? 54

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CHAPTER ONE

INTRODUCTION

1.1.Background of the Study

According to the Ministry of Finance of Ghana (2017) 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. Microfinance refers to 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 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

established in Northern Ghana in 1955 by Canadian Catholic Missionaries.

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

than individuals. (Heuisler 2004)

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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

cited as being responsible for the unsatisfactory financial performances of MFIs

(Dackauskaite, 2009). Among the various reasons that compromise the sustainability of

MFIs, this study focused to examine the client dropout issues.

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

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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

reputation as a trustworthy borrower (Ongena and Smith, 2001) as cited by as cited by

Dackauskaite (2009).

1.3. Objectives (Aim and Objectives)

1.3.1. General Objectives

The general objective is to assess the impact of client drop out on portfolio management in

non-bank financial institutions in Ghana.

1.3.2. Specific Objectives

The specific objectives of the project are as follows:

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-

bank financial institutions

iii. To ascertaining the correlation that exists between client drop out and portfolio

management at non-bank financial institutions.

iv. Assessing the effects of effective portfolio management on non-bank financial

institutions.

v. To identify and examine the profile and characteristics of the exited clients and to

suggest and recommend areas that need changes and improvements.


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1.4.Research questions

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?

ii. What are the clients reasons for exit?

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

at non-bank financial institutions?

v. What are the effects of effective portfolio management on non-bank financial

institutions?

vi. What are the ways of improving portfolio management and reducing client drop out at

non-bank financial institutions?

vii. What changes and improvements should MFIs undertake to meet the needs of the

clients so that reduces the dropout rate?

1.5.Significance of the study

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

improvement of existing client database where necessary.

ii. the findings of the study will bring to the fore the relationship between client database

and portfolio management.

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

on the non-banking activities.

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iv. The findings of the study will also serve as a guide for the implementation of policies

on client database and portfolio management in other financial institutions.

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

management could be on non-banking institutions they transact business with.

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

researchers in this area.

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

tried to identify the questions/information that clients might fear to answer or

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

that the discussion will be kept confidential.

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

related with the following issues:

fear of any subsequent penalty on MFIs staff

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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

Due to different reasons, quitted/active clients might remain silent not to

comment programs deficiencies.

Similarly, MFIs staff might hide some information while discussion was made

to cover their inefficiency and poor service delivery that have pushed clients to

exit or led to dissatisfactions.

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

institutions. Notwithstanding that the researcher encountered some challenges related

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

to limit himself to five microfinance organizations in Accra.

1.7. Delimitation of the study

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

out and portfolio management.

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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.

2.1. Theoretical Literature

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

information about the strengths and weaknesses of the program.

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

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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

following taxonomic frame work:

Figure 2.1: Summary of Push and Pull Factors, Source: Pagura (2003)

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Similarly, Micro-Credit Ratings International Limited (M-CRIL) introduced the causes and

effects of client dropout in the following diagram.

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

the microfinance industry is more developed and competition is higher.

2.2.1 Client Exit Issues-Africa

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

Churchill and Halpern, 2001) as cited by Pagura (2003).

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

size of loan per cycle.

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

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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

approved loans to client on time.

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

Tanzania. The methodology employed was qualitative methods, particularly, in-depth

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

be the main immediate cause of forced drop out in Tanzania.

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

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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

complained of unfriendly attitude of some staff members of Lapo.

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

potential reasons for client drop out to achieve his aim.

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

reasons for client exit.

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..

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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

Coetzee (2001) additionally reported the following common reasons:.

Delays in loan disbursement

Reallocation of loan funds

Group liability

Loan Insurance Fund:

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:

Most solidarity-group-based MFIs report significant numbers of dropouts during the

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

weekly repayments as loan size increases without a corresponding extension of the

loan repayment term.

16
Most field staff can identify periods in which dropout rates are higher: typical

problem times are religious festivals (Christmas, Eid, etc.), the period before

harvest, and the time for payment of school fees.

Most MFIs have experienced at least one major shake-out when changes in policies

have led to the rapid exit of a large number of clients.

