Chapter-I

Introduction

Introduction

Micro-finance refers to small saving, credit, and insurance and remittance services extended to socially
and economically disadvantaged segments of society. in the Indian context terms like small and marginal
farmers rural artisan and economically weaker section have been used to broadly define micro-finance
customers the recent task force on micro-finance has defined it as provision of thrift credit and other
financial services and products of very small amounts to the poor in rural semi urban or urban areas for
enabling them to raise their income levels and improve living tenders a present a large part of micro-
finance activity is confined to credit only women constitute a microcredit and savings services which is
result of the immediate post purchase judgment or effective reaction institution mobilize her through their
poor attributable condition.

Globally, service quality is one of the critical success factors that influence the competitiveness of an
organization. Service quality is the difference between service expectations and perceived standards or
delivery. Quality can be defined by customers and occurs where an organization supplies products or
services to a specification that satisfies their needs. Many analyses of service quality have attempted to
distinguish between objective measures of quality and those which are based on more subjective
perceptions of customers Service quality is what clients actually receive as a result of their interaction
with the service firm. During the past few years, service quality has become a major area of attention to
organizations, managers and researchers owing to its strong impact on business performance, lower costs,
customer satisfaction, customer loyalty and profitability (Guru, 2003). The factors that influence the
customer satisfaction are Innovative Services, Network, Access, Technicalities, Behavior, Comfort and
Image or good company reputation. Public and private sector banks and microfinance institutions do not
differ significantly in providing customer satisfaction (Vigg, 2007). Microfinance is made up of the
provision of financial services as well as 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. The products
include savings, loans, insurance and other related financial products and services (Asiama and Osei,
2007).

Microfinance institutions (Here after MFIs) are a recent growing development phenomenon in
developing countries like Ethiopia. They play an important role in providing access to financial services
to rural farmers and people involved in other similar activities as well as micro and smallscale rural and
urban entrepreneurs. Nowadays microfinance is a useful means of intervention for development strategy
for Ethiopia, to reduce poverty by providing a credit access to those people who are unable to offer
collateral for formal banking loans. Microfinance institutions are one way to shift from aid dependency to
self-reliance (Hom 2002).

Microfinance institution is now affected by strong competition. As Daubert (2002) satiates micro finance
institutions. have begun to target MFIs‟ traditional customers , new MFIs have continued to be created
in microfinance industry, the microfinance business is becoming more sophisticated concerning the
quality of service they require or expect. These factors may negatively affect the MFIs. In fact, the
microfinance institutions are losing customers because of both the aggressive competition and their
MFIs‟ weakness to satisfy their customers (Urguizo 2006). In the age of globalization, accomplishing the
higher level of customer satisfaction is the challenging task especially in the financial sector. In order to
face this challenging task, many organizations have started to improve their service quality. Service
quality is one of the serious components in any financial sector because service quality helps to maintain
competitive advantages in the market place. Therefore, service quality is the strategic tool to reinforce
competitive advantages and increase profitability in business (Tam, 2004).

So many financial sectors are using this strategic component to attract and retain customers. Hence,
service quality is determined through customer satisfaction and customer satisfaction is determined
through customer loyalty. Similarly, in order to provide superior services to the customers, at first service
providers must understand how customers perceived and evaluated their services. After that, service
providers can assume customers are facilitated by various services provided by financial sectors
(Zeithaml et al., 2002) Affinity between both service quality and customer satisfaction is highlighted in
empirical research (Bitner et al., 1990). Therefore, relationship between customer satisfaction and service
quality is very critical in financial sector like MFIs. In case of micro finance institutions customers are
attracted by high quality services. Moreover, advancement in technology helps micro finance institutions
to upgrade their service quality (example: m-birr). The point is that customers are loyal To those products
which have a greater value as compared to those of competitors‟. Thus, MFIs can earn higher profit if
they are one step ahead of their competitors in terms of services provided by them. For this reason, every
micro finance institution should focus on service quality so as to satisfy customer. In light the above facts
and arguments, it is definitely believed that the firm‟s success in the future will rest on delivering
excellent service to customers and this in turn strengthen interest in service quality. So far, it was
observed that micro finance institutions do not conduct the survey on their service quality and customers‟
satisfaction in a comprehensive manner. Therefore, in today’s aggressively competition MFIs
environment , where Ethiopian MFIs consider delivery of excellent service quality to customer a key to
success and survival, the finding from such a study can provide them with the valuable insight in a way
of enhancing service quality to induce greater customer satisfaction. Hence, this research seeks to assess
the impact of service quality on customer satisfaction in the micro finance industry, using Amhara credit
and saving institution as case study.
Over the past three decades, several studies have been devoted to microfinance. However, studies that
focus on marketing and customer satisfaction in microfinance institutions (MFIs) are rare (Cohen, 2002;
Woller, 2002). This scarcity contrasts with the recent development of the microfinance sector.
Microfinance has entered a critical phase of its development that is characterized by strong competition,
the desertion of clients, and stagnation in MFIs’ growth rates. To address these problems, MFIs have to
adapt their services to customers’ needs and to recognize that the markets in which they are deployed can
also be saturated (Schicks, 2013). Such an argument puts customer satisfaction at the center of the
strategy of MFIs that are now known to survive in a competitive environment.

The interest in customers and their satisfaction has evolved over time in the microfinance industry.
During their early years of development, MFIs considered clients as given, acquired, and unlimited
(Cohen, 2002). Financial services were provided based on a largely institutional development approach.
MFIs were slow to further monitor financial indicators such as loan repayment rates, the loan amount,
and the total number of customers and did not really worry about quality and delivered value (Datar et
al., 2008). MFIs offered standardized loans with little or no difference based on customer needs and
specificities (Brand, 1998). Although this institutional approach has its merits, it nevertheless leads to
negative results for both MFIs (low growth and low reimbursement rate) and customers (over‐
indebtedness and dropouts) (Guerin, 2013; Gul, Bashir, & Lal Rohra, 2011; Kim, 1999). The
combination of all these factors eventually ruled in favor of a market‐oriented approach (Brand, 1998)
allowing MFIs to put customers at the heart of all their activities (Heckl & Moormann, 2007) to
maximize their chances of survival in a competitive market.

Studies that aim to develop scale measurement and assess customer satisfaction and service quality in the
microfinance sector are almost nonexistent. Existing ones attempt to adapt ServQual to the microfinance
sector (Islam et al., 2013; Rahman, 2006) or to measure customer satisfaction using several unstructured
items (IFAD, 2007; Muray, 2001). The other studies are more general and concern the market orientation
concept and its application in the microfinance sector (Ghani & Mahmood, 2011; Woller, 2002), MFIs’
marketing strategies (Brafu‐Insaidoo & Ahiakpor, 2011; Cohen, 2002), and relationship marketing and its
impact on social performance (Jayashankar & Goedegebuure, 2011), and do not aim to build a reliable
and valid scale measurement specific to microfinance.

Service quality and customer satisfaction gives us innovative ideas to improve the services with an
objective to get a competitive edge in MF sector. Service quality apparently influences the
competitiveness of an organization as it is one of the decisive factors Im and Sun (2015). MFIs can
distinguish themselves from opponents by offering superior services (Wagner & Winkler, 2013). It is
mainly prominent area over the last decade for researchers in MF sector. They must develop the service
level constantly (Habib & Jubb, 2015). It’s not necessary that who is offering is excellent services today
will also be pertinent tomorrow. MFI’s must extend strategies to satisfy their customers, if it wants stay
alive in the competitive MF industry. According to Beryl & Brodeur (2007) that is the basic reason why
service quality is significant in marketing literature as a result, the customers are increased. If we want to
maintain a loyal customer base, customer satisfaction is important for this purpose. Efficient quality of
service results as far higher than the actual customer satisfaction and enhances customer loyalty whereas
revenue generation and development both are inspired mostly by customer loyalty as it is straight
outcome of customer satisfaction (Morduch, 2007). The idea strongly associated with satisfaction and
loyalty is perceived quality. According to Parasuraaman, Zeithaml & Berry (1988) usually service quality
is measured as the differentiation among customer expectations concerning about a services yet to be
delivered and observation of the services being acknowledged. According to the previous studies service
quality is a degree to which a service convenes customer’s need & expectation (Lewis & Mitchell, 1990;
Dotchin & Oakland, 1994; Gonzalez & Rosenberg, 2006; Kanak & Liguni, 2007). According to
Zeithaml, Berry, & Parasuraaman (1990). It is acknowledged as the customer’s general sense of the
comparative inferior or else superior quality of the services. According to Parasuraaman et al., (1988),
service quality is gradually more accepted as an important instrument in the triumph of any industry and
the MFIs are not exceptional in this case. Cowling & Newman (1995) stated that service quality is
extensively used to assess the performance of MFI’s services.

1.2. Statement of the Problem

It is imperative that service organization‟ measure and monitor service quality and satisfaction with a
view of influencing the behavioral intentions of their customers (Saha and Theingi, 2009).The ability of
MFIs to retain customers are paramount to its sustainability. Retention of customers is not only important
because it is less costly than obtaining new clients but also serves as a means for value generation for
stakeholders (Urquizo, 2006). Customers who are satisfied with an MFI‟s products and/or services
remain loyal and tend to add on value to the institution.

According to Harris (2007:2), „one of the most effective and least expensive ways to market a business is
through excellent customer service”. Satisfying customers is the first major mission and purpose of any
micro finance institutions. It is when customers are satisfied the organizations achieves higher sales,
profit and market share and vice versa. Customer satisfaction also leads organizations to gain loyalty and
achieve the desired objectives. Therefore, it is essential for organizations to satisfy their customers
promptly so that they can achieve what they plan. MFIs as a business organization should provide a great
care for its customers‟ to attract, retain and gain their loyalty. Nevertheless, MFIs found in our country
have little care about their customers. This leads them to use more obsolete and traditional technologies
that cause dissatisfaction and switching among customers. This means the institution are not satisfying
their customers enough due to many factors in which using traditional technologies is among them.

Levesque and McDougall (1996) have confirmed and reinforced the notion that consistent poor customer
experience as a result of poor s service quality leads to a decrease in the levels of customer satisfaction
and the chances of further willingness to recommend the service (i.e., wordof-mouth advertising or
referrals) is lessened. Micro finance institution in Ethiopia is facing lots of challenges due to increase in
competition amongst them. As a result various strategies are formulated to retain the customer and
increasing the service quality level has been considered key success factor. Service quality is particularly
essential in the micro finance services context because it provides high level of customer satisfaction and
hence it becomes a key to competitive advantage (Ahmossawi, 2001).

At the present time, service quality has received much attention because of its obvious relationship with
costs, financial performance, customer satisfaction, and customer loyalty. Since customer satisfaction is
also based upon the level of service quality provided by many market leaders are found to be highly
superior customer service orientated. They have been rewarded with high revenue and customer retention
as well. For that reason, organizations in the same service sector are forced to assess the quality of the
services that they provide in order to attract and retain their customers. Because satisfied customers are a
key to long-term business success Zeithaml et al (1996).

Currently most micro finance institution are facing several challenges such as cash flow problems, loan
backlog, delayed refunds of members deposits, competition from banks, system interruption, liquidity
and cash flow problems, delayed service delivery time, as a result customers are sometimes forced to stay
long time in the premises of the institution, Gunga (2009),Where ACSI would never be exceptional. As
we know the ACSI has showed rapid improvement since the Implementation of BPR. But still there is
customer compliant in, transaction errors, excessive bureaucracy, power interruptions and low
accessibility of technology that can adversely affect the service quality and overall customer satisfaction
level so the researcher wants to conduct this study in order to assess the impact of service quality on
customer satisfaction in the case of Amhara credit and saving institution.

Vigg (2007) found that Tangible is missing in the field of service quality so that has highly impacted in
the customer satisfaction. Lack of tangible assets has impacted in the field micro finance as well.

