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Chapter 2 REVIEW OF RELATED LITERATURE This chapter of the study discusses the other related researches previously conducted

which are similar to the subject of this study. It further provides the additional knowledge about what is Microfinance, microfinancial institutions nature, customer perspective and learning and growth perspective. Microfinance refers to the provision of financial services to low-income clients, including consumers and the self-employed. It also refers to a movement that envisions a A world in which in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers. Those who promote microfinance generally believe that such access will help poor people out of poverty. In Bangladesh, Professor Muhammed Yunis addressed the banking problem faced by the poor people through a program of action-research. With his graduate students in Chicago University in 1976, he designed an experimental credit program to serve them. It spread rapidly to hundreds of villages. Through a special relationship with rural banks, he disbursed and recovered thousands of loans, but the bankers refused to take over the project at the end of the pilot phase. They feared it was too expensive and risky in spite of his success. Eventually, through the support of donors, the Grameen Bank was founded in 1983 and now serves more than 4 billion borrowers. The initial success of Grameen Bank also simulated the establishment of several other giant microfinance institutions like BRAC, ASA, Proshika, etc. Then microfinance continuously spread until it reaches almost all parts of the globe.

In the 90's, efforts have been concentrated towards financial and institutional sustainability of the microfinance institutions (MFIs). Tools to evaluate financial performance have been developed, but the social performance was taken for granted. However nowadays, donors and social investors ask the MFIs to justify the findings: Who are the clients reached? How to combine social and financial objectives? How to avoid mission drift?

Non-financial reporting is an opportunity to communicate in an open and transparent way with stakeholders.The information in nonfinancial reports contributes to building up a companys risk-return profile. A case study finished by Waweru and Spraakman in 2009 concerning microfinance institutions in Kenya. A total of five MFIs were selected for this study. All Microfinance Institutions (MFIs) were well established with branches in both urban and rural Kenya. Data were collected between June 2007 and August 2008. Two MFIs refused to participate in the study citing confidentiality of the information sought and lack of time. Three MFIs agreed to participate and a copy of the interview guide was sent to the respective CEO one month before the date of the interview. This allowed them time to prepare. The results are first, the findings support the view that Performance Measurement System (PMSs) should be linked to the MFIs mission and strategy to improve efficiency (Anthony and Govindarajan, 2007; Kaplan and Norton, 1996; Kaplan, 2002). The importance of this link has been researched extensively in the manufacturing sector (Johnson and Kaplan, 1987; Anderson and McAdam, 2004) but very little research has been completed in the services sector (Starious et al., 2006). Secondly, the findings have identified PMSs that are appropriate for the three MFIs in Kenya. Since this is a relatively new sector, the findings are important since the identified PMS may be adopted by other

evolving MFIs. Indeed the study reinforces the idea that the balance scorecard can be applied to both the manufacturing sector as well as in the service sector (Kaplan, 2002) The study of customer value (CV) is becoming significantly more important, both in research and in practice. For example, the American Marketing Association recently revised its definition of marketing to encompass the notion of customer value, and there have been important discussions in the literature about the dominant logic in the field and over the central role customer value plays (American Marketing Association, 2006; Vargo and Lusch, 2004). Identifying and creating CV is regarded as an essential prerequisite for long-term company survival and success (Porter, 1996; Woodruff, 1997; Payne and Holt, 2001; Huber, Herrmann and Morgan, 2001). Understanding the way customers judge and value a service or product is crucial to achieving a competitive advantage. Scientists and practitioners have recognized the power of the CV concept in identifying value for customers and managing customer behaviour (Johnson, Herrmann and Huber, 2006; Kothari and Lackner, 2006, Setijono and Dahlgaard, 2007). The goal of CV research is to describe, analyze, and make empirically measurable the value that companies create for their customers and to link these insights to further marketing constructs. Recently, the research has also begun to link CV with concepts such as customer lifetime value (CLV) or customer equity in order to assess the return on marketing actions and the financial impact of CV on the company A multitude of CV approaches have emerged, and somewhat ambiguous empirical results have been presented. Thus far there is remarkably little consensus in the literature regarding notation and conception in this research field. Even the term CV is used and evaluated in very different ways in the marketing literature (Woodruff, 1997). There is no consistent definition for customer value by now.