A number of MFIs have experienced increased dropouts because of management

problems, such as fraud, or cash flow difficulties that prevented the MFI from

disbursing promised loans to clients on time.

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

to the increasing size of weekly repayment installments. Such program-design-

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

propensity to drop out. The main reasons for this are:

i. The desire for larger loans as the maximum loans given by MFIs are too small for

their growing businesses;

ii. Annoyance at having anticipated loans delayed because of other group members

being in arrears; and,

iii. Frustration with the amount of time spent in group meetings and in trying to

recruit new members to replace dropouts. As a Kampala shopkeeper told the

researchers, meeting time is killing my business.

17
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

to the organization in many ways in terms of investments in training and social

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

subsequently lead to contract enforcement problems or even political hostility.

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:

communication of investment details and management of all investments as a whole and

Measurement of the progress of funded investments (Christen et al., 2006).

Portfolio -- A portfolio is a collection of assets or investments, as well as proposed

investments.

The use of a portfolio enables management of investments as a whole (Churchill, 2000)

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).

Probability of Success -- This subjective measure would be based on a checklist that

identifies the areas of risk and the level of Risk Mitigation associated with:

i. Technical Complexity of the project and product/service;

ii. Degree of Interdependence with other Projects (both inside shared services and

outside shared services);

iii. Risk due to Availability of Resources;

iv. Urgency (Schedule Pressure) (Hashemi, 2007).

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

utilities (Rutherford, 2008).

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

be made regarding the investment (Montgomery, 2005).

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

busy planning how they will use their next loan.

2.4.1. Overview of portfolio management

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,

Morgan Stanley's Dictionary of Financial Terms explained portfolio Management that:

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
20
least some of them may produce strong returns in any economic climate. Hanford (2005)

noted that this explanation contains a number of important ideas:

i. A portfolio contains many investment vehicles.

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

sell; and so forth. Making such decisions is a form of management.

iii. The management of a portfolio is goal-driven. For an investment portfolio, the

specific goal is to increase the value.

iv. Managing a portfolio involves inherent risks.

Hanford (ibid) further stated that over time, other industry sectors have adapted and applied

these ideas to other types of investments, including the following:

Application portfolio management:

This refers to the practice of managing an entire group or major subset of software

applications within a portfolio. Organisations regard these applications as investments

because they require development (or acquisition) costs and incur continuing maintenance

costs. Also, organisations must constantly make financial decisions about new and existing

software applications, including whether to invest in modifying them, whether to buy

additional applications, and when to sell -- that is, retire -- an obsolete software application.

Product portfolio management:

Businesses group major products that they develop and sell into (logical) portfolios,

organized by major line-of-business or business segment. Such portfolios require on-going

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).

Project or initiative portfolio management:

An initiative, in the simplest sense, is a body of work with:

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.

iii. A defined beginning and end.

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

enterprise's business strategy. Managers must continually choose among competing

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

their investments by providing continuing oversight and decision-making about which

initiatives to undertake, which to continue, and which to reject or discontinue (Cooper et al.,

2001).

2.4.2. Basic Concepts and Components For Portfolio Management

Looking at some basic concepts and components of portfolio management practices, Kendall,

Rollins (2003) indicated emphasized on the following below;

2.4.2.1. The Portfolio

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.

22
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,

business segment, or separate business unit within a multinational organisation.

2.4.2.3. The Portfolio Structure

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

product group contribute to the success of the enterprise business strategy.

2.4.2.4. The portfolio manager

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:

i. One portfolio manager oversees one portfolio.

ii. The portfolio manager provides day-to-day oversight.

iii. The portfolio manager periodically reviews the performance of, and conformance to

expectations for, initiatives within the portfolio.

iv. The portfolio manager ensures that data is collected and analysed about each of the

initiatives in the portfolio.


23
v. The portfolio manager enables periodic decision making about the future direction of

individual initiatives.

2.4.2.5. Portfolio reviews and decision making

As initiatives are executed, the organisation should conduct periodic reviews of actual

(versus planned) performance and conformance to original expectations. Typically,

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

delivery of expected organisational benefits).

