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In Mauritius, there are four main financial institutions that hold more than 75 percent of the market for SME banking services namely the Development Bank of Mauritius (DBM), Mauritius Commercial Bank (MCB), State Bank of Mauritius (SBM), Mauritius Post & Cooperative Bank (MPCB). They concentrate on the supply side of the banking services to their SME clients. The demand side consists of a large number of small businesses in Mauritius. According to the Mauritius Employers' Federation (MEF), small businesses have been the engine of job creation in Mauritius since 1990. The number of jobs inÂ small firmsÂ has increased by 140,000 in 1991 to reach 249,500 in 2011, equivalent to an annual growth of 3% and small businesses accounted for 44.5% of total employment against 32% in 1990.
2.1 The evolving bank-SME relationship
In response to increasing competition, most firms in the financial sector have been forced to place an increasing emphasis on establishing and maintaining customer relationship (Lam and Burton, 2006; Perrien et al., 1993; Ennew et al., 1990). Major changes regarding the establishment of financial institutions operations are occurring in the relationship between banks and small and medium-sized enterprises (SMEs). From mobile credit card payments to virtual advisers, and from automated cash deposit machines to social networking, the next generation of SME banking is now emerging. Nowadays, financial institutions around the world have started to offer SME banking services as they view SMEs as major opportunities for potential growth. They are also adopting a close and long term relationship with their SME clients. Moreover, the needs of SMEs are also changing, SMEs want more than money from their banks; thus more emphasis is being put on valuing innovative, tailored products associated with sound business advice.
2.2 The problems of bank-SME relationship
Given their distinctly different characteristics and experiences, it should not be surprising that small firms and banks find it difficult to develop good working relationships. Following Mintzberg's classic categorisation of organisation structures, the bank is a "machine bureaucracy", wherein rules and regulations tend to surpass managerial discretion and decisions are standardised; unexpected problems upset systems and managers. In contrast to this, the typical small enterprise is organic and informal that is the "simple structure"; they make their own decisions, usually quickly, and often intuitively.
In Butler and Durkin (1995), it was ascertained that small firm owner-managers and bank managers had self-perceptions and perceptions of each other that were often "critically mismatched". For instance, where the bank felt itself (indeed, prided itself) on being procedural, systematic, and prudent, the small firm perceived those factors as obstructive, procrastinating and fearful of natural commercial risk. On the other hand, where the small firm perceived itself to be risk-taking, entrepreneurial and innovative, the bank perceived it to be foolhardy, immature and lacking in an understanding of commercial consequence.
Moreover, a number of reports state that the structural changes in financial institutions that have resulted in decreased satisfaction among customers. As a result of which, the Wilson Committee, as part of its review of the functioning of financial institutions, found lack of discretion of local bank managers, lack of understanding of local industries' needs and the personal guarantees demanded of business owners to be the key areas of criticism in the small business/bank relationship (Bevan, 1978). Butler and Durkin (1995) reinforced these criticisms when they identified problem areas between banks and their small business customers as being in relation to "matters of lending criteria, empathy and counsel". This decrease in customer satisfaction has not gone unnoticed by various financial institutions. To improve banking services targeting SMEs, the European Commission (2007) has instituted new codes of conduct. In the UK, the Financial Services Authority (2007) promotes the "treating customers fairly" initiative, and a new financial advisory law has been enacted in Sweden (Svensk FoÂ¨rfattningssamling, 2003).
2.3 The Concept of Relationship marketing theory
The relationship marketing theory has become the predominant theory focusing on the marketing of the financial services to both retail and business markets (Barnes and Howlett, 1998; Binks and Ennew, 1997; Colgate and Alexander, 1998; Ennew and Binks, 1996; 1999; GroÂ¨nroos, 1996; Perrien et al., 1992; 1995; Tyler and Stanley, 1999a, b; Worthington and Horne, 1998; Zineldin, 1996). It has been put forth as a way for firms to develop mutually beneficial and valuable long-term relationships with customers (Ravald and GroÂ¨nroos, 1996). Walsh et al. (2004, p. 469) also defined RM as "the activities carried out by banks in order to attract, interact with, and retain more profitable or high net-worth customers."
