JOURNAL OF MECHANICS OF CONTINUA AND
MATHEMATICAL SCIENCES
www.journalimcms.org
J. Mech. Cont.& Math. Sci., Vol.-14, No.-5, September-October (2019) pp 601-613
ISSN (Online) : 2454 -7190 Vol.-14, No.-5, September - October (2019) pp 601-613 ISSN (Print) 0973-8975
Customer Acquisition and Retention in Non-Banking Finance
Companies (NBFC)
Subhransu Panda1, K. Siva Nageswara Rao2
1
Research Scholar, School of Management Studies, Vignan Foundation for
Science, Technology & Research, Vadlamudi, Guntur, AP
2
Asst. Professor, School of Management Studies, VignanFoundation for
Science, Technology & Research, Vadlamudi, Guntur, AP
https://doi.org/10.26782/jmcms.2019.10.00045
Abstract
Non-Banking Finance Companies (NBFCs) are playing a key role in
providing financial support to the unsupported and secure the unsecured population.
The broad objective of the paper is to study how NBFCs can increase customer base
and its retention. There are various variables investigated, which were anticipated to
be the reasons for increase in customer base. These variables involved both employee
and customer satisfaction. The data collected is both primary and secondary in
nature. The variables investigated are Interest Rate, customer satisfaction over
various parameters likeservice offered, interest rate, staff behavior, and
documentation process. For employee satisfaction there were factors investigated like
salary, incentives, working hours, flexibility with work and personal interest. Also,
there were factors which were analyzed to know how customers can be increased and
retained. Factors such as referral program for customers, maintain regular
interaction with customers, provide benefits offered by other competitors and provide
benefits to loyal customers. The study attempts to identify the relations between above
factors and how we can increase customer base and retention thereafter.
Key words : NBFC, MSME, Customer engagement, customer loyalty, customer
satisfaction, customer retention
I. Introduction
A satisfied customer is the best business strategy of all” - Michael LeBoeuf,
Business Author. Customer satisfaction is the important element of any organization;
successful organization is very oriented towards customer[I]. They are customer
friendly. In the organization life cycle, customers are placed first, then the profit. That
organization who always thinks customer and their satisfaction are having an edge
over their competitors, they expand leap and bound. For a long-term association with
the company or the product, companies should keep on experimenting on their
products and devising products, which will suite to their requirements[II]. So,
companies should keep on customizing the product along with the pricing & quality
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of the product and services, this will attract customers and bind with them
thereafter[III]. Once customer is into the company’s fold, they offer bundles of other
products through cross-selling to keep with them forever[XIV]. So, the feel-good
factor is earned through customer satisfaction which is also known as customer
loyalty[IV]. If there is no customer, then there will not be any existence of any
business entity. With the passage of time, customer base increases and companies try
to acquire more customers along with retention of their existing customer[V]. Beside
profit earning and target achievement, goal accomplishments, companies are also
oriented towards customer satisfaction[XII].
Non-Banking Finance Companies (NBFC)are as important as Banking Sector and
provide financial assistance to the larger part of population both in rural and urban
spheres[XI]. They are reaching out to the unbanked areas through their bouquet of
financial products which complements to the banking sector[VI]. These paves the
way for entrepreneurship and innovation under Micro, Small, Medium, Enterprises
(MSME) and large chunk of the business family avail loans through NBFCs[XIII].
There are lots of constraints and road blocks for further expansion to the banking
sector, which opens the door for NBFCs, and it supports entrepreneurship as
well[VII].
II.i. Financial System in India
Ours is a country with robust financial system with one side the banking
system and the other side with non-banking finance companies. Both are playing an
important role for the economic development of the country, it connects the link
between saver and the investor, ultimately leads to wealth creation[VIII].
Financial Systems are important, as it caters to the requirement of traditional business
as well as to the new start-ups[X]. These firms help individuals and small business
enterprises through working capital loan either daily, weekly, monthly collection
mechanism and provides some other loans like personal loan, vehicle loan, etc. and
aid to millennials either salaried or self-employed[XI].
Fig .1.Financial Systems
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II.ii. Financial Institutions
Financial institution can be classified under two categories as Banking Sector
or Non-Banking Sector to sell asset as well as liability products to customers for their
financial stability. Role of a Non-Banking Financial Company: (a) Upliftment of the
downtrodden (b) Helps and increase in wealth creation, (c) Significant employment
generation, (d) Economic development, (e) Irreplaceable supplement to bank credit in
rural segments, (f) Mobilization of financial resources.
