Service Quality of Formal and Semiformal Sector Microfinance Institutions in Sri Lanka:A Comparative Study of Financial Service Providers in Southern Province

The rapid growth of the MF sector in Sri Lanka has brought about severe competition among the (Microfinance Institutions) MFIs, highlighting the critical need to retain old clients and attract new ones by offering higher quality service. The main objective of the research was to investigate the service quality of MFIs from the perspective of their clients, in order to find out whether there are significant differences in service quality among formal and semiformal sector MFIs in Sri Lanka. A structured questionnaire was administered among a sample of 200 customers across two sectors. The overall study had a reliability of 93%. It was revealed that there are significant differences among formal and semiformal sector MFIs, when it comes to providing microfinance related services. Further, it was revealed that semiformal sector MFIs provide a better quality service compared to formal sector MFIs. Further, the regression analysis reveals that the five most influencing factors for the formal sector are—recovery, knowledgeability of workers, accessibility, tangibles and communications, respectively, while the five most influencing factors for the semiformal sector were responsiveness, variety, credibility, knowledgeability of workers and commitment of staff. Finally, researchers would like to conclude that services quality of semiformal sector is higher compared to the formal sector.