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

continue/change/discontinue decisions should be driven by an understanding (developed

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

external circumstances, needs, and performance.

2.4.2.6. Governance

Implementing portfolio management practices in an organisation is a transformation effort

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

boundaries among work efforts and collections.

Implementing portfolio management also requires creating a structure to provide planning,

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

those who exercise this oversight and decision-making.

Dye and Pennypacker (2009) added that portfolio management governance involves multiple

dimensions, including:

i. Defining and maintaining an enterprise business strategy.

ii. Defining and maintaining a portfolio structure containing all of the organisation's

initiatives (programs, projects, etc.).

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.

v. Ownership of portfolios and their contents.

Each of these dimensions requires an owner -- either an individual or a collective -- to

develop and approve plans, continuously adjust direction, and exercise control through

periodic assessment and review of conformance to expectations.

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.

2.4.2.7. Portfolio management essentials

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

new standard for bridge construction.

Portfolio management, like bridge-building, is a discipline, and a number of authors and

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

around portfolio management. Views are beginning to be expressed as a collection of

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

continuous monitoring over the life of the initiative.

2.4.2.8. Benefits of management of portfolios

According to Hanford (2005), investment in the right, correctly implemented change

initiatives is enabled by management of portfolios so as to ensure that:

Hanford continued that for organisations, through portfolio management:

i. The programmes and projects undertaken are prioritised in terms of their

contributions to strategic objectives and overall level of risk

ii. More effective implementation of projects and programmes via management of

constraints, risks and dependencies.

iii. Programmes and projects are managed consistently to ensure efficient and effective

delivery

iv. More efficient utilisation of scarce resources including skilled project/programme

managers.

v. Improved accountability and corporate governance.

With respect to clients or individuals, Hanford (ibid) admitted, through portfolio

management

i. An improved understanding of:- The Portfolio Management cycles, practices and

techniques and the organisational context within which they operate;

ii. Effective approaches to investment identification, categorisation, prioritisation and

selection;

27
iii. Benefits realisation is maximised to provide the greatest return (in terms of strategic

contribution and efficiency savings) from the investment made

iv. How project and programme success can be enhanced by adopting a Portfolio

perspective to delivery.

v. The opportunity to demonstrate sufficient knowledge and understanding to work as an

informed member of a Portfolio Office or in a range of Portfolio Management roles.

2.4.3. Relationship Between Portfolio Management and Loan Recovery

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

performance is attributed to proper portfolio management. The difference between the

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

developed in the previous phases of banking reform, an expedited programme of divesture of

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

2.4.3.1. Factors that lead to clients drop-outs

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.

2.4.3.2. Supply reasons

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).

2.4.3.3. In adapted products

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

are the variables most cited as proof of this inadaptation.

2.4.3.4. Loan size

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

increased, poorer clients voluntarily dropout.

2.4.3.5. Repayment schedule and delays in loan disbursement

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.

2.4.3.6. Group lending

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

et al., 1996; Wilson, 2001; Meyer et al., 2001; Wright, 1999).

2.4.3.7. Staff attitude

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

carried out in Ethiopia.

2.4.3.8. Competitive environment

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

switch from one financial institution to another.

In brief, in adapted products and competition have been unanimously recognised by the

microfinance practitioners, as reasons which lead to high dropout rate.

2.4.3.9. Demand reasons

This group is more related to crisis reasons, socio economic characteristics and clients

maturity.

2.4.3.10. Crisis Reasons

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

a job, funeral expenses and wedding or childrens education (Rutherford, 1999).

Socio economic characteristics

This group includes variables such as age, gender, location of residence and occupation as

well as socio economic characteristics.

Age and dropouts

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

because they stop to be an entrepreneur (Musona & Coetzee, 2001).

Gender and dropouts

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

dropout more than women, because, they are less reliable.

Location of residence and occupation and dropouts

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).

2.4.3.11. Client maturity

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

and self-confidence to become the clients of commercial banks.

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

other crises receive fewer supports.

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

cooperative of savings and credit located in Mali.

