Factors affecting choice of retail bank by smes in the education sector in Kenya: A case study of private schools in Nairobi county

Abstract

The financial system in most of Kenya is under-developed and so provides few financial instruments. Studies however show that commercial banks provide the lowest amount of financing to small and Medium-sized Enterprises and where it is provided the credit is rationed(Atieno, 1998). Furthermore, the banks do not know the needs of their clients, which , .' meansthat they do not have the ability to provide tailor made products for the customers and this is how they lose on potential customers. Meanwhile, none of studies done on Kenyan retailbanks have focused on bank preferences by Small and Medium-Sized Enterprises. This researchtherefore fills this gap by studying the factors that are considered in the choice of a retail bank:by Small and Medium-Sized Enterprises and their order of importance. The aim of the study was to establish the factors that affect the choice of a retail bank: by Small and Medium-sized Entrepreneurs in educational sector in Kenya. The research used the •••• _ f descriptive research design. -Ti~e'taIge~ population of the study was the top management of co ••. _, "" '.. "I 300 private schools in Nairobi Co~ty. The study used stratified random sampling to come upwith the sample of the study. The study used primary data which was collected using semi structuredquestionnaires. The study found out that SMEs relied on loans to fund the operation of their institution and therefore the amount of interest rates on loans borrowed and other services influenced the choice of retail bank by the SMEs. The amount of interest rates influenced the choice of retail bank: to a great extent. In addition, SMEs preferred their respective bank because they offered interest rate on loan and other services at competitive rates. The researcher v VI established that through technology had made bank more proximate to SMEs. However this was not the case with all the services since services like borrowing credit from banks could onlybe accessible over the counter. Thus the proxi:m:ityof the bank is a determinant of the choice of retail bank as SMEs required banking services regularly. The study revealed that the preferred banks of th~;'§MEs were offering high quality services. The entrepreneurs are '" satisfied by the services offered by their preferred bank to a great extent. In addition, the qualityof customer service influenced SMEs choice of the bank to a great extent. The quality service directly relates to customer satisfaction, retention and loyalty to a great extent. The « , research also found out that security of deposit is a key consideration made by the SMEs while selecting their choice of retail bank. In addition, the banks were responsible for deficiency in service for lack of security in its premises and loss caused to customer. The studyalso established that the!' is a 90rrelation between the factors and the choice of retail ., bankby the SMEs with quality servicehaving the highest value and country of incorporation havingthe lowest correlation value. The research concluded that SMEs relied on loans to fund the operation of their institution and therefore the amount of interest rates on loans borrowed influenced the choice of retail bank by the SMEs. The study concluded that the amount of interest rates influenced the choice of retail bank to a great extent. In addition, SMEs preferred their respective bank because they offer interest rate on loan and services at competitive rates. The researcher concluded that through technology made bank accessible and close to SMEs thus enhancing the proximity of the bank to the business. However some services like borrowing credit from banks could only be accessible to the entrepreneurs by going to their preferred banks. The proximity of the bank is a determinant of the choice of retail bank as SMEs required banking servicesregularly. The study concluded that the SMEs considered their preferred banks to be offering high quality services to them thus they were the bank of choice. The entrepreneurs are satisfied by the services offered by their preferred bank to a great extent. In addition, the qualityof customerservice influenced SMEs choice of the bank to a great extent. The quality service directly relates to customer satisfaction, retention and loyalty to a great extent. The research concludes that security of deposit is a key consideration by the SMEs while selectingtheir choice of retail bank. In addition, the banks were responsible for deficiency in ,. ,. service for lack of security in its premises and loss caused to customer. The study also concludes that there is a correlation between the factors and the choice of retail bank by the SMEswith quality service having the highest value and country of incorporation having the lowestcorrelation value. . -.. ,.- , , " o ..•_.~ ••.: ", '. , The study recommends that banksshould improve on the quality of service they offer to the SMEsto become the preferred choice of retail bank by the SMEs. Service quality will play an important role in enhancing customer satisfaction, retention and loyalty. The study further recommends that banks should regularly review the amount of interest rates on loans and other services offered to the SMEs, to design interest rates at competitive prices. The study finally recommends that the banking institution should enhance the security of deposit by their clients which is a major determinant of choice of retail bank by the SMEs.