Nowadays both the banks and SME customers are becoming more interested in conducting business transactions embedded within relationships. This is because various studies have shown that "relationship lending" results in lower interest rates, lower collateral requirements and increased availability of finance compared with the situation faced by businesses without a relationship history with their bank (Berger and Udell, 1995; Elsas and Krahnen, 1998; Harhoff and Korting, 1998); while for banks SMEs are argued to be important customers because they offer the greatest profit opportunities (Bloemer et al., 2002; Zineldin, 1995).
There is a growing literature which has explored the relationship between small firms and their banks (Binks et al., 1990, 1992; Clay and Cowling, 1996). The relationship between banks and small entrepreneurial firms has been the subject of much attention over the years and has been closely monitored by many parties in more recent years (Binks et al., 1989; Butler and Durkin, 1995, 1998; Binks and Ennew, 1998; Connolly, 2000; Bank of England, 2001; Madill et al., 2002; Ibbotson and Moran, 2003). Over the last decade, even in the face of increasing centralization of bank decision making (Binks et al., 1990; Middleton et al., 1992), the favored relationship on the part of the small firm has been to deal with a local branch manager. The business-banking relationship concerning the lending decisions was being carried out discretely and personally with the local branch manager. However, during the late 1980s and early 1990s this traditional relationship changed for a variety of technological and cost-saving reasons which influenced the small firm-bank relationship.
According to Tyler and Stanley (2002), he recognized that successful exchanges between banks and their SME customers depended on the existence of a close and personal relationship between the parties. It has also been stated by Ennew and Binks, 1999; GrÃ-nroos, 1990; 1996 that the satisfaction of the SME consumer will be dependent, at least in part, on the way the bank interacts with the customer and managed the relationship. When personal contact between customers and banks decreases, disintermediation results (Ding et al., 2007; Santos, 2003) thus, banks need to ask themselves questions regarding the value of personal relationships (Dabholkar and Bagozzi, 2002; Meuter et al., 2000; Parasuraman and Grewal, 2000).
In addition a close working relationship between banks and SMEs give rise to efficiency in action, consistency, collaboration and a good communication between them. It also yields benefits to both parties. The advantages for the sellers of financial services include the ability to maximize profits by reducing risks, improves information flows, more satisfied customers and enhanced loyalty (Binks and Ennew, 1997; Ennew and Binks, 1999; Petersen and Rajan, 1994; Sharpe, 1990; Tyler and Stanley 1999b; Zeithaml et al., 1996). The advantages for the buyer of financial services consist of greater finance, favourable rates on loans, higher perceived quality of service, reduced stress, avoidance of switching costs and increased convenience (Binks et al., 1992; Binks and Ennew, 1997; Bitner, 1995; Ennew and Binks, 1996; 1999; Petersen and Rajan, 1994). Some studies have also indicated that most corporate customers still prefer human interaction with their banks, despite the fact that the banking industry has undergone a technological revolution (Curry and Penman, 2004; Paulin et al., 2000).
Furthermore, Proença and de Castro (2006) contended that banking business is not a matter of one discrete episode; rather, it is more often a continuous interactive deal between the bank and the customer, which covers a 'non-ending' string of transactions. Thus, bank-customer relationships should not end at the door of the bank. Consequently, a shift from a transaction orientation to a long-term relational interaction is expected to occur in the financial services industry, particularly in the corporate banking industry (O'Donnell et al., 2002; Tyler and Stanley, 2002; Zineldin, 1995).
2.4 The Concept of Customer Satisfaction Theory
Customer satisfaction is the feeling or attitude of a consumer toward a product or service after it has been used (Solomon, 1996; Wells and Prensky, 2002; Metawa and Almossawi, 1998). It is the state of mind that customers have about a firm when their expectations have been met.
Earlier studies have suggested a positive relationship between customer satisfaction and financial performance (Gruca and Rego, 2005; Homburg et al., 2005; Hallowell, 1996). Researchers have found that customer satisfaction has a measurable impact on purchase intentions (Bolton and Drew, 1991; Mittal et al., 1999; Oliver and De Sarbo, 1988), on customer retention (Anderson and Sullivan, 1993; Bolton, 1998; Ittner and Larcker, 1998; Mittal and Kamakura, 2001) and on a firm's financial performance (Anderson and Mittal, 2000; Fornell et al., 1996; Rust and Zahorik, 1993).
Thus, as far as SME owners' satisfaction is concerned, it is an ever moving bar. What kept small enterprises happy with products and services in the last few years would now not meet the expectations of customers at present; hence, customers' wants, needs, and expectations move as quickly as the market itself. As such, SME owners' satisfaction is increasingly becoming an important strategic issue for most financial institutions in the world because of the positive relationships amongst SMEs' satisfaction, loyalty and retention thus ensuring satisfaction has become an essential task for most banks.