2.4.4. Impact on Portfolio Management on Microfinance Institutions

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

management effectively. It describes portfolio management and its strategic and

organisational context and gives guidance on: the principles of effective portfolio

34
management; the key practices, including examples of how to implement portfolio

management and sustain progress (Wilson, 2001).

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

adapting to emerging demands and expectations. Portfolio management helps organisations

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

objectives (Wilson, 2001).

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

management of these projects and programmes; rather, it approaches the management of

change projects and programmes from a strategic viewpoint, focusing on the key issues

outlined above

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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,

Jislah Financial Services and Beige Capital.

3.1 Research Design

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

provide an understanding of a phenomenon (Best and Kahn, 1998).

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

customer drop out of Microfinance Institutions in Ghana.

3.2 Population and Sampling Techniques

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

were randomly sampled.

3.3. Types of Data and Tools/Instruments of Data Collection

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

as a spring board to further strengthening the study made.

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

developing respondents confidence while responding.

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.

3.4. Procedures of Data Collection

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.

3.5. Methods of Data Analysis

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

information that were collected.

39
CHAPTER FOUR

RESULTS AND DISCUSSIONS


This chapter presents and analyses data obtained from the administration of questionnaires. In

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

Microfinance, Jislah Financial Services and Beige Capital.

4.1. Data Analysis

4.1.1. Gender Distribution of Staff Respondents

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

majority of the respondents sampled were males

Table 1: Gender of respondents

Gender Number of respondents Percentage (%)


Male 14 47
Female 16 53
Total 30 100
Source: Survey data, 2017

4.1.2. Age Distribution of Respondents

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.

Table 2: Age Distribution of Respondents

Age Distribution Number of respondents Percentage (%)


21 30 6 20
31 40 10 33
41 50 9 30
51years and above 5 17
Total 30 100
Source: Survey data, 2017

4.1.3. Educational background

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.

Table 3: Educational Background of Respondents

Qualification Number of respondents Percentage (%)


SSSCE 6 20
Diploma 7 23
Post diploma 5 17
Bachelors degree 9 30
Masters 3 10
Total 30 100
Source: Survey data, 2017

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.

Table 4: Status of Respondents

Position Number of respondents Percentage (%)


Top Management 2 7
Head of Department 2 7
Supervisor 1 3
Others 25 83
Total 30 100
Source: Survey data, 2017

4.1.5. Years of service of respondents

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

thus, would be able to respond well to the questions.

42
Table 5: Years of Service of Respondents

Period Number of respondents Percentage (%)


1-less than 4 years 15 50
4-less than 8 years 9 30
8-12 years 6 20
Above 12 years - -
Total 30 100
Source: Survey data, 2017

4.1.6. Projected Increase in Customer Base in A Year

According to table 6 dealing with the projected increase in customer base in a year, 17

respondents representing 56.6% indicated the projected increase is >300-700 customers, 7

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

the sampled microfinance institutions falls within >300-700.

Table 6: Projected Increase in Customer Base

Category Number of respondents Percentage (%)


100-300 1 3.3
>300-700 17 56.6
>700-1200 7 23.3
Above 1200 5 16.6
Total 30 100
Source: Survey data, 2017

4.1.7. Reasons for Drop Out of Customers on Yearly Basis

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

indicated poor services influences customers to drop out on a yearly basis.

Table 7: Causes of Customer Drop-Out

Category Number of respondents Percentage (%)


Low credit portfolio management - -
Poor services 20 66.6
Expansion of operations 5 16.6
Creation of new opportunities 5 16.6
Other
Total 30 100
Source: Survey data, 2017

4.1.8. Commitment of Management to Reduce the Level of Customer Drop Out

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.

Table 8: Efforts by Management To Mitigate Customer Dropouts

Category Number of respondents Percentage (%)


Yes 20 67
No 10 33
Total 30 100
Source: Survey data, 2017

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%

Table 9: The Extent of Customer Drop Out

Category Number of respondents Percentage (%)


1 10% 24 80
11 20% 3 10
21-30% 3 10
Above 30% - -
Total 30 100

Source: Survey data, 2017

4.1.10. Time taken for customer replacement

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

about 6 months to get new customer to replace.