Guru (2003) analyzed that lack of responsiveness and accuracy has impacted on the customers. Staffs in
the field of micro finance are not maintaining their service which has impacted in the level of customer
satisfaction.

Mahajan (2005) found that Empathy is missing in the field of service quality so that has highly impacted
in the customer satisfaction. Lack of empathy has impacted in the field micro finance as well.

Customer satisfaction has been studied in different directions, from measurement to its relationships with
other business aspects. Some researchers have provided possible means of measuring customer
satisfaction (Levy, 2009; NBRI, 2009).

Wilson et al. (2008) demonstrated some determinants of customer satisfaction to be product and service
quality, price, personal and situational factors (Wilson et el., 2008). Some researchers have looked into
the relationship between total quality management and customer satisfaction. (Wen-Yi, et al, 2009).
Because customer satisfaction is based upon the level of service quality provided by the service provider
(Lee et al., 2000) and service quality acts as a determinant of customer satisfaction (Wilson et al., 2008).

Mejeha & Nwachukwu (2008) the research states that micro finance institution financial service to poor
and level income households.

Ashraf & Noor (2010) the research depends on microfinance to alternative poverty to bring development
of every on utilize their need.

Therefore, assessing the relationship between perception of quality service and customer satisfaction
would have great importance to improve the performance of Credit and Saving S.Cs in Shivraj
municipality. Customers are not only interested in the tangible aspects of the service offered to them in
the service sector but also the intangible aspects of these product in the provision process. Moreover,
owing to the concurrent factor, which is a characteristic of the service provision, it becomes even more
difficult for service businesses to compensate for the lack of quality that may occur in relation to products
and services offered to the customers and the resulting dissatisfaction. Therefore, in order to increase the
level of customer satisfaction and consequently assure competitiveness in Shivraj municipality.

Patil & Kamath(2017)The Research tells about microfinance institution helps to improving her stage
through next level land as well as valuable needs.

Study on consumer satisfaction and service quality has been conducted by Gudep and Elango (2006). The
results point out that the overseas and the new created private sector MFIs were serving the customers
better. Mengi (2009) compares the customer’s perceptions of service quality of MFIs and observed that
clients are more satisfied by means of their service quality. The studies initiated that responsiveness and
assurance are most significant for customer satisfaction. While, Choudhury, (2013) suggested that there
is the highest influence of empathy and assurance on customer satisfaction in the Malaysian MF industry.

1.3 Research Questions

 Is there any relationship between Tangible, Reliability, Responsive, Assurance, Empathy, and
Customer satisfaction?
 Does Tangible, Reliability, Responsive, Assurance, Empathy have effect on Customer
satisfaction?

1.4 Objective of the Study

General Objective
The general objective of the study was to assess the relationship between perceived service quality and
customer satisfaction in Shivraj muicipality.

The specific objectives

 To examine the relationship between Tangible, Reliability, Responsive, Assurance, Empathy, and
Customer satisfaction.
 To analyze the effect of Tangible, Reliability, Responsive, Assurance, Empathy on Customer
satisfaction.

1.5 Hypothesis of the study

 H1: There is significance relationship between Tangible and Customer satisfaction.

 H2: There is significance relationship between Reliability and Customer satisfaction.
 H3: There is significance relationship between Responsive and Customer satisfaction.
 H4: There is significance relationship between Assurance and Customer satisfaction.
 H5: There is significance relationship between Empathy and Customer satisfaction.
 H6: Tangible has positive significant effect on Customer satisfaction.
 H7: Reliability has positive significant effect on Customer satisfaction.
 H8: Responsive has positive significant effect on Customer satisfaction.
 H9: Assurance has positive significant effect on Customer satisfaction.
 H10: Empathy has positive significant effect on Customer satisfaction.

1.6. Significance of the Study

This study would investigate customers’ expectations that have a central role in influencing satisfaction
with services, and these in turn are determined by a very wide range of factors lower expectations would
resulted in higher satisfaction ratings for any given level of service quality. This study was also analyzing
the data based on the tenets of the SERVPERF model. It binds all relevant data within the institution
which have influence on the service quality and customer satisfaction of the institution. Due to physical
and capacity constraints the study concentrated on Debre Berhan Main Branch taking samples of sub
branches and included both rural and urban citizens for the data collection. In addition, non-customers
and drop-out customers of the institution were not included as a respondent for this study. This study
would improve microfinance business in Shivraj municipality, Kapilvastu district.

Moreover, the study would recommend the necessary customer service strategies that could enhance
good customer service and improve satisfaction in the microfinance institutions in Shivraj municipality,
Kapilvastu district. The result would help policy makers to and managers to plan and improve quality
service delivery in micro finance institutions. The study would help other researchers to go detail on the
concept.

1.7. Limitations of Study

 This study is limited to customer satisfaction and service quality in micro finance (Tangible,
Reliability, Responsive, and Assurance, Empathy, and Customer satisfaction).
 The data are collected through self-administered questionnaire methods from the selected
respondents of the Shivraj Municipality.
 This study is limited to chi-square test, one way Anova, correlation and Multiple Regression.
 This research gives the limited information about the customer’s opinions where it is very
difficult to probe in the mind.

1.8 Structure of the study

 The study has been organized into five chapters. Each chapter has been devoted to specific
aspects of the event analysis.
 Chapter I is basically an introduction part. It presents brief background, major issues to be
investigated and objectives of the study.
 Chapter II deals with the concept of Customer satisfaction, related literature of said topic, its
determinants, and many more about the topic.
 Chapter III consists of methodology which describes the basic selection of research methods, and
also explains how the data are collected and check how relevant the data is.
 The result is analyzed in chapter IV where the result obtained from primary data analysis is
presented. Subsequently, the remaining part of the chapter deals with major findings of the study.
 Finally, Chapter V covers summery, conclusions and recommendations
CHAPTER II

LITERATURE REVIEW

2.1. The Concept of Service

According to Kotler and Armstrong (2012), service can be defined as economic activities that produce
time, place, form, or psychological utilities. A service is an act or performance that one partly can offer to
another that is essentially intangible and doesn‟t result in the ownership of a thing. Its production may or
may not be tied to a physical product. (Kotler,1998). Many service firms have become successful by
identifying a previously unrecognized or unsatisfied customer wants. (Messay, 2012) states that services
are identifiable, intangible activities that are the main object of a transaction designed to provide want
satisfaction to customers. Messay also states that the travel, hospitals, finance, entertainment, health care
communications, utilities and professional services fields are prime examples. Recognizing the
importance of marketing, many of these industries and organizations within them are now adding
marketing-related personnel. According to (Kotler, 2012), services are growing ever faster in the world
economy, marketing up a quarter of the value of all international trade.

2.2. The concept of quality

Quality has long come to be recognized as a strategic tool for attaining operational efficiency and
improved organizational performance (Anderson and Zeithaml 1984; Babakus and Boller 1992; Garvin
1983: Philips et al 1983). Generally, it is argued that the best definition of quality is that given by those
who see the need for a particular product or service. A given product or service has many users, each
with potentially different uses of the service or product and definitions of quality. According to Garvin
(1987), quality has been conceptualized as having eight dimensions. These are: Performance,Features,
Reliability, Durability, Aesthetics and Perceived value in the eyes of the beholder. It must however be
noted that quality is more than this. It is delivery performance, timeto-market, responsiveness to changes
in the environment and the market place and most of all - at the lowest cost possible (Lovelock and
Wirtz, 2004).Deming (1982) also identified three types of quality essential for the production of goods
and delivery of services which meet the needs of customers and clients. These are quality of design or
redesign, quality of conformance and quality of performance. Quality of design, according to Deming,
develops products and services from the perspective of the customer or client with the aim of delivering
products or services which suits the needs of the market, at a given cost. Quality of conformance is the
ability of an organization to deliver goods and services with the same predictable level of uniformity and
dependability at a reasonable cost, and which conforms to the quality characteristics determined in the
quality of design studies. In sum, according to Deming, the objective of quality of conformance is to
reduce variability in products and services with respect to specifications. Quality of performance focuses
on performance of the product or service in the marketplace. It returns as full circle to the customer or
client. The objective is to assess how satisfied customers or clients are with the performance of the
product or service in actual use. Garvin (1988), in discussing the evolution of quality concept, identified
five perspectives on quality -the transcendent view; the product based approach; the user based approach;
the manufacturing based approach and the value based definition of quality. The transcendent approach
holds the view that quality can be defined or recognized only when the product is used or the service is
experienced. “It argues that people learn to recognize quality only through the experience gained through
repeated exposure” (Lovelock and Wirtz, 2004).

The product based approach holds the view that quality can be judged by the presence or absence of
particular characteristics of the product or service itself. It sees quality as a precise and measurable
variable. However, Lovelock and Wirtz (2004) view that, this approach though highly objective, fails to
account for differences in the tastes, needs and preferences of individual customers (or even entire market
segments).The manufacturing based approach states that quality exists if the product meets original
specifications. It focuses on conformance to internally developed specifications, which are often driven
by productivity and cost- containment goals (Lovelock and Wirtz, 2004). With this approach a failure to
meet standards completely represents a lack of quality, posits Garvin. The user based approach takes into
consideration the customer‟s wants expectations, needs and requirements and argues that they have to be
met. It is based on the premise that quality lies in the eyes of the beholder and until the customer was
completely satisfied, quality cannot be said to exist. Finally, the value based perspective sees quality as a
trade-off between value and price. By considering the trade-off between performance (and conformance)
and price, quality comes to be defined as “affordable excellence” (Lovelock and Wirtz, 2004).

2.3. The concept of Service quality

The service industry plays crucial role in the economy of any country. Both the private and public
organizations play very useful roles in the service industry. The role of the micro finance institutions in
the delivery of quality services is even more crucial in developing countries like Ethiopia. Customers‟
needs and expectations are changing when it comes to governmental services and their quality
requirements. The complexity and difficulty associated with service delivery sector is emphasized by
Gowan (2001) and others.

According to Gowan et al (2001), service provision is more complex in the service sector because it is
not simply a matter of meeting expressed needs but of finding out unexpressed needs, setting priorities,
allocating resources and publicly justifying and accounting for what has been done. Service sector
organizations have come under increasing pressure to deliver quality services (Randall and Senior, 1994)
and improved efficiencies (Robinson, 2003).It should be noted that service quality in most Service sector
organizations is to say the least unsatisfactory.

According to Teicher et al (2002), service quality practices in service sector organizations is slow and is
further exacerbated by difficulties in measuring outcomes, greater scrutiny from the public and press, a
lack of freedom to account in an arbitrary fashion and requirement for decisions to be based on law.
Service quality has been identified and documented as one of the key driving forces for organizational
survival, sustainability and is crucial for the firm‟s accomplishment (Rust and Oliver, 1994). Service
quality has been defined and conceptualized differently by different experts, researchers and
practitioners. According to Zeithaml and Bitner (2008:85), Service quality is a focus evaluation that
reflects the customers‟ perceptions of specific dimensions of quality: reliability, responsiveness,
assurance, empathy and tangible. It is a conceptual construct which centers on perceived quality defined
as a customers‟ judgment about an entity‟s overall excellence or superiority (Zeithaml 1987).

According to Parasuraman et al (1985), service quality is the difference between customers‟ expectations
of services and their perceived service. If the expectation is greater than the service performance,
perceived quality is less than satisfactory and general dissatisfaction occurs.In other words, service
quality is the result of the comparison that customers make between their expectations about a service
and their perception of the ways the service has been performed (Groonroos, 1984, Parasuraman et al
1985; 1988).