Generally, there are two theoretical differentiable approaches: CV from a company perspective: Here, the value of the customer is central for the provider. The goal is to evaluate how attractive individual customers (customer lifetime value) or customer groups (customer equity) are from a company perspective. This approach became a popular research topic in the last few years. CV from a customer perspective: The focus here is on value generated by a companys product or service as perceived by the customer or the fulfillment of customer goals and desires by company products and/or services. However, CV approaches often have their foundation not only in marketing researchbut also in a variety of other research fields, such as strategy and organizationaldevelopment, as well as in psychology and sociology. According to Payneand Holt (2001), CV research has been shaped and influenced by research in fieldssuch as value chain, augmented product concept, value research, customer behaviour, customer satisfaction, and quality. In particular, the constructs of customersatisfaction (CS) and perceived quality are closely linked to CV and sometimeseven used synonymously in the literature (Walker, Johnson and Leonard, 2006;Gilbert and Veloutsou, 2006; Rust and Chung, 2006).

A comparison of the concepts of CV, quality, and CS demonstrates that the there are closely linked, but yet separate, constructs (see also section 4.1). As quality mostly is defined to be the result of a customers subjective evaluation of a companysproduct or service, most researchers consider quality as antecedent to CV and as a significant variable with strong influence on customers innate behavior (e.g. Zeithaml, 1988; Bolton and Drew, 1991; Allen and Grisaffe, 2001; Ralston,2003). The CV approach encompasses many more facets than quality

alone, e.g.,by taking into account cost or risk attributes (Bolton and Drew, 1991; Zeithaml,1988). Regarding CS, most researchers agree that CS is a post-consumption assessmentby the user about the purchased product or service, and conclude supportedby empirical evidence - that CV is an antecedent of customer satisfaction.CS research generally focuses on benefits (Eggert and Ulaga, 2002; Sweeney andSoutar, 2001; De Ruyter et al., 1997) and current post-purchase customers. In contrast,CV concepts allow a comparison of both expected benefits and sacrifices indifferent phases of the purchasing process by both current and potential customers (Woodruff, 1997; Sweeny and Soutar, 2001).

Chen and Ravallion (1997) examined the effects of growth per se on poverty reduction with data from dozens of countries around the world. Their findings reveal that growth itself meant a cut in poverty worldwide. Naturally, although growth generally leads to a cut in poverty, the effects on poverty reduction vary significantly from country to country. Researchers find that when considerable income inequality exists in a country, its economic growth has rather modest effect on poor people. On one hand, rising government spending helps reduce poverty if it is allocated toward improving education, health, and infrastructure. On the other hand, if the extra government resources are just used to pay for regular administrative expenses or to support industries or even military activities, then the resources may do little alleviate poverty or may even have negative repercussion. Both Calderon and Serven (2003) and Lopez (2004) believed that increased government expenditures were conducive to poverty reduction. According to survey report on HR challenges and solutions in Microfinance April 2008, issued by Microfinance Insights India, people matters are most challenging, in comparison to financial and technology matters.

Hiring and retaining good quality human resources is also one of the targets given to microfinance industry by the government of Pakistan. Asian Development Bank in its April 2008 report on top 100 Asian MFIs highlights nine performance metrics, which include outreachborrowers, outreach depositors, market penetration, scale, growth, profitability, efficiency, productivity and portfolio quality. Human development in an MFI depends upon its chosen area of performance. Once the object of training would have been the individual employee, and the training method would involve teaching. Now, the picture is much more complex. Training may think of organizations as well as individuals being capable of learning to learn; based on the belief that endless learning opportunities exist at the workplace. According to Wilson (2005), Training & Development is traditionally a function of human resource department. It follows a classic training cycle, identifying training & development needs, planning and designing training, implementing training and evaluating it. Using above cycle, organizations may fall under three categories: Those who undertake piece meal training which is typically course based and not explicitly linked to the overall vision and goals of the organization. Organizations, where training and development provision is derived from he business plans and objectives, and is very much downstream of strategy. Those who have a strategic human resource development (SHRD), which is more holistic. The belief that processes of organizational change occur through planned learning to ensure that individuals and organizations are equipped with the skills and knowledge needed to deal with the present and to create the future.

