1

DESIGN AND MARKETING OF NEW FINANCIAL

PRODUCTS

A CASE OF NIGERIAN BANKS

THESIS

SUBMITTED TO FACULTY OF BUSINESS ADMINISTRATION

UNIVERSITY OF LAGOS

BY

KINGSLEY. O. ANANWUDE

089029473

ananwudek@yahoo.com, kingsleyananwude@gmail.com +2348027551021, +2348038268380

No part of this research work may be produced, stored or transmitted in any form or by any means, electronic or

mechanical, including photocopy, recording, or any information storage and retrieval system, without the written permission of the

author. @Kingsley Ananwude 2011. ananwudek@yahoo.com. 08027551021

SUPERVISOR: DR. G.O. MELODI

IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE AWARD OF THE

DEGREE OF MASTERS OF BUSINESS ADMINISTRATION (MBA)

AUGUST 2011

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CERTIFICATION

This is to certify that this research work was carried out by Kingsley Ananwude under

the supervision of Dr. G.O. Melodi at University of Lagos, Nigeria, in accordance with

the rules and regulations of the University.

AUGUST 2011 ---------------------------------------------- -----------------------------

KINGSLEY ANANWUDE DATE

Student

AUGUST 2011 ------------------------------------------------- -----------------------------

DR. G.O. MELODI DATE

Project Supervisor

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DEDICATION

Dedicated to the almighty God, the author of knowledge and giver of wisdom and to my

mum, mrs. Janet Ananwude for her, support, love and care.

To God be the glory.

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ACKNOWLDGEMENT

My gratitude goes first to God almighty, for seeing me through the period of this

research and times of intense academic works and enormous studies, at the University

of Lagos.

I must acknowledge the dual role of Dr. G.O. Melodi, first, as a lecturer and later as a

research supervisor. Despite his tight schedules, he ensured effective supervision and

timely completion of this work.

My unreserved gratitude goes to my mum, Mrs. Janet Ananwude for laying the

foundation on which my subsequent academic structures were founded. She also

assisted me in great measures throughout the duration of research at the University of

Lagos. My sincere appreciation goes to my best friend Roseline Uju Ifeoma Ezeh for her

constant encouragement and inspirations.

I must acknowledge the immense supports of my brothers Christian Arinze Ananwude

and Shedrack Azunna Ananwude. I also wish to commend my uncle sir Charles

Ananwude for his moral supports and encouragement. I wish to acknowledge other

departmental and faculty lecturers who labored in one way or the other to ensure the

objective of this program was achieved, notably is Dr. Jonathan Ifechukwu.

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Finally, I thank the management and staff of University of Lagos for adhering strictly to

the curriculum of the program and ensuring that quality and standards are maintained.

ABSTRACT

This thesis seeks to expound the trend in the design of new financial products and

services and hence unravel the changes through time that have taking place within the

Nigerian banking industry. The challenges and prospects in product development,

effective marketing strategies, creativity and innovation as well as development of

competitive strategies as keys to survival in a developing economy were thoroughly

discussed.

The main objective of the study is to correlate the contribution of financial product

design to achieving sustained profitability, maximization of shareholders wealth and

hence achievement of the overall goal of the banks in Nigeria.

The stages in new product design -idea generation, idea screening, concept

development & testing, etc were thoroughly reviewed.

Contemporary products of Nigerian banks in the 21st century - custodian of valuables-

bailee/bailor, temporary overdrafts (TODS), collection products & services, local

purchase orders (LPO), bonds & guarantees, advisory services, attractive cot

surrendering products (CSP), internet banking product, mobile banking , etc were

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thoroughly analyzed. Also the concept of marketing as enunciated by Kotler, the

evolution towards marketing concepts as well as the stages in the evolutionary trend

were explained.

The idea of relationship management as a process whereby banks engage high quality,

well motivated labour, with excellent interpersonal skills, to manage the business

relationships between the banks and their respective clients, eventually raised the bar of

the competition and provided a new twist to the entire landscape of the Nigerian

banking industry.

This strategy which was traceable to Standard Trust Bank (STB) now embedded in

United Bank for Africa (UBA) under the dynamic leadership of the then founder and

promoter Mr. Tony Elumelu in early 2000 has since been adopted by all banks in

Nigeria, especially after the consolidation exercise of 2004/2005 under the able

leadership of Professor Charles Chukwuma Soludo as governor of the Central Bank of

Nigeria (CBN). This has also been adopted by the Microfinance banks (MFBs), who

play in the lower rung of the ladder.

The thesis was further expounded to explain the relationship management cycle (RMC),

customer retention strategies (CRS) and service quality management (SQM). The

strategy of Consumer protection (CP) was explained. Consumer protection are been

carved out as separate unit by banks to resolve amicably issues between them and

their valued customers, especially relating to controversial charges.

The relevant research hypotheses and questions were properly discussed.

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Questionnaires were administered to over 100 respondents especially customers of

banks including - traders, artisans, students, bankers, transporters, civil servants etc.

The data collected were prepared using Statistical package for social sciences (SPSS).

The data were analyzed and presented in tabular form.

The result obtained were subsequently interpreted and inferences drawn. The

significant contribution of new product design, relationship management, innovation,

new product development, excellent service delivery and effective marketing strategy to

the profitability and maximization of shareholders wealth were thoroughly discussed.

Summary, Conclusion, recommendations and useful suggestions were given.

It is hoped that the thesis ―Design of and marketing of new financial products, a case of

Nigerian banks‖, will be of immense use to Nigerian banks, especially now that

competition and battle for survival is raging. The thesis will also be of immense use to

all those who have one form of relationship or the other with Nigerian banks and will be

of assistance to students for further researches.

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TABLE OF CONTENTS

CONTENT PAGE

TITLE PAGE

CERTIFICATION I

DEDICATION II

ACKNOWLEDGEMENT III

ABSTRACT IV

TABLE OF CONTENTS V

APPENDIX X

BIBLIOGRAPHY XI

CHAPTER ONE

1.1 INTRODUCTION ......................................................................................... 1

1.2 PROBLEM STATEMENT ............................................................................ 4

1.3 AIMS AND OBJECTIVE OF STUDY ........................................................... 6

1.4 RESEARCH QUESTIONS .......................................................................... 7

1.5 RESEARCH HYPOTHESIS......................................................................... 8

1.6 METHOD OF STUDY .................................................................................. 8

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1.7 SCOPE AND LIMITATION .......................................................................... 9

1.8 OUTLINE OF CHAPTERS .......................................................................... 11

1.9 SIGNIFICANCE ........................................................................................... 11

1.10 REFERENCES ............................................................................................ 13

CHAPTER TWO

LITERATURE REVIEW .......................................................................................... 14

2.1 INTRODUCTION ......................................................................................... 14

2.2 NEW PRODUCT DESIGN ........................................................................... 14

2.3 STAGES IN NEW PRODUCT DESIGN 15

2.71 IDEA GENERATION 15

2.72 IDEA SCREENING 16

2.73 CONCEPT DEVELOPMENT & TESTING 16

2.74 BUSINESS ANALYSIS 17

2.75 BETA TESTING AND MARKET TESTING 17

2.76 TECHNICAL IMPLEMENTATION 18

2.78 COMMERCIALIZATION 18

2.79 NEW PRODUCT PRICING 19

2.4 THE FUZZY FRONT END 19

2.41 OPPORTUNITY IDENTIFICATION 20

2.42 OPPORTUNITY ANALYSIS 20

2.43 IDEA GENESIS 20

2.44 IDEA SELECTION 21

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2.45 CONCEPT AND TECHNOLOGY DEVELOPMENT 21

2.46 OUTCOME OF FFE 22

2.47 PRODUCT LIFE CYCLE 23

2.48 STAGES IN PRODUCT LIFE CYCLE 24

2.481 INTRODUCTION STAGE 24

2.482 GROWTH STAGE 24

2.483 MATURITY STAGE 24

2.484 SATURATION & DECLINE STAGE 24

2.49 CRITIQUE OF THE PRODUCT LIFE-CYCLE CONCEPT 24

2.410 NEW PRODUCTS OF NIGERIAN BANKS IN THE 21ST CENTURY 26

2.411 CUSTODIAN OF VALUABLES- BAILEE/BAILOR 26

2.412 TEMPORARY OVERDRAFTS (TODS) 26

2.413 COLLECTION PRODUCTS & SERVICES 27

2.414 LOCAL PURCHASE ORDERS (LPO) 27

2.415 BONDS & GUARANTEES 28

2.416 SAVINGS MOBILIZATION 28

2.417 FINANCIAL INTERMEDIATION 28

2.418 ADVISORY SERVICES 29

2.419 LOCAL & FOREIGN FUNDS TRANSFER (LFT & FFT) 29

2.420 FOREIGN EXCHANGE (FOREX) PRODUCTS 30

2.421 CUSTOMIZED VALUE ADDED PRODUCTS 30

2.422 ATTRACTIVE COT SURRENDERING PRODUCTS (CSP) 30

2.423 INTERNET BANKING PRODUCT 31

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2.424 MOBILE BANKING 31

2.425 DESIGN OF ISLAMIC BANKING PRODUCTS 32

2.426 PRINCIPLES 32

2.427 HISTORY & EVOLUTION OF ISLAMIC BANKING PRODUCTS

IN NIGERIA 33

2.428 CONSTITUTIONALITY OF ISLAMIC BANKING PRODUCTS 35

2.429 A CASE FOR NON-INTEREST BEARING PRODUCTS 36

2.430 MICROFINACE BANK PRODUCTS 36

2.431 OBJECTIVE & GOALS OF MICROFINANCE BANKS IN NIEGRIA 38

2.432 PRODUCT PAPERS 41

2.433 INVENTION OF AUTHORITY-TO-COLLECT (ATC) IN DISTRIBUTIVE 41

2.434 AUTHORITY-TO-LIFT (ATL) 42

2.435 IDEA OF RECEIVABLE REFINANCING 42

2.436 INVOICE DISCOUNTING 43

2.437 INVENTORY REFINANCE 43

2.438 CONTIGENT LIABILITY PRODUCTS 43

2.439 BID BOND 44

2.440 PERFORMANCE BOND 45

2.441 ADVANCE PAYMENT GUARANTEES (APG) 45

2.442 BANK GUARANTEE (BG) 45

2.443 INDEMNITIES 46

2.444THE NATURE & WORKINGS OF OFF-BALANCESHEET PRODUCTS 46

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2.445 BANKER'S ACCEPTANCE (BA) 46

2.446 COMMERCIAL PAPER (CP) 47

2.447 CONSUMER LENDING PRODUCTS 47

2.448 SALARIES BACKED-ADVANCES 47

2.449 NAIRA (N) CREDIT CARDS 48

2.450 ASSET ACQUISITION PRODUCTS- QLS, MPOWER,WAAS 48

2.451 SHARES PURCHASES & TRADING 49

2.452 EQUIPMENT LEASE FACILITIES (ELF) 49

2.453 DEVELOPMENT OF MORTGAGE PRODUCTS 49

2.454 SYNDICATION PRODUCTS IN NIGERIAN BANKING INDUSTRY 50

2.455 CONTEMPORARY PRODUCTS OF NIGERIAN BANKS IN INTERNATIONAL

TRADE FINANCE 50

2.456 LETTERS OF CREDIT (LC) 51

2.457 BILLS FOR COLLECTION (BC) 51

2.458 ADVANCE PAYMENT/TELEGRAPHIC TRANSFERS (TT) 52

2.459 OPEN ACCOUNT 52

2.460 EXPORT FINANCE PRODUCTS 53

2.50 THE CONCEPT OF MARKETING, AS AN INTEGRAL

PART OF PRODUCT DESIGN ............................................................................. 53

2.51 EVOLUTION TOWARDS THE MARKETING CONCEPT ............................ 54

2.52 THE RELATIONSHIP MANAGEMENT ....................................................... 59

2.53 PROFITABILITY SEGMENTS ..................................................................... 61

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2.54 THE CUSTOMER RELATIONSHIP LIFECYCLE ........................................ 66

2.55 CUSTOMER RETENTION STRATEGIE ..................................................... 68

2.56 CUSTOMER FOCUS AND SERVICE QUALITY ......................................... 71

2.57 THE CONCEPT OF VALUE ........................................................................ 72

2.58 COMPONENTS OF QUALITY ..................................................................... 73

2.59 MEASURING SERVICE QUALITY .............................................................. 75

2.60 A SERVICE QUALITY CULTURE ............................................................... 76

2.61 THE ROLE OF STAFF IN SERVICE DELIVERY ........................................ 78

2.62 CONSUMER PROTECTION ....................................................................... 80

2.63 REFERENCES ............................................................................................ 82

CHAPTER THREE ................................................................................................. 86

RESEARCH METHODOLOGY .............................................................................. 86

3.0 INTRODUCTION ......................................................................................... 86

3.1 RESTATEMENT OF RELEVANT QUESTIONS .......................................... 86

3.11 RELEVANT RESEARCH HYPOTHESES ................................................... 87

3.2 STUDY POPULATION ................................................................................ 87

3.3 DATA COLLECTION METHOD ................................................................. .. 88

3.4 SAMPLING PROCEDURE .......................................................................... 89

3.5 METHOD OF ADMINISTERING QUESTIONAIRE ...................................... 90

3.6 ANALYSIS OF SAMPLES ........................................................................... 90

3.7 DECISION RULE ......................................................................................... 92

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3.8 LIMITATION OF METHODOLOGY ............................................................. 93

3.9 REFERENCES ............................................................................................ 94

CHAPTER FOUR ................................................................................................... 95

PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA 95

4.0 INTRODUCTION ............................................................................................ 95

4.1 AGE OF RESPONDENTS ........................................................................... 95

4.2 GENDER OF RESPONDENTS ................................................................... 96

4.3 MARITAL STATUS ...................................................................................... 96

4.4 EDUCATIONAL QUALIFICATIONS ............................................................ 96

4.5 RELIGIOUS VIEWS .................................................................................... 96

4.6 GEOPOLITICAL ZONES ............................................................................. 96

4.7 OCCUPATION ............................................................................................. 97

4.8 RESPONDENTS WITH BANK ACCOUNT .................................................. 97

4.9 DURATION OF BANK ACCOUNT .............................................................. 97

4.92 DEVELOPMENT OF NEW PRODUCTS 98

4.93 FREQUENCY OF NEW PRODUCT DEVELOPMENT 98

4.94 EFFECT OF COMPETITION ON R&D 98

4.95 EFFECT OF INNOVATION TO THE INDUSTRY 98

4.96 EVOLUTION IN THE FINANCILA INDUSTRY 99

4.97 IMPACT OF R&D TO CLIENT BASE 99

4.98 TREND OF CLIENT BASE 99

4.99 DIVIDEND DECLARATION TWO DECADES AGO 99

4.100 RECENT TREND OF DIVIDEND DECLARATION 100

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4.101 REASON FOR DIFFERENCE IN PATTERNS OF DIVIDEND

DECLARATION 100

4.102 PRESENT & PAST RETURN ON INVESTMENT (ROI) 100

4.103 R&D AWARENESS 100

4.104 TIMING OF R&D 101

4.105 FREQUENCY OF NEW PRODUCT DESIGN 101

4.106 RELEVANCE OF R&D TO INDUSTRY 101

4.107 COMPARISON OF R&D IN NEW AND OLD GENERATION BANKS 101

4.108 PREFERNECE BETWEEN OLD & NEW GENERATION BANKS 102

4.109 FACORS AFFCETING CHOICE OF INSTITUTIONS 102

4.110 BANKING IN THE 21ST CENTURY 102

4.111 RATE OF TRANSFORMATION 102

4.112 DESIRABILITY OF TRANSFORMATIONS 103

4.113 INFLUENCE OF TRANSFORMATION TO CUSTOMERS 103

4.114 LEVEL OF PATRONAGE 103

4.115 INCREASE IN PATRONAGE BY CONTEMPORARIES 104

4.116 JUSTIFICATION OF INVESTMENTS IN R&D 104

4.117 PATTERN OF BANKS PROFITABILITY 104

4.118 NFLUENCE OF MOBILE & INTERNET BANKING 104

4.119 FREQUENCY OF BANKER‘S VISITS 105

4.120 EFFECT OF MARKETING TO THE INDUSTRY ......................................... 105

4.121 LENGTH OF MARKETING TREND ............................................................ 105

4.122 CHALLENGES IN FINANCIAL PRODUCT MARKETING ........................... 105

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4.123 RELEVANCE OF FINANCIAL PRODUCT DEVELOPMENT TO THE

BANKING INDUSTRY……………………………………………………...... .... 106

4.124 VOLUME OF TRANSACTIONS IN RELATION BANKER‘S VISITS ............ 106

4.125 CONTRIBUTION TO SHAREHOLDER‘S WEALTH .................................. 106

4.126 RESPONDENTS‘ TREND OF AGREEMENT ON POSITIVE IMPACT

OF NDP TO ROI 107

4.127 FACTOR ANALYSIS ................................................................................... 109

4.128 KMO & BARTLETT‘S TEST OF SPHERICITY ............................................ 109

4.129 COMMUNALITIES ....................................................................................... 109

4.130 TOTAL VARIANCE EXPLAINED ................................................................. 109

4.131 COMPONENT MATRIX ............................................................................... 110

4.132 REFERENCES ............................................................................................ 111

CHAPTER FIVE

SUMMARY, CONCLUSIONS, SUGGESSTIONS AND RECOMMENDATIONS

5.0 INTRODUCTION ......................................................................................... 112

5.1 SUMMARY .................................................................................................. 112

5.2 FINDINGS ................................................................................................... 114

5.3 DISCUSISION OF FINDINGS ..................................................................... 115

5.4 CONCLUSIONS .......................................................................................... 118

5.5 RECOMMENDATIONS AND SUGGESTIONS ............................................ 118

5.6 REFERENCES………………………………………………. 120

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CHAPTER ONE

1.1 INTRODUCTION

Financial institutions, especially banks all over the world are coming up with more

creative ways to design improved new products and services, faster and more

efficiently. The overall aim of new product design & development is to enable the

institutions grow their revenues over time, maximize shareholders wealth, increase

market share, improve upon existing ones by modifying certain features of the products,

expand frontiers into new markets, help to maintain sales, transforms the institution,

shape the future of the organization and ensure the institution is ahead of the

competition and well reposition to exploit existing and future opportunities. Marketing of

these products to get within the reach of the target market is an integral part of the

product design process.

The business development units (BDU) of a financial institution plays key role in

development of new products by identifying and evaluating new-product ideas and

working with research & development (R&D) and other relevant units in every stage of

development. The effective marketing of these financial products when developed is

basic to realizing the full objective of the organization.

The scope of the research will be limited to financial product design (which are mostly

intangible products and services), with some emphasis in its marketing and their

contribution to the profitability of the banks as well as maximization of returns on

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investment (ROI) of stakeholders, who are exposed to risks, having committed their

capital to the business.

The study showed that such products often evolve through the means of benchmarking

of the competition, research, product papers, designed to capture their target market.

Good example is the arrangement between Zenith Bank Plc and Flour Mills of Nigeria

(FMN) Plc. By this arrangement, the bank designed a product that enables borrowing

customers access loan without tangible collateral, but secured by means of an

Authority-To-Collect (ATC). The ATC which is a title to the actual product, is designed

through a synergy between the financing bank and the multinational whose products are

been financed, then printed by the multinational and given to the bank for further

release to the bank‘s customer. Zenith bank pays the multinational at sight and places a

lien over this document of title. Subsequent releases are made in tranches to the

borrowing customer to enable them have access to the actual products, as proceeds of

previous release are received. This has proved very successful in commodity trading

and fast moving consumable markets. A variant of this arrangement also exist between

Dangote Cement Industries Plc and United Bank for Africa (UBA).

Currently, banks all over the world are experiencing continual and rapid market

challenges which call for concern. Also the incidence of globalization, government

regulations, low capacity utilization, commercialization/privatization, economic

restructuring, low market share/sales volumes, low profitability, declining productivity

and labour union incessant demands for better working conditions also pose great

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challenges to the management of these banks whose basic concern is to position and,

or reposition their banks on a sound footing for global competitiveness.

In responding to the market reality, diverse strategies are adopted to sustain the

relevance of the banks in the current dispensation. Thus development of new products

is achieved through design of new-to-the-world products that creates entirely new

market at one end and/or improvements or revisions of existing products that creates

brand extensions that better satisfy consumer needs at the other end.

In the case of Nigeria, banks add new products through acquisition or development. The

acquisition route takes three forms: The institution buys other institutions, it can acquire

patents from other institutions or it can obtain a license from the regulator. All these are

geared to achieve growth through inorganic means. Nigerian banks also achieve growth

via organic means, which is usually through product design and development from

within the company. The rapid change in the environment has necessitated the need to

develop new products and provide innovative and efficient services to be able to cope

and remain relevant in the present global competitive environment.

Since banks operate in a very dynamic, unpredictable and complex environment, there

is need to develop effective strategies for the design of financial products and services,

in order to cope with the turbulent environment in which they operate.

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1.2 PROBLEM STATEMENT

Consumers have become more aware of their rights in the business environment. They

have also become aware of the availability of several product alternatives. The

incidence of global economic meltdown have further dwindled the fortunes of financial

institutions, with banks as the worst hit. In the Nigerian scenario, present realities shows

that the case is worse than imagine.