Parasuraman et al, (1988) also add that service quality is the ability of the organization to meet or exceed
customer expectation.Zeithaml et al, (1990) further points that it is the difference between customer
expectations of service and perceived service. Perceived service quality results from comparisons by
customers of expectations with their perceptions of service delivered by suppliers. Other scholars such as
Lewis and Mitchell (1990), Dotchin and Oakland (1994), and Asubonteng et al (1996), define service
quality as the extent to which a service meets customers‟ needs and expectations.

Service quality and customer satisfaction gives us innovative ideas to improve the services with an
objective to get a competitive edge in MF sector. Service quality apparently influences the
competitiveness of an organization as it is one of the decisive factors Im and Sun (2015). MFIs can
distinguish themselves from opponents by offering superior services (Wagner & Winkler, 2013). It is
mainly prominent area over the last decade for researchers in MF sector. MFIs must offer services
cautiously as there is accessibility of various MFIs offering similar services to the customers. They must
develop the service level constantly (Habib & Jubb, 2015). It’s not necessary that who is offering is
excellent services today will also be pertinent tomorrow. MFI’s must extend strategies to satisfy their
customers, if it wants stay alive in the competitive MF industry. According to Beryl & Brodeur (2007)
that is the basic reason why service quality is significant in marketing literature as a result, the customers
are increased. If we want to maintain a loyal customer base, customer satisfaction is important for this
purpose. Efficient quality of service results as far higher than the actual customer satisfaction and
enhances customer loyalty whereas revenue generation and development both are inspired mostly by
customer loyalty as it is straight outcome of customer satisfaction (Morduch, 2007). The idea strongly
associated with satisfaction and loyalty is perceived quality. According to Parasuraaman, Zeithaml &
Berry (1988) usually service quality is measured as the differentiation among customer expectations
concerning about a services yet to be delivered and observation of the services being acknowledged.
According to the previous studies service quality is a degree to which a service convenes customer’s need
& expectation (Lewis & Mitchell, 1990; Dotchin & Oakland, 1994; Gonzalez & Rosenberg, 2006; Kanak
& Liguni, 2007). According to Zeithaml, Berry, & Parasuraaman (1990). It is acknowledged as the
customer’s general sense of the comparative inferior or else superior quality of the services. According to
Parasuraaman et al., (1988), service quality is gradually more accepted as an important instrument in the
triumph of any industry and the MFIs are not exceptional in this case. Cowling & Newman (1995) stated
that service quality is extensively used to assess the performance of MFI’s services.

Study on consumer satisfaction and service quality has been conducted by Gudep and Elango (2006). The
results point out that the overseas and the new created private sector MFIs were serving the customers
better.
Mengi (2009) compares the customer’s perceptions of service quality of MFIs and observed that clients
are more satisfied by means of their service quality. The studies initiated that responsiveness and
assurance are most significant for customer satisfaction. While, Choudhury, (2013) suggested that there
is the highest influence of empathy and assurance on customer satisfaction in the Malaysian MF industry.

According to Munusamy et al., (2010) there is a considerable, straight and negative association between
the virtual usage level of MF services and loyalty, a positive relationship was found between customer
satisfaction and service quality. He also found an indirect optimistic relationship among services
convenience in course of satisfaction with service quality. Though, very small amount of research has
investigated relation among service quality and customer satisfaction and scrutinized dissimilarities
within private and public sector MFIs in Pakistan.

Choudhury (2013) investigated the relation among service quality and customer satisfaction through a
sample size of customers and MFIs. In this context, it would be appealing to study the relation among the
individual dimensions of customer satisfaction and service quality in microfinance institutions of district
Mansehra. The study anticipates to construct on clear relations among service quality dimensions and
customer satisfaction by inquiring the correlation among the individual dimensions of service quality and
consumer satisfaction in the case of MFIs in district Mansehra. In order to explore this relationship the
data was collected from 623 clients of MFIs through convenience sample.

Micro finance refers to credit, little savings, and transfer of funds, services and indemnity comprehensive
to collectively and reasonably underprivileged sections of the general public (Urguizo, 2006; Iyengar et
al., 2010).

Micro finance is defined as to deliver credit as well as other financial services or products of small
quantity to the disadvantaged people in pastoral, sub urban and metropolitan areas with an objective of
helping them to lift up their revenue and develop their life styles (Morgan & Rego, 2006; Arsyad, 2005).
Micro finance customers are generally defined as a minute and insignificant cultivators, pastoral,
craftsmen and economically feeble segments (Koraus, 2002; Swain & Walentin, 2009).

Morgan and Rego (2006) stated that researchers are limited mostly to economic presentation, overreach
and loan settlement features. Yet their assessment is also made on these features and the same is
practiced in Pakistan.

But if we consider customer satisfaction there is limited research in this aspect (Gutierrez-Nieto &
Molinero, 2009). Slightest research is being found on detailed investigation of service quality and
customer satisfaction of the depressed segment of the society in Pakistan. This aspect has a vital
importance since there is adequate truth in marketing literature and service management with the aim of
customer satisfaction that results in enhanced achievement therefore, it may be used to appraise the
performance of diverse MFIs in our country (Sengupta & Aubuchon, 2008; Gonzalez & Rosenberg,
2006). The main principal of Micro finance institutions is to hold up the deprived in the course of the
microfinance system (Rahman, 2007).

According to Othman & Owen (2001) the MFIs have become further aggressive through long-established
economic sectors. Within existing exigent situation, the entire MFI’s in Pakistan are giving immense
concentration to the customer satisfaction via services and products.

Hennig and Klee (1997) stated that probably the vital aspect to attain achievement is customer care
itself. Obviously there are more chances of loyalty towards MFIs if the customers are satisfied (Deng et
al., 2009). To meet the expectations & satisfy the customers’ needs and to prolong their business is the
foremost aspire of any organization (Turel & Serenko, 2006). Furthermore, nearly all previous
researchers in Pakistan as well as other countries paid attention on the customer satisfaction in Banks and
MFI’S in different countries to evaluate the service quality.

The researchers such as Ramdani & Kurniti (2011), Othmaan & Owen (2001) paid attention to probe the
service quality of MFIs. But there are exceptional studies that observed the customer satisfaction on
products or services provided by MFI’s. Prominently, the studies that examine the efficiency of MFIs and
the clients are contented to what extent through the aspects stated in this study (Mwangi & Brown, 2005).

Service for the underprivileged referred as microfinance is usually acknowledged instrument for
improving the financial situation of the deprived in developing countries including Pakistan (Hermes,
Lensink & Meesters, 2011).

Microfinance promises to struggle against scarcity by providing financial access to deprived people who
have been expelled from proper banking system due to lack of assets for collateral for sustaining loans
and low repayment capability in developing countries (Demirgu¨ç-Kunt & Bassem 2012).

MFI’s can increase the power of poor & low income people by giving those resources and making them
bold enough for everyday decisions and manage their own paths out of poverty (Fazlollahtabar, 2012;
Bassem, 2012). MFI’s play a fundamental role in the economic growth of various developing countries
like Pakistan by providing a broad range of financial products and service to the deprived, low income,
micro & small enterprises (Mbogo and Ashika, 2011).
2.3 Theoretical framework

Reliability

Responsive Customer Satisfaction

Assurance

Empathy

Source: Ali(2022)

2.3.1. Service quality dimension

In services marketing literature, service quality has been reported as a second order construct being
composed of first order variables (Sachdev and Verma, 2004). Various authors have provided different
conceptualizations over time. They include Groonroos‟ (1984) three-component structure (technical
quality, functional quality and reputational quality); Lehtinen and Lehtinen‟s (1982) three component
conceptualization (interactive, physical and corporate quality); Hedvall and Paltschik‟s (1989) two
dimension model (willingness and ability to serve; and physical and psychological access); Garvin‟s
(1988) nine dimensional approach (performance, features, conformance, reliability, durability,
serviceability, response, aesthetics and reputation); Oliver and Rust‟s (1994) functional quality, technical
quality and environmental quality construct; Parasuraman,Zeithaml and Berry (PZB)(1988)
conceptualization of five dimensions:Tangibles,Reliability,Responsiveness,Assurance,Empathy

Tangibility

Tangibility relates to the physical aspects or evidence of a service. Physical aspects of Commercial
include appearance of equipment and fixtures, physical facilities, materials associated with the service,
appearance of personnel and communication materials, Convenience of physical facilities and layouts. In
addition to the appearance of the facilities, it also takes into account the convenience offered the
customer by the layout of physical facilities (Ananth, 2011). The higher customers appreciate on the
physical aspects, the higher the overall evaluation of Commercial service quality is. (Bellini,
2005).Bitner, (1992) proposed that the physical setting of the place of service, including not only visual
aspects such as color and texture, but also noise, odors, and temperature is of particular importance and
capable of altering customer expectations and strongly influencing consumer.

The other tangibility aspect is the interior design of premises and facilities. The interior design of the
premises and facilities influences customers‟ perception of service quality, customer satisfaction and
satisfaction. Studies on the influence of the physical interior design of the facility on service quality,
customer satisfaction and patronage decisions are in support of this finding. Sherman, (1997) confirmed
that the interior environments were important determinants of purchase behavior. Kalcheva&Weitz,
(2006) found that the interior environment of business settings had an impact on consumer purchasing
behavior, particularly on re-patronage intentions or decisions.

Reliability

The reliability construct in the SERVQUAL model represents the service provider‟s ability to perform
the promised service dependably and accurately. This is achieved through keeping promises to do
something, providing right service, consistency of performance and dependability, service is performed
right at the first time, the company keeps its promises in accuracy in billing and keeping records correctly
,available merchandise and error-free sales transactions and records. Reliability also consists of accurate
order fulfillment; accurate record; accurate quote; accurate in billing; accurate calculation of
commissions; keep services promise. He also mentioned that reliability is the most important factor in
banking services.(Yang, 2003) The higher customers appreciate on reliability, the higher the overall
evaluation of service quality is. (Ndubisi, 2006).

Responsiveness

Responsiveness is the determinant that defines the willingness to help customers and to provide prompt
services. It is the desire and willingness to assist customers and deliver prompt service .It involves
features such as the opening hours of the service provider, the politeness of the employees and the time
the customer has to wait in order to get the service. In other words, it describes how quickly and affective
the response to the customer is .Willingness to help customers is likely to have an important and positive
effect on customer‟ perceived service quality and customer satisfaction in micro finance institution.
Mengi, (2010) also found that responsiveness is positively related to service quality and customer
satisfaction. It is also involves understanding needs and wants of the customers, convenient operating
hours, individual attention given by the staff, attention to problems and customers‟ safety in their
transaction(Kumar & Meenakshi, 2006).

Assurance
The assurance construct consists of competence (possession of the required skills and knowledge to
perform the service), courtesy (consideration for the customer's property, clean and neat appearance of
public contact personnel), credibility and security of the employees and their ability to inspire trust and
confidence. According to Sadek, (2010, 2010), in British banks assurance means the polite and friendly
staff, provision of financial advice, interior comfort, eases of access to account information and
knowledgeable and experienced management team.

This includes employees having knowledge to answer questions, inspiring confidence, providing prompt
service, willing to respond to customer‟s requests, giving customers individual attention, showing
consistent courtesy with customers and even treat customers properly on the phone. Customers have high
expectations regarding feeling safe and secure whilst making transactions. This may be attributed to the
nature of the services provided by MFIs. Customers face much greater risk in terms of fraud and identity
theft in banking. This may explain the fact that by MFIs. do all they can to assure their customers that
transactions with their organizations are safe and secure On whether employees always instill confidence
in their micro finance customers, it is important to acknowledge the fact that customers want to trust and
have confidence in the competence of the service provider‟s employees to deliver the service. The
customer will not be satisfied if he/she does not feel assured about the competence of the service
provider. Lai, Hutchinson, Li, &Bai, (2007) found that confidence is one of the important factors for
assurance.

