Banking Industry Has Undergone Massive Changes Commerce Essay


In recent years, the banking industry has undergone massive changes in scope and nature of its environment. Technological advances, increased competition, massive increases in income levels, and the expansion in economic activities, as well as the growing diversity of customer needs, have contributed to the increase in the scope of banks services. In this competitive and ever changing environment, banks can ensure their survival and gain a competitive edge through the emphasis on using service quality as a means of differentiation. The development of new financial products by non-bank financial intermediaries creates an opportunity for the customers to have a widened choice. As such, banks need to review their strategies for their services offered to customers.

In this respect, service quality and customer satisfaction are nowadays of utmost importance for all banking institutions. Quality is a subtle and hazy construct and consumers expect good service quality today than before (Bamert and Wehrli, 2005). Service quality has become a main area of interest to researchers, managers and practitioners due to its strong impact on business performance, customer satisfaction and profitability (Sureshchander, Rajendran and Anantharaman, 2002). Literature search specified that service quality was basically studied and these studies long-established that service quality is dependent on many factors. In effortless terms, service quality can be defined as the difference between customer expectations of service and perceived service. Generally speaking, according to Lewis and Mitchell (1990), when expectations are greater than performance, then perceived quality is less than satisfactory such that customer dissatisfaction occurs.

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In a milieu which becomes increasingly competitive, service quality as a significant measure of organizational performance continues to induce the attention of banking institutions and remains at the forefront of services marketing literature and practice (Lasser et al., 2002). With the advent of internet banking, the environment of customer relationship has changed. Banks are becoming more conscious that technical support are more or less consistent almost everywhere and that as such, they should focus more on their "high-touch" factors in terms of their personal support. For instance, Kotler (1997) argues that banks should adopt a unique selling proposition in terms of personal banking services as automatic teller machines (ATMs) are branded as "standardized" services which are provided by almost all banks.

According to Dale, Van der Wiele and Williams (2001) organizations that lean to be unaffected to quality culture make a number of fundamental mistakes in the control, management and improvement of their product and service offerings. Service quality has also become an essential research subject as it is vitally a determinant factor towards to a firm's financial performance.

1.2 Overview of Mauritius Economy

Since independence in 1968, Mauritius has developed from a low-income, agriculturally based economy to a middle-income diversified economy with growing industrial, financial, and tourist sectors. For most of the period, annual growth has been in the order of 5% to 6%. This remarkable achievement has been reflected in more equitable income distribution, increased life expectancy, lowered infant mortality, and a much-improved infrastructure. The economy rests on sugar, tourism, textiles and apparel, and financial services, and is expanding into fish processing, information and communications technology, and hospitality and property development. Sugarcane is grown on about 90% of the cultivated land area and accounts for 15% of export earnings. The government's development strategy centers on creating vertical and horizontal clusters of development in these sectors. Mauritius has attracted more than 32,000 offshore entities, many aimed at commerce in India, South Africa, and China. Investment in the banking sector alone has reached over $1 billion. Mauritius, with its strong textile sector, has been well poised to take advantage of the Africa Growth and Opportunity Act (AGOA). Mauritius' sound economic policies and prudent banking practices helped to mitigate negative effects from the global financial crisis in 2008-09. GDP grew more than 4% per year in 2010-11, and the country continues to expand its trade and investment outreach around the globe.

1.3 Small and Medium Enterprise

SMEs have been and still been considered as a puzzle by literature, political and non-governmental institutions. There is no universal definition employed as each economy is unique in its genre. Several criteria have been used to define SME such as annual turnover and workforce. In Mauritius, SMEs are defined in the Small and Medium Enterprises Development Authority (SMEDA) Act (2009) as those enterprises having an annual turnover not exceeding Rs 50 million. Moreover, there is another definition of SMEs in Mauritius, as those enterprises which employ less than 50 employees and have an annual turnover not exceeding Rs 50 Million.

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The European commission defined SMEs as enterprises comprising of a maximum of 250 employees with a turnover ranging from 7 to 40 million Euros (The Entrepreneur Newsletter Sept/Oct 2005). They are considered as an essential source of jobs, creating entrepreneurial spirit and innovation in the EU and thus crucial for fostering competitiveness and employment (Europa, 2004). Such that, 25 million SMEs employ more than 100 million workers and represent two-third of the workforce in the private sector (Europa, 2005). In Malaysia, SMEs contribute to their economy tremendously which includes; contribution of output (products and services); creation of jobs opportunities; developing a pool of skilled and semi-skilled workers; provide opportunities for technological development; offer an excellent ground for entrepreneurial and managerial talent. In view of the rapid development of the SMEs, the Malaysian government has initiated several facilities and initiatives to improve SMEs' business performance (A.G. Kamarulzaman, 2009).