II.iii. NBFCs in India
Non-banking finance companies (NBFCs) are playing a pivotal role for the
economic stability of the country. They are reaching out to the unbanked areas with
their customized products. In many of the areas, business community considers them
as a bank because their products are financial friendly in nature. They are filling the
important gaps in lending to the financially excluded people in nuke and corner of the
country. For that reason, RBI is very much supportive and coming with revamping
structure of NBFC policy and various committees have formed to strengthen NBFCs.
NBFC are also categorized based on activities undertaken:
Type of NBFC Activity
Asset Finance Company (AFC) Financing of physical assets including
automobiles, tractors and generators.
Loan Company Provision of Loan Finance
Investment Company Acquisition of securities for purpose of
selling
NBFC-Infrastructure Finance Company Provision of infrastructure loans.
(NBFC-IFC)
Infrastructure Debt Fund-NBFC (IDF- Facilitation of flow of long-term debt
NBFC) into infrastructure projects
NBFC-Micro Finance Institution (NBFC- Credit to economically dis-advantaged
MFI) groups
NBFC-Systemically Important Core Makes investments and loans to group
Investment Company (CIC-ND-SI) companies.
NBFC-Factor Acquisition of receivables of an assignor
or extending loans against the security
interest of the receivables at a discount.
At an aggregate level, the number of registered NBFCs with RBI has declined from
11,402 at the end of September 2018, to 10,190 as at the end of March 2019. The
total liabilities of the NBFC sector is Rs. 26.01 lakh crores out of which Rs. 22.22
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lakh cores are accounted for by NBFCND-SI while Rs. 3.79 lakh crores are of the
NBFC-D.
II.iv. MuthootFincorp Ltd.
MuthootFincorp Limited (MFL) is a flagship finance company under the
broad MuthootPappachan (MPG) and it’s based out at Trivandrum. It caters to the
bottom of the economic period i.e. BPL & lower income groups through its various
retail products. It is registered with the Reserve Bank of India as a non-deposit taking
non-banking finance company (NBFC).
MuthootFincorp Limited provides financial services through its wide network of
3500 + branches in India with average walk in of over 85,000 customers in every day.
The various products are Gold Loan, Business Loan / MSME Loan, Housing Finance,
2W Financing, Micro-finance, etc. Its also provides wealth management services and
varied insurance products like Home Insurance, Health Insurance, Motor Vehicle
Insurance, etc.
In the 2017-18 financial year, MuthootFincorp Ltd. Reported
Gross revenue: Rs. 2108.87 Crores, with an increase of 7.45% (YoY)
Profit after Tax registered Rs. 151.53Crores with an increase of 30.55%(YoY)
EPS for the year rose to Rs. 7.82 from Rs. 6.22, i.e. an increase of 25.72%
Income from loan increased to Rs. 2094.61 Crores from the previous year, with an
increase of 7.55%
MuthootFincorpLtdis primarily a gold loan finance company, having a mission to
provide timely credit to the underprivileged strata of the population through its
branch network in a easy and simple way. Products have been customized and there
are a large chunk of people, who avails their facility on a daily basis.The major
strength as mentioned above include the position ofMuthootFincorp Ltd. Is holding in
Gold loan and MSME segment, where even after having many competitors company
can build a healthy customer base. MuthootFincorp Ltd. distinguishes themselves
from competitors in terms of customer service and it was also observed in the field
research that customers are satisfied with the service offering. Apart from this the
Geographic location also aids to the scalability of the company. With nearly 3542
branches pan India, company hold a good national presence. Company also has wide
range of products to different customers and different segments; this customization of
products and wide portfolio creates affinity for the company amongst customers. And
lastly the increasing profit, we observe the over CAGR of 24.43% in profit which is a
healthy increase over the period of past 4 years.
III. Objective
a. To identify and study the factors affecting the customer satisfaction.
b. To identify and study the factors affecting the employee satisfaction
c. To study various drivers for employee engagement
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d. To identify the relationship between Customer Satisfaction and its loyalty
e. To develop the strategies using which customer base can be increased at
MuthootFincorp Ltd.
f. To develop the strategies using which customer can be retained at
MuthootFincorp Ltd.
g. To design a conceptual model of building customer loyalty through employee
engagement
IV. Research Methodology
The research methodology is defined for two parts of the project
How we can increase customer base for MuthootFincorp ltd.
How we can retain the existing customers
In the first part where we need to identify the ways using which we can increase the
customer base,according to previous researches it was concluded that there is a
positive correlation between customer base and employee’s satisfaction. As employee
is the direct link between the company and a potential customer, the motivation level
of employee can decide the efforts he/she will take in order to convert a potential
customerinto a customer.