2.5 Satisfaction with Financial Institution and Outcomes: Loyalty and referral
SME's owner satisfaction is often said to be important for most financial institutions that strive for SMEs' retention and loyalty. Given the claimed benefits for banks, it is not surprising that many banks are investing substantial amounts in developing customer retention and introducing SME banking services in an attempt to retain clients and obtain a higher percentage of their businesses.
Customer satisfaction has frequently been suggested to be the leading determinant of loyalty (Anderson and Fornell, 1994; Jackson, 1985; Bitner, 1990; Rust and Zahorik, 1993). Current definitions of customer loyalty include both behavioral and attitudinal aspects (Dick and Basu, 1994; Morgan and Hunt, 1994; Oliver, 1999). Actions of customers such as word-of-mouth or the degree of repeat purchase of a product or a service are said to reflect behavioral loyalty (Dekimpe et al., 1997; Chaudhuri and Holbrook, 2001).
The attitudinal aspect, in contrast, sees a loyal consumer as someone who has a positive attitude and a high degree of dispositional commitment in terms of some unique value that is associated with a brand (Jacoby and Chestnut, 1978; Chaudhuri and Holbrook, 2001). Examples of measures of attitudinal loyalty include preference, or a commitment to repurchase (Gremler and Brown, 1996; Aydin and Ozer, 2005).
Generally loyalty attitudes are measured by means of questionnaires for surveying customers. Thus this will help firms to obtain information about the factors behind loyalty attitudes as well as sub-dividing their clients into groups such as "new customers", "loyal customers", "advocates" and so on; whereas loyalty behavior can be viewed as directly related to market share of banks, whereby its measurement is done by analyzing the SME's transactions with their respective banks, thus revealing customer retention rates and customer defection rates over a period of time.
The contrast between loyalty attitudes and loyalty behavior is important as sometimes people can feel one way and behave quite differently. Sometimes customers exhibit loyalty behavior without having loyalty attitudes, as in markets dominated by a monopolist. And sometimes customers exhibit loyalty attitudes without demonstrating much loyalty behavior, as in the case of customers who buy very infrequently.
Customer satisfaction and loyalty are highly correlated (Athanassopoulos et al., 2001; Hallowell, 1996; Silvestro and Cross, 2000), but form two distinct constructs according to Bennett and Rundle-Thiele, 2004; Oliver, 1999. A number of research studies investigating the bank-SME relationship have suggested that the more satisfied customers are, the higher the probability they will remain customers and the greater likelihood they will have repurchase intentions (Bloemer et al., 2002; Armstrong and Boon Seng, 2000; Patterson et al., 1997). A satisfied customer will repeat the purchase of the product and convey positive messages about it to others (Dispensa, 1997; Metawa and Almossawi, 1998). It is also argued that those customers who are very satisfied usually provide customer referrals for their bank (Aldlaigan and Buttle, 2005).
According to Barnes and Howlett, 1998; Berry, 1995; Ennew and Binks, 1996; 1999; Morgan and Hunt, 1994; Seal, 1998; Sharma et al., 1999; Zineldin, 1996), developing satisfactory relationships with SME clients is expected to result in higher satisfaction on the part of those clients which in turn, it is expected that satisfaction will lead SME clients to give referrals to others and a decreased likelihood of switching to the services of another financial institutions. Furthermore, customer satisfaction with a bank relationship is a good basis for loyalty (Bloemer et al., 1998; Pont and McQuilken, 2005), although it does not guarantee it, because even satisfied customers switch banks (Nordman, 2004). One important reason for switching is pricing (Colgate and Hedge, 2001; Ennew and Binks, 1999). In other words, SMEs may be sensitive to changes in their cost of capital; where a rise in the cost of capital may cause a high switching rate and a low switching rate may indicate that SMEs are less sensitive to changes in their cost of capital.
As part of developing long-term relationships with customers, organizations are increasingly concerned with loyal customers who, it has been asserted, contribute to increased revenues (Reichheld, 2003), make further purchases (Payne, 2000) and generate positive word-of-mouth (Gremler and Brown, 1999). Many banks already have a strategic focus on customer retention due to keen competition, rising costs of customer acquisition and increasing customer switching behaviors (Ennew and Binks, 1996; Manrai and Manrai, 2007).