Empathy

The last dimension of the SERVQUAL model is empathy. Empathy is the caring and personalized
attention the organization provides its customers. It is reflected in the service provider‟s provision of
access, communication and understanding the customer. Individual attention, convenient operating hours,
understanding of the staff when a problem occurs and the knowledge the employees have of the
customers‟ needs were the primary elements included in the evaluation of empathy. This dimension
captures aspects of service quality that are directly influenced by service provider‟s policy such as good
customer service, convenience of parking and operating hours (Butcher, 2001) The degree to which the
customer feels the empathy will cause the customer to either accept or reject the service encounter.

2.3.2. Service quality measurement

Without doubt, conceptual service quality models are useful in so much as they provide an overview of
the factors which have the potential to influence the quality of organization andits service offerings. They
facilitate our understanding and can help organizations to clarify how Quality shortfalls develop.
However, human behavior significantly affects the quality of an organization and its offerings, and this is
more evident in service organizations. The most widely used models in measuring service quality in the
banking sector are the SERVQUAL, SERVPERF model and Hierarchical Model.

2.3.2.1. SERVQUAL Model

According to Clow and Kurtz (2003) a test instrument called SERVQUAL was developed to measure
service quality. Parasuraman et al. (1985) is believed to be the first who introduced the conceptual
framework for the SERVQUAL model to measure consumer perceptions of service quality and later
refined the model. According to the SERVQUAL model (Parasuraman et al., 1988), service quality can
be measured by identifying the gaps between customers‟ expectations of the service to be rendered and
their perceptions of the actual performance of the service. It was developed to measure perceived service
quality as the key output variable and in its finalized form it has 22 pairs of Likert-type scales. The first
22 items are designed to measure customer expectations of service for a particular service industry
(expectations), while the Remaining 22 are intended to measure the perceived level of service provided
by a particular service organization (perceptions). Service quality is then measured by calculating the
difference in scores between the corresponding items (i.e. perceptions minus expectations). (Parasuraman
et al, 1985).In other words, it is a technique that can be used for performing a gap analysis of an
organization's service quality performance against customer service quality needs.

Research has shown SERVQUAL to be an effective and stable tool for measuring service quality across
service industries (Parasuraman et al., 1985, 1988; Zeithaml et al., 1990; 1993). SERVQUAL is based on
five dimensions of service quality. The model was initially developed for financial services sector and it
has been used for other sectors such as telecommunications, healthcare and hospitality. When perceived
performance rating exceeds expectations, the outcome is considered as a sign of good quality whilst the
reverse is an indication of a poor quality. (Lovelock and Wirtz (2007).SERVQUAL has been adopted for
conducting many studies. As it easily identifies the strength and weakness of service provided by
organizations, areas of weakness can be prioritized. It also serves as a standard for organizations to
measure the quality of service in the same industry.

Moreover it serves as a signal to management to take in consideration the perception of both the
management and the customer helps them to know the customer‟s impression about the service provided.
(Buttle 1996 cited on Aborampah Amoah Mensah 2010) However major criticisms have been made
against the SERVQUAL model. The major one being, the five service quality dimensions are not
universal and cannot be applied in all service industries. Further Buttle(1996) cited on Aborampah 2010
argues that there is a little proof that customers evaluate the quality of service on the basis of the
difference between perception and expectation. Land hare also supported his idea saying the difference
score do not give any additional information beyond that already existed in the perception‟s item for the
result showed that the dominant contributor to the gap scores comes from the perception‟s score. More
over using two sets of questionnaire with the likert scale is confusing and tire some. SERVQUAL also
fails to provide remedies for the identified Gaps. (AborampahAmoahMensah2010).

2.3.2.2. SERVPERF Model

The SERVPERF model was carved out of SERVQUAL by Cronin and Taylor in
1992.SERVPERFdirectly measures the customer‟s perception of service performance and assumes that
respondents automatically compare their perceptions of the service quality levels with their expectations
of those services. Cronin and Taylor argued that only perception was sufficient for measuring service
quality and therefore expectations should not be included as suggested by SERVQUAL (Baumann et al,
2007).Instead of measuring the quality of service via the difference between the perception and
expectation of customers as in SERVQUAL, SERVPERF operationalizes on the perceived performance
and did not assess the gap scores as expectation does not exist in the model.

Thus, it is performance-only measure of service quality. The model adopts the five dimensions of
SERVQUAL and the 22 item scale is used in measuring service quality. In the SERVPERF model, the
results demonstrated that it had more predictive power on the overall service quality judgment than
SERVQUAL. (Cronin and Taylor 1994) „‟The SERVPERF scale is found to be superior not only as the
efficient scale but also more efficient in reducing the number of items to be measured by 50% (Hartline
and Ferrell, 1996; Babakus and Boller, 1992; Bolton and Drew, 1991)‟‟ cited by Mesay Shita2012.Many
studies have been conducted by adopting the SERVPERF model. Also, Wall and Payne(1973) note that
when people are asked to indicate the “desired level” (expectations) of a service and the “existing
level”(perceptions) of the service, there is a psychological constraint that people always tend to rate the
former higher than the latter (E>P). Babakus and Boller1992 have found that service quality, as measured
in the SERVQUAL scale, relies more significantly on the perception score than on the expectation score.
(Cited onH.Vasantha Kumari) Due to the above mentioned facts the researcher also preferred to use
SERVPERV model to undertake the study.

2.3.2.3. Hierarchical Model

Brady & Cronin (2001) proposed a hierarchical model to conceptualize service quality perceived by
customers in service environment. In the process of developing their model, the authors adopted
Dabholkar et al‟s (1996) view that service quality perceptions are multilevel and multidimensional in
nature. Brady and Cronin (2001) also include (Rust and Oliver‟s 1994) view of service quality perception
that is based on interaction quality (service delivery/ fictional quality), outcome quality (service
product/technical quality), and physical environment quality (service environment).

Brady and Cronin (2001) found that the service quality construct conformed to the structure of a third-
order factor model that consisted of three primary dimensions: interaction quality, environmental quality,
and outcome quality. Each of the primary dimensions consisted of three corresponding sub dimensions:
1. Interaction quality: attitude, behavior, and expertise; 2. Physical environment quality: ambient
conditions, design, and social factors; and 3. Outcome quality: waiting time, tangibles, and valence.
Brady and Cronin (2001) tested this conceptualization of service quality in four service industries. The
empirical result confirmed use the hierarchical structure to conceptualize service quality.

2.4. The concept of Customer satisfaction

Satisfaction is generally recognized as a pleasurable outcome, a desirable end state of consumption or
patronization. Precise definitions of satisfaction vary, but common themes emphasize that it is a
customer‟s judgment of the consumption experience formed through some kind of psychological process
that involves some form of comparison of what was expected with what was received. Similarly,
consumers may form satisfaction judgments about specific attributes of a service (e.g. the responsiveness
of staff, the amount of information provided, branch opening hours, etc.) or about the service overall.
Different authors define customer satisfaction differently.

Kotler (1996) defines customer satisfaction as follows: “Satisfaction is a person's feelings of pleasure or
disappointment resulting from comparing a product's perceived performance (or outcome) in relation to
his or her expectations “Consumers form judgments about the value of marketing offers and make their
buying decisions based upon these judgments (kotler, 1996).Customer satisfaction with a purchase
depends upon the product's performance relative to a buyer's expectations. A customer might experience
various degrees of satisfaction. If the product's performance falls short of expectations, the customer is
dissatisfied. If performance matches expectations, the customer is satisfied. If performance exceeds
expectations, the customer is highly satisfied or delighted. But how do buyers form their expectations?
Expectations are based on the customer's past buying experiences, the opinions of friends and associates,
and marketer and competitor information and promises. Marketers must be careful to set the right level of
expectations. If they set expectations too low, they may satisfy those who buy, but fail to attract enough
buyers. In contrast, if they raise expectations too high, buyers are likely to be disappointed. The term
„fulfillment‟ is commonly used in discussions of satisfaction.

Satisfaction will involve a positive experience and the delivery of a service that matches (or possibly
exceeds) customer expectations; delight goes a stage further, delivering beyond expectations and
generating a stronger emotional response. What is evident in most discussions of satisfaction (or even
delight) is that consumer judgments are made by comparing the service that is experienced against some
pre-existing standard. One of the commonest bases for comparison is that of perceptions against
expectations. This is commonly referred to as the Disconfirmation Model of Satisfaction. In simple
terms, when perceptions are less than expectations the result is a negative disconfirmation, resulting in a
negative evaluation and a lack of satisfaction. Confirmation of expectations or a situation of positive
disconfirmation (where performance exceeds expectations) will result in a positive evaluation, usually
satisfaction but perhaps also delight (Christine T. Ennew and Nigel Waite).

2.4.1. Nature of Customer Satisfaction

Understanding the nature of satisfaction is essential for the possible conceptualization of the customer
satisfaction construct.Johnson, Anderson&Fornell (1995) state that the modeling of customer satisfaction
depends critically on how satisfaction is conceptualized. Padgett & Allen, (1997), & Mano & Oliver
(1993) have identified satisfaction as a cognitive, affective and behavioral reaction connected with a
specific service event. Thus, it brings into play the conceptualization of customer satisfaction, based on
the nature of satisfaction founded on the theories that underpin the construct of satisfaction. Customer
satisfaction is considered as the center of business strategy for business organizations.

Customer satisfaction is not only the intrinsically worthy goal of organization, but also it has important
influences on Customer retentions and organization financial ability (Boudreaux &O‟Hea, 2004).
Customer with higher satisfaction level is more likely to compliant with employee‟s service and to
recommend the financial service providers to their friends and relatives. Customer satisfaction is
conceptualized has been transaction-specific meaning it is based on the customer‟s experience on a
particular service encounter, (Cronin & Taylor, 1992) and also some think customer satisfaction is
cumulative based on the overall evaluation of service experience (Jones &Suh, 2000). These highlight the
fact that customer satisfaction is based on experience with service provider and also the outcome of
service.Satisfaction is the state felt by a person who has 19 experienced a performance or outcome that
has fulfilled his or her expectations. Satisfaction is thus a function of relative levels of expectation and
perceived performance. Expectations are formed on the basis of past experiences with the same or similar
situations, statements made by friends and other associates, and statements made by the supplying
organization.

2.4.2. Customer Satisfaction Measurement

Customer satisfaction measurement involves the collection of data that provides information about how
satisfied or dissatisfied customers are with a service. This information can be collected and analyzed in
many different ways. Many organizations regularly check the levels of customer satisfaction to monitor
performance over time and measure the impact of service improvement. Henley center headlight vision
(Smith, 2007) states the research carried out in the UK with service giving organizations suggests that
there are five themes that are likely to be relevant to all organizations in measuring customer satisfaction.
Delivery of the service (how problems were handled, reliability, outcome.), Timeliness (waiting times,
number of times contacted), Information (accuracy, enough information, kept informed) ,Professionalism
(competent staff, fair treatment) and Staff attitude (friendly, polite, sympathetic)

2.5. The relationship between Customer Satisfaction and Service Qualities

To achieve a high level of customer satisfaction, most researchers suggest that a high level of service
quality should be delivered by the service provider as service quality is normally considered an
antecedent of customer satisfaction (Cronin, Brady, and Hult, 2000; Anderson et al., 1994; Cronin and
Taylor, 1992). However, the exact relationship between customer satisfaction and service quality has
been described as a complex issue, characterized by debate regarding the distinction between the two
constructs and the casual direction of their relationship (Brady, Cronin and Brand, 2002). Parasuraman,
Zeithaml, and Berry (1994) concluded that the confusion surrounding the distinction between the two
constructs was partly attributed to practitioners and the popular press using the terms interchangeable,
which make theoretical distinctions difficult. Interpretations of the role of service quality and satisfaction
have varied considerably (Brady et al., 2002; Cronin and Taylor, 1992; Parasuraman, Zeithaml, and
Berry, 1988). Parasuraman et al. confined satisfaction to relate to a specific transaction as service quality
was defined as an attitude. This meant that perceived service quality was a global judgment, or attitude,
relating to the superiority of the service. Cronin and Taylor (1992) argued against Parasuraman et al.‟s
categorization. Cronin and Taylor (1992) found empirical support for the idea that perceived service
quality led to satisfaction and argued that service quality was actually an antecedent of consumer
satisfaction. Cronin and Taylor (1992) asserted that consumer satisfaction appeared to exert a stronger
influence on purchase intention than service quality, and concluded that the Strategic

emphasis of service organizations should focus on total customer satisfaction programs. The authors
reasoned that consumers may not buy the highest quality service because of factors such as convenience,
price, or availability and that these constructs may enhance satisfaction while not actually affecting
consumers‟ perceptions of service quality. Cronin and Taylor (1994) later conceded that the
directionality of the service quality/satisfaction relationship was still in question and that future research
on the subject should incorporate multitier measures. The authors suggested restricting the domain of
service quality to long-term attitudes and Consumer satisfaction to transaction-specific judgments.
However, Bitner and Hubbert (1994) determined that service encounter satisfaction was quite distinct
from overall satisfaction and perceived quality. The authors concluded that the constructs exhibited
independence.