To measure the overall satisfaction level of employees, the survey was conducted
with 88 employees from 26 Branches in Chittoor District of Andhra Pradesh.
IV.i. Research Tool
The below mentioned tools were used while collating data from field.
a) Structured Interview (for employees)
b) Structured Questionnaire (for customers)
c) Secondary sources namely report, announcements, case studies, brochures,
pamphlets, leaflets.
d) Focused Group Discussion (FGD).
IV.ii. Sampling Design
The sampling technique which was used during collection of data was
a“multi-stage sampling” technique. Sample of 249 customers and 88 employees were
collected in three different areas of Chittoor district in the state of Andhra
Pradesh.The survey was designed to cover the customers, who visited the branch
during their financial transactions. These customers were mainly existing customers.
Further classification of data for customers is given below:
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New Regular Customers Old Customers Total
Customers (2-4 Yrs) (More than 4 Yrs)
(0-2 Yrs)
Chittoor 43 52 11 106
Madanaplli 12 28 0 40
Tirupati 72 28 3 103
Total 127 108 14
As we can observe most of the customers are new customers and regular customers,
very few old customers are in the studied sample.
V. Key findings and analysis
V.i. Customers analysis
The quantitative data of customers were analyzed to find out satisfaction
score of each parameter i.e.Interest Rate, Documentation, Staff Behavior, Service.
The results were analyzed and compared across four parameters i.e. Very Satisfied,
Satisfied, Dissatisfied, and Very Dissatisfied. Further, the quantitative results were
supplemented and validated by qualitative aspects like interviews and interactions
with Branch Managers and Area Managers.
Customer Interest Staff
Satisfaction Rate Service Documentation Behavior
Very
Satisfied 21 129 138 158
Satisfied 84 116 101 89
Dissatisfied 107 4 10 1
Very
Dissatisfied 37 0 0 0
Satisfaction
Score 58.7 87.2 87.5 90.1
Average
Satisfaction
Score 80.875
Data analysis Table 1
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Customer Satisfaction
200
100
0
Interest Rate Service Documentation Staff Behavior
Very Satisfied Satisfied Dissatisfied Very Dissatisfied
To analyze the data, we calculated satisfaction score of each parameter, we weighted
each satisfaction level and then multiplied it by the number of respondents. The
weights were given as Very Dissatisfied (10%), Dissatisfied (20%), Satisfied (30%),
and Very Satisfied (40%). The overall score is calculated out of 100. The final
weighted satisfaction scores (WSS) are as follow:
Interest rate – 58.7
Service – 87.2
Documentation – 87.5
Staff Behavior – 90.1
We can conclude from this evaluation that, the only segment where improvement is
required in interest rate for ultimate customers satisfaction. Further to evaluate the
overall company performance we analyzed the 4Ps of Marketing Mix i.e. Product,
Price, Promotion and Process.
Documentation and Customers Customer
Interest Rate Staff Behavior recommendation Portfolio Mix
Response Price Process Promotion Product
Excellent 21 148 37 5
Good 84 95 182 10
Average 107 6 29 30
Poor 37 0 0 204
Weighted
Score 58.7 88.8 75 31.4
Average
Score 63.475
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To analyze the above data, weighted score was calculated; the score is out of 100 and
shows how much excellent or poor one of the 4 Ps is. To conclude from the above
scores, we can see that Customer portfolio mix and price are poorly rated, with both
having below average score we say certain recommendation and improvement is
required on these two parameters. If we observe the Process and Promotion side of
the 4Ps, both have score
cored above average score, but again certain recommendations
can be made to the promotion side where maximum customers can be shifted to
Excellent response range.
V.ii. Interest rate
249 respondents were asked if the interest rate at MuthootFincorp is hhigh, the
responses were as follow.
DO YOU THINK INTEREST RATE
AT MUTHOOT FINCORP IS HIGH
Yes No
31%
69%
From the above pie chart, it is clearly visible that customers perceive interest rate at
MuthootFincorp is high. And the customers are perceiving that is as high as 70%.
IV.iiiCustomer
Customer Portfolio Mix
Respondents were asked, what all products they are purchasing from
MuthootFincorp?
Product Distribution
300 207
200 55
100 13 6 6 6 4 3 1 1 1
0
Further it was analyzed how many customers are their seeking multiple products from
MuthootFincorp.
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NUMBER OF PRODUCTS IN PORTFOLIO
Single Product 2 Products 3 Prodcuts 4-5 Products
4%2%
12%
82%
If we observe and analyze above two graphs and pie chart, we can say that maximum
number of customers are focused towards Gold Loan and MSME and comparatively
very low customers are there in Third Party Products segment.
