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MAKERERE UNIVERSITY (IACE) THE EFFECT OF CUSTOMER SENSITIZATION ON PROFITABILITY (A CASE STUDY OF KYENGERA MICRO FINANCE) BY MUTUMBA ROBERT 03/U/13296/EXT A RESEARCH REPORT SUBMITTED TO THE DEPARTMENT OF DISTANCE EDUCATION IN PARTIAL FULL FILLMENT OF THE REQUIREMENT FOR THE AWARD OF A DEGREE IN BACHELOR OF COMMERCE OF MAKERERE UNIVERSITY MAY 2008

CHAPTER ONE INTRODUCTION 1.1

Background to the study. The Uganda’s financial services sector has experienced increased competition in the recent years as a result of the establishment of new banks, microfinance institutions as well as liberalization of exchange control. Sensitization is the creation of awareness among the people. This can take form of seminars, workshops and meetings as well as talk- shows. So, to effectively stand out of the ever increasing competition in the financial Sector, there is need to effectively sensitize its prospective customers. Presently this does not exist in Kyengera Micro finance and it is clear that the bank has not taken efforts to create awareness other than just waiting to receive customers at its offices. Financial institutions act by facilitating and hosting deposits. There fore, they must ensure efficient use of loan funds so as to attain high levels of profits, Kalumba (1998). Thus the need for effective Customer sensitization to ensure the above. Skekhar (2000) also in contend that banking theory and practice talks about the need to up grade the quality of loan profile if there must be efficient maximum profit benefits from the credit granted. Profitability refers to how well a business is doing; it can be a ratio to sales. A company’s ability to generate revenues in excess of the costs incurred in producing those revenues (www. Absmall biz. Com/reference/glossary qprstuvwxyz.html) Different people define profitability in different perspectives. For instance economists according to Lipsy (1983) define profitability as the ability of a firm to maximize its revenues and minimize its costs. To him, profit is the difference between revenues and costs of an organization, so that every effort should be made to reduce costs and to increase revenues. According to the accountant’s perspectives, profitability is the ability of the firm to earn a return. This return is normally a margin either of sales, a proportion of capital invested or proportion of assets used. According to pandey (1995) profit is a function of a variety of factors affected by changes in volume, costs and prices. Profit may be affected by either increases or decreases in the selling price, volume of sales, variable and

field costs or a combination of all profitability has also been defined in the following ways. A measure of business success through comparing profit made with the amount made or invested. (www tutor 2u.Net/economics/gese/revision notes/key terms. Htm) However, despite the importance of sensitization, Kyengera micro finance is experiencing low profitability levels that has affected its operations to ensure efficiency in customer loan financing and to increase customer financial demand. 1.2

Statement of the problem: Kyengera micro finance is a big company with a big potential of having high profitability, since there is a big market for its products which includes financial services like loans among others. However, it has been persistently making low profits probably due to the low levels of customer sensitization (auditors report 2005/2006) despite of its great importance in financial institutions prosperity.

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Purpose of the study The study seeks to establish the relationship between sensitization and profitability in Kyengera micro finance

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Objectives: The objectives of the study could be: 1. To establish the level of sensitization of customers in Kyengera micro finance. 2. To examine the level of profitability in Kyengera micro finance. 3. To establish the relationship between sensitization and profitability in Kyengera micro finance

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Research questions: 1. What is the level of sensitization in Kyengera micro finance? 2. What is the level of profitability in Kyengera micro-finance? 3. What is the relationship between sensitization and profitability?

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Scope of the study: Subject scope The study will focus on sensitization as an independent variable and profitability as a dependent variable. Geographical scope The study will be conducted at Kyengera micro-finance located On Masaka road.

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Significance of the study. Study findings will aid the researcher to fulfill the requirements that lead to the award of a degree from Makerere University. Study findings will also enrich the researcher’s knowledge on the variables under study. Study findings will not only aid Kyengera Micro Finance to improve their profitability but also other financial firms in the financial sector.