The push for a double bottom line encompasses the concerns for both financial and social performance. It allows us to shift our energies away from a zero-sum tradeoff between poverty and sustainability and move toward understanding how these two complement each other so that both can be improve. As an ever-increasing number and diversity of governments, funders, and institutions with various motivations become interested in microfinance, it is more urgent than ever to have more transparency on social performance. Such transparency will not necessarily force everyone into having the same social objectives, but will ensure that all actors are accountable for what they advertise. Also, the hope is that greater focus on social performance assessment will in turn result in better actual social performance-in reaching larger numbers of far poorer people, in improving services to help clients reduce their vulnerability and improve their economic conditions, and in positively contributing to the communities in which institutions work. (Hashemi, 2007) To be able to truly appreciate the importance of non-financial reporting, we have to step back in time to recollect how the parameters for evaluation of corporate performance have been changing over the years. During the initial phases, when business was organized as sole proprietorship or partnership firms, profit was the dominant indictor of the 2 BIS central bankers speeches performance. Subsequently, with the formation of joint stock companies and the development of stock markets, corporate performance was judged by market capitalization, share price and certain financial ratios such as Earnings Per Share (EPS), Return on Equity (ROE), etc. Now in the 21st century, corporate performance will be judged by corporate social responsibility (CSR) whose disclosure will fall under non-financial reporting. One of the critical parameters to be evaluated in this context would be the value created by the firm for society and whether such value creation is going to be enduring in nature. While the foregoing is true for any

corporate, as far as banks are concerned, since they are highly leveraged institutions dealing with public money and public confidence, there is a greater responsibility for value creation. As a result, non-financial reporting will be extremely important for financial institutions such as banks and its relevance is only going to increase in times to come. Just as financial reporting is not only concerned with returns but the risk return trade-off, similarly, non-financial reporting is also about the risks that one creates in the society. Globally, we have come to realize that our goal is not just growth and profits, but we are looking at inclusive growth.

Synthesis The two theoretical differentiable approaches is relative to the current study since it discuss how two views of different group of persons will be in dealing with valued clients. It will be a guide how the customer and the responsible company should interact. This study by Willson is significant that it gives a view of the type of person and the training necessary to develop them holistically. The training and development needs emphasize on this study because it introduce the training cyle. Chen and Ravallions findings about poverty reduction are similar to the current researchs subject. The researchers of the current study of comparing different microfinance institutions infer that microfinance can aid unequal wealth distribution. Since in most cases, only the rich can borrow from banks because creditors only lend their money to those people who they can assure would pay them back with interests, how can the poor rise if no one would let them borrow so that they could start a living and probably eventually earn, then repay their creditors.

Waweru and Spraakmans study was devised through data collection, where the researchers reviewed publicly available information relating to the MFIs under study and the MFIs in general from public and private records in Kenya. And another is visiting the selected institutions and having a detailed discussion with the CFO and the CEO at the MFIs head office. In our study, in addition to what they did was an accurate benchmarking, the ratio analysis of the available information. This serves as an improvement to make their case study, as a basis, more accurate, considering the fact that our variables are not of the same sizes. Syed Hashemis conclusion is one of our current studys bases to measure the overall performance of a Microfinance Institution. The increasing interest in social performance seeks to shed more light on how financial services affect the lives of poor people. Many individuals, donors, foundations, and governments put money in microfinance with the belief that microfinance helps poor people. To be accountable to these funders, MFIs should be able to report on how (or whether) the stated goals they have are being realized. Many financial institutions that serve the poor, especially those with a development mission, already agree with this approach and they want to know whether they are achieving their social missions or not.