Adding to the debate about the distinction between service quality and satisfaction, customer satisfaction
has also been operationalized as a multidimensional construct along the same dimensions that constitute
service quality (Sureshchandar, Rajendran, and Anantharaman, 2002). Despite strong correlations
between service quality and customer satisfaction in their study, the authors determined that the two
constructs exhibited independence and concluded that they were In fact different constructs, at least from
the customer‟s point of view. Brady and Cronin (1992) had endeavored to clarify the specification and
nature of the service quality and satisfaction constructs and found empirical support for the
conceptualization that Service quality was an antecedent of the super ordinate satisfaction construct. In
addition, the authors found that explained a greater portion of the variance in consumers‟ purchase
intentions than service quality. A reverse causal relationship has also been hypothesized between the two
constructs. Rust and Oliver (1994) maintained that while quality was only one of many dimensions on
which satisfaction was based, satisfaction was also one potential influence on future quality perceptions.

2.7. Empirical result

Distinction between Service quality and Customer satisfaction the literature on services has made a
distinction between service quality and customer satisfaction (Bitner, 1990; Bolton & Drew, 1991;
Parasuraman et al., 1988 as cited in Harr, 2008). This differentiation is important for firms to concentrate
on enhancing their capability to satisfy customers through providing high service quality.
The position of scholars characterized by Parasuraman et al., (1988), is that “service quality involves an
attitude and is an evaluation over several service encounters over Time” It is also “thought to be an
overall assessment about a service category or an organization” (Parasuraman et al., 1988). “In support of
this, respondents in Parasuraman et al., (1988)‟s study demonstrated satisfaction with specific service
encounters but were not happy with the service quality of the firm.” conversely, recent thoughts on
customer satisfaction is summarized in the following definition of satisfaction by Oliver (1981) as “a
psychological state resulting when the Emotion surrounding disconfirmed expectations is coupled with
the consumer’s prior feelings about the consumption experience”. Moreover, Oliver (1981) distinguished
customer satisfaction from service quality in his definition of attitude as “the consumer’s relatively
enduring affective orientation for a product, store, or process while satisfaction is the emotional reaction
following a disconfirmation experience which acts on the base attitude level and is consumption-specific”
(Oliver, 1981, p. 42). Therefore, service quality is “more stable and is situational oriented” (Oliver, 1981,
p. 42).

CHAPTER 3

RESEARCH METHODOLOGY

3.1 Introduction
This chapter has clarified about the significance of exploration strategy for this review. There are
quantities of exploration system accessible to handle the issue and track down the arrangement on said
study. Research is a systematic and organized effort to investigate a specific problem that needs a
solution. This process of investigation involves a series of well activities of gathering, recording analysis
and interpreting the data with the purpose of finding the answer to the problem. Research method is a
way to systematically solve the research problem. It may be understood as a science of studying how
research is done scientifically. In it we study the various steps that are generally adopted by a researcher
in studying research problem along with the logic behind them.

3.2 Research Methodology

Research approach is important work in order to write the research. It clarifies the logical and deliberate
quest for data. As indicated by the brief Oxford meaning of exploration as "precise examination
concerning the investigation of materials and sources to lay out realities and arrive at new resolutions."
Similarly, (Mory, 1923) says research as a "arranged work to acquire new information". All in all
explanation approach alludes to the most common way of acquiring coherent and precise data of any
examinations. 55 there are different strategies in research system that are being applied to look through
the data required for concentrate like enlightening versus logical, applied versus basic, subjective versus
quantitative, applied versus exact (Kothari, 2004). As per the idea of my review, quantitative exploration
procedure is appropriate for my review and applies in like manner.
3.2 Research Design
 (Kumar, 2005) states that research design are a plan, structure and strategy of investigation so as to
obtain answers to research questions or problems. Research design is a plan, framework and
strategy to achieve the research objectives. It is the arrangement of conditions for collection and
analysis of data. The study has been carried out to find customer satisfaction and service quality
in micro finance in Shivraj municipality. For this study, survey based descriptive and analytical
research design was used. This research is based on primary data hence; descriptive research
design Descriptive Research Design has helped to identify customer satisfaction and service
quality in micro finance in Shivraj municipality. A causal-comparative design is a research design
that seeks to find relationships between independent and dependent variables after an action or
event has already occurred. This research is using casual comparative design in order to find the
effect of Tangible, Reliability, Responsive, Assurance, Empathy, and Customer satisfaction.

3.4 Population and Sample

Population refers to the entire group of people, events, or things of interest that the researcher wishes to
investigate and a sample is an element from a population. Usually, the population is too large.
Qualification rules indicate the qualities that individuals in the populace should have to be remembered
for the review (Hungler, 1999).

3.4.1 Sampling Design

Sampling is a finite part of a statistical population whose properties are studied to gain information about
the whole. When dealing with people, it can be defined as a set of respondents (people) selected from a
larger population for the purpose of a survey. “Sampling is the process of selecting a group of subjects
for a study so that the individuals represent the larger group from which they were selected”
(Onwuegbuzie, 2005).

3.4.2 Target Population

Target population for this research is different age group persons of different location among Shivraj
Municipality. The reason of taking different age group person is used to find which age group person
prefer to find the customer satisfaction and service quality in micro finance in Shivraj municipality.
Location helps to find which municipality has high prospects to star up new business. By doing this
research we can analyze which municipality youth find challenges in starting up the business.

3.4.3 Sampling Location

Sampling location is chosen to distribute some Micro financial institutions and Lost and regular
customers of micro finance. However, some of the questionnaires have been distributed through mailed
questioner in Gmail.
3.4.4 Sampling Elements
The sampling element for the study included demographic information such as gender, age, education
level, Occupation. From our study we were trying to analyze which factors have impacted most starting
up new business.

3.4.5 Sampling Technique

Convenience sampling is a type of no probability sampling in which people are sampled simply because
they are "convenient" sources of data for researchers. In probability sampling, each element in the
population has a known nonzero chance of being selected through the use of a random selection
procedure.

3.4.6. Sampling Size

Roscoe (1975) suggested that the rule of thumb of selecting appropriate sample size at least 30 and below
500.Since the size of population is unknown .so this sample size can maintain the sample error at an
acceptable level.

Calculation of sample size:

Necessary Sample Size = (Z-score) 2 * Std Dev*(1-StdDev) / (margin of error) 2

By taking 95% confidence level, 0.5 standard deviation, and a margin of error (confidence interval) of
±5%.

((1.96)2 x0 .5(0.5)) / (.05)2

= (3.8416 x 0.25) / 0.0025
=0.9604 / 0.0025
=384.16

In this research, 390 questionnaires were distributed in Shivraj Municipality selected Micro financial
institutions and Lost and regular customers of micro finance. Out of which only 380 responses were
collected. 4 questionnaires were eliminated from the data as some were not returned and some were
incomplete.

3.5 Nature and Sources of Data

Self –administrative questionnaire has been using in this research to get the primary data. Participants
include from various college students. The primary data has been collected by developing a questionnaire
and secondary source through online websites, journals article and other relevant sources.

3.5.1 Questionnaire Design

The questionnaire is design in English language as it is an appropriate language to communicate with the
respondents. In this questionnaire, closed-ended were used. Closed – ended questioner is easier for the
respondents to complete the questionnaire whereas open-ended questions require a response with more
depth and lengthier response. As the layout of the questionnaire, a brief introduction and purpose of
conducting this research are attached at cover page.

The questionnaire was divided into 2 sections:

Group A consists of demographic variables designed to obtain information regarding their demographic
features of internet users. It consists of: age, gender, level of educational and profession. The
questionnaire consists of multiple-choice single response questions.

Group B consists of Youth entrepreneurship development and Education, Training, Unemployment,

Reward, Access of Finance. Self-administered questions were included on a likert scale (1 = low; 5 =
high). The dimension of service quality are Tangible, Reliability, Responsive, Assurance, Empathy, and
Customer satisfaction. Here independent variable consists of Tangible, Reliability, Responsive,
Assurance, Empathy.

3.5.2 Primary data

The primary data collection technique was used to collect data using a self-administered questionnaire.
The Questionnaire titled “CUSTOMER SATISFACTION AND SERVICE QUALITY IN MICRO
FINANCE IN Shivraj Municipality” was distributed by going to selected various micro finance
institution situated in Shivraj Municipalities. Likewise, for the data collection.

3.5.3 Reliability Test

Cronbach’s Alpha is the test of reliability of items on variables. Reliability defined as the extent to which
results are consistent over time and an accurate representation of the total population under study. If the
results of study can be reproduced under a similar methodology, then the research instrument is
considered to be reliable.

3.5.4 Normality Test

The belief of a normal model for a population of responses will be required in order to perform certain
inference procedures. Normal distribution takes the form of bell-shaped curve. Normality can be visually
assessed by looking at a histogram of frequencies or by looking at a normal probability plot output
(Gallaway, 2005). The calculation of p-values for hypothesis testing typically assumes that the population
distribution is normal.

3.6 Methods of Analysis

The data collected through survey were analyzed using various statistical tools and techniques. The study
has used descriptive as well as inferential statistics. The data obtained from questionnaire survey was
processed and analyzed by using Microsoft Excel and SPSS 20.00.

3.6.1 Descriptive Analysis

Statistical techniques which are used to describe data are referred to as descriptive statistic which
summarizes sets of numerical data. Descriptive statistic will be instrumental in helping to interpret and
understand the sample data and provide the first step in the data analysis. Descriptive statistics includes
Frequencies, measures of central tendency (mean, median and mode) and Measures of dispersion (range,
standard deviation and coefficient of variation).

3.6.2 Frequency Distribution

Frequency distribution is an organized tabulation of the number of individuals located in each category
on the scale of measurement. The purpose of frequency is to demonstrate the values like the number and
percentages for the different categories of a single categorical variable. Its measurement is only one
variable which is nominal or ordinal scale. After all, a frequency division for a variable would generate a
table of frequency counts, percentages and cumulative percentages for all the values allied with that
variable.

3.6.3 Descriptive Statistics

Descriptive statistics basically describe the data quantitatively about the characteristics of data among the
selected variables. Under descriptive statistics, the mean and standard deviation of all the selected
variables are computed. Descriptive Statistics were used to explain the demographic characteristics of the
respondents. Frequency and percentage were calculated to describe the variables. The mean indicates the
average value of all observations whereas standard deviation shows the degree of variation among the
observations' value. Normally, higher the value of standard deviation, higher the degree of fluctuation
and higher will be the risk associated with it. This provides historical account of selected variables in
summary form.