Table 10: Time Taken for Customer Replacement

Category Number of respondents Percentage (%)


1 6 months 18 60
7 12 months 12 40
1 2 years - -
Above 2 years - -
Total 30 100
Source: Survey data, 2017

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

relationship as a major challenge in minimising customer drop out.

Table 11: Major Challenges Faced by Management In Minimising Customer Drop Out

Category Number of respondents Percentage (%)


High motivation 8 27
High interest 7 23
Employee training and development - -
Good managerial relationship 15 50
Total 30 100

Source: Survey data, 2017

4.2.1. Efforts by Management in Reducing 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

indicated customer satisfaction.

Table 12: Strategies (Measures) In Reducing Customer Drop Out

Category Number of respondents Percentage (%)


Increment of loan portfolio 8 27
Reduction in interest rate 4 13
Employee training and
Development 3 10
Customer satisfaction 15 50
Total 30 100
Source: Survey data, 2017

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

policies for customer retention.

Table 13: Policy for customer retention

Category Number of respondents Percentage (%)


Yes 27 90
No 3 10
Total 30 100
Source: Survey data, 2017

4.2.3. Effectiveness of Policies

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.

Table 14: Effectiveness of policies

Category Number of respondents Percentage (%)


Very effective 3 10
Effective 25 83
Not effective 2 7
Total 30 100

47
Source: Survey data, 2017

4.2.4. Gender distribution of respondents

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

majority of the sampled customer were females.

Table 15: Gender of Respondents

Gender Number of respondents Percentage (%)


Male 15 30
Female 35 70
Total 50 100
Source: Survey data, 2017

4.2.5. Age Distribution of Respondents

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.

Table 16: Age of Respondents

Age Distribution Number of respondents Percentage (%)


21 30 8 16
31 40 25 50
41 50 10 20
Above 51years 7 14
Total 50 100

48
Source: Survey data, 2017

4.2.6. Educational Background

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

degrees. This means that the respondents were knowledgeable.

Table 17: Educational Background

Qualification Number of respondents Percentage (%)


SSSCE 5 10
Diploma 20 40
Post diploma 8 16
Bachelors degree 14 28
Masters 3 6
Total 50 100
Source: Survey data, 2017

4.2.7. Sector of economy currently working in

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

are working in the service sector of the economy.

Table 18: Respondents sectors

Category Number of respondents Percentage (%)


Production/manufacturing 12 24
Service 38 76
Total 50 100
Source: Survey data, 2017

49
4.2.8. Self-owned business

According to Table 19, 40% of the customers indicated that they own their own businesses

while 60% indicated they do not have self-owned businesses.

Table 19: Ownership of Business

Category Number of respondents Percentage (%)


Yes 20 40
No 30 60
Total 50 100
Source: Survey data, 2017

4.2.9. Length of service

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

respondents had wealth of experience with their respective organisations.

Table 20: Length of Service

Period (years) Number of respondents Percentage (%)


1-3 20 40
4-7 18 36
8-12 12 24
Above 12 - -
Total 50 100
Source: Survey data, 2017

4.3. Satisfaction with services of microfinance institutions

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

the services of micro finance institutions.

Table 21: Satisfaction Level of Respondents

Category Number of respondents Percentage (%)


Yes 38 76
No 12 24
Total 50 100
Source: Survey data, 2017

4.3.1. Factors causing dissatisfaction

In determining the factors causing dissatisfaction among customers of financial services, as

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

lack of motivation as a factor causing dissatisfaction.

Table 22: Causes of Dissatisfaction

Category Number of Percentage


respondents (%)
Dissatisfaction with interest rate 15 30
Services unchallenging 6 12
Lack of motivation by organisation 17 34
Service not useful to the customers 7 14
Other 5 10
Total 50 100
Source: Survey data, 2017

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

customers to leave micro finance institutions.