The stress test of 2009 by the regulator- Central Bank of Nigeria (CBN) have further

confirm the woes of the financial institution, with result showing that about 8 out of 24

banks (≈33%) in the country have negative share capitals. The implication of this is that

over 33% of banks operating in Nigeria have lost their capital and have further

compounded their problems with capital in the range of minus N30 billion to over N300

billion, a gap that will take several decades to cover, going by organic growth

mechanisms.

This was the origin and a precursor to the banking tsunami of August 14, 2009, with a

most shocking pronouncement by the CBN governor that led to the sacking of eight (8)

MD/Chief executives Officers and numerous directors of the banks.

With further threats of revocation of operating licenses, withdrawal of inter-bank

guarantees, nationalization, outright sales or acquisition of erring banks, enormous

pressure is being mounted on the banks to create more businesses and maximize

retained profits towards meeting up with the demands of the regulator.

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To escape from the big hammer wielded by the regulators- Securities and exchange

commission (SEC), Central Bank of Nigeria (CBN), Nigeria Deposit Insurance Company

(NDIC), affected banks faced with the dilemma, have taken the option of mergers &

acquisition (M&A). This is followed by recent signing of Transaction Implementation

Agreement (TIA) being witnessed. The aim of TIA is to take over the erring banks from

the original owners, whose capitals have been eroded and hand over same to new

owners, with vested interests and whose capital is used to rescue the erring institutions,

to avoid total and monumental collapse, with resultant effect of loss of depositors funds,

loss of trust and confidence on Nigeria financial institution by oversea counterparts, and

loss of wealth by shareholders.

These have led to increase in competition, with each bank struggling to have a sizeable

wallet share of the available market.

It could be recalled that before the 21st century, banking in Nigeria was characterized

by armchair banking, where bankers are comfortably sitting in the bank and customers

come in to be attended. In the wake of 21st century according to Hammer and Champy

[1993], the major environmental pressures noted above have led to the development in

the three C‘s – customers, competition, and change.

Customers today know what they want, what they are willing to pay, and know how to

get products and services on their own terms.

Competition is generally increasing with respect to price, quality, selection, service, and

promptness of delivery. Removal of trade barriers, increased international cooperation,

and the creation of technological innovations cause competition to intensify

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Change continues to occur. Markets, products, services, technology, the business

environment, and people keep changing, frequently in an unpredictable and significant

manner.

Some of the old marketing strategies of the banks were no longer relevant in this new

environment. Banks, as a result are forced to develop new marketing strategies to cope

with challenges in the financial service sector.

Remaining afloat in the face of these challenges are some of the problems which banks,

especially those with Nigerian origin have to contend with. To ensure the future of the

bank is guaranteed, the financial institutions have resorted to design of new financial

products and effective marketing of same, to remain profitable and hence maximize

shareholders investment.

1.3 AIMS AND OBJECTIVE OF STUDY

The major objective of the study is to examine the trends, challenges and prospects in

the design of new financial products and services by Nigerian banks and the effect of

this on the profit portfolio of the institutions and shareholders‘ wealth. Other objectives

of the study include:

1. To study the process and relevance of new product development to

achieving the profitability target and overall goal of the banks.

2. To examine the significant contribution of marketing as an integral part of

design of financial products and services, to the profitability of banks.

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3. To examine how banks achieve competitive edge using superior product

design strategies as tools in the Nigerian financial sector.

4. To examine how banks increase their market share using effective

marketing strategies.

5. To offer relevant suggestion toward better utilization of customer focused

strategies in the Nigerian financial sector.

1.4 RESEARCH QUESTIONS

The relevant research questions to be answered by the research hypothesis are as

follows:

1. How do banks develop customer focused financial products and services?

2. How will banks achieve increase in their business share and shareholders

wealth using relevant strategies in the design of financial products and

services?

3. Will development of new financial products and efficient services lead to the

increase in the satisfaction of customers?

4. How can banks achieve competitive edge over others in a competitive

environment?

5. What is the relationship between the development of new financial products

and services and the goal of profit maximization of the banks in the financial

service sector?

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1.5 RESEARCH HYPOTHESIS

The relevant hypotheses to be tested in the study are as follows:

HYPOTHESIS ONE

Ho: The development of new financial products and services in response to the needs

of their customers is not significantly related to increase in profitability for the banks and

maximization of wealth for shareholders.

Hi: The development of new financial products and services in response to the needs of

their customers is significantly related to increase in profitability for the banks and

maximization of wealth for shareholders.

HYPOTHESIS TWO

Ho: The development of effective marketing strategy for financial products and services

by the banks is not significantly related to achieving customer satisfaction.

Hi: The development of effective marketing strategy for financial products and services

by the banks is significantly related to achieving customer satisfaction.

1.6 METHOD OF STUDY

The method of study and data collection adopted was mailing of questionnaires. This

involves designing of questionnaires containing valid questions aimed at eliciting

valuable responses from the respondents. The questionnaires so designed was sent

across various stakeholders including happy/aggrieved customers of banks, dormant

25

account holders, traders, artisans, bank staff, business men, civil servants, students of

various institutions, professionals, organized private sectors etc. Thus the respondents

cut across various segments of people who have one business or the other with

Nigerian banks.

The respondents were allowed a time frame to objectively study the questionnaires and

give their honest opinions on the questions raised in the questionnaire.

Various considerations were involved in arriving at this method of study. These include-

cost effectiveness, since budget analysis shows it is cheaper than other methods.

Elimination of enumerator‘s bias, since the views of the respondents will be different

from those of the researcher. The respondents will have enough time to consult sources

before completing the questionnaires.

Thus, it is believed the method will yield data of high quality. Also it is expected that the

respondents will be very objective in giving their various opinions and will feel free

enough to supply honest answers to some sensitive questions.

1.7 SCOPE AND LIMITATION

The banking industry contains both the old and new generation banks, which were the

target of the study. The study population which is the Nigerian financial institution,

especially the banks, is quite large to be completely sampled by the study, therefore

beyond the scope of this study. Thus only a few of the banks were actually sampled and

26

energy concentrated on them. The result obtained was assumed to be representative of

the entire population of the Nigerian banking industry. Hence the researcher was unable

to study all the banks in the banking sector of the economy. The scope of the study was

only limited to Zenith bank, Guaranty trust bank and UBA plc.

Enumerators bias was also a major limitation as some of the stakeholders that lost out

in the power equation during the restructuring that occurred in their organizations, which

was enforced by the central bank, and which was occasioned by the infamous global

financial meltdown, could not see anything good in the transformation agenda, new

product development and innovative product re-design efforts of the new management.

Another major limitation in the study was the general apathy to research in Nigeria,

most of the respondent complained of lack of time to fill the questionnaires and where

filled, some of the responses seemed not as sincere as expected.

Another limitation is the lack of funds to conduct the research on a very wide scale. The

scope of the research has been limited to about four banks because of financial

constraints. This however does not limit the generalization of the study.

Another limitation is the uncooperative attitude of the management of banks. The

management of some banks considered some of the questions as very confidential to

the operation of their banks.

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1.8 OUTLINE OF CHAPTERS

This study is presented in five chapters with Chapter One serving as the general

introduction to the whole study. It states the research problems, and provides insight

into the research. Chapter Two traces the literature review on design of financial

products and services.

Chapter Three contains the methodology, definition of terms and overview of the recent

development in the financial sector of the Nigerian Economy. Chapter Four establishes

the model to be used and discusses the statistical methods (data presentation and

analysis) employed to make the analysis clearer. Chapter Five analyses the empirical

findings of the study, which is the summary, suggestions and conclusions and/or

recommendation of this study.

1.9 SIGNIFICANCE

The result of the study would enable senior management of financial institutions

develop relevant product design and customer focused strategies for their banks. Since

the sudden consolidation exercise, the various policy measures churned out via the

credit and monetary policies/guidelines have jolted the banks rather violently from their

cozy armchairs to the field to scout for deposits and for business. They now compete

fiercely and scramble actively for deposits. Intense competitions, innovation,

development of new products and provision of excellent service have therefore been the

order of the day. In the process, banks are repositioning for the fierce competitive

environment through information technology (computerization), new products, better

28

packaging of old products. In all these, the financial institutions generally are moving

away from armchair to dynamic postures to woo customers and clients and the result is

bound to be the much desired improved services for the customers. In such a highly

competitive environment therefore, only the competent and efficient banks can survive

and remain in business.

The result of this study would enable banks know the level of satisfaction received by

customers with their services. It would also enable banks know if the quality of service

affects their customers‘ loyalty to them and how that in turn affects their bottom line. The

study is important to the management of the banks.

29

1.10 REFERENCES

Kimball R C [1992] ‗Relationship Versus Product In Retail Banking‘, Journal of

Retail Banking, 12, 1 – Spring

Ketu A. A (2008) "Microfinance banks in Nigeria: An Engine for Rural

Transformation" West African Institute for Financial and Economic

Management, Lagos Nigeria.

Keltner B [1995] ‗Relationship Banking and Competitive Advantage: Evidence

from the US and Germany‘, Californian Management Review, Vol. 37, N0. 4

Parasuraman A, Berry L L & Zeithaml V A [1998]‘SERVQUAL: A Multiple Item

Scale for Measuring Consumer Perceptions of Quality of Service‘, Journal of

Retailing, Vol. 64, no. 1

UNDP/UNDCF, ―Support to the Development of Sustainable Microfinance

Sector in Nigeria: Mid-term Evaluation Report‖, September 2007.

Central Bank of Nigeria, ―Regulatory and Supervisory Framework for

Microfinance Banks (MFBs) In Nigeria‖, December 2005.

Arthur Middleton, (2005) ―How Marketing strategy Builds Loyalty and Profits‖,

Database Marketing Institute.

Novo J. (2004)-―Drilling Down, Turning Marketing strategy into Profits with

Spread Sheets‖

30

CHAPTER TWO

LITERATURE REVIEW

2.1 INTRODUCTION

Berry [1993] said that traditionally, the environment for financial services could be

characterized as having excess demand, with banks being product–led and passive,

waiting for customers to come to them. Fierce competition, along with other factors

such as technological progress, deregulation and re-regulation, and a demand-driven

marketplace have all meant that banks are now operating in very different business

environment. One consequence of these changes is the recognition that the customer

should be central to the focus of the business and its strategies.

However, the changed business environment has meant that implementations of

persistent improvement on existing products as well as design of new to the world

products, and a focus on the customer are crucial for business survival.

2.2 NEW PRODUCT DESIGN (NPD)

In business and engineering, new product design (NPD) is the term used to describe

the complete process of bringing a new product to the market. New Product design is

concerned with efficient and effective generation and development of ideas through a

process that leads to new products. A product is a set of benefits offered for exchange

31

and can be both tangible, as well as intangible (like services, experience, belief). There

are two parallel paths involved in new product design (NPD) processes:

The first involves the idea generation, product design and detail

engineering.

The other involves market stage research and marketing analysis.

Usually, organizations see new product design as the first stage in generating and

commercializing new products within the overall strategic process of product life cycle

management, which are used to maintain or grow their market share. Product life cycle

management (PLCM) is the succession of strategies used by business management as

a product goes through various stages in its life cycle. The condition in which a product

is sold (advertising, saturation) changes over time and must be managed as it moves

through its succession of stages. Product designers conceptualize and evaluate ideas,

making them tangible through products, in a more systematic approach. Their role is to

combine art, science and technology to create tangible 3-dimensional goods.

2.3 STAGES IN NEW PRODUCT DESIGN

The evolution of every product goes through series of stages. These stages often occur

in sequences. Each sequence is important and its completion often leads to the next

stage. The stages in new product design (NPD) include:

1. Idea Generation

This stage is often called the ‗Fuzzy front end‘ of the NPD process. Ideas for new

products are usually obtained from- Basic research using the SWOT analysis (Strength,

32

Weaknesses, Opportunities and Threats), Market and consumer trends, Company‘s

R&D departments, competitors, focus groups, employees, sales people, corporate

spies, trade shows, as well as Ethnographic discovery methods (which usually involves

searching for user patterns and habits). Idea generation process is also called

Brainstorming of new product process.

2. Idea Screening

The objective of the idea screening process is to eliminate unsound concepts prior to

devoting resources to them. Usually, the screeners ask several questions which may

include:

Will the customer in the target market benefit from the product?

What is the size and growth forecasts of the market segment/target market?

What is the current or expected competitive pressure from the product idea?

What are the industry sales and market trends the product idea is based on?

Is it technically feasible to manufacture the product?

Will the product be profitable when manufactured and delivered to the customers

at target price?

3. Concept Development and Testing

This stage involves developing the market and product details. It involves investigating

the intellectual property issues and searching patent data bases. This will lead to asking

the following questions:

33

Who is the target market and who is the decision maker in the purchasing

process?

What product features must the product incorporate?

What benefits will the product provide?

How will consumers react to the product?

How will the product be produced most cost effectively?

What will it cost to produce the product?

Testing the concept can also be carried out by asking a sample of prospective

customers what they think of the idea, usually via choice modeling

4. Business Analysis

This stage involves the following:

Estimate the selling price based upon competition

Estimate the selling price based upon consumer feedback

Estimate sales volume based upon size of market.

5. Beta Testing and Market Testing

At this advanced stage of the NDP, the following is expected:

Produce a physical prototype of the product

Test the product and its packaging in typical usage situations

Conduct focus group customer interviews or introduce at trade show

Make adjustments where necessary

34

Produce an initial run of the product and sell it in a test market area to determine

customer acceptance.

6. Technical Implementation

This advance stage usually entails the following set of activities:

Finalize quality management system

Resources Estimation

Product Requirement publication

Publish technical communication such as material data sheets

Operation planning

Department scheduling

Supplier collaboration

Logistic plan

Resource plan publication

Program review and monitoring

Contingency/ Sensitivity Analysis- These will involve ‗ what-if-Analysis‘

7. Commercialization

This is often considered a post NDP stage. It usually entails the following activities:

Lunch the product

Produce and place advertisements and other promotion strategies

Fill the distribution pipeline with products

Develop a critical path analysis

35

8. New Product Pricing

This post NDP stage usually involves the following:

Evaluating the impact of new products on the entire product portfolio

Value analysis (internal and external)

Influence of competition and alternative competitive technologies

Differing value segments such as price, value and need

Product costs( both fixed and variable cost elements)

Forecast of unit volumes, revenues and profit

2.4 FUZZY FRONT END (FFE)

This is the ‗getting started‘ period of new product development processes. It is at

the FFE that organizations formulate the concept of the product to be developed

and decides whether the organization formulates a concept of the product to be

developed and decides whether or not to invest resources in the further

development of the idea. It is the phase between first consideration of an

opportunity and when it is judged ready to enter the structured development

process (Kim and Wilemon, 2002). FFE includes the development of a precise

concept. The ‗FFE‘ ends when an organization approves the development cycle

time. Although the FFE may not be an expensive part of product development, it

can consume 50% of development time. It is at this point that major commitments

are typically made, involving- Time, money, and products nature; thus setting the

course for the entire project and final end product. Consequently, this phase

should be considered an essential part of development rather than something

36

that happens before development. Also its cycle should be included in the total

development cycle time.

Koen et al. 2001, distinguishes five different Front-End elements in no particular

order:

Opportunity Identification

Opportunity Analysis

Idea Genesis

Idea Selection

Concept and Technology Development.

2.41 Opportunity Identification

At this element of FFE, large or incremental business and technological chances are

indentified in more or less structured way. Using the guidelines established here,

resources will eventually be allocated to new projects, which the lead to a structured

New product & process development (NPPD).

2.42 Opportunity Analysis

This is done to translate the identified opportunities into implications for the business

and technology specific context of the company. Here, extensive efforts may be made

to align ideas to target customer groups and do market studies and /or technical trials

and research.

2.43 Idea Genesis

37

This is the evolutionary and iterative process which progresses from birth to maturation

of the opportunity into tangible ideas. The process of idea generation can be internal or

come from outside.

2.44 Idea Selection

The purpose of idea selection is to choose whether to pursue an idea by analyzing its

potential business value.

2.45 Concept and Technology Development

During this part of the FFE, the business case is developed based on estimates of total

available market, customer needs, investment requirements, and competition analysis

and project uncertainty.

It is important to note that FFE generally consist of three (3) important tasks:

Strategic Planning

Concept generation

Pre-technical Evaluation

Ironically, these set of activities are often chaotic, unstructured, and unpredictable, while

the subsequent new product development process is typically structured, predictable

and formal. The term FFE was first popularized by Smith and Reinertsen 91991).

However, in a more recent paper, Cooper and Edgett 92008) affirm that vital pre-

developmental activities include:

Preliminary market assessment

Technical assessment

38

Source-of-Supply-assessment

Market research

Product concept testing

Value-to-the customer assessment

Product definition

Business and financial analysis

These activities yield vital information to make ‗GO or NO-GO’ decisions.

Economic analysis, Benchmarking of competitive products, modeling and prototyping

are also important activities during the front-end activities.

2.46 OUTCOME OF FFE

The outcomes of FFE are:

Mission statement

Customer needs

Details of the selected concept

Product definition and specifications

Economic analysis of the product

The development schedule

Project staffing and the budget

Business plan aligned with corporate strategy.

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2.47 PRODUCT LIFE CYCLE (PLC)

Every product has its own life cycle, just like living things. This cycle starts from birth of

the product to the death of the product. The life cycle goes through the following

pathways: Birth, growth, maturity, decline and death.

To say that a product has life cycle is to assert three (3) things:

Products have a limited life

Product sales pass through distinct stages, each posing different challenges,

opportunities and problems to the seller.

Products require different marketing, financing, manufacturing, purchasing and

human resource strategies in each life cycle stage.

The PLC is as shown below:

1) Introduction stage

2) Growth stage

3) Maturity stage

4) Saturation & decline stage

40

2.48: TABLE 1: STAGES IN PRODUCT LIFE CYCLE (PLC)

S/N

STAGE IN PRODUCT

LIFE CYCLE CHARACTERISTICS

1

2.481 INTRODUCTION

STAGE

1. Costs are very high.

2. Slow sales volumes to start.

3. Little or no competition.

4. Demands have to be created.

5. Customers have to be prompted to try the product.

6. Makes no money at this stage.

2

2.482 GROWTH

STAGE

1. Costs reduce due to economies of scale

2. Sales volume increase significantly

3. Profitability begins to rise

4. Public awareness increases

5. Competition begins to increase with a few new players in establishing market

6. Increased competition leads to price decreases.

3

2.483 MATURITY

STAGE

1. Costs are lowered as a result of production volumes increasing

2. Sales volume peaks and market saturation is reached

3. Increase in competitors entering the market

4. Prices tends to drop due to the proliferation of competition products

5. Brand differentiation and feature diversification is emphasized to maintain or

increase market share

6. Industrial profits go down

4

2.484 SATURATION &

DECLINE STAGE

1. Costs become counter-optimal

2. Sales volume decline

3. Prices & profitability diminish

4. Prices becomes more a challenge of production/distribution efficiency than

increased sales

41

2.49 CRITIQUE OF THE PRODUCT LIFE-CYCLE CONCEPT

Although the PLC model offers some degree of usefulness to business managers, in the

sense that it is based on factual assumptions, nevertheless, it is difficult for marketing

management to gauge accurately where a product is on its PLC graph. For instance, a

rise in sales is not necessarily an evidence of growth. Similarly, a fall in sales does not

typify decline. This is because; some products rarely experience a decline. Coca cola,

savings account and current accounts, medical and legal are examples of such

products and services that have existed for many decades, but are still popular all over

the world. Another factor is that differing products would posses PLC shapes. A fad

product would hold a steep sloped growth stage, a short maturity stage, and a steep

sloped decline stage. Conversely, a product such as Coca cola, legal, banking products

and services would experience growth, but also a constant level of sales over a number

of decades. Thus it may be said that a given product or collective products within an

industry may hold a unique PLC shape. Hence the typical PLC model can only be used

as a rough guide for marketing management. Furthermore, the duration of PLC stages

is unpredictable. It is not possible to predict when maturity or decline begins; hence

strict adherence to PLC model can lead an organization to misleading objectives and

strategy prescription.

Thus a fair comment is that in the short term, all products pass through the PLC stages,

as not all products and services die in the long run.

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2.410 NEW PRODUCTS OF NIGERIAN BANKS IN THE 21ST CENTURY

The expectation of value, primarily establishes the cause of banking by customers in the

first place. This means that the most tactical way of attracting, retaining and ensuring

customers‘ loyalty is by developing and offering need satisfying products and services

that add real value to the customers. Some of the recent innovative products designed

and offered by Nigerian Banks in the 21st century include:

2.411 Custodian of Valuables- Bailee/Bailor

By these products, banks create a secured custody for safe keep of valuables for their

important customers, inside the strong room called vault. The commonly items often

vaulted by banks on behalf of their customers include: Certificates of occupancy (C of

O) of properties, expensive jewelries meant for future use, duly executed wills, etc. The

technical terms used to refer to this form of relationship between banks and their

customers are Bailee and Bailor. While Bailee refers to the Bank who has been

entrusted with the valuables for safe keep, Bailor refers to the customer entrusting his

or her valuables to another for safe keep

2.412 Temporary Overdrafts (TODS)

This is a product designed by Nigerian Banks at the wake of the 21st century, to allow

their trusted customers overdraw the funds in their account by certain amount for a very

short period of time. The aim of this product is to enable reliable customers to meet

immediate obligations, even when they don‘t have money in their account. They are

meant for short term funding needs. They are granted for short tenors usually spanning

few weeks to few months.