Besides this, Fornell and Wernerfelt (1987) have claimed that the costs of customer retention are substantially less than the relative costs of customer acquisition, and loyal customers, if served correctly, are said to generate increasingly more profits each year that they stay with a company (Reichheld, 1993), though other authors have pointed out that loyal customers are not always profitable (see for example Storbacka, 1997; Dowling and Uncles, 1997; Reinartz and Kumar, 2002).
2.6 Satisfaction, Loyalty & Long term profitability for Banks
In the banking industry, small- and medium-sized enterprises (SMEs) are considered important customers, offering the greatest profit opportunity for banks (Connolly, 2000; Zineldin, 1995). Thus, we can say that SMEs' owner satisfaction is a key factor in the long term profitability of financial institutions. According to Heskett et al., 1994, and discussed in Storbacka et al., 1994, they state that customer satisfaction is related to customer loyalty, which in turn is related to profitability. Thus by developing close relationships with their SME customers and by creating satisfied and loyal customers, banks can increase their profits. Ting, 2006; Bloemer et al., 2002 also ascertained that through establishing profound relationships, banks can attain a greater number of satisfied customers and, consequently, gain a greater share of the financial market. As a matter of fact, keeping in mind the importance of SMEs' owner satisfaction, banks need to maintain a stable and close relationship with their clients and provide them with a standardized, accurate and high quality services in order to remain in this competitive environment.
2.7 Satisfaction & Demand for collateral by banks
During the 1980s, bank lending to SMEs have increased at a significant rate. Banks' loans were primarily short term in nature and in order to reduce the default risk and moral hazard associated with lending to small firms both interest rates and collateral were increasingly utilized by banks. In many developing countries, the use of collateral is the main way to secure bank financing. The role of collateral is essentially twofold: in the first instance it provides the bank with insurance against loan default and second, it is intended to ensure that the borrower puts in the required effort to ensure loan repayments are made.
The rationale for collateral (on the bank's part) is derived from the information asymmetry between the small enterprise and the bank. In this context the bank perceives that the firm has more information than the bank which reduces the bank's ability to distinguish between good and bad payers. In this kind of adverse selection situations like this, good borrowers are often penalized by banks which raise their collateral requirements to make default costlier to the firm.
Many SMEs are facing lack of capital as compared to large firms which have access to debt and equity markets but small firms have nowhere to go except the banks. Access to finance has become the major problem for SMEs' without a track record or without any form of guarantee. A number of studies have shown that financing is a greater obstacle for SMEs than it is for large firms, particularly in the developing world, and that access to finance adversely affect the growth of the SME sector more than that of large companies (Schiffer and Weder, 2001; Beck et al, 2005; Beck et al, 2006).
Earlier research has also suggested that there is a negative relationship between the banks' demand for collateral and customer satisfaction (Binks and Ennew, 1997; Cowling and Westhead, 1996). In other words, the more the SMEs perceive the bank as having overly rigorous demands regarding collateral for loans, the lower their level of satisfaction will be with the bank and the lower the demand for collateral by banks, the higher will be the level of satisfaction of the SME owners'.
It has also been stated by Binks and Ennew, 1997; Cowling and Westhead, 1996; Harrison, 2001 that SMEs do not appreciate doing business with bankers who are more focused on selling their bank's products and where the availability of collateral supersedes everything else in importance. Moreover, according to Machauer and Weber, 1998, it has variously been found in Germany that bank demands for collateral increase or decrease (Harhoff and Korting, 1998) where SMEs concentrate their bank relationships. In Belgium, long-term relationships with banks have been associated with added cost but reduced demand for collateral from small borrowers (Degryse and van Cayseele, 2000). In contrast, Berger and Udell (1995) found that companies with longer relationships to a bank paid lower interest rates than new customers and were less likely to have to provide collateral that is, banks are less likely to request collateral for loans from SMEs with which they have a long-standing relationship. Thus, as a matter of fact, assessing whether demand for collateral influences the level of satisfaction of SME owners' is important for this research.
2.8 Satisfaction & Service quality
Customer satisfaction is said to be another important aspect for service organizations and is highly related with service quality (Bolton and Drew, 1991; Cronin and Taylor, 1994; Spreng and MacKoy, 1996). Thus, as service quality improves the probability of customer satisfaction increases. It has also been stated that increased customer satisfaction leads to behavioral outcomes such as commitment, intent to stay (customer retention), creation of a mutually rewarding relationship (bond) between the service provider and the user, increased customer tolerance for service failures and positive word-of-mouth advertising about the organization (Reichheld, 1996; Heskett et al., 1997, Goode and Moutinho, 1995; Newman, 2001).
