Chapter 1 - INTRODUCTION
1.1 Background Study
The objective of this research is to improve the quality of services for the banks in Mali and this study will also help mainly in increasing the numbers of loyal customers of the bank. For this study, we had taken the leading bank in Mali i.e. BDM. For the survival of any service or product related company, the main factor for growth is a satisfied customer. To improve the business, every organisation need satisfied customer and these satisfied customers again make way for the organisation to get more new customers. So, for increasing the loyalty of customers, a bank must introduce more customer orientated services. Fosu (2013) shown in his studies of banking competition in Africa (Sub Regional Comparative studies) that most of the government agencies which needed to have more customer satisfaction level had lower satisfaction levels and the same is shown for the banks also. These policies must be easier to understand and easy to implement which can help the bank to grow and develop. To overcome the local market competition and to get more business as compared to competitors, the banks need to identify its focused/targeted customers and their needs (Afsar, etal 2010). Banks which can satisfy their customers’ needs are more successful as compared to others in banking sectors. Gap theory by Kotler (2004) defines the difference between the customer expectations and the quality of service the customer are getting from the banks. For banks, a growth of 5% in customer retention can increase profitability 125% from mere 25% and around 75% increase in industrial profitability (Cheng etal, 2011). But in insurance sector 5% reduction in the quantity of customer can leads to a loss of 85%. This information can be helpful for various banks to determine how, when and which segment of customers they must target for the growth of the banks. Thus, customers are the most important and vital factor for any bank for its growth.
A common assertion is that an outstanding quality of service offered is expected to make customers happy and satisfied; however, this depends on the nature, and structure and even location of the organisation to organisation. This research study considers the quality of services offered by banks in Mali using Mali’s most popular bank - BDM as a case study.
1.2 Background of Mali and its banking sector
With a huge population of 16.9 million, Mali is a last locked, vast country in the West of Africa. It has a per capita GDP of USD 657 (Government of Mali, 2013). Agriculture, especially cotton is the main source of living for around two-thirds of the population. The economy is mainly rural. Although gold provides the largest income to the country, its future in this regard is also unpredictable as these resources are limited (Josz, 2013). Trade and commerce dominate around 40%of the GDP i.e. the service sector (AFDB, 2013). Since Mali is mostly dependent on crops and gold, it must often suffer from trade shocks. Mainly textile plants and small scale food processing plants constitute the industry. This industry gives employment to around 3% of the active population. Most the population, around 90% of the people found working in the informal sector (Fossat et al, 2013). Mali is found to be still recovering from the huge security and political crisis which it suffered in 2012. In the year 2012, around half a million people were displaced when insurgents had taken control over the northern parts of Mali. Both the country and its economy were further de-stabilized a few months later due to which all the donors withdrew their support. By mid-2013, the government allowed a military intervention which was led by the French to gain control over the north and later to re-establish democracy presidential and parliamentary elections were held (AFDB, 2013). Ever since the crisis, the economic growth of the country has resumed and the rate of inflation is also low. In 2012, the growth in GDP was 0% because of the crisis and in 2013 it was only 1.7% because of the less agricultural output. The economic growth returned to its pace in 2014 as there was a 7.2% increase in the GDP and around a 5% increase in 2015 (World Bank, 2015).
1.2.1 Banking in Mali
Though in the recent years Mali’s banking sectors have gone through a lot of development, the aces to its banking sectors are still limited and it is still in the shallow. 97% of the financial sectors asset of Mali is held by the banking sector. In 2013 the GDP/Private credit was 21.87% which placed it above the average conditions of Africa of 17.4% and 16.4% for the low-income countries. The domestic credit/GDP was around 23.1% which was nearly equal to the median value of 23.5% for the countries with low income. Surveys conclude that the financial inclusion is lesser in the comparable countries (Government of Mali, 2013). Generally, the performance of the banking sector appears to be adequately capitalized and profitable but it varies from bank to bank and even the assets are weak. It always seems as if the banks are adequately capitalized as they have an overall capital adequacy (Basle I) of 12.9% in 2013 and even 10.6% above the WAEMU average. But a minimum CAR value of 8% was not achieved by a small and a midsized bank (Basle I) as per June 2014 (Worldbank, 2015). The health and the capitalization of the system can be doubted upon when the reports on gaps in prudential regulations, weaknesses in provisioning and classification of loans and the history relayed to regulatory forbearance is studied. The soundness and safety of the sector is significantly challenged by the credit quality, growing liquidity constraints and risk concentration. Banks have an overall ROA of 1.2% and an ROE of 14.1% which makes the banks profitable (AfDB, 2013a). Over the past three years, the average of the intermediation margins as 8% but there was a declining trend of 7.7% in 2013. This figure is less than the Africans (8.8%) and the low-income medians (9.6%) (AfDB, 2013a). Potential problems for the soundness of the bank is posted by the lax enforcement and the weak prudential standards but these problems are being reformed (World bank, 2015). International standards are also found lacking in the risk concentration norms, capital adequacy and the classification and provisioning regulations of loans. Basle II/III standards are gradually being implemented by the BCEAO, with IMF technically assisting it. As the presence of regional banking groups are increasing in Mali, it has become important to take up measures to improve credit information, inter- alia, implement consolidated supervision, and take international accounting standards. All of this is done by BCEAO. The enforcement of the Banking Commission should also be stepped up while these measures are being implemented (BCEAO, 2012). Credits have been provided by the banks in Mali to a limited number of companies which helped them in comfortably spreading their traditional client base. The competition for these companies has increased and their lending rates are being pressurized and put down as the new and healthier banks are being set up. The positive effect that this competition has had is that this has made the banks to look for some profitable and new lending opportunities among SMEs and retail client (especially the urban salaried workers). Due to these reasons, the lending percentage for these banks is declining. It was 60% of the total portfolio in the year 2012 and in December 2014 it was 39.4% (World bank, 2015). Get to read full research....