43

2.413 Collection Products & Services

Banks develop collection services to handle the challenges involved in managing cash

for large organizations with huge daily cash sales. Usually, the banks allocate secured

vehicles, with security personnel to pick-up cash for daily sales of these organizations.

In the case of big trading companies, such as big petroleum markers, whose

businesses are on cash and carry basis, banks often set up transient offices in such

premises to handle cash collection services and evacuate cash on regularly basis,

sometimes hourly evacuation, every three hours or once per day, thereby reducing the

inherent risks associated with handling huge cash.

2.414 Local Purchase Orders (LPO)

By LPO, Nigerian banks create and avails funds to customers with genuine contracts to

finance the supply of materials or execution of specific supplies and contractual

obligations. Most banks will only finance purchase orders of reputable organizations

referred to as Blue chips. Most Local purchase orders usually have payment clause of

14 days, 30 days, 60 days, sometimes up to 90 days. Thus, banks provide short term

finance to their customers, to execute such contracts and repay at maturity of the LPO,

while security is usually an irrevocable domiciliation of payment undertaking signed by

the blue chip, to domicile payment direct to the bank providing finance for that specific

transaction.

44

2.415 Bonds & Guarantees

Banks design several variants of bonds and guarantee products to act as guarantor on

behalf of their customers, in favour of third (3rd) parties. By so doing, they agree to

indemnify the 3rd parties in the event that their customers fail to perform their contractual

agreements with the principals. These are generally referred to as off-balance sheet

products, because they do not involve outright outlay of funds. Good examples of such

off-balance engagements include: Performance bonds, Advance payment guarantees

(APG), Bid bonds, Bills for collections (BCs). etc

2.416 Savings Mobilization

The banks develop reward systems as part of key strategies for mobilization of

deposits, among which are payment of interests, qualification to assess credit facilities,

raffle draws to win prizes. Etc. The banks open, maintain and operate extensive branch

networks as a means of reaching out to more number of clients. These deposits are in

turn given out as loans to entrepreneurs, with higher returns for the banks and their

shareholders.

2.417 Financial Intermediation

The banks now design innovative services that enable them perform the function of

financial intermediation. This is achieved by sourcing funds in form of deposits from the

surplus sectors and savings, and making same available to the deficit sectors in form of

credit facilities to their deserving customers.

45

2.418 Advisory Services

To increase their market share and remain relevant in a very competitive environment,

Nigerian banks, such as GT Bank Plc, UBA etc, now perform agency functions, largely

in raising funds on behalf of their customers for which they earn brokerage fees. The

bank also set up advisory departments, to guide customers engaging in turnkey

projects. This department works closely with the customer by providing consultancy

services to guide against major errors. In most cases, the banks now back up its

advisory service with financial support to consummate realistic business proposals of

the customers.

2.419 Local & Foreign Funds Transfer (LFT & FFT)

The financial services sector have further develop competencies in the area of

transferring funds between local bank to local banks as well as between local banks to

foreign banks. This involves mainly local or international movement of funds from place

to another, or from one account or person to another, by means of telegraphic or other

electronic devices. The popular western union money transfer scheme and Money gram

scheme operates through modern networks of the banking system world wide. Thus

with LFT & FFT, Nigerian banks have made it possible to settle financial obligations in

locations where they do exist. The ability of the banks to fulfill LTF & FFT on-line-real-

time remains a major success factor.

46

2.420 Foreign Exchange (FOREX) Products

It is no longer strange that banks now designed products tailored to meet the foreign

exchange needs of their customer, especially those that play actively in the importation

of goods and services. As one of the authorized dealers, banks source FX and sells

same to deserving customers, who may not have access to the official markets. For

instance, the Dutch Auction System (DAS) of FOREX bidding provides a window

through which the participating banks obtains FX at the government regulated price on

behalf of their key customers, for settlement of international trades obligations, thus

making huge savings for the customers, had they resort to purchasing the FX from the

parallel market (black market).

2.421 Customized Value Added Products

It is common in recent time to find banks associating their products and services with

extra specific value added products such as insurance benefits designed, especially for

the critically minded customers as a means of giving extra value, with the objective of

getting total loyalty from the customer. The justification for offering such products is in

the fact that the target audience would not only derive banking benefits, but are also

availed protection against certain insurable risks.

2.422 Attractive Cot Surrendering Products (CSP)

Originally, it was a common practice for Nigerian banks to charge customers

commission on turnover (COT), for several withdrawals as a means of maximizing their

incomes. However, with increasing competitive pressure, banks such as UBA, First

bank, GT Bank, now design innovative products that will make the bank forgo the COT

47

charge, with a view of attracting more deposits in form of patronage from the customers.

This product ensures certain categories of customers who receive huge funds are

encouraged to save them with the banks, knowing fully well that no charge will be

deducted from their account at the point of withdrawal. Usually, such accounts are

opened with certain fixed amount of money, and withdrawals below that threshold will

not be allowed.

2.423 Internet Banking Product

Nigerian banks have made giant stride in the area of ICT. Now banks develop internet

banking capabilities which enables customers to carry our certain transactions at the

comfort of their offices and homes. Such transactions include online account balance,

fund transfers, Request for new cheque book, confirmation of cheques. Etc. These

services prior to now must be done in the banking hall, but with the internet banking

facilities, customers have the ability to do carry out certain transactions on their own.

These activities can be done on any computer with internet facility.

2.424 Mobile Banking

Further breakthroughs have been made in the ICT sector to the extent that several

transactions can be consummate with hand held mobile phone (GSM). Banks such as

GT Bank have develop mobile banking products like GT-Connect, Zenith have Z-

mobile, Access Bank have Access-online, Even old generation bank like Wema Bank

have Wema-mobile. These newly designed products and services enables customers

adopt Do-It-Yourself (DIY) approach, by carrying out a number of transactions even

while on transit, eating, driving or exercising.

48

2.425 Design of Islamic Banking Products (IBP)

Islamic banking (or participant or non interest banking) is banking or banking activity

that is consistent with the principles of Islamic law (Sharia) and its practical application

through the development of Islamic economics. Sharia prohibits the payment or

acceptance of specific interest or fees (known as Riba or usury) for loans or money.

Investing in businesses that provide goods or services considered contrary to Islamic

principles is also Haraam (forbidden). While these principles were used as the basis for

a flourishing economy in earlier times, it is only lately that a number of Islamic banks

were formed to apply these principles to private or semi-private commercial institutions

within the Muslim population.

2.426 Principles

Islamic banking has the same purpose as conventional banking, to make money for the

investing shareholders by lending out capital. Because Islam forbids simply lending out

money at interest, Islamic rules on transactions have been created to avoid this

problem. The basic technique to avoid the issue of interest is the sharing of profit and

loss, via terms such as profit sharing safekeeping, joint venture, cost plus, and leasing.

For instance, in an Islamic mortgage transaction, instead of loaning the buyer money to

purchase the item, a bank might buy the item itself from the seller, and re-sell it to the

buyer at a profit, while allowing the buyer to pay the bank in installments. However, the

bank's profit cannot be made explicit and therefore there are no additional penalties for

late payment. In order to protect itself against default, the bank asks for strict collateral.

The goods or land is registered to the name of the buyer from the start of the

49

transaction. This arrangement is called cost-plus. Similarly, Islamic banks handle loans

for vehicles in a similar way (selling the vehicle at a higher-than-market price to the

debtor and then retaining ownership of the vehicle until the loan is paid).

2.427 History & Evolution of Islamic Banking Products in Nigeria

Interest-free banking seems to be of very recent origin. The earliest references to

banking on the basis of profit sharing rather than interest are found in Anwar Qureshi

(1946), Naiem Siddiqi (1948) and Mahmud Ahmad (1952) in the late forties, followed by

a more elaborate exposition by Mawdudi in 1950. They all recognized the need for

commercial banks and their perceived "necessary evil," of excessive interests‘ charges

and thus have proposed a banking system based on the concept of profit and loss

sharing, rather than interest charges.

In the pre-colonial Nigeria, especially within the caliphate, there were various means by

which business capitals were generated. Practice of money lending was evidenced in

some rural communities in the North as far back as 1903, although not so popular at

that time. Credit facility was also given in form of goods being sold by traders who paid

the principal sum with a mark-up or share of profit, only after sale. Individuals bound by

common interest also pooled their resources together to form partnership at a

predetermined share of profit or loss.

All these activities which were practiced under a strict interest-free policy of the

caliphate and continued long after the evolution of the conventional banks are what an

Islamic bank would set out to do today.

50

A case was reported of a successful Hausa business man in the 1930s-40s, Al-hajj al-

Hassan, who used to find outlets for surplus capital. He advanced money to young men

of sound business acumen requesting them to pay to him half their profit, or less or

none at times, if no profit was made. When he eventually banked with the conventional

banks, he was reputed to be one of the wealthy men of Kano who for religious reasons

stipulated that their deposit account shall be non-interest bearing but would only receive

good customer gift each year if given.

However, on a global scale, (Before its incursion into the Nigeria economic

environment), the first modern experiment with Islamic banking was undertaken in

Egypt under cover without projecting an Islamic image—for fear of being seen as a

manifestation of Islamic fundamentalism that was unacceptable to the political regime.

The pioneering effort, led by Ahmad Elnaggar, took the form of a savings bank based

on profit-sharing in the Egyptian town of Mit Ghamr in 1963. This experiment lasted until

1967 (Ready 1981), by which time there were nine such banks in country.

Subsequently, stronger Islamic banks emerged, especially inform of Islamic

Development Bank. Compliant assets reached about $400 billion throughout the world

in 2009, according to Standard & Poor‘s Ratings Services, and the potential market is

$4 trillion. Iran, Saudi Arabia and Malaysia have the biggest sharia-compliant assets.

In 2009 Iranian banks accounted for about 40 percent of total assets of the world's top

100 Islamic banks. Bank Melli Iran, with assets of $45.5 billion came first, followed by

Saudi Arabia's Al Rajhi Bank, Bank Mellat with $39.7 billion and Bank Saderat Iran with

$39.3 billion. Iran holds the world's largest level of Islamic finance assets valued at

51

$235.3bn which is more than double the next country in the ranking with $92bn. Six out

of ten top Islamic banks in the world are Iranian.[24][25][26] In November 2010, The Banker

published its latest authoritative list of the Top 500 Islamic Finance Institutions with Iran

topping the list. Seven out of ten top Islamic banks in the world are Iranian according to

the list

2.4218 Constitutionality of Islamic Banking Products

It must be pointed out from the outset that there is no place in the Constitution of the

Federal Republic of Nigeria 1999 or the ones before it where provision is/was made for

Islamic banking or any other type. This may be explained by the fact that the

Constitution does not pretend to be capable of making provisions for all laws that need

to be. Rather, by its supremacy provisions, it portends to give validity to all the laws of

the land as the makers of such laws derive their law making powers from it. By these

provisions, the Constitution seeks to assume the status of Kelson‟s concept of Ground

norm. This is the basic norm, that is, the common source for the validity of all norms that

belong to the same order and the reason for their validity.

Thus, all the banking laws in Nigeria, including the one enabling Islamic banking have

their roots traceable to the Constitution through this means.

Even where any of these laws was made before the Constitution came into force, the

validity of such law is co-opted into the Constitution as if its makers, then, also derived

their powers from it. The laws in this category are referred to as the existing laws.

52

The aim of the provisions of section 315(4)(b) of the constitution was to bring all

Nigerian laws predating its coming to being into its ambit and deem them as having

been properly made under it. Thus, virtually all the laws regulating banking practices

presently in Nigeria fall within this category including Banks and other financial

institution decree (BOFID 1991), Banks and other financial institution act (BOFIA 2004).

2.429 A Case For Non-Interest Bearing Products

Aside from the need to redress the past religious discrimination or the exercise of

Fundamental Human Right to freedom of religion, Non interest or Islamic banking aims

at the overall prosperity for all the members of a society as well as the nation vide

equitable distribution of wealth and resource.

Furthermore, as a matter of general principle, a wider range of financial products would

benefit the whole of our Community and Islamic products could prove to be attractive

beyond the purely Muslim sector, especially as it has the potential to save excessive

interest expense for the SMEs. Thus, by giving the necessary political will to effect the

establishment of Islamic banking system, the government would only be fulfilling its

primary purpose of welfare of the people as directed by the Constitution.

2.430 Microfinance Bank Products

Microfinance refers to the entire flexible structures and processes by which financial

services are delivered to micro entrepreneurs as well as the poor and low income

population on a sustainable basis. It recognized poor and micro entrepreneurs who are

53

excluded or denied access to financial services on account of their inability to provide

tangible assets as collateral for credit facilities (Jamil, 2008) Microfinance can be seen

as a supply of loans, savings and other financial services to the poor. It is the practice of

delivering those services in a sustainable manner so that poor households will have

access to financial services so that they can build sustainable microenterprise. While

microenterprise is a business that is independently owned and operated by its owners

and does not meet certain standards of size which in most cases operated as informal

business.

The aim of microfinance is not only to extend credits to beneficiaries but to promote

entrepreneurship and boost rural financial markets that will provide sustainable access

to financial services by creating a relationship between those with financial resources

and those who need them.

The Microfinance Policy, Regulatory and Supervisory Framework for Nigeria developed

by the CBN in 2005 initiated an important turning point in the industry with the creation

of the Microfinance Bank (MFB) as an institutional vehicle for privately owned, deposit-

taking microfinance institutions (MFIs). Prior to this, a few notable Non Governmental

Organizations (NGOs) were established that have grown to provide microfinance in a

sustainable manner according to international standards of good practice. However,

until recently the majority of institutions have been smaller NGOs, community banks,

cooperatives, and non-bank financial institutions with uneven management capacity,

low outreach to clients, and challenges to becoming profitable.

54

The Framework is designed to unite the best of the NGO credit organizations, the

privately owned community banks, and new MFI initiatives under a common legal,

regulatory and supervisory regime. The Microfinance Framework catalyzed two driving

forces in the microfinance industry at an extraordinary pace and scale. First is the

immediate investment of capital by a large number of Nigerian and international

investors in newly created MFBs. The second force is the new regulation and

supervision framework for this emerging industry. The rate of growth in the microfinance

industry, measured by number of institutions, capitalization, or portfolio growth, is

among the fastest of any microfinance industry globally at similar early

stages of development.

Some common products offered by MFBs include: Leasing, Housing finance, overdrafts,

Asset acquisition loans, Asset Refinancing, corporative loans etc.

2.431 Objective & Goals of Microfinance Banks In Nigeria

Credit Delivery

This is perhaps one of the most important roles of Microfinance banks, as the loans

extended are used to expand existing businesses and in some cases to start new ones.

According to CBN (2008) microfinance loans granted to clients is increasing from 2007

to date and most of it goes to financing microenterprises in rural areas. Ketu, (2008)

observed that microfinance banks have disbursed more than N800 million micro credits

to over 13,000 farmers across the country to empower their productive capacities. As

such it is expected that agricultural output will increase with the increase in funding. The

entrepreneurial capacity of the farmers will thus improve.

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Boosting Small Scale Enterprises/Agriculture

About 60 percent of poor people in the country live in the rural areas and 80 percent of

them are farmers and artisans (NBS, 2005). Microfinance banks have therefore been

the main sources of funding to these less disadvantaged groups. Rural people are

empowered through microfinance loans and services, and hence small scale

agricultural practice and microenterprise is developed. Governments go into co-

operatives to partner with the microfinance banks to raise bulk loans to be disbursed to

the beneficiaries, in so doing the banks are increasing and sustaining the number of

people going into small businesses.

Employment Generation

Agriculture and microenterprises contributes immensely to job creation, and are of

particular interest to all Microfinance Bank in rural areas. Microfinance banks have so

far engaged in extending credits and other services to many rural enterprise and hence

generating employment and promoting entrepreneurship. The promotion of employment

in rural areas by microfinance banks covers the following areas; blacksmithing, gold-

smiting, watch repairing, bicycle repairing, basket weaving, barbing, palm wine tapping,

cloth weaving, dyeing, food selling, carpentry, brick-laying, pot-making, leather works

and drumming. Even though found in urban areas, these industries are more prominent

in the rural areas. It has, therefore, been acknowledged that the rural setting is an arena

of many industries, which could be developed to contribute significantly to the national

economy, just as rural people are more frequently self-employed than urban people

(Ketu, 2008).

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Improvement in Skill Acquisition

Improvement of the condition of women through the provision of, skills acquisition and

adult literacy is another role played by microfinance banks. This is done through

building capacities for wealth creation among enterprising poor people and promoting

sustainable livelihood by strengthening rural responsive banking methodology and the

introduction of simple cost-benefit analysis in the conduct of businesses. In most cases

a profit sharing agreement is entered between a bank and an entrepreneur and new

methods and innovations are passed to the prospective entrepreneur by the banks

professionals, while at the end of the production period the proceed is being shared and

the entrepreneur if so wishes can continue on his own after the necessary skills and

production techniques are acquired. (Umar, 2008)

Facilitates Poverty Alleviation

Employment and income generation are important aspects of poverty alleviation efforts.

Microfinance banks have accelerated the operation of government poverty alleviation

programmes and in doing that promising entrepreneurs are supported and new ones

emerged. The federal governments National poverty Eradication Programme (NAPEP)

and National Economic Empowerment and Development Strategy (NEEDS) to mention

a few aimed at achieving the United Nation‘s Millennium Development Goals (MDGs) by

2015 required these microfinance institutions for success. The success of these

programmes and projects for advancement of the MDGs are linked with the promotion

of entrepreneurs in rural areas and subsequent reduction in the level of poverty (Ketu,

2008)

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Other roles played by microfinance banks include; reorientation of the rural populace on

a sound financial practices, as well as issues such as reproductive health care, and girl

child education. All these areas have a direct link with entrepreneurial capabilities of the

rural people.

2.432 Product Papers

These are manuals put together by financial institutions to run as a scheme with the aim

of providing credit facilities to certain categories of clients. The rules and regulations

contained in it are to be followed systematically during lending of credits to accredited

customers. These schemes are put together in other to overcome the challenges of

collateral requirements which act as barriers to the granting of loans to the real sectors.

Most credits which stems from the product paper are granted without collateral. The

product papers by its nature usually have a transaction dynamics. The dynamics serves

the purpose of a compass in field mapping and thus provides a step by step route which

must be followed in the entire credit process in other to ensure the credit does not go

bad. Typical examples of the product paper are regulated by means of Authority-To-

Collect (ATC), Authority-To-Lift (ATL)

2.433. Invention of Authority-To-Collect (ATC) In Distributive Trades Financing These are documents issued by large manufacturing companies, especially

commodities and beverages to customers who makes payment into their account, which

acts as a representation of the actual goods paid for. Access to the stock of goods or

inventories are granted when the holder of the ATC is ready totake possession of the

physical goods. He thus presents the ATC to the appropriate department in charge of

release of physical goods. The goods are released after confirmation of the

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genuineness of the ATC. This have successfully been used to secure the loans granted

to accredited distributors of blue chips in the commodity trading and beverage sectors

such as Dangote Industries Plc, Flour Mills of Nigeria Plc, WAPCO Lafarge, Guiness

Nigeria Plc, Nigeria Breweries. Etc. By this means, financial institutions in Nigeria

designs product-paper and disburses funds to accredited distributors of blue chip

companies for trading in commodities. However, the banks providing the finance places

a lien on the ATC, by warehousing in their vault (strong room) for safe keep. Release to

the customers are done on case by case basis to enable them take ownership of the

physical goods, while adhering strictly to the transaction dynamics as stipulated in the

product-paper.

2.434 Authority-To-Lift (ATL)

The ATL is a document similar to the ATC described above in all angles. The objective

is to provide finance to small and medium scale enterprises in the real and downstream

petroleum sector, who do not have the requisite collaterals to access loan, but posses

the requisite experience in that giving sector. The ATL mostly used in the case of oil

trading have successfully been implemented by leading innovative banks among which

are UBA, Zenith Bank, GT Bank.

2.435 Idea of Receivable Refinancing

Receivable refinance are recent products designed by banks to solve the problem of

short term solvency for companies engaged in supplies on purchase order basis. This is

usually the type of finance provided when a supplier has successfully delivered on a

local purchase order, with his or her funds, but would have to wait for a certain period

say 30 to 90 days before they receive payments. During such waiting periods, the

supplier has tied up capitals in receivables on LPOs which can be used to execute other

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businesses. When faced with such a circumstance, the company can approach a bank

to refinance or discount the receivable. When the bank has done all necessary checks,

they provide immediate finance to the company at a discount of the original value, while

they wait for maturity of the receivable at a future date.

2.436 Invoice Discounting

When service providing companies render services to reputable organizations, they

issue invoices demanding for payments. These invoices are keyed in to the systems of

the blue chips for record purposes. The companies can have a credit line in place from

a bank to discount all invoices from a given blue chip. This ensures the company does

not have much funds tied down as receivables. Thus Invoice Discounting are products

designed to provide funds for the invoices issued by blue chip companies.

2.437 Inventory Refinance

This is an asset-based finance, usually supported with stock warehousing arrangement,

known as inventory finance. In this case, the borrowing customer approaches the bank

to raise loans equivalent to agreed proportion of inventories (in-store stocks-in-trade) on

which critical working capital for his business is unduly tied down. As a rule, the bank

would probably not lend more than 60% to 75% of the total cost or market value of the

eligible inventories.