SMEs are the carrying pillars of the German economy (Paul and Stein, 2002). In Germany, approximately 20 million employees work for SMEs which are 52.7% of the labour force. The 'Mittelstand' accounts for nearly 83% of all apprentices and 3,374,000 SMEs which is a share of 99.7% of all enterprises producing a turnover. Strikingly the SME sector has the biggest job growth potential, especially the medium-sized establishments with 10 to 499 employees

Although it varies from country to country most of the SMEs prefer to use bank based Finance instead of alternative financial sources (European Commission, 2003). Compared to other countries, consequently, services received from commercial banks are of utmost importance. In this respect, measurement of the service quality of banks towards SMEs and making recommendations accordingly are the focus of this study.

1.3.1 Overview of Small and Medium Enterprise (SME) Sector in Mauritius

Small and Medium Enterprise (SME) is often regarded as a common feature of most economies in the world. They have been acting as the instrument of economic growth in both developed industrialized countries and developing countries. In Mauritius it is estimated the SMEs represent more than 50% of all enterprises, employ more than 60% of the labour force and contribute above 50% to the Gross Domestic Product. They operate in sectors like Food and Agro Industry, Wood and Furniture, Plastic and chemicals, light Engineering, Textile and Garments, Leather and Shoes and Handicraft.

SME has been acting as the engine of growth in many developing countries including Mauritius.

Thus, the government is committed to address barriers to the development and growth of such SME in terms of multiple initiatives; bottlenecks being addressed, simplified permits and licence, processes access to finance and so on. Therefore in order for the industry to compete on the world stage, it is important that there is a mechanism in place that enables the enterprises to learn continuously and develop "world class" practices. Markets and opportunities created by increased globalization are also specifically good for small business enterprises and more and more small firms are going globa

1.4 Problem Statement

Today globalisation and liberalization are also affecting the economies of developing countries. Mauritius has also progressed from an agricultural economy to service economy through manufacturing economy. Despite the fact that there are lots of researches carried out worldwide, notably in developed countries in relation to service quality, customer satisfaction less attention is given to these concept in Mauritius.

SMEs have been mushrooming in Mauritius, particularly with the government encouraging people to set up their own businesses by providing them with incentives and guidance in their projects. Many SMEs export their products to different countries and contribute significantly to the economic growth of the country. However, the environment in which these SMEs operate is becoming more and more challenging, and, in turn, they need to operate efficiently within tight deadlines to be able to survive. To respond to the growing competition faced by organizations, banks have introduced different product/service to allow their customers undertake their banking transactions. Technology has swiftly become a business driver rather than a business enabler. This sector has seen phenomenal growth in terms of technology infusion and adoption in the recent past such as Internet and Mobile Banking anytime and anywhere. Internet Banking enables firms in Mauritius to deal with both their local and international clients by allowing them to carry out their banking transactions even outside normal bank opening hours.

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In today's market environment service quality is an important factor for business to progress (Pierce 1999). Superior service quality enables a firm to differentiate itself from its competitors, gain a sustainable competitive advantage and enhance efficiency (Broderick, A. and Vachirapornpuk, Y (2002). The benefits of service quality include increased customer satisfaction decreased operating cost, enlarged market share and improved financial performance (Kang and James 2004). Previous research in bank customers' satisfaction suggest that customers' satisfaction lead to a better retention of customers, more profit, and increase customers' loyalty with banks. It also encourages banks to improve service quality, provide innovative products, and efficient bank management (Cohen, Gan, Yong, and Choong, 2006).

The literature search gave inadequate result. There is an imperative need for academics and organizations to focus on the issue of quality, customer satisfaction and come up with knowledge outlining how banks should set about its improvement.

Aims and Objectives of Study

The study aims to examine service quality and customer satisfaction for commercial banks towards SMEs in Mauritius.

The objectives of this study are as follow:

To assess the Bank SME customer's perception and expectation of service quality

To identify the different dimensions of service quality in banks

To assess the level of customer satisfaction in Banking Services

To examine how service quality and customer satisfaction are related.

Research Questions

How do customers perceive service quality in the banking services?

What are the different dimensions of service quality in banking services?

To what extent are bank SME customers satisfied?