Table 23 Factors Causing Customers to Leave Organisation

Category Number of Percentage


respondents (%)
High interest rate 20 40
Limited customer security 7 14
Lack of better management customer 10 20
relations
Un-conducive environment 5 10
Poor services 8 16
Other - -
Total 50 100
Source: Survey data, 2017

4.3.3. Relationship with members of staff

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

Gender Number of respondents Percentage (%)


Very good 48 96
Good 2 4
Bad - -
Total 50 100
Source: Survey data, 2017

4.3.4. Challenges Faced by Customers

Out of the fifty (50) respondents, 5 representing 10% of the customers indicated limited

security as a challenge, 43 representing 86% indicated lack of better customer-staff relations

while 2 representing 4% indicated an environment which is not conducive as challenges to

commitment to the organisation. This is indicated in table 25

Table 25: Challenges Faced by Customers

Response Number of respondents Percentage (%)


Low interest rate - -
Limited security 5 10
Lack of better customer
- staff relations 43 86
Un-conducive
environment 2 4
Other - -
Total 50 100
Source: Survey data, 2017

4.3.5. Are challenges made known to the organisation?

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?

Response Number of respondents Percentage (%)


Yes 36 72
No 14 28
Total 50 100

Source: Survey data, 2017

4.3.6. Do Challenges Make You Leave 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.

Table 27: Challenges, A Cause of Leaving The Organisation

Response Number of respondents Percentage (%)


Yes 8 16
No 42 84
Total 50 100
Source: Survey data, 2017

54
CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS


Chapter five of the study presents the summary of findings, conclusions and

recommendations for the management of the sampled organisations which include Dwadifo

Adanfo, Jislah Financial Services, Beige Capital, Melbond Financial Services and Ezi

Savings and Loans

5.1. Summary of findings

The main objective of this study was to assess the impact of client drop out on portfolio

management in non-bank financial institutions specifically, microfinance institutions. Other

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

portfolio management at microfinance institutions, assessing the effects of effective portfolio

management on microfinance institutions and finding ways of improving portfolio

management and reducing client drop out at non-bank financial institutions. Below are the

findings of the study:

i. The projected increase in customer base in a year at microfinance institutions is 300-

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

of customer drop out.

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.

Managers of some microfinance institutions have poor attitude towards customers.

This usually creates dissatisfaction to customers and therefore leaves for the next

available bank.

vii. Customer satisfaction is being scrutinised by the management to reduce customer

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

receive the good services they expect and therefore leave.

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

motivation is a factor causing dissatisfaction among customers; high interest rates is a

factor causing customer to leave the financial institutions.

x. Customers indicated that their level of satisfaction in microfinance institutions is very

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

institutions is lack of good customer-staff relations.

56
5.2. Conclusion

The importance of credit portfolio management of the organisations cannot be

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 good managerial relationship is a challenge in minimising customer dropout. Also,

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

customers to remain with the organisation.

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

commitment to customers to their microfinance institutions is lack of better customer staff

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

with the services of microfinance institutions.

5.3. Recommendations

In view of the responses received, the following recommendations are made:

i. Low interest rates

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.

ii. Staff training

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

problem is encountered. Most especially, training on effective customer service delivery,

monitoring and recovery of loan defaults and loan repayment should be organised regularly.

iii. Effective communication with customers

From the findings of the study the customers disclosed that lack of motivation is a challenge.

Therefore, management of financial institutions should communicate issues concerning

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

profitability in the long run.

iv. Clearly defined credit and operational policies

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

customer thereby improving customer retention.

v. Quick and positive response time

58
Undue delay in loan approval may discourage customers from transacting business with

microfinance institutions. As a result, management of microfinance institutions should ensure

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.

vi. Highly competent and skilled personnel

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

attributes of some financial institutions. Therefore, management of microfinance institutions

should ensure that there are highly competent and skilled personnel to take such sensitive and

delicate responsibilities in order to reduce client drop out.

vii. Corporate social responsibility

Corporate social responsibility is the obligation of an organisation or institution to protect 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.

Therefore management of other microfinance institutions should recognise their CSR to

enable them increase their clientele base and impact their operations significantly.