2.438 Contingent Liability Products

Contingent liability products are those exposures of banks whereby financial instituitions

provide one form of guarantee or the other to third parties or beneficiaries at the

instance of their customers. Such exposures do not involve parting with funds at the

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onset, but mere undertakings by the banks. Because such products does not involve

initial capital outlay, rather parting with funds are contingent upon a default(s) or

triggered by an occasion of non-performance by the customer on whose request the

bank issued such guarantee. They are referred to as contingent liabilities, because their

occurrences are contingent upon a default. Several variants exist for various purposes.

2.439 Bid Bond

Bid bonds also refer to as Tender bonds are guarantees issued by a financial institution

to a third party at the instance of their customer who is expected to submit the bond as

part of requirement for application for award for a contract. The bond is issued as a

guarantee to the third party that the applicant possesses requisite technical experience

for the job and will also undertake the contract when awarded.

It is a common practice in the award of contracts by government, NGOs and

corporations to require prospective contractors to provide the tender bonds in respect of

advertised jobs for which they are bidding. This requirement is obtained mostly in

institutions that apply due diligence process in the award of contracts. The bid bond

fulfill a number of purposes for the parties to the contract which include: It represents

expression of interest by the prospective contractors in particular jobs advertised. It

indicates the costs preferred by the prospective contractors for executing the jobs if their

bid is successful. It also state requisite experience, work competencies as well as

resources at the disposal of the prospective contractor.

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2.440 Performance Bond

The need for performance bond is to secure chances of failure by second parties to

secure jobs awarded to them by third parties. It is provided by a bank on behalf of their

customer to a third party to demonstrate that the customer possesses requisite

technical competence to execute the jobs. Assume that NNPC is concerned about the

ability of contractor to successfully complete a job. In other to mitigate the risk of failure

which will cause financial losses to NNPC, they will ask the contractor to provide a

performance bond from a reputable bank. The banks only provide a performance bond

to a trustworthy customer.

2.441 ADVANCE PAYMENT GUARANTEES (APG)

The Advance payment guarantee (APG) is an undertaking issued by a bank on behalf

of their customers to a third party to secure mobilization funds released to them to start

the execution of the job, which they have successfully bided and won. The bond

provides comfort to the owner of the fund that the fund will not be diverted, but will be

judiciously utilized for the awarded contract

2.442 BANK GUARANTEE (BG)

Guarantees are undertakings by the banks made at the request of a customer to a

beneficiary (third party) to assure them that the customer shall perform their obligations

as stated or envisaged in particular business transaction. The BG is mostly used by

individuals, businesses or other organizations such as governments, NGOs, schools etc

to secure agreements with third parties.

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2.443 INDEMNITIES

Indemnities are advance forms of guarantees. They serve similar purpose, but they

further provide additional undertakings to be personally responsible for all liabilities of

their customer to a third party. By issuing an indemnity, the bank indemnifies the third

party of all losses, which they may suffer on account of transacting businesses with a

customer of the bank. Prior to issuing an indemnity, the bank usually takes adequate

security from their customer to act as a way out, should their customer default on a

contractual agreement.

2.444 THE NATURE & WORKINGS OF OFF-BALANCESHEET PRODUCTS

By their nature, off-balance sheet engagements are mere undertakings and do not

involve outlay of funds at the onset. Funds can only be disbursed to a third party when

the customer of the bank defaults to meet a contractual obligation. For this purpose,

they are referred to as contingent liabilities.

2.445 BANKER'S ACCEPTANCE (BA)

A bankers‘ acceptance is a financial product, instrument or bill used in financing short-

term trade obligations or asset-based, self-liquidating credit transactions. It establishes

the liability assumed by the bank that accepts the bill to pay its face value to the named

investor. However, the bank‘s liability crystallizes only in the event that issuer of the

instrument is unable to redeem it on maturity. It is therefore a guarantee by a bank that

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the drawer (their customer) will honour their obligations on the bill and , in the unlikely

event that they fail to do so, the bank undertakes to offset the liabilities. Thus both the

issuing company and accepting bank shares the liabilities on BA.

2.446 COMMERCIAL PAPER (CP)

These are unsecured short-term promissory notes of blue chip companies, issued to the

investing public, usually through an issuing house such as a bank. Typically CPs has

short tenors ranging from 30 to 180 days. However, sometimes the bank may guarantee

a CP. Without such guarantee, the bank performs an agency role and earns a fee

without taking a direct exposure; however the bank is exposed to reputational risk.

2.447 CONSUMER LENDING PRODUCTS

These are financial products and services designed to take care of the needs of

individual customers of banks. They do not usually involve large amount of money,

since they are needed to meet short term personal needs. Details are discussed below

2.448 SALARIES BACKED-ADVANCES

Salary advances are retail products designed to enable salary earners have access to a

certain percentage of their income before the due date. Usually it is advanced to

individuals with verifiable monthly salaries, whose salaries are domiciled within a branch

of the bank where the request is made. The bank thus allows a customer to have

access to a part of his salary, and repayment is made through direct deduction as soon

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as the salary is paid., while the borrower is only allowed access to the balance after

settlement of his indebtedness.

2.449 NAIRA (N) CREDIT CARDS

This is a naira denominated product designed to enable high net worth individuals

(HNIs), usually a credit card holder, access to fund via the card, with certain credit limits

maintained in the card. The card is safely secured via chips and pin, with the holder

equipped with the codes. The holder of such card can access funds via machines or

electronic platforms designed for such purposes. The card holder can however not

exceeds the credit limit of the card. Credit cards are more rampant in advanced

economies, but are recently gaining acceptance in Nigeria. A widely celebrate success

of the card was the one lunched by Eco Bank Nigeria Plc a member of Eco Trans-

international (ETI), a global player in the financial services sector.

2.450 ASSET ACQUISITION PRODUCTS- QLS, MPOWER, WAAS

These are products designed to make the acquisition of household and office properties

more convenient for reliable customers of banks. The need for these products arises to

enable customer use their fund for purposes while fulfilling their basic needs. Variants of

these products exist. Quality Life Scheme (QLS) was designed by United Bank for

Africa (UBA) to make asset acquisition more flexible for customers, while ‗MPOWER

was designed by Access Bank Plc, were as WAAS (Wema Asset Acquisition Scheme)

was designed by Wema Bank Plc for similar purpose.

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2.451 SHARES PURCHASES & TRADING

These are margin facilities designed for companies and individuals dealing in the capital

market. The product enables organizations or persons purchase shares of reputable

companies, using loans from banks and selling as soon as the shares gains appreciable

values. Making a success of this product requires adequate capital market techniques,

including speculative and intuitive skills. This is perhaps because of the volatility of the

capital market, as many organizations have burnt their fingers by wrong investment

decisions in this product.

2.452 EQUIPMENT LEASE FACILITIES (ELF)

This is a product designed for lease facilities where the customer who is in need of

equipment for its business is giving the facility to purchase the equipment. The ELF as

is fondly called is designed to take care of more capital intensive equipments like

specialized construction, manufacturing and media equipments unlike the conventional

asset acquisition products designed to meet the acquisition of less expensive household

properties. Usually, the agreement is made under seal where the title to the equipment

is purchased for the use of the customer is vested in the bank, while the equipment is

leased to the customer with rental payments prescribed.

2.453 DEVELOPMENT OF MORTGAGE PRODUCTS

Mortgage products are financial products designed for the acquisition of landed

properties and buildings. By their nature, mortgages involves long term financing. There

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are different reasons for the need for mortgage loans which includes: Land acquisition,

building construction, purchase of a house, home renovation, refinance of existing

mortgage. Recently financial institution have started setting up mortgage arms and

departments to develop better improved products to cater for this property needs of their

clients. Similarly mortgage banks are also being licensed for this purpose.

2.454 SYNDICATION PRODUCTS IN NIGERIAN BANKING INDUSTRY

Syndications are situations where several Nigerian banks come together to finance a

given project due its size and complexity. The need for loan syndication arises due to

regulatory requirement that a bank shall not lend fund in excess of 20% of their share

capital to a single obligor or related companies unimpaired by losses. Thus rather than

declining on providing finance for turnkey projects that will cause the banks break

regulatory rules, they come together to provide funds in different ratios whose

aggregate amount is sufficient to execute the project. Syndication loans are common in

financing projects in the upstream petroleum sector as well as major construction

projects such as the third mainland bridge in Lagos Nigeria.

2.455 CONTEMPORARY PRODUCTS OF NIGERIAN BANKS IN INTERNATIONAL

TRADE FINANCE

These are products designed by Nigerian banks to facilitate international trades. Such

products facilitates both import and export businesses. They are used for payment and

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settlement of obligations for businesses involving parties in different countries. Several

products are designed to ensure settlements are made irrespective of differences

between countries of origin (exporting countries) to countries of imports.

2.456 LETTERS OF CREDIT (LC)

A letter of credit (LC) is a guarantee of payment issued by an importer‘s bank at the

instruction of an importer to a an exporter, stating that the importer‘s bank will be

responsible for making payment to the exporter, if certain terms and conditions

stipulated in the letter of credit are met. It is the most popular instrument used for

settlement of obligations under an international trades transactions. It is a contractual

undertaking issued by a bank (issuing bank), on behalf of the buyer (importer/applicant)

to a seller (exporter/beneficiary) or the exporter‘s bank (advising/confirming bank), to

pay for the goods and services. Several types exist which include: Unconfirmed LC,

Confirmed LC, standby LC, Irrevocable LC, Red clause LC, Transferrable LC, Back-to

Back LC. etc

2.457 BILLS FOR COLLECTION (BC)

These are products designed to facilitate the purchase of goods and payment of same

between and importer and exporter. With BC, the bank does not issue its guarantee of

payment to the exporter unlike in the case of LC above. Here the bank acts as a

collection and payment agent between the parties involved. It only collects documents

which are titles to the goods shipped from the exporter and release same to the

importer to enable him clear the goods, against payment or acceptance to make

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payment on a future date based on the agreement between the importer and the

exporter as contained on the bill. In BC, the exporter dispatches the goods without

receiving payment, but sends the documents for clearing the good to his bank, which in

turn sends it to bank with correspondent relationship. The local bank only release the

shipping documents to the importer after he has met the conditions stipulated in the bill

by the exporter. Two types of BC exits- Clean collection and Documentary collection. In

clean collection, the bank collects the value of financial documents such as cheques,

promissory notes bills of exchange etc on behalf of the exporter. In documentary

collections, the bank collects financial documents accompanied by commercial

documents such as commercial invoices, documents of title, transport documents etc,

or collects the value of only commercial documents, not accompanied by financial

documents.

2.458 ADVANCE PAYMENT/TELEGRAPHIC TRANSFERS (TT)

This is a mode of transaction in international trades where the importer makes payment

to the exporter before goods are shipped to him. The importer is exposed to risk of non-

performance by the seller. Specifically, the buyer is exposed to the risk of the seller‘s

probable forwarding goods that do not meet the original specification. High level of trust

is required in this form of transaction.

2.459 OPEN ACCOUNT

An open account transaction commences when the seller dispatches goods to the

buyer, with an agreement that the buyer makes payment either immediately after taking

delivery of the goods or within a specified period. The seller delivers the underlying

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documents relating to the goods directly to the buyer, without entrusting them to its

bankers. Here the greater risk is borne by the exporter, while trust is a basic

prerequisite for this method of transaction.

2.460 EXPORT FINANCE PRODUCTS

These are among the major credit products of banks from which foreign exchange

earnings are gained, upon the disposal of related export proceeds. The export item my

be agricultural produce or other commodities, such as rubber, cashew nuts, cocoa,

ginger, palm produce, shrimps. Etc. During export financing, the lending bank must be

satisfied that the items are of exportable by meeting international standards. In addition

to these considerations, the goods to be export must be easily assessed for value and

quality by reputable export-testing and inspection companies such as COTECNA, SGS,

Burea veritas, Intertek etc. Arrangement must also be made of bonded warehouse, with

reputable warehousing agent, under a tripartite warehousing arrangement between the

bank, exporter and the warehousing agent.

2.50 THE CONCEPT OF MARKETING AS AN INTEGRAL PART OF

PRODUCT DESIGN

Kotler [1991] explained that the marketing concept holds that ―the key to achieving

banks‘ goals consist of determining the needs and wants of the target market and

delivering the desired satisfaction more effectively and efficiently than competitors‖.

Fundamental to the marketing concept is having a customer focus and achieving

profitability through customer satisfaction.

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Today many banks view marketing as a philosophy, which should permeate the entire

firm, encompassing the activities of the whole banks rather than just the discipline of a

departmental functions Drucker [1973] encapsulates this sentiment:

Marketing is so basic that it is not just enough to have a strong sales team and to

entrust marketing to it. Marketing is not only much broader than selling it is not a

specialized activity at all. It encompasses the entire business. It is the whole business

seen from the point of view of the final results, i.e. from the customer‘s point of view.

Concern and responsibility for marketing must, therefore, permeate all areas of the

enterprise.

This perspective elevates marketing to a strategic level so that marketing efforts must

be aligned with corporate strategy and be consistent with banks‘ goals. It involves

continuous analysis of the business‘s external environment and internal capabilities.

When a business takes marketing on board as philosophy, the central driver for the

business is to create customer values. This requires a shift from an inward looking bank

focus to an outward looking customer focus. Davidson [1978] describes this as an

‗outside in‘ perspective, which is aimed at securing business competitiveness and taking

advantage of new opportunities. It involves the process of balancing the bank‘s need for

profit against the benefits required by customers, so as to maximize long-term earnings

per share.

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2.51 EVOLUTION TOWARDS THE MARKETING CONCEPT

The development of the marketing concept within a bank is an evolutionary process.

Kotler [1991] identified five distinct stages, which banks pass through in the process of

adopting the marketing concept and arriving at marketing enlightenment. The different

phases are:

[a] production stage [b] sales stage [c] marketing stage [d] total quality management

stage [e] customer service or relationship marketing stage

a. The production stage

The first in the evolution of marketing is the production stage. This was actually the age

of the industrial revolution. This era was characterized by mass production, improved

production technique to effect lower unit costs and prices. Thus manufacturers

maximized the advantage of the economy of scale. This stage in the evolution of

marketing was a failure. The expectation of every manufacturer or producer is to sell his

wares. This was not well realized during this era called the production era. The main

reason for the failure was the neglect of a key marketing and sales concept.

Now, when the manufacturers who had achieved economy of scale had warehouses full

of unsold inventories they began to proffer reason for the unsold inventories and

possible solution or what can be called the next line of action. This takes us to sales,

which was the proffered solution and the next in the evolution of marketing.

b. The sales stage

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The failure of the production stage sent the manufacturers and producers to the drawing

board. At the end of it all, it was felt that the dismal performance of the production stage

to achieve sales patronage from customers was due to their (Producers/Manufacturers)

inability to engage the services of salesmen and women. This realization led to the

engagement of the services salesmen and women. This is the era referred to as the

sales stage.

Salesmen and women were now hired to undertake the daunting task of selling the

produced goods in inventory. In the evolution of marketing this era failed. It was

characterized by companies focusing energies on changing customer‘s mind to fit the

product. The famous marketing axiom that comes into relevance here is ―a bad product

can only be sold once‖. There is a limit to which you can change customer‘s mind to fit a

product. The opposite is the exact truth. The efforts of the sales people produced little

positive result due to lack of the same basic marketing ingredient that helped the failure

of the production stage.

Naturally, producers went back to the drawing board because the nagging problem

must be effectively diagnosed and appropriate prescriptions administered. What

evolved from this is the third stage in marketing evolution called the marketing

(department) stage.

c. The marketing (department) stage

Following the failure of the sales stage in the evolution of marketing, the need for an

appropriate diagnosis became more pronounced. This led to the concept of marketing.

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This has been described as the first genuine effort towards finding a solution to the

intractable problems of poor sales and customer apathy.

The original conception was for producers to set up marketing department. The various

marketing department were among other functions charged with the duty of identifying

the needs of the buyers either as groups or individuals. In other words, they were to find

the missing link between unsold inventory and buyer apathy as a way of building long-

lasting bridge for buyer acceptance of future products. This became a nifty approach

and has endured the taste of time. Up till date, many organizations have marketing

department. In financial institutions, this is often referred to as credit and marketing

department. While the whole concept is applauded, the problem with this stage is its

myopic application. We will discover that the satisfaction of the need of the buyer does

not reside in one department.

The fact that this stage has lasted long with even greater relevance in recent marketing

principle and practices means that the manufacturers made great discovery and that

marketing is the hallmark of business and organization success.

As highlighter above, the narrowness of application of this stage (marketing stage) in

the evolution of marketing has been the sullen reason for the failing adoption of the

concept in today‘s marketing evolution and practice. Inadvertently, it has cryptically led

to the emergence of several other concepts and marketing practices. These are all in a

bid to meet customer expectations and needs.

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d. The Total Quality Management (TQM) stage

Meeting buyers‘ expectations and needs require much more than the attainment of

lower cost of production due from economies of scale.

In an attempt to respond to buyer resistance, one of the recent widely accepted concept

was the total quality management popularly known by the acronym TQM.

TQM was well intentioned to attain, possibly, one hundred buyers. It aimed at zero error

rates. TQM was a product of competition. According to Kit Sadgrove [1990], ―TQM

increases customer satisfaction by boosting quality. It does this by motivating the

workforce and improving the way the company operates‖ (in the making TQM work).

Elucidating further in an attempt to justify TQM as a viable buyer option and competitive

tool, he says, ―the customer is more sophistical and knowledgeable. If you don‘t offer

good service, he will buy from another person‖.

The concept of TQM as a marketing and competitive tool has witnessed great de-

emphasis in the scheme of thing lately. This, perhaps, stems from the fact that it lays

more emphasis on product quality at the expense of customer needs and services

delivery quality.

Once TQM stopped being the toast of manufacturers as a production management tool,

the next concept that gained wide acceptance was customer service.

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e. Customer service

Customer‘s needs are insatiable. In other words, needs are dynamic. The satisfaction of

a particular need creates another growth either as individuals or collectively as entities

making up an economy. When TQM became more or less like a common denominator,

effective and efficient customer service assumed the status of the head cornerstone that

energized marketing and an effective tool for wooing customer.

2.52 RELATIONSHIP MANAGEMENT

According to Bartel [1993] a bank can take alternative directions for their business with

regard to customers. The focus could be on, for example:

Acquiring new customers;

Retaining existing customers.

Moriarty [1993] confirmed that in periods of high growth the emphasis tends to be on

attracting new customers. However, in an environment where many market sectors,

including markets for financial services, face slow growth the focus will be on keeping

customers. Replacing lost customers is more difficult and expensive than retaining

them.

Linked to these alternative directions, a bank can choose to adopt a strategy that

ranges from a transactional emphasis at one end, to a relationship strategy at the other

end, with the position related to the industry and environment in which the bank

operates. Transaction marketing is where the focus is on one transaction at a time and

marketing revolves around creating a single transaction or exchange. relationship

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marketing, on the other hand, is based on continuous buyer-seller relationships rather

than on discrete transactions, and is aimed at developing long-term enduring

relationships with customers.

Webster [1994] said that there is a realization that there are not an infinite number of

customers to help the bank grow. This has clearly put the focus back on developing

long-term relationships, rather than customer acquisition and price based strategies. It

is suggested that banks can increase earnings by maximizing the profitability of total

customer relationships over time, rather than by seeking to extract profit from an

individual product or transaction.

According to McKenna [1991] Relationship marketing is fundamentally concerned with

recruiting and retaining customers by nurturing customer loyalty. ―The attraction,

maintenance and enhancement of client relationships‖. The rationale is that the

resulting long-term retention and development of the existing customer base will lead to

significantly improved financial and business performance. To achieve this, a greater

emphasis must be placed upon the creation of customer value.

Within the context of relationship marketing the customer is viewed as an appreciating

asset. Customers become partners and banks must make long-term commitments to

maintain those relationships with quality, service and innovation. The primary goals of a

relationship marketing strategy are to:

Build and maintain a base of committed customers who are profitable to the

banks;

Provide customer enhancement to develop loyal customers who will then buy

more products and provide a solid base. This base represents a potential for

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growth which should lead to increased market share and increased

profitability;

Improve effectiveness of marketing expenditure based on a cross sales focus;

Increase knowledge of customer needs.

A relationship marketing strategy is appropriate when the following characteristics

of the marketplace are present:

Mature growth;

No/slow growth;

No clear market leader;

Competitive environment;

Declining customer loyalty;

Emergence of sophisticated delivery mechanisms.

Most, if not all of these features are apparent in the financial services industry.

2.53 PROFITABILITY SEGMENTS

According to Berry [1993] the process of relationship marketing should start with the

attraction of customers who are likely to become future profitable long-term relationship

customers. However, a bank is limited in terms of its resources and competencies.

Therefore it must limit the market it chooses to service through market segmentation,

targeting and positioning strategies. The service delivered should be based on the

overall worth of a customer. The skill is to isolate those customers with long-term profit

potential. Using modeling techniques to identify those segments, which yield the best

potential return, an assessment can be made to ensure that profitable sectors are

chosen.

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Customers within a market vary in terms of the needs they seek to satisfy, and it could

be argued that to be fully customer-focused a bank would need to adapt its offerings to

meet the needs of each individual. While for many banks this is not economically viable,

a strategy of market segmentation may be beneficial. Segmentation is essentially a

concept, which provides an understanding of the market and leads to the selection of

target markets. It can be defined as the process of dividing a market into smaller

markets and homogenous segments, which are then targeted with different,

appropriately designed, service offers. A segment describes a group of people who

have broadly similar needs, which differ in some definable way from the needs of other

segments.