In banking sector, the quality of customer service plays a vital role, principally in the context of increasing competition and sustained business growth. According to Wang et al., 2003, delivering quality service and products to the customer, is essential for success and survival in today's global and highly competitive banking environment. In other words, a satisfied customer, who has experience good quality service, will normally recommend the product to others, repeat purchase and even try line extension. This in turn will act as a circular flow, thereby boosting the economic performance of the firm (Rust et al., 1995; Zeithaml, 2000). It allows the company to differentiate itself from its competitors by increasing sales and market shares, it results in the satisfaction and retention of customers and employees, thus reducing turnover rates, it leads to repeat purchase behaviour and brand loyalty and furthermore, new customers are attracted through positive word-of-mouth, (Lewis, 1991; Newman, 2001; Caruana, 2002; Wang et al., 2003).
Most SME owners' want their banks to adopt customer-centred marketing strategies that encourage banks to engage in personal interaction with them and to work towards meeting their specific needs. It has also consistently being demonstrated that most SMEs want their banks to treat their problem as unique in a unique environment or that they are at least viewed as unique (Adamson et al., 2003; Lam and Burton, 2006; Zineldin, 1995). SME clients also base their perception of a service, at least in part, on how they experience the organisation's practices, policies and personnel (GroÂ¨nroos, 1990).
However, many SMEs reported varying levels of disappointment banking services these days. Most felt that service had changed and had become more: "demanding", and "less helpful". Traditional banks have been criticised for being too standardised when interacting with SME customers (Harrison, 2001; Paulin et al., 2000). According to Cowling and Westhead (1996), banks will increasingly become less able to respond to the specific needs of SMEs as bank services become more standardised. Moreover, when interacting with customers, individual bankers have been further criticized as being too focused on selling their bank's products instead of trying to understand their customers' specific needs (Harrison, 2001). In addition, according to Bick et al., 2004; Butler and Durkin, 1998, pointed out that the main issue of complaint has been that bankers routinely do business with customers according to the rules, norms and policies of the bank but do not pay much attention to the needs of customers.
Furthermore, according to Cowling and Westhead, 1996; Harrison, 2001, banks have been criticised generally for their behaviour towards their customers as is evidenced by the "treating customers fairly" initiative in the UK business with bankers who are extremely focused on selling their bank's products and who view the availability of collateral as superseding everything else in importance (Cowling and Westhead, 1996; Harrison, 2001).
Thus, in this situation there is a need to assess whether the level of satisfaction of SME owner is influenced by the way banks respond to the needs of the SME clients that is whether banks are more concerned about selling their products rather than responding to the specific needs of SMEs.
2.9 Satisfaction & Bank's advice
To a growing extent, SMEs are now seeking external advice (Bennett and Robson, 1999; Ramsden and Bennett, 2005). The typical small enterprise, in applying for finance, also seeks support, empathy and advice from the bank.According to Tyler and Stanley, 2001; O'Donnell et al., 2002, SME customers prefer a personalized, face-to-face relationship with a bank manager who understands and is sympathetic to their business needs and who is able to provide them with necessary advice (Tyler and Stanley, 2001; O'Donnell et al., 2002).
It has also been stated that SME customers who receive specialized advice on the industry in which their firms operate are found to be more satisfied than those who do not receive any advice when interacting with their bank (Basu, 1999; Bennett and Robson, 1999). In contrast, banks are also engaging in relational interaction so that they can devote a great deal of time and effort in encouraging their employees to update continuously their knowledge (Kridan and Goulding, 2006; Collis and Jarvis, 2002; Cameiro, 2000) so that necessary advice can be provided to their SME customers.
However, some SME owners' perceive that bankers are only good at giving advice that is closely related to bank financing but are not as good at giving advice concerning issues that are related with the SMEs' businesses as they lack the necessary knowledge and competence. Hence bank's advice also influences the level of satisfaction of SMEs owners, in other words, the more the SMEs perceive that the banker provides important advice, the higher their level of satisfaction will be with the bank.
Hence to conclude, all these factors we have discussed above plays an important role in influencing the level of satisfaction of the SME owners'.