3.7 Inferential Analysis

According to (Burns N. a., 1993), inferential analysis is use to generate conclusion about the population’s
characteristic based on information contain in the data matrix provided by the sample.

3.7.1 Pearson’s Correlation Analysis

Correlation analysis is used to identify the direction and magnitude of relation between the set of
variables. The relationship among the dependent variable and independent variables has been explained
by using Karl Pearson correlation coefficient. The value of correlation coefficient ranges from -1 to +1.
The variables are said to have perfect negative correlation if the correlation coefficient is exactly -1. On
the contrary, the variables are said to have perfect positive correlation if the correlation coefficient is
exactly +1.

Correlation Analysis between variables was studied to find relations among them. Pearson’s Correlation
analysis is used to determine the relation between various independent and dependent variables
associated with the research. It measures the linear correlation between any two variables.

Correlation interpretation is based on following five classical rules:

 (r = 0 to .20) indicates negligible or no correlation

 (r = .20 to .40) indicates positive but low degree of correlation

  (r = .40 to .60) indicates positive moderate degree of correlation

3.7.4 Multiple Regression Analysis

A correlation analysis can only tell whether or not a strong relationship exists between two variables. But
even if a correlation coefficient indicates that a strong relationship exists between two variables, the exact
shape of the relationship between the two variables cannot be determined. In this case, regression
analysis provides more information about the slope of the relationship. It is used to describe the nature of
a relationship and to make predictions. This section determines which independent variable explains
variability in the outcome, how much variability in dependent variables are significant (over other
variables) in explaining the variability of the dependent variable.

Linear regression analysis was conducted to identify relationship between the independent variable and
dependent variables. The advantage of conducting linear regression analysis included the ability to
evaluate multiple independent variables that simultaneously affect the dependent variables.

Multiple linear regression analysis is used to predict the impact of independent variables of peer and
parental influences. The equation for Impact of independent variables is expressed in the following
equation:

Mathematically it can be written as;

Y=a+b1X1+b2X2+b3X3+b4X4+b5X

Where

• Y= Customer satisfaction
• X1= Tangible
• X2= Reliability
• X3= Responsive
• X4= Assurance
• X5= Empathy

CHAPTER FOUR 4.

ANALYSIS OF DATA AND DISCUSSION OF FINDINGS

4.1. Response Rate

The respondents of this study were the sample taken from customers of OCSC branches in Robe town.
Accordingly 300 questionnaires were distributed to the selected users of the OCSSC in the study area, out of
these 253, (84.33%) questionnaires were properly filled and returned. The remaining respondents were not gave
their response at all or not filled properly, due to health, social and other problems. The majority of the non-
responding customers were from passive customers.

Accordingly, all personal information of respondents as well as questions included in each questionnaire were
carefully collected and properly checked and organized according to the objectives of the study.

4.2. Demographic Information of Respondents

This section contain Tables and charts that shows the demographic information of the respondents, the
respondents gender, age, educational qualification and the number of years that they have been doing business
with the branches of Shivraj municipality.

4.2.1. Sex distribution of the Respondents

S.N Sex of Respondents Frequency Percent

1 Male 98 38.74
2 Female 155 61.26
3 Total 253 100

Table 4.1 shows that 61.26% of the respondents were females whiles 38.74 % were males. The study concluded
that female respondents dominated the sample for this study. On the other hand, in the study area, the majority
of the customers for shivraj municipality in the study area were female.

4.2.2. Age Distribution of the Respondents

The age distribution of the respondents in the study area is described in the following figure. The data shows that
59% of the respondents were between the ages 31 to 45.

S.N Age Frequency Percent

Distribution
1 Below 18 0 0
yrs
2 19-25 years 19 7.5
3 26-30 years 32 12.7
4 31-35 yrs 57 22.5
5 36-40 yrs 51 20.1
6 41-45 years 43 17
7 46-50 years 32 12.7
8 Above 51 19 7.5
years
9 Total 253 100

Table 4.1 depicts that 12.7% of the respondents were between the ages 26-30 years, 22.5% were between the
ages 31-35 years, 20.1% were between the ages 36-40 years, 17% were between the ages 41-45, 12.7% were
between the ages 46- 50 years, 7.5% were between the ages 19-25 years and the rest 7.5% were 51 and above
years. From this data we can conclude that 59.6% of the respondents are found between the ages of 31-45 years.
So that, the majority of customers in the study area are found within the productive age.

4.2.3. Occupation of the Respondents

S.N Profession of the Frequency Percent

Respondents
1 Self-employed 114 45.1
(trader, farmer)
2 General craftsperson 44 17.4
3 Civil servant 57 22.5
4 Student 25 9.9
5 Other 13 5.14
6 Total 253 100

Table 4.2 shows that 45.1% of the respondents were self-employed, 17.4% were general craftsperson, 22.5%
were civil servants, 9.9% were students and the rest 5.14% of the respondents had other occupations like
lawyers, doctors etc, or has no any occupation but live on retirement pension and other income source holders.

4.2.4. Educational Background of Respondents

S.N Educational Frequency Percent

Background
1 Grade-8 19 7.51
2 8-12 44 17.39
3 Certificate 70 27.67
4 Diploma 67 27.67
5 Degree 44 26.48
6 Ma/ MSC 7 2.77
7 PHD 2
8 Total 253 100

Table 4.3 indicates that 27.7% of the respondents were holding certificate, 26.5% were holding diploma
qualifications, 17.4% were learn up to grade 8-12, and 7.5% of respondents primary school education less than
grade 8. The rest 3.56% of the respondents were holding Master’s degree or PHD. Generally the majority of the
respondents (71.54%) hold certificate, Diploma or Degree qualifications.

4.1 Descriptive statistics

In this study descriptive statistics have been used to describe impact of service quality
on customer satisfaction during the study period. The descriptive statistics used in this
study consists of mean, standard deviation, minimum and maximum values associated
with variables under considerations. The independent variable is service quality
variables that are reliability, responsiveness, empathy, assurance, tangibles,
communication, and security. The dependent variable is customer satisfaction. The
descriptive statistics which includes number of observations (N), minimum,
maximum, mean, and standard deviation of the variables are summarized on table 4.7
Table 4.7: Analysis of reliability

Descriptive Statistics Test scale/3

Reliability N Mean Std Deviation

The bank provides services at 182 2.35 0.828
promised time.
Employees are sincerely handling 182 2.38 0.776
customers’ problems.
The bank provides all the services 182 2.45 0.804
as promised.
The bank maintains timely and 182 2.54 0.864
error-free records.
The bank provides accuracy in all 182 2.46 0.858
type of transaction.
Field survey: 2022

The table shows the average score for all the statements regarding perceived service
quality component tangible by customers. The average score for all the statements that
represent service quality of bank has an average score of 2 and not excellent. This
indicates that customers are slightly satisfied with the service quality they are
receiving from banks. Descriptive analysis of service quality component reliability
mean is 2.54 which is respondents answer they are keep accurate records standard
deviation is 0.776 same question.

Table 4.8 Analysis of Responsiveness

Descriptive Statistics Test scale/3

Responsiveness N Mean Std
Deviation
Employees of bank are willing to help customers. 182 2.31 0.978

Bank provides prompt service to customers. 182 2.29 0.825

Bank keep customer informed about when 182 2.39 1.049

services will be performed.

Employees are ready to respond to customers’ 182 2.42 0.918

request.

Bank provides financial advice to the customers. 182 2.71 1.071

Field survey: 2022
The table shows the average score for all the statements regarding perceived service
quality component of responsiveness by customers. The average score for all the
statements that represent service quality of bank has an average score of 2 and not
excellent. This indicates that customers are slightly satisfied with the service quality
they are receiving from banks. Descriptive analysis of table shows service quality
component responsiveness mean is 2.42 which is answers employees are ready to
respond customer’s request. Standard deviation is 0.825 answer when bank provides
prompt service to customers.

Table 4.9: Analysis of Empathy

Descriptive statistic Test scale/3

Empathy N Mean Std.
Deviation
The bank provides convenient business hours. 182 2.24 0.979

The bank provides convenient service charge. 182 2.63 1.134

Employees give personal attention to the customers. 182 2.66 1.004

Employees understand the customer’s specific needs. 182 2.65 0.878

The bank focuses to fulfill customer’s need. 182 2.60 1.023

Field survey: 2022

The table shows the average score for all the statements regarding perceived service
quality component of by customers. The average score for all the statements that
represent service quality of bank has an average score of 2 and not excellent. This
indicates that customers are slightly satisfied with the service quality they are
receiving from banks under study. Descriptive analysis of table 4.9 service quality
component empathy shows bank offers very convenient working hour mean is 2.24
and standard deviation is 0.878 staffs try to understand customer’s specific need.
Table 4.10 Analysis of Assurance

Descriptive statistics Test scale/3

Assurance N Mean Std.
Deviation
Employee’s behavior brings confidence in customers. 182 2.12 0.988
Employees are consistently polite and well-mannered. 182 2.41 1.003
Employees have the knowledge to answer customer 182 2.44 0.768
questions.
The bank makes customers feel safe in their 182 2.37 1.015
transactions.
Customers can easily trust employee of their bank. 182 2.48 1.086
Field survey: 2022

The table shows the average score for all the statements regarding perceived service
quality component of responsiveness by customers. The average score for all the
statements that represent service quality of bank has an average score of 2 and not
excellent. This indicates that customers are slightly satisfied with the service quality
they are receiving from banks. Descriptive analysis of table 4.9 service quality
component Assurance higher mean is 2.48 which is respondents answer customers
can easily trust employee of their bank. Lower standard deviation is 0.768
respondents answer employees have the knowledge to answer customer question.

Table 4.11: Analysis of communication

Descriptive statistics Test scale/3

Communication N Mean Std.
Deviation
Bank’s website has clear and understandable 182 2.20 0.968
information about its products and services.
Bank explains about the service cost. 182 2.34 0.817
Bank timely inform about the changes in interest 182 2.60 0.968
rate.
Bank timely inform about the changes in services. 182 2.35 0.926
Bank assures the consumer that a problem will be 182 2.40 0.688
handled.
Field survey: 2022
The table shows the average score for all the statements regarding perceived service
quality component of responsiveness by customers. The average score for all the
statements that represent service quality of bank has an average score of 2 and not
excellent. This indicates that customers are slightly satisfied with the service quality
they are receiving from banks. Descriptive analysis of table 4.10 service quality
component communication higher mean is 2.60 which is respondents answer bank
timely inform about the change in interest rate. Lower standard deviation is 0.688
respondents answer bank assures the consumer that a problem will be handled.

Table 4.12: Analysis of customer satisfaction

Eight questions were provided to the target respondents to measure the customer
satisfaction of Nepalese micro finance institutions. . The respondents were asked
“whether customer level of the satisfaction of bank towards customers is excellent or
not.” The detail analysis of the respondents is shown in the table:
Descriptive statistics Test scale/3
Customer satisfaction N Mean Std. Deviation
I am satisfied with the services provided by the 182 2.35 1.065
bank.
Banks forms and slips are easy to understand and 182 2.32 0.963
fill.
I am satisfied with the bank’s ATM services. 182 2.91 1.150
The performance of bank is more than my 182 2.44 1.119
expectation.
Online and mobile banking services of the banks 182 2.46 0.725
are secure and reliable.
The bank provides clear and understandable bank 182 2.22 0.938
statements.
I can apply for cheque book at any branch where I 182 2.18 0.783
find convenient.
I will always be the customer of this bank 182 2.49 1.106
Field survey: 2022

The table shows the average score for all the statements regarding perceived customer
satisfaction component by customers. The average score for all the statements that
 represent customer satisfaction of bank has an average score of 2 and not excellent.
This indicates that customers are slightly satisfied with the customer satisfaction they
are receiving from banks under study. Employees in the bank have the knowledge to
answer the questions mean is 3.92 and standard deviation is 0.59 which is result is the
satisfaction.
4.2 Correlation Analysis

Table 4.13: Analysis of Correlation

Correlation
Customer Reliabilit Responsiveness Empathy Assurance Commu
y
satisfaction nication
y
Custom 1 .266** .636** .659** .608** .540**
-er Pearson correlation
Sig. (2-tailed) .000 .000 .000 .000 .000
satisfac N 182 182 182 182 182
tion
Reliabil 1 .238** .336** .302** .060
ity Pearson correlation
Sig. (2-tailed) .001 .000 .000 .422
N 182 182 182 182
Respon 1 .652** .764** .464**
sivenes Pearson correlation
s Sig. (2-tailed) .000 .000 .000
N 182 182 182
Empath 1 .742** .430**
y Pearson correlation
Sig. (2-tailed) .000 .000
N 182 182
Assura 1 .493**
nce Pearson correlation
Sig. (2-tailed) .000
N 182
Comm 1
unicati Pearson correlation
on Sig. (2-tailed)
N
**. Correlation is significant at the 0.01 level (2-tailed).