Payne [1993] said that the rationale underlying a strategy of market segmentation is

that, from a bank‘s perspective, it should be possible to increase the profit contribution

when compared with using an undifferentiated approach. From a consumer perspective,

market segmentation should mean that they get a product more suited to their

requirements.

Ballantyne [1993] confirmed that within financial services the most obvious

segmentation is between commercial [corporate/business] and retail [personal] markets.

However, the developments of more sophisticated segmentation strategies have

emerged as a response to the competitive operating conditions. The development and

installation of advanced customer information systems have provided banks with access

to valuable background data on customers, which can be utilized for segmentation

purposes.

When determining appropriate segmentation strategies banks must consider:

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Market attractiveness;

Organization‘s ability to serve the markets.

Once a profile of the possible target segment has been identified, it is useful if it is

within the company‘s capabilities to profit from getting the segment.

1. Geographic segmentation, which is based on where customers live. This

could involve, for instance, a global bank developing unique product

portfolios for different countries because of cultural influences impacting on

product design.

2. Demographic segmentation, which is where the market is divided into groups

based on variables such as age, gender, income, occupation or stage in the

family life cycle. The premise here is that the variables will provide accurate

predictors of the need for different financial services. For financial services

both age and the family life cycle concept have provided potent bases for

segmentation on the basis that financial circumstances, needs and priorities

change at different stages within the life cycle.

3. Geo-demographic segmentation, which is an approach which interlaces a

number of dimensions based on geographic and demographic terms such as

location of household, type of household, occupation and age of occupant.

The basis for this approach is that households within a particular area exhibit

similar purchasing behaviour. The implications of geo-demographic

segmentation for banks are significant in that it allows them to profile users

and potential users for service and then target customers who match these

profiles. The profiling will seek to identify the propensity to purchase specific

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financial services. Geo-demographic segmentation has improved the ability to

discriminate markets efficiently and effectively for financial services. Particular

areas within cities/towns/rural areas can be used to target direct mailing

activity.

4. Behaviour segmentation, which is where the marketer aims to distinguish the

market in terms of user status, for example, heavy, medium, and light and

non-users of a service, and then determine whether the needs or wants differ.

Financial services are advancing this database-held information with the

development of sophisticated segmentation models. Behavioural scoring is

one example whereby predictions can be made and changes identified in

usage patterns. To illustrate this approach a credit card company can

determine through interrogation of its database how frequently a customer

uses a credit card. Customers can then be segmented by their behaviour

pattern and different marketing strategies formulated for the different

categories of users.

5. Lifestyle segmentation, which is where banking industry‘s customers are

segmented on the basis of broad attitudes determined by factors such as

values, lifestyle, personality traits, attitudes, interests and innovativeness. For

banks this method provides information on customer‘s attitudes towards a

variety of services, for example their disposition towards savings, investment

and use of credit. Whilst attitudinal data is more difficult to collect, it can be an

effective base to use when developing and shaping communication

messages, which will attract and influence target customer groups. For

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example, when developing the promotional campaign for credit cards, it

would be beneficial to understand the motivations and attitudes of the target

group towards the services. So, for example, is a credit card just viewed as a

substitute for cash/cheques or as a symbol of financial success and prestige?

Pine [1993] confirmed that active relationship marketing requires a

comprehensive knowledge of the customer as an individual. One route

available to ensure efficient and effective management is to utilize

sophisticated customer databases that are designed to deal with the

complexities of the customer base and the significant volumes of customer

data. These systems can facilitate an in-depth understanding of consumer

behaviour. The utilization of database marketing techniques opens up new

opportunities for cross selling by spotting timely sales activity.

The ultimate goal in segmentation would be to design and tailor products to

the individual, and indeed this is often the strategy, which is adopted in the

corporate banking market. There are now similar developments in the

banking industry, and these are often discussed under the concept of mass

customization. This concept is essentially concerned with making tailor-made

products for each individual buyer. The rationale is that by employing mass

customization systems, banks can produce enough variety in

products/service so that everyone finds exactly what he/she wants at

reasonable prices. Within the financial service sector, product variety and

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customization of products, such as cheque accounts and mortgages could be

offered, given the sophisticated information technology systems, which are

now available to support such innovations.

2.54 THE CUSTOMER RELATIONSHIP LIFECYCLE

According to Wilson et al [1992] there are several distinct phases in the development

of the customer relationship. The different phases are:

[a] production stage [b] sales stage [c] marketing stage [d] total quality management

stage [e] customer service or relationship marketing stage.

In another development, Schary [1979] developed another four phases in the customer

retention relationship. They are attention, purchase, consumption and post consumption

behaviour. Attention, which is the first stage is where contact is made with a potential

customer. Both parties will evaluate the benefits of forming the relationship [i.e. selling

the service/taking up the offer]. Following the purchase the onus is on the supplier to

maintain and enhance the relationship in a way that will ensure the customer remains

willing to do business with the bank and to purchase additional services.

Skjoyy- Larsen [1979] confirmed the importance of the above phases and added that

different strategies will be required at each stage. For example, at the initial stage

[attention stage] emphasis should be on customer relationship management and

promotion to make potential customers aware of and be interested in the bank and

services it offers. During the purchase stage of a financial service the focus will be on

the identification of the customer‘s needs/wants, and personal service will play a critical

role at this point. The distribution channel is also important, in that, the experience of a

branch visit or telephone call to the customer can cement or server the relationship.

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Within the financial services industry, the success of purchase is often dependent upon

the staff/customer interface. Staffs have a key role in creating the sale, re-sale,

customer retention and nurturing.

During the consumption stage there are many opportunities to fulfill or fail to meet the

promises given to the customers. These opportunities are termed ―Moments of Truth‖ by

Carlzon [1987]. According to File [1992] this service encounter relates to the direct

interaction between the bank and the customers, and can take various forms. For the

financial services market the interaction could be:

Face-to- face with an employee;

By telephone

By letter;

With a self-service machine;

Electronic via PC or the Internet

Service encounters have a high impact on the customer, and the quality of the

encounter will be a critical determinant in the evaluation of the service received.

Whatever the nature of the encounter this will impact on the customer‘s impression of

the bank and the service. It is important to manage all the potential service encounters

effectively to ensure ultimate customer satisfaction with the bank.

According to Davidow [1989] the benefits a bank can gain from enhancing customer

relationships is shown in the relationship marketing Ladder of Customer Loyalty. The

ladder provides an illustration of how the customer relationship develops, and how the

customer progresses through a number of stages as the relationship becomes stronger.

The philosophy of the relationship marketing ladder is that as customers move up the

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ladder their affinity with the bank is enhanced. The underlying proposition is that the

higher the customer moves up the ladder the less likely they will be to want to change

banks. Ultimately they could become ‗Advocators‘ and ‗Supporters‘, recommending the

products of the bank to potential customers, and as are rarely lost. In contrast

‗Customers‘ are more vulnerable to poaching by the competition.

2.55 CUSTOMER RETENTION STRATEGIES

Christopher et al [1993] said that a bank, which only concentrates on the recruitment

of customers, could develop the ‗leaking bucket effect‘. That is to say, if a bank does not

also concentrate on retaining existing customers all that happens is that those recruited

replace those who leave. The overall customer base will, at best, remain static, but the

cost of the bank will be inflated by additional promotional expenditure required to attract

new customers.

Recruitment through price led strategies may lead to the attraction of ‗footloose‘

customers with no loyalty. These customers may not stay with the bank for long enough

to become profitable. Therefore it can be an expensive strategy.

Bartell [1993] suggested that a key objective for a bank should be to generate repeat

from its existing customer base. Customer retention should be regarded as a key

business objective since a strategy of customer retention is cheaper than recruitment

strategies. Research conducted by Stewart [1996] suggested that it may be five times

as costly to attract new customers as to keep old ones. Reducing defections or

increasing retention by 5% can therefore dramatically improve profits:

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Repeat customers may be willing to pay a premium for the service if they

value the bank;

They may provide additional business to the bank through word of mouth

recommendation.

Bartell [1993] continued that the concept of customer loyalty suggests that a

customer will remain loyal to a bank if that bank fulfills his or her needs and

preferences. The bank can return the loyalty by becoming knowledgeable about the

customer, enhancing the product offering, and providing greater value.

According to Tracy Brian [2002] loyalty stems from satisfaction and positive

reinforcement, and leads to repeat purchases. Loyal customers offer their supplier the

following benefits:

1. They visit bank and are more likely to be receptive to a sales offer, and this

reduces the costs of reaching them.

2. A good company that deals with a loyal customer has built up a relationship

with them and therefore knows their requirements, and this encourages

focused targeting.

3. A loyal customer is more likely to buy additional services, increasing customer

longevity, and reducing defection rates.

4. Benefits of word-of-mouth recommendation lead to new business

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The establishment of loyalty schemes should be implemented to encourage customers

to remain with the bank and to purchase additional products. ―If customers have one

product with your bank, there is a 15% chance that they will stay loyal to you for five

years, with two products that rises to 45%, with three 80%. The commitment to

customer retention must be everywhere, and employees must be empowered and in a

position to make things right for the customer‖. The degree of loyalty will be affected by:

The perceived cost of changing banks [switching costs];

The availability of substitutes;

The perceived risk of the purchase;

The degree to which satisfaction has been obtained in the past.

Gronroos [1994] said that many banks are introducing incentive and loyalty schemes.

To distinguish between the two:

Incentives schemes are also known as continuous customer relationship

management drives. They are designed to encourage customers to take out

extra products or to increase usage of a specific product or group of products.

Many of the credit card companies have incentive schemes such as offering

airmiles or some other points system to encourage greater card usage.

Loyal schemes are designed to reward customers who remain loyal to the

bank, either by encouraging them to stay or by ensuring that products or funds

are retained over a period of time. A number of the building societies offer a

reduced interest rate on mortgages for long-standing customers as a reward

for loyalty.

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2.56 CUSTOMER FOCUS AND SERVICE QUALITY

Gronroos [1994] said that ultimately, customer retention is driven by customer

satisfaction, which in turn can be directly linked to service quality. Therefore, central to a

relationship marketing strategy is the provision of a high quality of service. This is based

on the premise that if a customer is satisfied with the service received, they will more

readily consider the bank for other products and services and provide future sales

opportunities.

Intense competition, compressed industry margins, an expanded array of providers and

product options, and increased customer sophistication are all factors which have

contributed to making quality a key strategic issue for banks. Customer service and

quality should be viewed as key components of the overall ‗offer‘, and as competitive

weapons in the battle to provide differentiated and superior value to specific customer

segments. In a marketplace where product features can be quickly copied, it will be

quality where a bank can gain competitive advantage that is both sustainable and

profitable. This is because price-led competition is becoming more difficult and

customers are becoming much more demanding of the service they expect. Research

amongst banks has shown that it is not only price-driven reasons, which trigger the

transfer of business. The factors are frequently also related to the service experience.

Gronroos [1994] continued that since 1991, so many banks have introduced some

form of customer care programme, these have often amounted to little more than short-

term programmes, which were fundamentally flawed. The support processes were not

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in place to uphold a quality culture. Pursuing a continuing journey, and not one-off

programmes.

A quality strategy should not just be about focusing on customers and competitors, but

should be expanded to include all stakeholders who have the potential to contribute to

the creation of superior customer value. To provide the best value, the banks must bear

in mind that the customer relationship can involve the buyer and seller in a network

consisting of different parties, for example:

Supplier;

Internal customers;

Influence markets [i.e. the government, regulatory markets, the media];

Referral markets [i.e. includes intermediaries, agencies, customer referral

sources].

Gronroos [1994] confirmed that the whole network is part of the customer relationship

and has an impact on the development of that relationship. Gronroos [1994] further

continued that, quality of service must start with understanding the customer and the

influences on buyer behaviour in order to determine how additional ‗value‘ can be added

to the service ‗offering‘.

2.57 THE CONCEPT OF VALUE

Zeithaml and Bitner [1996] said that generally, customers prefer to have an ongoing

relationship rather than continually switching between suppliers in search of value.

Delivery of superior ‗value‘ to the customer should drive the formulation and

implementation of relationship strategies. Customers will remain loyal when they receive

greater value from the bank compared to the competitors in the market. Perceived value

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relates to the customer‘s overall assessment of the utility of a service, based on the

perception of what is received and what is given. Value reflects the growing customer

concern of getting more of the money, time and effort invested.

The customer‘s perception of total values will impact on their willingness to buy the

service. However, value is an amorphous concept and means different things to

different people. To create value the bank needs to understand, from the customer

perspective, how value perceptions are formed, influenced and evaluated. For example,

is value judged on the basis of quality, satisfaction, price or a combination of these

factors?

Zeithaml and Bitner [1996] continued that a value-driven strategy must be based on

some distinctive competence, which will provide a source of unique and substantial

competitive advantage. However, the bank must constantly monitor what constitutes

values from the customer‘s perspective. The charge card/credit card market illustrates

how value can change and the implications for the players in the market.

2.58 COMPONENTS OF QUALITY

According to Levitt [1960] the term quality can mean different things. For example, it is

concerned with conforming to requirements, zero defects, getting it right first time and

fitness for purpose. Essentially, service quality is about meeting customer‘s needs and

requirements, how well the service level delivered matches customer expectations.

Expectations in this sense are concerned with the standard of performance against

which services experiences are compared. They are based on what a customer

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believes should happen, and will be judged on the customer‘s subjective assessment of

actual service experience. If there is a shortfall a service quality gap exists.

Extensive research by Parasuraman et al [1998] has been undertaken to identify the

key determinants banks use in forming expectations about and perceptions of service.

Parasuraman et al [1998] identified the five key components, which emerged as the

criteria used by banks, and which influenced their expectations and perceptions. The

five key components are tangibles, reliability, responsiveness, assurance and empathy.

The dimensions vary in terms of how easy or difficult it is to evaluate them, for example,

tangibles can be judged in advance, but most of the criteria relate to ‗experience‘

qualities and can only be evaluated during or after consumption.

The same research identified gaps, which prevent banks from meeting, or exceeding

target market expectations. In this context Parasuraman [1998] defined service quality

as the gap between customer‘s expectations of the service and their perception of the

actual service delivered by the banks [Gap 5]. She proposed that this gap is influenced

by other gaps [1-4], which may also occur in the banks. The five gaps are:

Gap 1: Difference between customer expectations and management perceptions of

customer‘s expectations. That is, the banks not knowing what the customer expects

Gap 2: Difference between management perceptions of consumer expectations and

service quality specification. That is, the banks not selecting the right service designs

and standards.

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Gap 3: Difference between service quality specifications and the service actually

delivered. That is, the banks not delivering to service standards.

Gap 4: Difference between service delivery and what is communicated about the

service to banks. That is, the banks not matching performance to promise.

Gap 5: Difference between performance and expected service.

It is important that banks identify the gaps, which are in evidence in their banks,

determine the factors creating the gaps, and develop and implement appropriate

solutions.

2.59 MEASURING SERVICE QUALITY

According to Lewis [1994] a critical factor in the successful delivery of a quality

customer service is to have in place systems to monitor and evaluate the service quality

over time. This could involve programmes of market research amongst customers and

employees using focus group discussions. It could also use surveys and mystery

shoppers to evaluate the perceptions of the overall service delivered against the service

standards, and the overall satisfaction with service. In addition, the collection and

analysis of customer complaints along with surveys of ‗lost‘ customers is valuable

information.

Perceptions of service performance should also be benchmarked. This is assessed

relative to the performance of:

Competitors to seek out opportunities for achieving competitive advantage

through service leadership.

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Non-competitors to avoid complacency and identify opportunities for adopting

innovative and up-to-date service strategies from outside the immediate

industry.

2.60 A SERVICE QUALITY CULTURE

According to Pine [1993] whilst there is no one ‗recipe‘ for delivering a quality strategy,

there are some fundamental requirements, which have implications across all of the

business areas. These encompass systems, structures and products, and are

underpinned by having competent and motivated staff who are committed to delivering

service quality. So delivering service quality has implications for:

Top management;

Management structures;

How work is organized and jobs designed;

Training;

Communications systems;

Recruitment and selection of staff;

Performance management and appraisal;

Reward systems;

Career development and promotion.

The foundation for creating a quality bank requires the right culture, along with a clearly

stated mission and commitment by senior management who should lead by example. It

must involve everyone in the bank. A quality service strategy must also include the

consideration of product design and delivery, and focus on zero defects.

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The mission statement for the bank should articulate the desired long-term direction of

the bank by indicating products to be provided, markets to be served, and the means of

servicing. There should be explicit reference to the concept of ‗relationship‘. The

statement should be defined in a way, which reflects customer needs rather than

product features. It should also recognize the importance of customer service at a

strategic level and that a relationship strategy is a means of achieving business

strategy.

Wilson [1992] said that the factor underlying the development of a quality culture could

therefore be summarized as:

Top management commitment;

Highly trained staff to build and nurture customer relationships

Effective recruitment and training processes;

Process re-engineering to build superior services;

Measurement and reward systems, which emphasize relationship building.

Keltner [1995] said that the bank must align these platforms behind a single coherent

objective.

According to Kimbal [1992] one approach to improving bank effectiveness is a central

focus on quality, or Total Quality Management [TQM], which was first introduced into

Japanese companies in the post-war period by Deming and Juran. TQM is concerned

with developing a long-term quality culture in the bank based on the principle that to

achieve maximum profitability a bank must not only do things right, but do the right

things right consistently, and focus on prevention of errors rather than correction of

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errors. The emphasis in on ‗getting it right first time‘. To achieve this quality must be

perceived as a company-wide issue, involving all levels of employees with a

commitment to total customer satisfaction through a process of continuous

improvement.

Kimbal [1992] continued, to encourage commitment to a quality culture, a number of

banks have introduced quality circles or quality action teams in order to generate

employee involvement and ownership, and so improve customer service. The teams

usually involve a small group of employees [say, five to eight members of staff] who

meet on a regular strategy. The purpose is to identify, analyse and suggest ways of

improving service quality.

2.61 THE ROLE OF STAFF IN SERVICE DELIVERY

Ensuring that the service delivered meets the specifications set depends upon all

employees, who must be able and willing to deliver the desired levels of service. As

Lewis [1994] states:

If a bank cares about its employees and their role in service delivery then success at

managing internal service encounters will precede success in managing relationships

with external customers.

So employees play a critical role in influencing customer perceptions of service, and this

is particularly the case in the financial services sector.

According to Berry [1993] the concept of ‗internal marketing‘ is fundamental to service

delivery. This concept views employees as internal customers and jobs as internal

products and is based on the proposition that the various functions of a bank have their

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own internal customers. Staff in different departments and sections should treat their

employees as internal customers, because they are providing a service. In satisfying

internal customers the banks should be better placed to satisfy the needs of external

customer awareness and remove barriers to bank effectiveness. It is important to have

the systems, structures and people aligned to delivering a quality of service to the

ultimate customer.

The three objectives of internal marketing stated by Gronroos [1994] are:

Enablers Results

Leadership People Satisfaction

People Management Customer Satisfaction

Policy and Strategy Impact on Society

Resources Business Results

Business Processes

The ―enablers‖ cover what a bank does and how it does it. The other four criteria relate

to the ―results‖ and cover what a bank achieves. The link between the two is that

enablers cause results. Each of the criteria can be used to assess the bank‘s progress

along the journey to excellence. The model suggests that customer satisfaction, people

[employee] satisfaction, and impact on society are achieved through leadership which

drives the policy, strategy, people management, resources and processes, which leads

to excellence in business results.

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2.62 CONSUMER PROTECTION

Whilst many banks are committed to a relationship marketing strategy, and provide a

high quality of service, attaching great importance to amicably resolving customer

complaints, there are sometimes situations where disagreement between the bank and

the customer cannot be resolved. One way to pursue these is through the courts. An

alternative would be to use one of the Ombudsman schemes such as the Banking

Ombudsman, Building Society Ombudsman, Pensions Ombudsman or Insurance

Ombudsman. The Ombudsman provides customers with the costs that would be

involved if done through litigation.

The Banking Ombudsman scheme was established in 1986 with the primary purpose of

acting as an independent arbitrator between banks and customers in dispute. This

scheme can be used by non-corporate customers and by small businesses for disputes

where the amount does not exceed £100,000.

The Banking Ombudsman scheme can be used to investigate a wide range of areas

within, although the Ombudsman does not have any statutory powers. However, the

Ombudsman can make awards of up to £100,000, which should include payments for

damages or loss and also for any inconvenience caused. The Ombudsman cannot deal

in any case relating to bank policies on commercial and lending decisions, nor in

disputes over banks investment services which have to be referred to the Securities and

Investment Boards or some other self-regulatory body.

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In 1999 the different Ombudsman schemes will be replaced by a Financial Services

Ombudsman scheme which will have a wider remit in terms of covering disputes across

the financial services sector.

The Banking Code is a voluntary code followed by banks and building societies in their

relations with personal customers, and sets standards of good practice, which are

followed as a minimum by banks subscribing to it [The Banking Code]. The underlying

rationale is that the code will allow competition and market forces to operate encourage

higher standards which will ultimately benefits the customer. The Code sets out eleven

commitments, which apply to the conduct of business for all products and services

provided to customers. [Mortgages are covered in more detail in the Council of

Mortgage Lending Practice]. The standards of the Code are encompassed in the key

commitments. The subscribers promise that they will:

Act fairly reasonably in all dealings with the customers;

Ensure that all services and products comply with the Code, even if they have

their own terms and conditions;

Give the customer information on services and products in plain language, and

offer help if there is any aspect the customer does not understand;

Help the customer choose a service or product which matches their needs;

Help the customer understand the financial implications of:

a. A mortgage

b. Other borrowing

c. Savings and investment products

d. Card products;

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Help the customer understand how accounts work;

Have safe secure and reliable banking and payment systems;

Ensure that the procedures staff follow reflect the commitments set out in the

Code;

Correct errors and handle complaints speedily;

Consider cases of financial difficulties and mortgage arrears sympathetically

and positively;

Ensure that all services and products comply with relevant laws and

regulations.