60
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APPENDICES

Appendix A

Questionnaire for staff and management

I am final year student of Central University College and as part of the requirement for the

award of a Masters degree in Finance I am writing a dissertation on the topic: Impact of

Client Drop out on Portfolio Management in Microfinance Institutions in Ghana. 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

and provide answers to the questions below.

SECTION A: PERSONAL DATA

1. Gender (i) Male [ ] (ii) Female [ ]

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 [ ]

5. How long have you been working with the organisation?

a) 1 3 years [ ]

b) 4 7 years [ ]

c) 8 12 years [ ]

d) Above 12 years [ ]

6. What is the projected increase in customer base in a year?

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?

a) Low credit portfolio management [ ]

b) Poor services [ ]

c) Expansion of operations [ ]

d) Creation of new opportunities [ ]

e) Others (Please specify).............................................................................

8. Has there been a situation where customers leave from the organisation themselves?

a) Yes [ ] b) No [ ]

9. What would you attribute to customers of the organisation leaving?

......................................................................................................................................................

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

minimising customer drop out?

a) High motivation [ ]

b) High interest [ ]

c) Employee training and development [ ]

d) Good managerial relationship [ ]

e) Others (please specify)......................................................................

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?

a) Increment of loan portfolio [ ]

b) Reduction in interest rate [ ]

68
c) Employee training and development [ ]

d) Customer satisfaction [ ]

e) Others (Please specify).............................................................................

16. Are the employees aware of the policies being put in place to ensure good customer

retention?

a) Yes [ ] b) No [ ]

17. How would you describe the effectiveness of these policies?

a) Very effective [ ]

b) Effective [ ]

c) Not effective [ ]

18. Any other further comments

.......................................................................................................................

........................................................................................................................

69
Appendix B

Questionnaire for the customers of microfinance institutions

I am final year student of Central University College and as part of the requirement for the

award of a Masters degree in Finance. I am writing a dissertation on the topic: Impact of

Client Drop out on Portfolio Management in Microfinance Finance Institutions in Ghana.

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

and provide answers to the questions below.

SECTION A: PERSONAL DATA

1. Gender (i) Male [ ] (ii) Female [ ]

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).............................................................................

5. Are you working?

a) Yes [ ] b) No [ ]

6. Which sector of the economy?

a. Production/Manufacturing [ ] b. service [ ]

7. Who is your employer?

.............

8. Do you have your own business?

a) Yes [ ] b) No [ ]

9. If yes, what is the type of business?

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 [ ]

11. Are you satisfied with the services of the organisation?

a) Yes [ ] b) No [ ]

12. What makes you unsatisfied?

a) Dissatisfaction with interest rate [ ]

b) Services unchallenging [ ]

c) Lack of motivation by organisation [ ]

d) Service not useful to the customers [ ]

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) Others (Please specify).............................................................................

14. What will let you leave the organisation?

a) High interest rate [ ]

b) Limited customer security [ ]

c) Lack of better management customer relations [ ]

d) Un-conducive environment [ ]

e) Poor services [ ]

f) Others (Please specify).............................................................................

15. Have you made your dissatisfaction known to the management of the organisation?

a) Yes [ ] b) No [ ]

16. Have you ever thought of leaving the organisation?

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?

a. Lower interest rate

b. Good customer service

c. Staff-customer relationship

d. Others (please specify)..

19. How is your human relation with members of staff?

a) Very good [ ]

b) Good [ ]

72
c) Bad [ ]

d) Very bad [ ]

20. In your view, what is the level of satisfaction?

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?

a) Low interest rate [ ]

b) Limited security [ ]

c) Lack of better customer - staff relations [ ]

d) Unconducive environment [ ]

e) Others (Please specify).............................................................................

22. Have you made your challenges known to the organisation?

a) Yes [ ] b) No [ ]

23. Do you think the challenges stated above would make you leave the organisation?

a) Yes [ ] b) No [ ]

24. Any further comments....................................................................................

..............................................................................................................................

..............................................................................................................................

73

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