1.7 Banking Sector in Mauritius

In the late 1980's and early 1990's, the Mauritian financial sector was discernible by the process of financial liberalisation. Liberalisation and market deregulation were essential in order to develop and streamline the financial services sector and at the same time attempting to position Mauritius as a regional financial centre. Mauritius has a long tradition of commercial banking dating back to 1812 and has historically adopted a restrained attitude to banking development.

The Mauritian banking industry comprises of 20 banks, of which 7 are local banks, 8 are foreign owned subsidiaries, 1 is a joint venture and 4 are branches of foreign banks. All the banks are licensed by the Bank of Mauritius to carry out banking business locally and internationally. Banks render several services in the country. Besides traditional banking facilities, they offer card-based payment services, such as credit and debit cards provide internet banking and phone banking facilities. Specialised services such as fund administration, custodial services, trusteeship, structured lending, structured trade finance, international portfolio management, investment banking, private client activities, treasury and specialised finance are also offered by banks. As at November 2011, banks in Mauritius had a total asset value of Rs 924.2 billion and the total amount of credit distributed to the private sector stood at Rs 248.8 billion for the same period (Source Bank of Mauritius).

The Bank of Mauritius is the Central Bank of the country. It controls and administers the activities of banks to make sure that the banking system functions accurately. The Bank also plays a foremost role in creating a conducive environment to enrich economic expansion.

The Development Bank of Mauritius Limited offers long term finance to companies involved in industry, tourism, agriculture and other economic sectors.

1.7.1 Major Banks in Mauritius

Mauritius has a decent, trustworthy and energetic banking system. The banking system is considered by a small number of banks conquered by the Mauritius Commercial Bank. Mauritius belongs to a select group of developing countries where domestic bank assets represent approximately 100 percent of Gross Domestic Product (GDP), and contractual savings exceed 40 percent of GDP.

List of Major Banks are;

The Mauritius Commercial Bank

The State Bank of Mauritius

Barclays Bank


Bank of Baroda

Bramer Banking Corporation

Bank One

Standard Bank

Standard Chartered Bank

Deutsche Bank

AfrAsia Bank

Banque des Mascareignes


With a growing business flow in Mauritius and a flourishing Global Business sector banks in Mauritius have kept revolutionizing in terms of products and services in order to keep pace with new clients' requirements. It is important that banks deliver quality services which in turn results in customer satisfaction in today's competitive banking environment. In order to retain the customers, customer satisfaction becomes a crux issue to bank management.

1.7.2 Services Provided by Commercial Banks

Banks in Mauritius today offer range of products and services that have usually similar characteristics. However, the banks are not all the same in their skill at delivering particular services and they do not offer similar services in similar ways. The most important basic services offered by a bank are the generation of deposits and the subsequent lending of these funds for interest. The majority of bank profitability is presently still obtained from interest differential between these services. However, there are many specific forms of alternative products which can be generated within these basic services. It is largely the way the individual banks can develop specially tailored lending and deposit - generating products that enable them to differentiate themselves from competitors and to build market share within specific market segments. The services are


Lending & credit services

Trust services

Other services

Product range and knowledge alone are not enough to convince and give conviction to customers. They are also influenced by other characteristics which will colour their view of the bank services range and banks' ability to deliver the benefits claimed. Most important in this is the image of the bank. However, some of these services might not be offered by all banks, therefore, our study will focus on standard service that is services, which are provided by all Mauritian banks.

1.8 Outline of Study

The study is structured in five chapters. Chapter one is the introductory chapter that covers the problem statement, Aim and Objectives of the Study, Research Questions, Overview of SME and Banking Sector in Mauritius.

Chapter two will review the literature. The different concepts related to services quality and customer satisfaction will be elaborated. Expectation and perception of Service Quality is highlighted. Emphasis is laid on SERVQUAL and Gap Model. Moreover criticism of SERVQUAL, Dimensions of Service Quality and relationship of Service Quality and customer satifaction are presented. Lastly different scholars have revealed is stressed in the empirical evidence.

Chapter three put forward the research and methodology and deals with research problem and research objectives. It includes the proposed model of the study and sampling frame. Therefore, questionnaire design is elaborated together with research ethics, pilot testing, data collection, data analysis and limitation of study.

Chapter four will be wholly devoted to analysis of data discussion of the results. For data analysis SPSS software package 16.0 was used and results were presented in tables and figures. The following tests were done namely reliability test, mean, standard deviation, significance, correlation and regression analysis.

Chapter five deals mostly with conclusion of the results and brings forward some recommendations. The findings have managerial implications that can be considered for implementation by bank managers.