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2.63 REFERENCES

Kimball R C [1992] ‗Relationship Versus Product In Retail Banking‘, Journal of

Retail Banking, 12, 1 – Spring

Keltner B [1995] ‗Relationship Banking and Competitive Advantage: Evidence

from the US and Germany‘, Californian Management Review, Vol. 37, N0. 4

Hansen J.J (2007) "The Poor as Producers in Rural Economy"

http//www.aclaim/inf/actr.htm

Jamil B (2008) "Microfinance as a tool for poverty alleviation in Nigeria" Paper

Presented at Sensitization Workshop on Microfinance Banking in Kano State.

Central Bank of Nigeria, ―CBN Prudential Guideline for Licensed Banks‖,

November 7, 1990.

Bank of Industry; Delivering our Mandate, Vol. 4, No. 1, April 2008.

Goldman Sachs New Markets Analyst: 08/35 ― New Markets: Banking sectors

put to the test-not all will emerge unscathed‖, October 9, 2008.

World Bank Group, Doing Business in Nigeria 2008. Doing Business.

Washington: World

Bank. See:

http://www.doingbusiness.org/subnational/exploreeconomies/Nigeria.aspx

World Bank Group, Doing Business in Nigeria 2009. Doing Business.

Washington: World Bank. See:

http://www.doingbusiness.org/ExploreEconomies/?economyid=143

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Central Bank of Nigeria, ―CBN Guidelines on Advertisements by Deposit

Taking Financial Institutions‖, April 5, 2000.

Olaitan M.A (2006) "Finance for Small and Medium Scale Enterprises in

Nigeria" Journal of international farm management Vol 3 No 2 January

Olajide O.A (1980) "Financing Enterprises in Nigeria Through Cooperative"

Nigerian Institute of Social and Economic Research (NISER), Ibadan

Ketu A. A (2008) "Microfinance banks in Nigeria: An Engine for Rural

Transformation" West African Institute for Financial and Economic

Management, Lagos Nigeria.

Bartell [1993] ‗Building Strong Customer Relations‘, Bank Marketing, Vol. 25,

N0. 6

Berry L [1993] ‗Relationship Marketing‘, Emerging Perspectives of Services

Marketing, American Marketing Association USA

Carlzon J [1987] Moments of Truth, Ballinger Press Ltd. USA

Christopher M G, Payne A & Ballantyne D [1993] Relationship Marketing:

Bringing Quality, Customer Service and Marketing Together, Buterworth

Heinemann London.

Christopher M G ,Schary P P & Skjoyy-Larsen T [1979] Customer Service

and Distribution Strategy Prentice Hall Press Ltd. USA

Davidson H [1978] Offensive Marketing or How to Make your Competitors

Followers, penguin Ltd. USA

Davidson, William H. [1989] Total Customer Service – the ultimate weapon,

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Drucker P. F. [1973] Management: Task, Responsibilities & Practices, Harper

& Row series Ltd. USA

File K M & Prince, R A [1992] ‗Positive Word of Mouth: customer stisfaction

and Buyer Behaviour;, International Journal of Bank Marketing, Vol. 10, N0.

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Rammal, H. G. and Zurbruegg, R. (2007). Awareness of Islamic Banking

Products Among Muslims: The Case of Australia. Journal of Financial

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Saeed, A. (1996). "Islamic Banking and Interest: A Study of the Prohibition of

Riba and its Contemporary Interpretation". Leiden, Netherlands: E.J.Brill.

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CHAPTER THREE

RESEARCH METHODOLOGY

3.0 INTRODUCTION

This chapter explains the materials and methods used in this study. It discusses the

population of study, sample size, sampling design and procedure, data collection

instruments, methods of data analysis and limitation of the method.

3.1 RESTATEMENT OF RELEVANT QUESTIONS

The relevant research questions to be answered by the research hypothesis are as

follows:

How do banks develop customer focused financial products and services?

How will banks achieve increase in their Business share and shareholders

wealth using relevant strategies for the marketing of their financial products

and services?

Will development of new financial products and efficient services lead to the

increase in the satisfaction of customers?

How can banks achieve competitive edge over others in the marketing of

financial products and services?

What is the relationship between the development of new financial products

and services and the goal of profit maximization of the banks in the financial

service sector?

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3.11 RELEVANT RESEARCH HYPOTHESES

The relevant hypotheses to be tested in the study are as follows:

HYPOTHESIS ONE

Ho: The development of new financial products and services in response to the

needs of their customers is not significantly related to increase in profitability for the

banks and maximization of wealth for shareholders.

Hi: The development of new financial products and services in response to the

needs of their customers is significantly related to increase in profitability for the banks

and maximization of wealth for shareholders.

HYPOTHESIS TWO

Ho: The development of effective marketing strategy for financial products and

services by the banks is not significantly related to achieving customer satisfaction.

Hi: The development of effective marketing strategy for financial products and

services by the banks is significantly related to achieving customer satisfaction.

.

3.2 STUDY POPULATION

The Nigerian banking industry, Stakeholders, customers, management and employees

constitutes the population of this study. The banking industry constitutes of all the

banks in the Nigerian banking industry. The project or study was focused on Zenith

bank, Guaranty trust bank and UBA Plc. The population of the study consists of

shareholders, customers, management and staff, of these banks. The selected

segments are:

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Current account 200

Fixed deposit account 200

Savings account 200

Domiciliary account 200

Corporate accounts 200

The samples used were drawn from the list of customers of Zenith bank, Guaranty trust

bank and UBA Plc. The samples or respondents constituted the customers of the

banks. Two hundred respondents were drawn from five selected segments utilized by

the banks. The total sample {respondents} is one thousand.

3.3 DATA COLLECTION METHOD

The data needed for the study were collected through the use of both primary and

secondary sources.

Primary Source: The major source through which responses were elicited from the

respondents was administering of questionnaires. One hundred questionnaires were

administered on the respondents.

The questionnaire was divided into four sections. The first section was optional and

reviews the immediate bio data of the correspondents, while the next tagged section B

constitutes more detail questions on the Biographical data of the respondents, covering

areas such as age, sex, length of services, marital status, department etc.

The section C, tagged ‗for stakeholders in the banking industry only‘, constituted

questions on the journey so far in the development of new products as well as

innovative re-design of existing ones. The questions were programmed in a

chronological order to better understand the relationship between the investments in the

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design of these products and creation of wealth for shareholders. Section D, tagged ‗for

customers of banks only’, probes the customers mind towards finding out the impact of

the new product design on their patronage of banks, and used to understand the impact

on the wealth of shareholders.

Secondary Source: The secondary sources of data were collected from journals,

newspaper, magazines, textbooks etc.

3.4 SAMPLING PROCEDURE

The questionnaires were administered on the shareholders, management, employees

and customers of the five selected segments of the banks mentioned above. The

method used in selecting the respondents is stratified random sampling. This sampling

procedure uses extra method of representatives by first identifying some characteristics

that are being researched and then using these characteristics as a basis for further

random sampling of the entire population.

In this study the customers of Zenith bank, Guaranty trust bank and UBA Plc are

stratified into:

Top customers

Middle level customers

Average customers

The researcher then proceeded to randomly select the samples from each level {3

strata} and the number of employees he selects from a particular stratum is proportional

to the stratum‘s share of the total population. The advantage of this method is that each

respondent have equal chance of being chosen within its stratum.

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3.5 METHOD OF ADMINISTERING QUESTIONAIRE

The questionnaire was personally administered on the respondents selected by

stratified random sampling. To facilitate the ease and convenience of completion of the

questionnaire it was not retrieved from the respondents until after three {3} days thereby

providing enough time for full and thorough completion. The space of time also cushions

the tight schedule of customers. In the meantime, adequate follow-up was done through

constant visitation and telephoning.

3.6 ANALYSIS OF SAMPLES

The data collected by administering the questionnaire were first analyzed using

statistical package for social sciences (SPSS) and then the results were reviewed

through the use of simple percentages and frequency distribution.

The questions were also analyzed and the hypotheses tested using correlation analysis

statistical method. The pearson coefficient of correlation as well as Spearman rank

order correlation by which the values of dependent variable say ‗Y‘ is predicted from

knowledge of one or more independent variables say X1 X2, X3, ...Xn , were applied to

make inference.

The correlation coefficient (ƥ) between two random variables X & Y can be

defined by p = Cov. (X,Y)

Var(X) Var(Y)

Where: Var(X) = (EX2) – [E(X)]2

Var(Y) = E(Y2) – [E(Y)]2

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Cov.(X,Y) = E(XY) – E(X)E(Y).

But for a large data set, such as the one collected during the sampling in this survey,

the estimate of correlation coefficient r = ṕ= ∑ (X- ẋ) (Y- Ẏ)

∑(X- ẋ)2 (Y- Ẏ)2

Where ṕ = sample estimate of pearson coefficient of correlation, a product of moment of

coefficient of correlation

The values of r = ṕ ranges from 0 to 1. For values of ṕ close to 1 (say 0.95, 0.9, 0.85),

the samples X & Y may said to be positively highly correlated. For values close to 0 (say

0.1, 0.2, 0.3), the samples X & Y are poorly correlated, and indicates there may be little

or no relationship between the variables.

Assumptions of Spearman Rank Order Correlation

The Spearman rank order correlation states that

r = 1 - 6∑D2

n(n2-1)

Where r = coefficient of correlation

D = rank difference

n = No. of values (X, Y) in the data.

According to Asika {1991} the assumptions of the Spearman Rank Order Correlation

are:

a. There are two variables of interest designated X {the assumed independent

variable} and Y {the assumed dependent variable}.

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b. There is a random sample of n pairs of X and Y observations either numeric

and or non-numeric observations.

c. Each X and each Y is ranked relative to all Xs and Ys respectively and their

ranks and denoted R{X} and R{Y} respectively.

d. If ties occur, each tied value is assigned the mean of the rank for which it is

tied.

e. All the data or observation must be capable of being ranked.

Thus, for the test statistics of Spearman rank order correlation where r was given

above as:

r = 1 - 6∑D2

n(n2-1)

,

There are three {3} possible relationship that can result from the computation of

r . These are: i. Perfect direct relationship r= 1 where each pair of X and Y occupies the same

rank in it‘s respective X and Y ranking d = 0.

ii. Perfect inverse relationship, r = - 1 where the rank of one variable X and other

variable Y within each pair of observations is reverse of the order.

iii. No relationship at all between the ranking of the pairs of X and Y within their

respective observations.

3.7 DECISION RULE

For two- side hypothesis; reject Ho {the null hypothesis} at the appropriate X level if the

computed rs is greater than the critical X value corresponding to 1- /2

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It is necessary to test if and ᵦ are significantly different from zero. We therefore test

hypothesis:

H0: ᵦ = 0

H1: ᵦ ≠ 0

The t statistic can be used when the number of sample pairs is equal to or greater than

10. Otherwise only Spearman rank order correlation is used.

3.8 LIMITATION OF METHODOLOGY

The study population which is the Nigerian financial institution, especially the banks, is

quite large to be completely sampled by the study, therefore beyond the scope of this

study. Thus only a few of the banks were actually sampled and energy concentrated on

them. The result obtained is assumed to be representative of the entire population of

the Nigerian banking industry. However, the result may not be a pure representation of

the other banks not sampled in the study.

The number of respondents used for the study which is about one hundred {100}, out of

these, about 90% of them are resident within a given geopolitical zone; West, and

specifically Lagos (though not necessarily indigenes). These have the tendency for bias

which will ultimately affect the result.

Enumerators bias was also a major limitation as some of the stakeholders that lost out

in the power equation during the restructuring that occurred in their organizations, which

was enforced by the central bank, and which was occasioned by the infamous global

financial meltdown, could not see anything good in the transformation agenda, new

product development and innovative product re-design of the new management.

110

3.9 REFERENCES

1. Asika N. {1991} Research Methodology in the behavioral sciences, Lagos:

Longman Nigeria Plc.

2. Babbie E.a. {1979} The Practice of social research, Belmont Calif:

Wadarsworth publishing co.

3. Larson H.J. {1983} Statistics: An Introduction, Krieger.

4. Guaranty Trust Bank plc and UBA plc Annual Reports 2005.

5. Okunmadewa, F., 1998. ―Domestic and international response to poverty

alleviation in Nigeria.‖ Proceedings of the 7th Annual Conference of the Zonal

Research Units Organised by Research Department, CBN at Makurdi, 8th -

12th June, pp: 296-309.

6. Oladeji, S.I. and I.O. Ogunrinola, 2001. ―Determinants of informal savings in

Southwestern Nigeria.‖ Savings and Development, No. 2-2001-XXV: 225–

249.

7. Olomola, A.S., 1999. ―Financial innovations in Nigerian microfinance system,‖

In: Olomola, A.S. and S.O. Akande (eds.), Agricultural Finance Issues in

Nigeria Ibadan, (NISER), pp: 149-164.

8. Olomola, A.S., 2001. ―The nature and determinants of rural loan repayment

performance in Nigeria: The case of FADU‘s microcredit programme‖. NISER

monograph series NO 3, (NISER), Ibadan, pp: 57.

111

CHAPTER FOUR

PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA

4.0 INTRODUCTION

This chapter explains in details the relevant data used in the research work. It presents

the data collected via the questionnaire in tabular form to aid understanding. The data

so presented were thus analyzed and the results interpreted. These were then applied

in arriving at decisions, deductions, inferences and conclusions.

The data collected were subjected to rigorous statistical analysis, using several

statistical tools. First, using statistical package for social sciences (SPSS), the results

obtained were presented in tabular form. The data were further subjected to other

statistical treatments, using tools such as scatter diagrams, bar chart, pie chart, etc for a

simplified presentation. The results obtained are presented below, while references are

made to the corresponding figures, tables and charts in the appendix.

Appropriate interpretations and inferences were subsequently drawn.

Table 4.1: AGE OF RESPONDENTS

From table 4.1, Appendix ii, page 127, about 76% of the respondents are between 0 to

50 years old. Those between 31- 50 years constitute more than 46% of the entire

respondents interviewed; implying the largest age bracket of the entire population

sampled. Respondents with age less than 11 years constitute the fewest number of

respondents, representing about 8% of the total respondents.

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Table 4.2 GENDER OF RESPONDENTS

About 56% of the entire respondents are male.( Appendix ii, page 128)

Table 4.31: MARITAL STATUS

Majority of the respondents are married (about 43%) while about 23% are single. About

95% of the respondents are either single, married, divorced or widow. (See table 4.31,

Appendix ii, and page 129)

Figure 4:41 EDUCATIONAL QUALIFICATION

From figure 4.41, Appendix ii, page 130, over 55% of the respondents have tertiary

education. About 41% of the entire respondents are graduates. The second largest

category of the respondents are those with secondary education.

Figure 4.51: RELIGIOUS VIEWS

From table 4.51, Appendix ii, page 130, almost half of the entire respondents are

Christians (about 48.3%), while Muslims (about 33%) constitute the second largest

category of respondents. About 91% of the entire respondents are either Christians,

Muslims or traditional religious views, while the rest have other forms of religious

believes.

Figure 4.61: GEOPOLITICAL ZONES

About 87% of the entire respondents are from one ethnic group or the other within the

Southern part of the country. The western Nigeria accounts for the highest number of

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respondents within a single geopolitical zone (about 35%), while the east came second

(about 30%). See (Figure 4.61, Appendix ii, page 132)

Figure 4.7: OCCUPATION

About 23% of the respondents are engaged in one form of trade or the other (highest

number of a single category), while those in the Legal profession accounted for the

fewest number of respondents (<4%). Thus in descending order the number of

respondents followed the following pattern based on their occupation- Traders, Artisans,

Civil servants, Transporters, Students, Private sector, Banking and Legal. (Figure 4.61,

Appendix ii, page 133)

Figure 4.8 REPONDENTS WITH BANK ACCOUNT

From figure 4.8, Appendix ii, page 134, about 73% of the respondents have bank

account, in one or more bank(s) in Nigeria.

Figure 4.91: DURATION OF BANK ACCOUNT

About 73% of the respondents opened their bank accounts within the last decade. While

about 55% have their accounts opened within the last 5 years. Respondents who

opened their bank accounts prior to the last decade are quite substantial, constituting

slight above 26% of the entire population. See (Figure 4.91, Appendix ii, page 135)

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Figure 4.92: DEVELOPMENT OF NEW PRODUCTS

See (Figure 4.92, Appendix ii, page 135). About 90% of the stakeholders in the banking

industry agreed that their bank have developed new products within the last decade,

about 1% do not agree, while 9% are uninformed.

Figure 4.93: FREQUENCY OF NEW PRODUCT DEVELOPMENT

About 94% of the banking industry stakeholders noted that the frequency of new

product development have become more. Less than 6.5% disagreed with this notion.

(Appendix ii, page 135)

Figure 4.94: EFFECT OF COMPETITION ON R&D

Over 89% of the management, staff and shareholders of the financial services sector

are of the opinion that competition have exerted good influence on R&D, and therefore

good for all. About 9% there are no relationship, while the rest are completely of

contrary view. See (Figure 4.94, Appendix ii, page 135)

Figure 4.95 EFFECT OF INNOVATION TO THE INDUSTRY

From figure 4.95, Appendix ii, page 136, less than 16% of the industry watchers are

biased against the recent pace of innovation in the banking industry, the greater

majority are of the opinion that the development are good for the industry.

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Figure 4.96 EVOLUTION IN THE FINANCIAL INDUSTRY

Majority of the stakeholders (≈78%) are in affirmative that the Nigerian banking industry

is rapidly evolving, about 14% are undecided, while the rest minority are of contrary

opinion. See (Figure 4.96, Appendix ii, page 136)

Figure 4.97 IMPACT OF R&D TO CLIENT BASE

From figure 4.91, Appendix ii, page 136, overwhelming majority of the senior

management and staff of financial institutions (>85%) are of the opinion that investment

in R&D for new products have positive and incremental growth on the client base of

their respective organizations.

Figure 4.98 TREND OF CLIENT BASE

About 91% of the employees of Nigerian banks noted that their client base is witnessing

an incremental trend, due to investment in new product development, while the rest are

of different opinion. See (Figure 4.98, Appendix ii, page 136)

Figure 4.99 DIVIDEND DECLARATION, TWO DECADES AGO

See (Figure 4.99, Appendix ii, page 137), about 82% of the shareholders, management

and staff noted that their organizations rarely declare dividends, two decades ago.

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Figure 4.100. RECENT TREND OF DIVIDEND DECLARATION

See (Figure 4.100, Appendix ii, page 137), About 90% of the shareholders,

management and staff noted that recent trend of dividend declaration by their respective

organizations have become frequent within the last 10 years; a sharp contrast to the

trend 20 years ago.

Figure4.101 REASON FOR DIFFERENCE IN PATTERNS OF DIVIDEND

DECLARATION

Over 78% noted that the sharp contrast in the pattern of dividend declaration between

the 20th and 21st century can be accounted for by the increase in R&D, which had led to

more wealth for shareholders, while less than 22% are of the opinion that increase in

R&D have led to loss of wealth for shareholders due to cost. (Figure 4.101, Appendix ii,

page 137)

Figure 4.102 PRESENT & PAST RETURN ON INVESTMENT (ROI)

About 89% of the shareholders, management and staff of the banks are of the opinion

that higher levels of returns are received in investment in recent times compare to the

last two decades ago. Less than one-quarter are of opposite opinion. (Figure 4.102,

Appendix ii, page 137)

Figure 4.103 R&D AWARENESS

From figure 4.103, Appendix ii, page 138, about 90% of the customers of the banks are

aware of the recent investment in R&D by their respective banks. About 9% are neither

here nor there, while those who are totally unaware are insignificant.

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Figure 4.104 TIMING OF R&D

Over 9/10th of the customers said the current pace of aggressiveness in the industry is

very recent and became more common within the last decade. Less than 8%

acknowledged the trend extend beyond the last decade. See (Figure 4.104, Appendix ii,

page 138).

Figure 4.105 FREQUENCY OF NEW PRODUCT DESIGN

From figure 4.105, Appendix ii, page 138, about 70% of the customers noted that

introduction of new products by their banks have become rampant, while the rest noted

are of contrary opinion.

Figure 4.106 RELEVANCE OF R&D TO INDUSTRY

About 80% of the customers noted that research and development of innovative

products is very relevant to the industry, while less than 2% said is irrelevant, the rest

down played their relevance. See (Figure 4.106, Appendix ii, page 139)

Figure 4.107 COMPARISON OF R&D IN NEW AND OLD GENERATION BANKS

Over 85% of the customers of Nigerian banks agreed that development of new products

are more common with new generation banks, while about 4% said it false, the rest said

there is no pattern. See (Figure 4.107, Appendix ii, page 139)

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Figure 4.108 PREFERNECE OF NEW GENERATION TO OLD GENERATION BANKS

About 63% of the respondents are categorical that they have a preference in doing

business with new generation banks than the old generation banks. While the rest share

other views. See (Figure 4.108, Appendix ii, page 139)

Figure 4.109 FACORS AFFCETING CHOICE OF FINANCIAL INSTITUTIONS

See (Figure 4.109, Appendix ii, page 140. About 70% of the customers noted that the

critical factor considered in their choice of financial institution to patronize is their

innovativeness in designing new improved products that suit their needs, about 16%

argued that proximity affects their choice, while about 13% are of the opinion that age of

existence of the banks are important to them due to safety of their funds. The rest

argued they have

Figure 4.110 BANKING IN THE 21ST CENTURY

From Figure 4.110, Appendix ii, page 140, only about 4% of the respondents noted that

banking in the 21st century is same as in the past two decades, while overwhelming

majority (about 95%) argued that a lot has changed. Those who sit on the fence are

insignificant.