V. Employees Analysis
V.i. Employee engagement and satisfaction
As mention earlier in the report, employees are the crucial part of this research
as employees are direct link between the customers and the company. If the employee
is satisfied, he/she is motivated to perform is job with best efforts, else wise some
lags can be observed. Hence, this can affect the co company
mpany both positively and
negatively. By employee engagement, we mean how much employee is engaging
himself/herself in the assigned job. It can be inferred that the
he employee engagement
and customer satisfaction are positively correlated and these two are ffurther
correlated to the company’s profitability.
There were several factors that were responsible for employee engagement and
satisfaction. These factors were; Salary, Working Hours, Incentives, Work
Environment, Flexibility with work and Personal Interest. t. Again, these factors were
mapped on five parameters of satisfaction level i.e. Very Satisfied, Somewhat
Satisfied, Neutral,, Somewhat Unsatisfied and Very Unsatisfied. The parameters were
weighted and a weighted score out of 100 of each factor was calcul
calculated
ated to observe the
areas where improvement is required.
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Working Flexibility Working Personal
Salary Hours Incentives with work Environment Interest
Very
Satisfied 18 83 3 73 77 64
Somewhat
Satisfied 31 4 16 12 5 17
Neutral 9 0 22 2 3 4
Somewhat
Unsatisfie
d 13 1 23 1 1 2
Very
Unsatisfie
d 16 0 20 0 2 1
Weighted
Satisfactio 18.85 28.863
n Score 077 54 14.04524 28.0638 27.86237 26.99638
Average 24.113
Score 68
Analyzing the respondents’ data on satisfaction level, we can see that there are two
factors where scores are below average i.e. Salary with weighted satisfaction score of
18.85 and Incentives with weighted satisfaction score of 14.04. This suggests that
certain improvements are required is these two factors as majority of employees are
unsatisfied with salary and incentives part. It also signifies how other factors like
Working Hours and Flexibility with work are keeping the employee satisfied at some
extent.
Further employees were asked to rate factors which can help retain existing
customers at MuthootFincorp Ltd. Several factors were given like:
By providing benefits to loyal customers
By Providing benefits offered by other competitors
Maintain regular interaction with customers
Referral and Incentives Programs
Employees were supposed to mark on 5-point Likerts scale. Giving them option
between Strongly Agree and Strongly Disagree.Employees were asked this question
as they work at the ground level and are in direct contact with the customers, so it is
believed that, employee can understand the customer side better than anyone else in
the hierarchy. 88 Employees responded and weighted score technique is used to
evaluate the factors.
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By providing By Providing Maintain regular Referral or
benefits to benefits offered interaction with Incentives
loyal by other customers Programs
customers competitors
Strongly
Agree 67 8 20 74
Agree 19 48 39 14
Neutral 2 32 29 0
Disagree 0 0 0 0
Strongly
Disagree 0 0 0 0
Weighted
Score 27.79762 21.86576 22.86545 28.39744
Average
Score 25.2315675
The above analysis shows the weighted score (Higher is better) of employees’
perceptions on how we can retain existing customers. The average score came out to
be 25.2 and factors above average score are “By providing benefits to loyal
customers” and “By having referral or Incentive Programs”
VI. Conclusion
The factors involved in increasing the customers base and retaining existing
customers narrow down to Customer Satisfaction, Employee Satisfaction and
Marketing. When we evaluated the various factors responsible for customer
satisfaction, it was observed that the customers are not satisfied with the current
interest rate offered by MuthootFincorp Ltd.The Customer WSS on different factors
are Interest rate – 58.7, Service – 87.2, Documentation – 87.5, Staff Behavior – 90.1
with average score of 80.875.Also, it was observed that other factors like Staff
behavior, Documentation and Service are significantly responsible for customers
satisfaction.On evaluating customers on 4Ps of Marketing Mix; it was observed that
Product and Price needs improvement whereas Promotion and Process scored
satisfactory.The product distribution was heavily skewed towards Gold Loans and
MSME, implying other products also need significant attention in terms of marketing
and development.Customers portfolio matrix is also heavily skewed towards single
product portfolios, 82% of the respondents hold only single product. Implying the
focus required on cross selling and since majority of single product customers were
gold loan and MSME customers, implying awareness about other products is
required.In the second part on observing the employee satisfaction, we concluded that
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employees are heavily unsatisfied with salary structure and incentives policies of
MuthootFincorp Ltd.Lastly on asking about the strategies company can adopt to
retain existing customers, we concluded that “By providing benefits to the loyal
customers” and “By having incentives and referral programs” we can improve in
retaining significant number of employees.
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