Field survey: 2022

Where,

The table shows the correlation matrix between the dependent variable and
independent variables, where dependent variables customer satisfaction and
independent variables are Reliability, Responsiveness, Empathy, Assurance, and
communication are independent variables that determine service quality and customer
satisfaction.

The Pearson Correlation coefficient between the independent variable Reliability and
dependent variable customer satisfaction is .266, which implies that the two variables
are positively correlated and there is correlation between Reliability and perception in
customer satisfaction. The positive coefficient of correlation is .266 at 1% significant
level.

The Pearson Correlation coefficient between the independent variable Responsiveness

and dependent variable customer satisfaction is .636, which implies that the two
variables are positively correlated and there is correlation between Responsiveness
and perception in customer satisfaction. The positive coefficient of correlation is .636
at 1% significant level.

The Pearson Correlation coefficient between the independent variable Empathy and
dependent variable customer satisfaction is .659, which implies that the two variables
are positively correlated and there is correlation between Empathy and perception in
customer satisfaction. The positive coefficient of correlation is .659 at 1% significant
level.

The Pearson Correlation coefficient between the independent variable Assurance and
dependent variable customer satisfaction is .608, which implies that the two variables
are positively correlated and there is correlation between Assurance and perception in
customer satisfaction. The positive coefficient of correlation is .608 at 1% significant
level.

The Pearson Correlation coefficient between the independent variable

Communication and dependent variable customer satisfaction is .540, which implies
that the two variables are positively correlated and there is correlation between
Communication and perception in customer satisfaction. The positive coefficient of
correlation is .540 at 1% significant level.
4.3 Regression Analysis

Table 4.14: Analysis of regression

Model Summary

Model R R Adjusted Std. Change statistics

Square R Square Error of R F df1 df2 Sig. F
Estimate Square Change change
Change
1 .749a .561 .548 .345 .561 44.958 5 176 .000
a. Predictors: (Constant), Communication, Reliability , Responsiveness
,Empathy, Assurance

ANOVAa
Model Sum of Square df Mean Square F Sig.
Regression 26.778 5 5.356 44.958 .000b

Residual 20.965 176 .119

Total 47.743 181

a. Dependent Variable: Customer Satisfaction
b. Predictors: (Constant), Communication, Reliability, Responsiveness,
Empathy, Assurance
 Coefficientsa

Model Unstandardized Coefficient Standardized t Sig.

coefficients
B Std. Error Beta
(Constant) .615 .152 4.044 .000

Reliability .066 .050 .071 1.325 .187

Responsiveness .209 .059 .284 3.559 .000

Empathy .257 .056 .355 4.574 .000

Assurance -.016 .063 -.024 -.259 .796

Communication .220 .049 .263 4.467 .000

a. Dependent Variable: Customer Satisfaction

Regression model

Ŷ = α + β1X1 + β2X2 + β3X3 + β4X4 + β5X5+ ei

Ŷ = .615+ β1.066 + β2.209 + β3 -.257+ β4-.016 + β5.220
Where,
Ŷ = Customer Satisfaction (dependent
variable) X1 = Reliability
X2 = Responsiveness
X3 = Empathy
X4 = Assurance
X5 = Communication
α = Constant
β1, β2… β5 = Regression coefficients of Factor 1 to Factor 5
respectively
ei = Error term.
 Analysis of variance (ANOVA) is an analysis tool used in statistics that splits
an observed aggregate variability found inside a data set into two parts:
systematic factors and random factors. The systematic factors have a statistical
influence on the given data set, while the random factors do not. Analysts use
the ANOVA test to determine the influence that independent variables have on
the dependent variable in a regression study.

In the regression analysis, the beta coefficients are used to explain the relative
importance of the independent variables in contribution to the variance in
dependent variable. The results presented in Table 4.13, shows that Reliability
(β1=0.066, p=0.187) carries the heaviest weight for customer satisfaction,
followed by Empathy (β3=0.257, p=0.000), communication (β5=0.220,
p=0.000), responsiveness (β2=0.209, p=0.000), assurance (β4=-0.016,
p=0.796). The results showed that a one-unit increase in reliability would lead
to a 0.066 unit increase in customer satisfaction keeping other variables
constant. Similarly, one unit increase in empathy factor would lead to a 0.257
unit increase in customer satisfaction, one unit increase in communication
factor lead to a 0.220 unit increase in customer satisfaction. Here beta of
assurance is negative -0.016 which lead to negative relation with dependent
variable customer satisfaction. In conclusion, reliability and empathy are
significant. Thus, there is positive relationship between independent variables
and dependent variable in customer satisfaction.

4.4 Findings
This study has mainly focused on relationship between customer satisfaction and
service quality in Nepalese commercial bank. This study has used service quality
components as independent variables’, the major components of service quality are
reliability, responsiveness, empathy, assurance, tangibles, communication and
security and dependent variable is customer satisfaction.
i. The first most important factor affecting customer satisfaction is empathy
with mean value of 2.56 followed by reliability, responsiveness, assurance,
and communication. Whereas the least important factor ranked by
respondents is communication with mean value of 2.38.
 ii. The total weighted average mean value for reliability, responsiveness,
empathy, assurance, communication, and customer satisfaction is 2.44, 2.42,
2.56, 2.43, 2.38, and 2.42 respectively. This indicates that customers are more
satisfied with security followed by technology in Nepalese micro finance
institutions. . On the other hand, the highest mean value is of empathy i.e.
2.56 this indicates that customers are less satisfied with bank’s empathy.
iii. The descriptive result shows that the average reliability is noticed to be 2.44
with a minimum of 1 to maximum of 5. Responsiveness ranges from 1 to 5.
The average empathy is noticed to be 2.56, which ranges from 1 to 5.
Assurance ranges from 1 to 5 having mean of 2.43 and having highest
standard deviation of 0. 738. Communication ranges from 1 to 4 having mean
of 2.38.
iv. The result of correlation coefficient shows positive relation of reliability,
responsiveness, empathy, and assurance with customer satisfaction. It means
an increase in reliability, responsiveness, empathy, and assurance will lead to
an increase in customer satisfaction. Similarly, communication is positively
related with customer satisfaction. It indicates increase in communication will
leads to increase in customer satisfaction.
v. The findings revealed that highest correlation coefficient was found between
empathy and customer satisfaction at 0.659. The lowest correlation
coefficient is found between reliability and customer satisfaction at 0.266.
vi. The beta coefficient for reliability is positive with customer satisfaction. It
reveals that higher the reliability, higher would be the customer satisfaction.
Similarly, customer satisfaction is positively related with responsiveness. It
reveals that higher the responsiveness higher would be the customer
satisfaction. Where beta coefficient for reliability and responsiveness is
significant at 5 percent level.
vii. Likewise, the regression result reveals that customer satisfaction is positively
related with empathy. It means higher the empathy higher would be the
customer satisfaction. Where beta coefficient is significant at 5 percent level.
viii. Similarly, the beta coefficient for assurance is negative with customer
satisfaction. The regression result shows that communication is positively
related with customer satisfaction. It reveals that higher the communication
would be the customer satisfaction.
4.5 Discussion
The major discussion of the study is that service quality play a vital role in
determination of customer satisfaction. The major reason to select bank was found to
be bank’s wide branch network and favorable location. The study reveals that the
correlation coefficient between all the service quality variables (reliability,
responsiveness, empathy, assurance, and communication) and customer satisfaction is
positively related. It means an increase in service quality variables will lead to an
increase in customer satisfaction. The regression of service quality variables on
customer satisfaction shows that relationship between service quality measured by
reliability, responsiveness, empathy, assurance, and communication with customer
satisfaction is positive which indicates that higher the reliability, responsiveness,
empathy, assurance, communication higher will be the customer satisfaction. Thus,
service quality will help in satisfying customers banking needs and satisfied customer
help in retaining the customer for longer period of time. This implies that all the
hypothesis i.e. H1, H2, H3, H4, and H5 are accepted.

The purpose of present study was to examine the relationship between customer
satisfaction and service quality with respect to service quality dimensions. The study
is consistent with Shrestha (2018) to analyze the relationship between customer
satisfaction and service quality. The result of the study indicated that the overall
customers are satisfied with service quality of the micro finance institutions. . Hence
the level of customer satisfaction of the micro finance institutions. on the basis of
service quality can be considered satisfactory.

The present study also concluded that empathy is ranked in first position on the basis
on calculated mean value. Similarly reliability, responsiveness, assurance, and
communication are ranked second, third, fourth, and fifth position respectively in
concern with factor affecting customer satisfaction. It was found that deposit facility
has been ranked first important facility that affects customer satisfaction. Similarly
long term existence and profitability were ranked first and second position
respectively for reason of importance of service quality and customer satisfaction.
This study is consistent with Gnawali (2016) to analyze the relationship of reliability,
responsiveness, empathy, assurance and communication of Nepalese micro finance
institutions. . The study concluded that the Overall Banking Customers’ Satisfaction
is
dependent to the five dimensions of service quality (tangibility, responsiveness,
empathy, assurance and reliability). These five dimensions have the greater
predictability towards the customers’ satisfaction in Nepalese micro finance
institutions. . Similarly the major problem faced by respondents from their respective
banks is ATM services and employees behavior. If a bank focuses on improving its
services and improves its service quality obviously the bank’s customer’s satisfaction
will increase and customer retention or customer loyalty will increase and also
customers flow will also increase and will improve the performance of that bank.
Service quality is an essential aspects that satisfy customers.

The purpose of the study is to identify the relationship between reliability and
customers satisfaction. The study is consistent with AL Tamimi and AL Amiri (2003)
to determine the relationship between reliability and customer satisfaction. The study
concluded that reliability was the most important dimension of their instrument and
there was also no attempt to address new service quality dimensions that are particular
to UAE culture.
 62

CHAPER 5

SUMMARY AND CONCLUSIONS

5.1 Summary
In today’s competitive business environment delivering high quality service towards
customers is the key for a sustainable competitive advantage. Service quality is
particularly essential in the banking services context because it leads to the
competitive advantage through the level of customer satisfaction.

The major objective of the study is to assess customer satisfaction towards service
quality of Nepalese commercial bank. The specific objectives are to study the service
quality level of micro finance institutions. operated in Nepal, to examine the
customer satisfaction level of micro finance institutions. in Nepal, to test the
relationship between the two variables i.e. service quality and customer satisfaction,
to determine the factors that affect customer satisfaction in Nepalese Micro finance
institutions. , to analyze the impact of service quality in customer satisfaction level in
Nepalese micro finance institutions. .