Figure 4.111 RATE OF TRANSFORMATION

About 25% of the respondents noted that there was a gradual transformation in the

landscape of the Nigerian banking industry, while over 65% argued that the rate of

119

transformation was rapid. The rest argued it was slow. See (Figure 4.111, Appendix ii,

page 140)

Figure 4.112 DESIRABILITY OF TRANSFORMATIONS

See (Figure 4.112, Appendix ii, page 140), about 72% of the customers noted that the

overall effect of the transformations in the Nigerian banking industry is desirable and

therefore highly relevant to their needs. Less than 15% argued it is irrelevant to them.

The rest are either categorical in noting that there is no relationship between the

transformations in the industry and their needs or are sitting on the fence.

Figure 4.113 INFLUENCE OF TRANSFORMATION TO CUSTOMERS

Minority (about 7%) of the respondents are of the opinion that the transformations have

negative effect on them and their businesses. Majority (about 72%) said the

transformations have positive influence on their businesses. The rest argued there was

no effect on them. See (Figure 4.113, Appendix ii, page 141)

Figure 4.114 LEVEL OF PATRONAGE

See (Figure 4.114, Appendix ii, page 141), Over 50% of the customers noted that they

give greater patronage to the mpore innovative new generation banks. Greater than a

quarter are more loyal to the old generation banks, while the rest give equal patronage.

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Table 4.115 INCREASE IN PATRONAGE BY CONTEMPORARIES

See (Figure 4.115, Appendix ii, page 141), Over 50%of the respondents also noted that

their contemporaries, (who may not have been sampled), also give more patronage to

the new generation banks. Thus indicating a consistent trend with the population

sampled.

Figure 4.116 JUSTIFICATION OF INVESTMENTS IN R&D

About 90% of the respondents are of the view that the investments in R&D are justified,

bearing in mind their benefits. Only a few minority are opposed to this view. See (Figure

4.116, Appendix ii, page 141),

Figure 4.117 PATTERN OF BANKS PROFITABILITY

See (Figure 4.117, Appendix ii, page 142). About 72% of the respondents are of the

opinion that the pattern of the Bank‘s profitability is an increasing one, while less than

20% argued profitability is static. The rest argued a declining fortune for the banks,

based on their individual activities with the banks.

Figure 4.118 INFLUENCE OF MOBILE & INTERNET BANKING

See (Figure 4.118, Appendix ii, page 141). Only about 11% of the respondents noted

they still make more frequent visits to the banking hall for their transactions, despite the

abundant internet and mobile banking solutions available. About 66% noted they now

make less frequent visit to the banking hall, as they now adopt the Do-it-yourself (DIY)

for less serious transactions, taking advantage of the myriads of available solutions.

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Figure 4.119 FREQUENCY OF BANKERS VISITS

Nearly half of the entire respondents (about 48%) noted that bankers frequently visit

them. Those who said that bankers rarely visit them are very few (about 16%). Thus

about 78% of the respondents informed that bankers sometimes or frequently visit

them. (Figure 4.119, Appendix ii, page 142)

Figure 4.120 EFFECT OF BANK’s MARKETING ON THE RESPONDENTS

Clearly, more than 63% of the respondents agreed that marketing activities by the

banks have positively affected their choice of patronage to the banks. While about 20%

are undecided about the effect of relationship management as well as marketing by the

banks, the rest argued that their choice is not influenced by marketing activities by the

banks. Refer to (Figure 4.115, Appendix ii, page 143)

Figure 4.121 LENGTH OF MARKETING TREND

Refer to (Figure 4.121, Appendix ii, page 144). About 80% of the respondents noted

that the trend of aggressive marketing by the banks was noticed within the last decade.

This implies the trend is new to the Nigerian banking industry. While about 17% argued

that the trend was noticed within the last two decades, the rest of the minority noted the

trend long existed beyond the last 20 years.

Figure 4.122: CHALLENGES IN FINANCIAL PRODUCT MARKETING

Refer to (Figure 4.121, Appendix ii, page 145). About 80% of the entire respondents

either agreed or strongly agreed that marketing of financial has numerous challenges,

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both to the internal as well as external stakeholders. About 7% and 5% disagreed and

strongly disagreed respectively. The rest were sitting on the fence.

Figure 4.123: RELEVANCE OF FINANCIAL PRODUCT MARKETING TO

BANKING INDUSTRY

About 82% of the respondents agreed in strong terms that marketing of financial

products have being of immense benefit to the Nigerian banking industry as well as the

stakeholders. This might be evidenced in the emergence of mega banks- UBA, Zenith,

GT Bank, First Bank within the last decade. The rest were on the contrary. Refer to

(Figure 4.123, Appendix ii, page 146)

Figure 4.124 VOLUME OF TRANSACTIONS IN RELATION TO NEW PRODUCT

DEVELOPMENT & ITS MARKETING BY BANKS

Refer to (Figure 4.124, Appendix ii, page 146). About 93% of the entire respondents

either agreed or strongly agreed that marketing of financial has affected the volume of

transaction they do. They argued that they tend to do higher volume business

transactions with the banks that show more aggressiveness in relationship management

as well as marketing effort.

The remainder were on the contrary.

Figure 4.125 CONTRIBUTION OF PRODUCT DEVELOPMENT & MARKETING TO

SHAREHOLDERS' WEALTH

See (Figure 4.125, Appendix ii, page 147). About 92% of the entire respondents either

agreed or strongly agreed that marketing of financial has positive contribution to the

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wealth of shareholders. Their reasoning is based on the increment in the volume of

transactions which they do because of relationship management and increased effort in

marketing activities. The rest were opposed to this view.

TABLE 4.126: Respondents’ trend of agreement that development of new

products have led to increase in return on investment (ROI) on a progressive

basis within the last decade.

Refer to (Table 4.126, Appendix ii, page 148). Those who agreed that investment in

R&D have led to increase in ROI for shareholders increased on constant basis for the

past four years, with future prospect of same trend.

Table 4.126 (b) X-Y Statistical treatment of Respondents’ trend of Agreement

on impact of new product development to the increase in Return on Investment

(ROI).

A pearson coefficient of correlation of 0.77 indicates that a positive relationship exists

between the variables.Refer to (Table 4.126 (b), Appendix ii, page 148).

Analyzing the data in table 4.126, we have:

r = ṕ= ∑ (X- ẋ) (Y- Ẏ)

∑(X- ẋ)2 (Y- Ẏ)2

r ≈ 0.77

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Figure 4.126 ( c ):

Respondents pattern of agreement that development of new products in Response to

customers need have led to increase in profitability & wealth maximization, showing a

positive correlation between the level of agreement

Figure 4.126 (d): Respondents pattern of disagreement that development of new

products in Response to customers need have led to increase in profitability & wealth

maximization.

125

4.127 FACTOR ANALYSIS

When the data were subjected to factor analysis are using statistical package for social

sciences (SPSS) the following parameters and results shown below were obtained:

Table 4.128: KMO Test

Refer to (Table 4.128, Appendix ii, page 149). A KMO of about 0.573 is classified as

fair. This implies that factor analysis is feasible and appropriate for the test. Also the

Bartlett‘s test of sphericity indicates that P<œ.

Also, since the value of coefficient of correlation r is positive, and α is and significantly

different from Zero, we reject Ho and conclude that, the development of new financial

products and services in response to the needs of their customers is significantly related

to increase in profitability for the banks and maximization of wealth for shareholders.

Table 4.131: COMMUNALITIES

The table of communalities shows high values close to 1, these indicate the variables

are well related. Refer to (Table 4.129, Appendix ii, page 150).

Table 4.130: TOTAL VARIANCE EXPLAINED

See (Table 4.130, Appendix ii, page 150). The table shows that six principal

components can be used to explain about 62.4% of the relationship among the

variables, this is fair to good but not excellent, as over a quarter of the relationship are

not explained by these variables.

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Table 4.131 COMPONENT MATRIX

Refer to (Table 4.131, Appendix ii, page 152). About 6 principal Components can be

identified-

i. Respondent‘s personal Details

ii. Respondent‘s social status

iii. Respondent‘s banking activities

iv. Respondent‘s assessment of Import of product design

v. The changes in the Banking industry

vi. Significance of product design to the Industry.

127

4.132 REFERENCES

Research Questionnaires.

Babbie E.a. {1979} The Practice of social research, Belmont Calif:

Wadarsworth publishing co.

Larson H.J. {1983} Statistics: An Introduction, Krieger.

Umar S.H (2008) "The Experience of Microfinance Banks Operation in their

Operational Location. Paper Presented at Sensitization Workshop on

Microfinance Banking in Kano State.

Parasuraman A, Berry L L & Zeithaml V A [1998]‘SERVQUAL: A Multiple Item

Scale for Measuring Consumer Perceptions of Quality of Service‘, Journal of

Retailing, Vol. 64, no. 1

Keltner B [1995] ‗Relationship Banking and Competitive Advantage: Evidence

from the US and Germany‘, Californian Management Review, Vol. 37, N0. 4

Zenith Bank plc, Guaranty Trust Bank plc and UBA plc Annual Reports 2005.

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CHAPTER FIVE

SUMMARY, FINDINGS, DISCUSSION OF FINDINGS, CONCLUSIONS, AND

RECOMMENDATIONS

5.0 INTRODUCTION

This chapter analyses the empirical findings of the study. It gives the summary of the

research work. It also provides an insight into the findings and thus gave a detail

discussion of the findings, by comparing what had existed with what currently exists.

The research went further to make useful suggestions that will beneficial to would-be

users for improved decision making. It also makes recommendations that will be

invaluable for further studies.

5.1 SUMMARY

The thesis seeks to answer four simple questions- How do banks design customer-

focused financial products and services? How will banks achieve increase in

shareholders wealth and profitability using relevant product development and marketing

strategies? How can development of new financial products and efficient services lead

to increase in the satisfaction of customers? How can banks achieve competitive edge

over others in a rapidly evolving and highly competitive developing market economy?

The thesis used the answers to the above four questions to establish a relationship

between the design of new financial products and services and the goal of profit

maximization and increase in shareholders wealth.

129

The study began with general introduction, stating the objectives and noting several

hypotheses to be tested. Thereafter, relevant materials, books and journals were

critically reviewed, to provide a guide into the future by reconstructing the past. The

models for statistical analysis were proposed. Subsequently data collected were

analyzed; results obtained were interpreted and summarized.

Several statistical tools such as SPSS, scatter diagrams, pie chart, bar chart, etc,

provided the framework for successful statistical treatment of the data, data analysis,

and interpretation of results.

A critical review of empirical findings from result obtained indicates that a positive

correlation exist between design and marketing of new financial products and sustained

profitability, as well as maximization of wealth for shareholders.

While one bank is designing a giving product, another is designing a combination of

products that better address the needs of customers, others are benchmarking with

additional objective of modifying certain features of the products that makes them cost

friendly.

The end result was a more vibrant industry, when compared to position of things two

decades ago. Those who invested heavily in ICT (example Zenith, GT Bank, UBA),

human capital, R&D; consequently witnessed positive and incremental growth in all

critical indices of performance. They also witnessed increasing trend in customer base.

130

Overwhelming majority of the senior management and staff of financial institutions

(>85%) were of the opinion that investment in R&D for new products exerted positive

and incremental growth on the client base of their respective organizations. This was

further observed in the frequency of dividend declaration, within the last decade.

Thus, the Nigerian banking industry has witnessed positive and incremental growth in

the last decade. The resources committed towards the design and marketing of new

financial products and services have yielded the desired results, and therefore created

wealth for shareholders, while ensuring profitability as well as sustainable growth and

development for the banks.

5.2 FINDINGS

It was observed that interesting relationship exist between new product design and

maximization of wealth for both the banks and their shareholders. The banks with better

improved products are also same as those that receive the highest patronage. Their

market share increased significantly in direct relation to their rate of innovation. Having

observed that market share also increases, they made effort to constantly design new

products, innovatively re-design existing ones to remain ahead of the competition.

Empirical findings showed that competition was a major driving force, which changed

the entire landscape of the Nigerian financial industry. Quantitatively, over 89% of the

management, staff and shareholders of the financial services sector are of the opinion

that competition has exerted good influence on R&D. Thus competition resulted to

131

setting of R&D units, resuscitating moribund ones, propelled huge investment in product

development & relationship management and ultimately increased the relevance of

R&D as an important department that will drive the future of banking business in Nigeria

and other developing economies.

5.3 DISCUSSION OF FINDINGS

It is axiomatic to say that the past is the key to the present; however, within the findings

of this research, the reverse was the case, as the present was the key to understanding

the ugly past.

Implicit in this assertion is that comparing the Nigerian banking industry in the last

decade to what is obtainable about twenty years ago, it is easy to see how growth in

R&D, innovation in design of new products, innovation in re-design of existing products ,

aggressive business development and marketing strategies have changed the entire

landscape.

In the past, Nigerian banks were less innovative, giving little or no emphasis to

committing resources to R&D towards arriving at more innovative products and

services. There was little or no major investment and strategy for human capital

development. Quality of labour and development of labour was less a priority. However,

all these did not come to bare, until the recent wave of aggression in design and

marketing of new financial products, means that sustainable growth, increasing market

share, remaining relevant in the industry, developing competitive advantage, meant

that it is now crystal clear to see the ugly past.

132

Respondents‘ trend of agreement that development of new products have led to

increase in return on investment (ROI) on a progressive basis within the last decade

was subjected to empirical statistical treatment using covariance analysis. The objective

was to test the level of agreement versus disagreement among respondents that

constant design of new products in response to customers need have led to increase in

profitability for Banks and maximization of wealth for shareholders.

The analysis yielded a sample estimate of pearson coefficient of correlation of 0.77.

This is a positive correlation. This means that as new innovative financial products are

designed, profitability of the banks increases and returns on stakeholders‘ investments

(ROI) are also maximized, in direct proportion.

This also means that the banks acquire reputational advantages, as they are perceived

to be stronger than others, who are less innovative.

From the scatter diagrams (figures 4.37, pg.89), the positive relationship that exist

between the respondents‘ pattern of agreement that development of new products in

response to customers‘ needs, have led to increase in profitability & wealth

maximization; as we progress from one year to a more recent year within the last

decade, can easily be predicted with reasonable accuracy. For those that agree,

although the points do not fall exactly along a straight line, they fall within a narrow belt,

with coefficient of 0.77, implying that a positive, linear relationship actually exist

between product development and profitability as well as maximization of shareholders

wealth.

133

The study took a retrospect, and it was observed that about twenty years ago, old

generation banks were happy to subsist on a discreet mix of companies and individuals,

who were loyal to the banks, some of them a product of heritage, in the sense that their

fathers and great grand fathers were customers of the banks. These people became

emotionally attached to the banks. With the level of patronage enjoyed, they engage

more in armchair banking were bankers sit relaxed in the comfort of their office and

customers come to do business. Subsequently, empirical findings (figure 4.27, page

75) showed that, these status have since being challenged by the new wave of

aggression witnessed in recent time, as the study showed that over 70% of the

customers are beginning to consider innovativeness in the design new improved

products that suit their needs, as a factor critical in their choice of financial institution,

while primordial sentiment was an insignificant factor.

Thus it may not be out of place to say that within the past ten years, banks have both

expanded their repertoire and faced a new level of competition. Once viewed as

institutions of quiet contemplation and cultural ennoblement, banks have entered the

world of popular entertainment where the stakes are higher and the competition more

aggressive. In the process, banks are repositioning to adapt to the fierce competitive

environment through information technology (computerization), new products, better

packaging of old products.

The direction of responses, empirical observations, results of findings, etc thus shows

that the pattern of correlation can be used to predict the future trend of the Nigerian

banking industry.

134

5.4 CONCLUSION

New product design is of prime importance to the achievement of the primary goals of

profitability, customer satisfaction and maximization of shareholders‘ wealth within the

Nigerian banking industry. The importance of investment in R&D as strategies for

sustainable growth and development cannot be over-emphasized.

As the year progresses, it is expected that the stake will be further raised, Nigerian

banks will keep evolving to meet the challenges of the business environment.

Aggressive product development, further investment in Research & development,

customer-focus marketing, development of competitive edge, increase in wallet share,

profitability and maximization of returns on shareholders‘ investments, will occupy top of

the medium to long term strategic (MTLS) plans and priorities of major banks within the

next ten (10) years.

5.5 RECOMMENDATIONS

Research and development of innovative products and services, design of effective

marketing strategies and marketing-mix, creativity in the re-design of existing products,

development of competitive edge and entrenchment of total quality management (TQM)

should be the preoccupation of management of financial institutions, especially

management of Nigerian Banks.

135

Commitment to the above would enable banks ascertain the level of satisfaction

received by their customers, evaluate how the quality of services rendered affect their

customers‘ loyalty and how that in turn affect their bottom line. These would also enable

the management understand the significant contribution of new product design (NPD),

effective marketing of their products and services to the growth of the banks and thus

assist them develop more relevant customer focused strategies.

Furthermore, banks should invest more in human capital development, engage high

quality labours, and enhance the quality of employees by providing requisite on-the-job

trainings. They should engage workforce with good relationship management skills and

excellent interpersonal qualities.

Target setting strategy is recommended as perhaps the best way of getting the best out

of both staff and management within a short time lag. More emphasis should place on

business promotion and excellent quality services by all concerned.

As we take a journey into the next decade, these strategies will prove to be the sure

pathways towards sustained profitability, maximization of shareholders wealth and

hence achievement of the overall goal of the Nigerian banks in a highly competitive

environment.

136

5.6 REFERENCES

1. Moriarty R T [1993] ‗Relationship Versus Product In Retail Banking‘ Sloan

Management Review Vol. 7, N0. 1

2. Bank of Industry; Delivering our Mandate, Vol. 4, No. 1, April 2008.

3. Goldman Sachs New Markets Analyst: 08/35 ― New Markets: Banking sectors

put to the test-not all will emerge unscathed‖, October 9, 2008.

4. World Bank and African Development Bank, ―Nigeria Investment Climate

Assessment Report‖, 2008.

5. Equipment Leasing Association of Nigeria, ―Leasing Today‖,. Vol. 9, No. 1,

May 2007.

6. Manufacturers Association of Nigeria, Annual Report and Accounts, 2007.

7. Kotler [1991] Marketing Management: Analysis, Planning & Control, Prentice

Hall USA

8. Gronroos C [1994] ‗From Marketing Mix to Relationship Marketing: Towards a

Paradigm Shift‘ Marketing Management Decisions, Vol. 32, No. 2

137

APPENDIX I

RESEARCH QUESTIONNAIRE

UNIVERSITY OF LAGOS - QUESTIONNAIRE

Hello, my name is Kingsley Ananwude, a postgraduate student of University of Lagos.

I‘m carrying out a research on the topic ‗Design and marketing of new financial

products- A case of Nigerian Banks’.

This is to understand how Nigerian Banks design improved new products, as part of

strategies they adopt towards the achievement of overall target in the 21st century and

thus create wealth for shareholders who takes the risk of investment in a rapidly

dynamic and turbulent industry, and also understand the changes through time that has

taken place in the Banking industry environment.

To help in doing this we are seeking the views of various stakeholders- customers of

various Nigerian Banks (happy & aggrieved customers inclusive), shareholders, staff

and management of Banks. We would be grateful if you could spend 5-10 minutes

answering some questions below by putting (x) in the boxes accordingly.

138

SECTION A (FOR ALL) OPTIONAL

Name of Respondent________________________________

Date__________________

Location________________________ City________________________________

SECTION B (FOR ALL)

Age

0-10 years 11-30 years 31-50 years >50 years

Gender- Male Female

Marital Status

Single Married Divorced Widow others(specify)-------

Educational Qualification

Primary Secondary Graduate Postgraduate others(specify)----

Religious view

Christianity Islamic Traditional Others (Please specify)---------------

Geopolitocal Zone of Respondents

West East South-South North

Your Occupation

Trader Artisan Banking Civil Servant private sector

Transporter Legal Others (Please specify)______________

Do you have account with any Bank in Nigeria

Yes No can‘t remember

139

How long was the account opened

< 1 year 1–5 years 6 – 10 years >10 years

SECTION C (FOR ALL)

FOR STAKEHOLDERS IN THE BANKING INDUSTRY ONLY (shareholders,

Management & staff)

Have your bank develop any new product within the last ten (10) years

Yes No don‘t know

What is the frequency of new product development by your organization and other

banks in the country

More Frequently Rarely Static

What is the effect of competition to the innovations and proliferation in new financial

product design?

No effect increase in R&D and good for all decrease in R&D and

bad for all

What is your opinion on the recent pace of innovation in the industry?

