Factors affecting choice of retail bank by smes in the education sector in Kenya: A case study of private schools in Nairobi county
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Date
2013-02-19
Authors
Mwaniki, Daniel Kamakia
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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
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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
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descriptive research design. -Ti~e'taIge~ population of the study was the top management of
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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
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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
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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
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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
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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.
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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.
Description
Accounting and Finance,2005