This study is primarily based on primary sources of data. The primary sources of data
have been used to assess the opinion of respondents with respect to customer
satisfaction level regarding the micro finance institutions. . The questionnaire survey
has been conducted to know the opinions of customers regarding service quality of
Nepalese micro finance institutions. . A set of questionnaires was prepared and
distributed to the customers of sample Nepalese micro finance institutions. . The
questions were designed to get the views, related information from the respondents.
Data were collected using well formulated questionnaires. The questionnaires were
self-adjusted, validated, and pre- tested. The respondents represent customers of 5
micro finance institutions. of Nepal and out of 235 questionnaires 182 questionnaires
were collected. The information related to customer satisfaction and service qualities
were administered through questionnaires.

Descriptive statistics, correlation coefficient and a step wise regression method has
been applied to estimate the relationship between customer satisfactions as dependent
variable with service quality as independent variables. The collected data has been
processed with the use of SPSS Statistical package.
 63

5.2 Conclusions
The major conclusion of the study is that service quality play a vital role in
determination of customer satisfaction. The major reason to select bank was found to
be bank’s wide branch network and favorable location. The study reveals that the
correlation coefficient between all the service quality variables (reliability,
responsiveness, empathy, assurance, and communication) and customer satisfaction is
positively related. It means an increase in service quality variables will lead to an
increase in customer satisfaction. The regression of service quality variables on
customer satisfaction shows that relationship between service quality measured by
reliability, responsiveness, empathy, assurance, and communication with customer
satisfaction is positive which indicates that higher the reliability, responsiveness,
empathy, assurance, communication, higher will be the customer satisfaction. Thus,
service quality will help in satisfying customers banking needs and satisfied customer
help in retaining the customer for longer period of time. This implies that all the
hypothesis i.e. H1, H2, H3, H4, and H5 are accepted.

The study also concluded that empathy is ranked in first position on the basis on
calculated mean value. Similarly reliability, responsiveness, assurance, and
communication are ranked second, third, fourth, and fifth position respectively in
concern with factor affecting customer satisfaction. It was found that deposit facility
has been ranked first important facility that affects customer satisfaction. Similarly
long term existence and profitability were ranked first and second position
respectively for reason of importance of service quality and customer satisfaction.
Similarly the major problem faced by respondents from their respective banks is
ATM services and employees behavior. If a bank focuses on improving its services
and improves its service quality obviously the bank’s customer’s satisfaction will
increase and customer retention or customer loyalty will increase and also customers
flow will also increase and will improve the performance of that bank. Service quality
is an essential aspects that satisfy customers.
 64

5.3 Implication
On the basis of the findings of the study, the following implication are made for
further improvement on the service quality of Nepalese commercial bank and in order
to satisfy customer needs and expectations. There are some reasons why it is
important of customer satisfaction. The organization must know all the factors by
which customer can be satisfied and will be the loyal customers of the organization.
The implication for Nepalese micro finance institutions. is:

5.3.1 Managerial implication

i. The study observed positive relationship between reliability and customer
satisfaction and hence bank willing to increase customer satisfaction should
increase reliability.
ii. Based on the study, bank willing to increase customer satisfaction should
improve responsiveness. Since, positive relationship is found between
responsiveness and customer satisfaction.
iii. The study stated that empathy has positive relation with customer satisfaction
and hence banks willing to improve customer satisfaction should improve
employee behavior, provide personalized services and so on.
iv. The study showed positive relation between assurance and customer satisfaction
and hence, banks willing to improve customer satisfaction should focus on
creating friendliness environment, trust and so on.
v. From the study, the positive relation is found between communication and
customer satisfaction and hence one willingness to increase customer
satisfaction should rely on improving information, listening to customers,
providing timely information and so on.

5.3.2 Future research implication

This study has tried to cover the issues related with the customer satisfaction towards
service quality of Nepalese micro finance institutions. . Therefore, further studies can
be carried out on the basis of the findings of this study. Some of the future scopes of
this study are listed as below:
i. This study used demographic variables however this study is not based on
satisfaction of customer on the basis of demographic characteristic. Hence,
the further study can be done on the basis of demographic characteristics.
 65

ii. This study is based on the survey of customers of Nepalese commercial

bank’s branches inside the Kathmandu valley. Therefore, to incorporate wide
geographical character of the respondents, further studies can be carried out
by extending the survey outside the Kathmandu valley.
iii. In this study only ‘A’ class commercial bank’s customers were taken as
sample respondent where for further studies other financial institutions like
development banks and finance companies can be include. As there are many
customers who transact with other financial institution.
iv. This study has only taken 5 Nepalese micro finance institutions. whereas
further studies can be done by including all the commercial bank of Nepal.
 66

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Aga, M., and Safakli, O. V. (2007). An empirical investigations: Evidence from North
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Agarwal, A.,and Kamal, R. (2015, February). Study of customer satisfaction in micro
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Appendix

Survey

Questionnaire

Customer Satisfaction towards Service Quality of Nepalese Micro finance institutions.

Dear respondent,
This is a survey research on “Customer satisfaction towards service quality of
Nepalese commercial banks” which is conducted to meet the academic requirement
of MBS affiliated to Tribhuvan University to submit the graduate research project
report. I would be thankful if you could take few minutes and complete this
questionnaire for giving feedback. I also assure that your response will be kept
confidential and used only at aggregate level. Your kind cooperation will be highly
appreciated.

Thanking You
Anu Ghimire
Central Department Of Management

Section A: Respondent information (Please make a tick mark on appropriate option

from ‘ii’ to ‘xi’)

i. Name of your Bank……………………………………………

ii. Type of account you have

a. Saving a/c [ ] b. Fixed a/c [ ] c. Current a/c [ ] d. Others

(please specify) ………………………...… [ ]
 79

iii. Gender:

a. Female [ ] b. Male [ ]

iv. Age (Years):

a. Below 20 [ ] b. 20-30 [ ] c. 31-40 [ ] d.41 and above [ ]

v. Profession

a. Business [ ] b. Service [ ] c. Housewife [ ] d. Student [ ]

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

vi. Academic qualification

a. PhD [ ] b. M.Phil. [ ] c. Masters [ ] d. Bachelors [ ]

e. Intermediate [ ] f. SLC and below [ ]

vii. Level of income (In Nepalese Rupees)

a. Below 10000 [ ] b. 10000-20000 [ ] c. 20000-30000 [ ]

d. 30000-40000 [ ] e. Above 40000 [ ]

viii. How long have you been transacting with this Bank?

a. Less than 1 year [ ] b. 1-3 Years [ ] c. 3 -5 Years [ ] d. More than 5 Years [ ]

 80

ix. How frequently do you visit the bank?

a. Everyday [ ] b. Twice a week [ ] c. Once a week [ ] d. Once a month [ ]

e. Twice a month [ ] f. Others (Please specify……………………………) [ ]

x. What is the main reason that you select this bank? (Please make a tick mark on
appropriate option)

a. High interest rate on deposit [ ]

b. Low service charge [ ]

c. Wide Branch Network (location) [ ]

d. Efficient, Reliable and Fastest Services [ ]

e. Public image of the Bank (Reputation) [ ]

f. Recommendation from friends/relatives [ ]

g. Personal relationship [ ]

h. Others (please specify.......................................................) [ ]

xi. What is the major problem that you have faced from this
bank while receiving services?

a. ATM Service [ ]

b. Employees behavior [ ]

c. Opening/Closing accounts [ ]

d. Internet Banking Services [ ]

e. Others (Please specify....................................................) [ ]

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Section B: Yes/no question regarding customer satisfaction levels on Banking

Services (Please make a tick mark in appropriate option)

i. Are you satisfied with bank’s reliability (accurate and on-time services)?

a. Yes ( ) b. No ( ) c. No idea ( )

ii. Are you satisfied with bank’s responsiveness (willingness to assist customers
and fast and efficient service)?

a. Yes ( ) b. No ( ) c. No idea ( )

iii. Are you satisfied with empathy (employee behavior, personalized or

customized service)?

a. Yes ( ) b. No ( ) c. No idea ( )

iv. Are you satisfied with assurance (friendliness, trust and confidence to the staff)
in your bank?

a. Yes ( ) b. No ( ) c. No idea ( )

v. Are you satisfied with communication system (understandable and timely

information and listening to customers) of your bank?

a. Yes ( ) b. No ( ) c. No idea ( )

vi. Are you satisfied with product and services provided by your bank?

a. Yes ( ) b. No ( ) c. No idea ( )
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vii. Does your bank offer competitive interest rate?

a. Yes ( ) b. No ( ) c. No idea ( )

viii. Are you satisfied with the service charges by your bank?

a. Yes ( ) b. No ( ) c. No idea ( )

x. Do you recommend your bank to others?

a. Yes ( ) b. No ( ) c. No idea ( )

Section C: Please make a rank for the following questions

i. Which of the following factor do you think is the most important regarding the
customer’s satisfaction in Nepalese commercial bank? (Please rank 1 for the most
influencing factor and 7 for the least influencing factor and so on)

a. Reliability [ ]

b. Responsiveness [ ]

c. Empathy [ ]

d. Assurance [ ]

e. Communication [ ]

ii. Which of the following facilities do you consider the most important in Nepalese
commercial bank? (Please rank 1 for the most influencing factor and 5 for the least
influencing factor and so on)

a. Loan facilities [ ]

b. Deposit facilities [ ]

c. Automated Teller Machine (ATM) facilities [ ]

d. Any Branch Banking Services (ABBS) [ ]

e. Online and mobile banking [ ]

 83

iii. Why do you think service quality and customer satisfaction is so important for
Nepalese micro finance institutions. ? (Please rank 1 for the most influencing factor
and 5 for the least influencing factor and so on)

a. Profitability [ ]

b. Long term Existence [ ]

c. Brand/ Image/Reputation [ ]

d. Competition [ ]

e. Others (Please specify...............................................................) [ ]

 84

Section D: Likert type questions

Please use the following table to rank your responses to situations given below.
(Please make a tick mark on appropriate option)
Perception
Strongly Agree Agree Neither agree nor Disagree Strongly
disagree disagree
1 2 3 4 5
Variables Service quality measurement variables Perception
1 2 3 4 5
Reliability 1. The bank provides services at promised
time.
2. Employees are sincerely handling
customers’ problems.
3. The bank provides all the services as
promised.
4. The bank maintains timely and error-free
records.
5. The bank provides accuracy in all type of
transaction.

Responsiveness 1. Employees of bank are willing to help

customers.
2. Bank provides prompt service to customers.
3. Bank keep customer informed about when
services will be performed.
4. Employees are ready to respond to
customers’ request.
5. Bank provides financial advice to the
customers.

Empathy 1. The bank provides convenient business

hours.
 85

2. The bank provides convenient service

charge.
3. Employees give personal attention to the
customers.
4. Employees understand the customer’s
specific needs.
5. The bank focuses to fulfill customer’s need.

Assurance 1. Employee’s behavior brings confidence in

customers.
2. Employees are consistently polite and well-
mannered.
3. Employees have the knowledge to answer
customer questions.
4. The bank makes customers feel safe in their
transactions.
5. Customers can easily trust employee of
their bank.

Communication 1. Bank’s website has clear and

understandable information about its
products and services.
2. Bank explains about the service cost.
3. Bank timely inform about the changes in
interest rate.
4. Bank timely inform about the changes in
services.
5. Bank assures the consumer that a problem
will be handled.
Customer Measurement Variables Perception
satisfaction 1 2 3 4 5
1. I am satisfied with the services provided by
the bank.
 86

2. Banks forms and slips are easy to

understand and fill.
3. I am satisfied with the bank’s ATM
services.
4. The performance of bank is more than my
expectation.
5. Online and mobile banking services of the
banks are secure and reliable.
6. The bank provides clear and understandable
bank statements.
7. I can apply for cheque book at any branch
where I find convenient.
8. I will always be the customer of this bank