Good for the industry Undesirable

Banking in Nigeria is rapidly evolving

Yes No static undecided

What is the impact of the new product development to the client base of your

organization

None Negative & declining Positive & incremental growth

140

What is the trend of your customer base in relation to innovative product development in

your organization

Declining same Increasing

How many times did you declare dividends to stakeholders in the last two decades

Frequently Rarely None

How many times have you declare dividends to stakeholders in the last ten years

Rarely None Frequently

How do you account for the difference in the pattern of dividend declaration to

shareholders in the last two questions above?

Increase in R&D have led to more wealth for stakeholders Increase in R&D have

led to loss of wealth for stakeholders due to costs

How do you compare the recent returns on investment (ROI) in the banking industry

with what is obtainable two decades ago

Less returns same level of returns Higher level of returns

SECTION D (FOR ALL)

FOR CUSTOMERS OF BANKS ONLY

Have you been aware of the introduction of new-to-the world product by any Nigerian

bank?

Yes No undecided

How long ago did you start noticing the current trend of aggressiveness in design and

marketing of new products by these Banks?

1-10years 11-20 years >20 years

141

In your opinion, how frequent do you observe introduction of new products within the

last ten years

Rarely sometimes Rampant

To what extent do you consider the aggressive design of products by banks relevant to

the industry.

Irrelevant Relatively relevant Very relevant

Innovation in existing products & design of new products are more common with new

generation banks than in old generation banks

True false no pattern

Do you have preference to do business with new generation banks than the old

generation banks or vice versa?

Yes I do No I don‘t I chose randomly

What are the factors influencing your choice of institutions to patronize

Age of existence proximity Primordial sentiments

Innovative products

Banking in the 21st century is same as in the past two decades

Yes, no difference No, a lot has changed can‘t say

To what extent do you rate the transformations that have taken place in the financial

industry?

Gradual Rapid transformation very slow

What is the desirability of these changes to meeting your banking needs and hence

your satisfaction

142

Irrelevant to my needs undecided No relationship Highly

desirable

What kind of influence do these innovations have in your business

Negative influence No influence Positive influence

What level of patronage do you give to banks

Equal patronage More to innovative new generation banks More

to old generation banks

How many of your contemporaries & associates have increase their patronage to banks

with more innovative products

None Many can‘t remember Few

How do you rate the investment by banks into new product design bearing in mind the

cost and benefits?

Justified Unjustified Waste

Based on your banking activities and patronage to banks, as well as that of your

associates, how can you rate banks profitability now against before in relation to the

innovative changes taking place?

Same level Declining Increasing

In consideration of abundant mobile & internet banking facilities, what is the frequency

of your visits to banking halls within the recent times

More Frequently Frequently Less Frequent

How often do staff of different banks come to market you within new financial products

Never Rarely Sometimes Frequently

143

Would you say that the aggressive product development & marketing of same by these

Banks have had any influence in your choice or decision at any time?

Yes No Undecided

Design and Marketing of new financial products is capital intensive and has many

challenges

Strongly Agreed Agreed Disagreed Strongly disagreed

Do you consider this trend good for the industry?

Yes No

I do more volume of transactions with those banks that visits frequently

Strongly Agreed Agreed Disagreed Strongly disagreed

This trend helps bank achieve their goals/target since it influences me to do more with

those banks that come more often and thus increases stakeholders wealth.

Strongly disagreed Disagreed Agreed Strongly Agreed

Thank you for your time

144

APPENDIX II

List of Tables, Charts, Graphs & Figures

Table 4.1 AGE OF RESPONDENTS

Frequency Percent Valid Percent Cumulative Percent

Valid 0-10 5 7.8 8.3 8.3

11-30 13 20.3 21.7 30.0

31-50 28 43.8 46.7 76.7

>50 14 21.9 23.3 100.0

Total 60 93.8 100.0

Missing System 4 6.2

Total 64 100.0

Figure 4.11: AGE OF RESPONDENTS

Figure 4.12: AGE OF RESPONDENTS

145

Table 4.2 GENDER OF RESPONDENTS

Frequency Percent Valid Percent Cumulative Percent

Valid MALE 34 53.1 56.7 56.7

FEMALE 26 40.6 43.3 100.0

Total 60 93.8 100.0

Missing System 4 6.2

Total 64 100.0

Figure 4.21: GENDER OF RESPONDENTS

146

Table 4.3 MARITAL STATUS

Frequency Percent Valid Percent

Cumulative Percent

Valid SINGLE 14 21.9 23.3 23.3

MARRIED 26 40.6 43.3 66.7

DIVORCED 11 17.2 18.3 85.0

WIDOW 6 9.4 10.0 95.0

OTHERS 3 4.7 5.0 100.0

Total 60 93.8 100.0

Missing System 4 6.2

Total 64 100.0

Table 4.31: MARITAL STATUS

Figure 4.31: MARITAL STATUS

147

Table 4.4 EDUCATIONAL QUALIFICATION

Frequency Percent Valid Percent

Cumulative Percent

Valid PRIMARY 5 7.8 8.3 8.3

SECONDARY 21 32.8 35.0 43.3

GRADUATE 25 39.1 41.7 85.0

POSTGRADUATE 8 12.5 13.3 98.3

OTHERS 1 1.6 1.7 100.0

Total 60 93.8 100.0

Missing System 4 6.2

Total 64 100.0

Figure 4:41 EDUCATIONAL QUALIFICATION

Figure 4:41 EDUCATIONAL QUALIFICATION

Table 4.5 RELIGIOUS VIEWS

Frequency Percent Valid Percent

Cumulative Percent

Valid CHRISTIANITY 29 45.3 48.3 48.3

ISLAMIC 20 31.2 33.3 81.7

TRADITIONAL 6 9.4 10.0 91.7

OTHERS 5 7.8 8.3 100.0

Total 60 93.8 100.0

Missing System 4 6.2

Total 64 100.0

148

Figure 4.51: RELIGIOUS VIEWS

Figure 4.51: RELIGIOUS VIEWS

4.6 GEOPOLITICAL ZONE OF RESPONDENTS

Frequency Percent Valid Percent Cumulative Percent

Valid WEST 21 32.8 35.0 35.0

EAST 18 28.1 30.0 65.0

SOUTH -SOUTH 13 20.3 21.7 86.7

NORTH 8 12.5 13.3 100.0

Total 60 93.8 100.0

Missing System 4 6.2

Total 64 100.0

149

Figure 4.61: GEOPOLITICAL ZONES

Table 4.7 OCCUPATION

Frequency Percent Valid Percent Cumulative Percent

Valid TRADER 14 21.9 23.3 23.3

ARTISAN 10 15.6 16.7 40.0

BANKING 4 6.2 6.7 46.7

CIVIL SERVANT 9 14.1 15.0 61.7

PRIVATE SECTOR 5 7.8 8.3 70.0

TRANSPORTER 8 12.5 13.3 83.3

LEGAL 2 3.1 3.3 86.7

STUDENT 8 12.5 13.3 100.0

Total 60 93.8 100.0

Missing System 4 6.2

Total 64 100.0

150

Figure 4.7: OCCUPATION

Table 4.8 REPONDENTS WITH BANK ACCOUNT

Frequency Percent Valid Percent Cumulative Percent

Valid YES 44 68.8 73.3 73.3

NO 16 25.0 26.7 100.0

Total 60 93.8 100.0

Missing System 4 6.2

Total 64 100.0

151

Figure 4.8 REPONDENTS WITH BANK ACCOUNT

Table 4.9 DURATION OF BANK ACCOUNT

Frequency Percent Valid Percent

Cumulative Percent

Valid <1 YEAR 16 25.0 26.7 26.7

1-5 YEARS 17 26.6 28.3 55.0

6-10 YEARS 11 17.2 18.3 73.3

>10 YEARS 16 25.0 26.7 100.0

Total 60 93.8 100.0

Missing System 4 6.2

Total 64 100.0

152

Figure 4.91: DURATION OF BANK ACCOUNT Figure 4.92: DEVELOPMENT OF NEW PRODUCTS

Figure 4.93: FREQUENCY OF NEW PRODUCT DEVELOPMENT

Figure 4.94: EFFECT OF COMPETITION ON R&D

153

Figure 4.95 EFFECT OF INNOVATION TO THE INDUSTRY

Figure 4.96 EVOLUTION IN THE FINANCIAL INDUSTRY

. Figure 4.97 IMPACT OF R&D TO CLIENT BASE

Figure 4.98 TREND OF CLIENT BASE

154

Figure 4.99 DIVIDEND DECLARATION, TWO DECADES AGO

Figure 4.100 RECENT TREND OF DIVIDEND DECLARATION

Figure 4.101 REASON FOR DIFFERENCE IN PATTERNS OF DIVIDEND DECLARATION

Figure 4.102 PRESENT & PAST RETURN ON INVESTMENT (ROI)

155

Figure 4.103 R&D AWARENESS

. Figure 4.104 TIMING OF R&D

Figure 4.105 FREQUENCY OF NEW PRODUCT DESIGN

156

Figure 4.106 RELEVANCE OF R&D TO INDUSTRY

Figure 4.107 COMPARISON OF R&D IN NEW AND OLD GENERATION BANKS

Figure 4.108 PREFERNECE OF NEW GENERATION TO OLD GENERATION BANKS

157

Figure 4.109 FACORS AFFCETING CHOICE OF FINANCIAL INSTITUTIONS

Figure 4.110 BANKING IN THE 21

ST CENTURY

Figure 4.111 RATE OF TRANSFORMATION

Figure 4.112 DESIRABILITY OF TRANSFORMATIONS

158

Figure 4.113 INFLUENCE OF TRANSFORMATION TO CUSTOMERS

Figure 4.114 LEVEL OF PATRONAGE

Table 4.115 INCREASE IN PATRONAGE BY CONTEMPORARIES

Figure 4.116 JUSTIFICATION OF INVESTMENTS IN R&D

159

Figure 4.117 PATTERN OF BANKS PROFITABILITY

Figure 4.118 INFLUENCE OF MOBILE & INTERNET BANKING

Table 4.119 FREQUENCY OF BANKERS VISITS

Frequency Percent Valid Percent

Cumulative Percent

Valid RARELY 10 15.6 16.7 16.7

SOMETIMES 21 32.8 35.0 51.7

FREQUENTLY 29 45.3 48.3 100.0

Total 60 93.8 100.0

Missing System 4 6.2

Total 64 100.0

160

Figure 4.119 FREQUENCY OF BANKERS VISITS

4.120 EFFECT OF BANK MARKETING

Frequency Percent Valid Percent

Cumulative Percent

Valid YES 38 59.4 63.3 63.3

NO 10 15.6 16.7 80.0

UNDECIDED 12 18.8 20.0 100.0

Total 60 93.8 100.0

Missing System 4 6.2

Total 64 100.0

Figure 4.120 EFFECT OF BANK’s MARKETING ON THE RESPONDENTS

161

Table 4.121 LENGTH OF MARKETING TREND

Frequency Percent Valid Percent

Cumulative Percent

Valid 1-5 YEARS 15 23.4 25.0 25.0

6-10 YEARS 33 51.6 55.0 80.0

11-20 YEARS 10 15.6 16.7 96.7

>20 YEARS 2 3.1 3.3 100.0

Total 60 93.8 100.0

Missing System 4 6.2

Total 64 100.0

Figure 4.121 LENGTH OF MARKETING TREND

162

Table 4.122 CHALLENGES IN FINANCIAL PRODUCT DEV. & MARKETING

Frequency Percent Valid Percent

Cumulative Percent

Valid STRONGLY AGEED 29 45.3 48.3 48.3

AGREE 19 29.7 31.7 80.0

DISAGREED 4 6.2 6.7 86.7

STRONGLY DISAGREED 3 4.7 5.0 91.7

UNDECIDED 5 7.8 8.3 100.0

Total 60 93.8 100.0

Missing System 4 6.2

Total 64 100.0

Figure 4.122: CHALLENGES IN FINANCIAL PRODUCT MARKETING .

Table 4.123 RELEVANCE OF FINANCIAL PRODUCT MARKETING TO BANKING INDUSTRY

Frequency Percent Valid Percent

Cumulative Percent

Valid YES 49 76.6 81.7 81.7

NO 11 17.2 18.3 100.0

Total 60 93.8 100.0

Missing System 4 6.2

Total 64 100.0

163

Figure 4.123: RELEVANCE OF FINANCIAL PRODUCT MARKETING TO

BANKING INDUSTRY

Table 4.124 VOLUME OF TRANSACTIONS IN RELATION TO NEW PRODUCT DEVELOPMENT & ITS MARKETING BY BANKS

Frequency Percent Valid Percent

Cumulative Percent

Valid STRONGLY AGREED 37 57.8 62.7 62.7

AGREED 18 28.1 30.5 93.2

DISAGREED 3 4.7 5.1 98.3

STRONGLY DISAGREED 1 1.6 1.7 100.0

Total 59 92.2 100.0

Missing System 5 7.8

Total 64 100.0

164

Figure 4.124 VOLUME OF TRANSACTIONS IN RELATION TO NEW PRODUCT DEVELOPMENT & ITS MARKETING BY BANKS Table 4.125 CONTRIBUTION OF PRODUCT DEVELOPMENT & MARKETING TO

SHAREHOLDERS' WEALTH

Frequency Percent Valid Percent

Cumulative Percent

Valid STRONGLY DISAGREED 3 4.7 5.0 5.0

DISAGREED 2 3.1 3.3 8.3

AGREED 23 35.9 38.3 46.7

STRONGLY AGREED 32 50.0 53.3 100.0

Total 60 93.8 100.0

Missing System 4 6.2

Total 64 100.0

Figure 4.125 CONTRIBUTION OF PRODUCT DEVELOPMENT & MARKETING TO

SHAREHOLDERS' WEALTH

165

TABLE 4.126: RESPONDENTS’ TREND OF AGREEMENT THAT DEVELOPMENT OF NEW PRODUCTS HAVE LED TO INCREASE IN RETURN ON INVESTMENT (ROI) ON A PROGRESSIVE BASIS WITHIN THE LAST DECADE

S/N YEAR

Respondents who agreed that development of new products in response to customers need has led to increase in profitability for Banks and maximization of wealth for shareholders (X)

Respondents who do not agreed that development of new products in response to customers need has led to increase in profitability for Banks and maximization of wealth for shareholders (Y)

1 2000 40 60

2 2001 45 55

3 2002 48 52

4 2003 50 50

5 2004 53 47

6 2005 56 44

7 2006 65 35

8 2007 70 30

9 2008 75 25

10 2009 78 22

11 2010 82 18

Table 4.126 (b) X-Y Statistical treatment of Respondents’ trend of Agreement on impact of new product development to the increase in Return on Investment (ROI)

S/N X Y X-ẋ

(X-ẋ) 2

Y-Ẏ

(Y-Ẏ) 2

(X-ẋ)( Y-Ẏ)

1 40 60 -20.18 407.31 20.18 407.31 407.31

2 45 55 5.18 26.85 55.00 3025.00 285.00

3 48 52 48.00 2304.00 52.00 2704.00 2496.00

4 50 50 50.00 2500.00 50.00 2500.00 2500.00

5 53 47 53.00 2809.00 47.00 2209.00 2491.00

6 56 44 56.00 3136.00 44.00 1936.00 2464.00

7 65 35 65.00 4225.00 35.00 1225.00 2275.00

8 70 30 70.00 4900.00 30.00 900.00 2100.00

9 75 25 75.00 5625.00 25.00 625.00 1875.00

10 78 22 78.00 6084.00 22.00 484.00 1716.00

11 82 18 82.00 6724.00 18.00 324.00 1476.00

∑ 662 438 562.00 38741.16 398.18 16339.31 19270.69

ẋ = ∑X = 662/11 ≈ 60.2

n Ẏ = ∑Y = 438/11 ≈ 39.8

n ∑(X-ẋ)( Y-Ẏ) = 19,270.69 ∑(X-ẋ)

2 = 38,741.16

∑(Y-Ẏ)

2 = 16,399.31

166

Recall that: r = ṕ= ∑ (X- ẋ) (Y- Ẏ)

∑(X- ẋ)

2 (Y

- Ẏ)

2

r ≈ 0.77

Figure 4.126 ( c ): Respondents pattern of agreement that development of new products in Response to customers need have led to increase in profitability & wealth maximization

Figure 4.126 (d): Respondents pattern of disagreement that development of new products in Response to customers need have led to increase in profitability & wealth maximization.

Table 4.128 KMO and Bartlett's Test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .573

Bartlett's Test of Sphericity Approx. Chi-Square 156.040

Df 120

Sig. .015

167

Communalities Initial Extraction

AGE OF RESPONDENTS 1.000 .740

SEX OF RESPONDENTS 1.000 .529

MARITAL STATUS 1.000 .584

EDUCATIONAL QUALIFICATION

1.000 .679

RELIGIOUS VIEWS 1.000 .451

GEOPOLITICAL ZONE OF RESPONDENTS

1.000 .620

OCCUPATION 1.000 .635

REPONDENTS WITH BANK ACCOUNT

1.000 .780

DURATION OF BANK ACCOUNT

1.000 .781

FREQUENCY OF PRODUCT DESIGN

1.000 .477

EFFECT OF PRODUCT DESIGN

1.000 .620

LENGTH OF TREND IN PRODUCT DESIGN

1.000 .678

CHALLENGES IN FINANCIAL PRODUCT DESIGN

1.000 .654

RELEVANCE OF FINANCIAL PRODUCT DESIGN TO BANKING INDUSTRY

1.000 .485

VOLUME OF TRANSACTION IN RELATION TO BANKERS VISITS

1.000 .529

CONTRIBUTION OF PRODUCT DESIGN TO SHAREHOLDERS' WEALTH

1.000 .742

Extraction Method: Principal Component Analysis.

Table 4.129 Communalities Table 4.130 Total Variance Explained

Component

Initial Eigenvalues Extraction Sums of Squared Loadings

Total % of Variance Cumulative % Total % of Variance Cumulative %

1 2.530 15.813 15.813 2.530 15.813 15.813

2 2.076 12.972 28.785 2.076 12.972 28.785

3 1.722 10.760 39.545 1.722 10.760 39.545

4 1.417 8.857 48.402 1.417 8.857 48.402

5 1.167 7.296 55.698 1.167 7.296 55.698

6 1.073 6.708 62.406 1.073 6.708 62.406

7 .964 6.023 68.429

8 .861 5.381 73.810

9 .752 4.701 78.511

10 .692 4.325 82.836

11 .631 3.945 86.781

12 .561 3.506 90.287

13 .513 3.209 93.496

14 .409 2.558 96.053

15 .380 2.375 98.429

16 .251 1.571 100.000

168

Communalities Initial Extraction

AGE OF RESPONDENTS 1.000 .740

SEX OF RESPONDENTS 1.000 .529

MARITAL STATUS 1.000 .584

EDUCATIONAL QUALIFICATION

1.000 .679

RELIGIOUS VIEWS 1.000 .451

GEOPOLITICAL ZONE OF RESPONDENTS

1.000 .620

OCCUPATION 1.000 .635

REPONDENTS WITH BANK ACCOUNT

1.000 .780

DURATION OF BANK ACCOUNT

1.000 .781

FREQUENCY OF PRODUCT DESIGN

1.000 .477

EFFECT OF PRODUCT DESIGN

1.000 .620

LENGTH OF TREND IN PRODUCT DESIGN

1.000 .678

CHALLENGES IN FINANCIAL PRODUCT DESIGN

1.000 .654

RELEVANCE OF FINANCIAL PRODUCT DESIGN TO BANKING INDUSTRY

1.000 .485

VOLUME OF TRANSACTION IN RELATION TO BANKERS VISITS

1.000 .529

CONTRIBUTION OF PRODUCT DESIGN TO SHAREHOLDERS' WEALTH

1.000 .742

Extraction Method: Principal Component Analysis.

169

Table 4.131 Component Matrixa

Component

1 2 3 4 5 6

AGE OF RESPONDENTS .714 .389 -.101 .181 -.020 .188

SEX OF RESPONDENTS .185 -.261 .293 -.566 -.133 .060

MARITAL STATUS .699 -.191 .211 -.052 .108 -.007

EDUCATIONAL QUALIFICATION

.546 .356 .316 .110 .375 .048

RELIGIOUS VIEWS .246 .392 .437 .051 -.143 -.150

GEOPOLITICAL ZONE OF RESPONDENTS

-.441 .368 -.248 .380 -.290 -.022

OCCUPATION -.392 .130 .639 .006 .187 -.145

REPONDENTS WITH BANK ACCOUNT

.022 -.546 .241 .487 .426 -.069

DURATION OF BANK ACCOUNT

.135 .809 -.075 -.291 -.123 -.052

FREQUENCY OF PRODUCT DESIGN

.080 -.137 -.590 .131 .287 .063

EFFECT OF PRODUCT DESIGN

-.274 .384 .046 .324 .153 .517

LENGTH OF TREND IN PRODUCT DESIGN

.133 .337 -.380 -.222 .595 -.013

CHALLENGES IN FINANCIAL PRODUCT DESIGN

-.461 .186 .069 -.455 .404 -.177

RELEVANCE OF FINANCIAL PRODUCT DESIGN TO BANKING INDUSTRY

.575 -.008 .062 .255 -.166 -.243

VOLUME OF TRANSACTION IN RELATION TO BANKERS VISITS

-.337 .221 .498 .214 .064 .263

CONTRIBUTION PRODUCT DESIGN TO SHAREHOLDERS' WEALTH

.130 -.267 .078 -.303 -.079 .741

Extraction Method: Principal Component Analysis.

a. 6 components extracted.

170

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