May 18th, 2016

It’s a weekday morning in Nairobi, at a high street branch of a household name bank. An entrepreneur walks in to open a business account. With a busy day ahead of her, she doesn’t have much time. After being directed to the ‘enterprise’ desk and waiting for some time, she is told that the branch only deals with personal banking and she needs to return the following day to meet an SME officer. She leaves then duly returns the following day.  The officer is there, but much to her frustration, the account opening requirements are unavailable, as “the printer is not working” moreover the officer was unable to give her any information on the bank’s trade finance facilities. She’s appalled at this poor service and she is not alone: while at the branch, she meets others like her, frustrated, annoyed, and undervalued by the bank.

This is a true experience of an entrepreneur who participated in an FSD Kenya mystery shopping study of services in Kenya’s top 30 banks. The research sought to test out the banks’ frontline service delivery to small and medium sized enterprises. Despite the immense opportunity that the enterprise market presents for Kenya’s banks, the research suggested many fall short on basic service delivery standards to these customers.

“The financial sector in Kenya has expanded rapidly over the last decade and business financing has played an important role in the growth strategies of financial institutions…” this is according to the FinAccess survey by the World Bank, FSD Kenya, and Central Bank of Kenya. The study shows that Kenyan banks have increased their exposure to the enterprise market between 2009 and 2013, from 19.5% to 23.4% respectively. However, despite the growing interest in SMEs, the service to this sector is still wanting.

The cost of poor customer service is high to an institution. Statistics show

• it is 6 to 7 times more expensive to acquire a new customer than it is to keep a current one.
• Some 78% of consumers forgo a transaction due to poor service.
• A customer is four times as likely to buy from a competitor if the problem is service related;
• 70% of a customers’ buying experience is based on how they feel they are being treated.

Whilst these statistics are based on the American market, the message is universal: customer service is critical to business success. Perhaps it is not surprising that SMEs in Kenya shop from one bank to another and use multiple banks to serve their businesses.

The FinAccess survey shows that SMEs continue to use overdrafts to finance their working capital needs with poor uptake of bank products such as trade finance and factoring solutions, among others. Of the 43 banks in Kenya, seven banks control 80% of the market’s cash which compromises competition, creating an environment where institutions are not pushed to innovate. Financial institutions appear to be doing well offering what is termed ‘cosmetic finance’ funding the business’ daily operations but they offer very little to support the growth of these SMEs.

New Kenyan market player McKinsey & Co. estimate that small business banking in Sub-Saharan Africa revenues are in the region of $12 billion and are growing at a rate of 20 percent each year! A longer term holistic view of the enterprise can generate immense returns for Kenyan financial institutions. Yet the findings of our Mystery Shopping study overwhelmingly illustrate that banks are missing an opportunity to serve their SME clients. Kenyan banks need to look at those first impressions and that initial service delivery to entrepreneurs who come through their doors if they are to capture and retain a part of this growth.

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