CHAPTER ONE
INTRODUCTION
1.1 Background of study

In recent years, the financial industry has witnessed a rapid transformation fueled by
technological advancements and innovation. These changes have had a profound impact on
various sectors, including microfinance institutions (MFIs). MFIs play a crucial role in
providing financial services to underserved populations, particularly in developing economies.
With the advent of financial innovation, MFIs have the opportunity to enhance their service
offerings and improve customer satisfaction. This paper aims to explore the effect of financial
innovation on customer satisfaction in the context of microfinance institutions. Microfinance
institutions have traditionally focused on providing basic financial services such as credit,
savings, and insurance to individuals who lack access to formal banking services. Aghanya
&Ayadi(2020). However, the emergence of financial innovation has expanded the scope of
services offered by MFIs. Financial innovation encompasses a range of technological
advancements, including mobile banking, digital payments and alternative credit scoring
methods. These innovations have the potential to revolutionize the way MFIs operate and
interact with their customers. With improved accessibility, affordability, and convenience,
financial innovation can significantly impact customer satisfaction. Zeller &Sharma (2018).
Financial innovation refers to the development and implementation of new financial products,
services or process that aim to improve efficiency, accessibility and affordability of financial
services in the contexts of micro finance institutions, financial innovation can take various
forms, such as the introduction of new mobile banking services Digital lending plate forms,
or new credit products. These innovations have potentials to enhance customer’s satisfactions experience, increase access to finance and ultimately improve customers satisfaction
(Christian et Al, 2014) Customer satisfaction is a critical factor for the success and
sustainability of MFIs. Satisfied customers are more likely to remain loyal, recommend the
institution to others and used a wide range of product and services. Therefore, understanding
the factors that influence customers satisfaction in the context of financial innovation is
essential for MFIs to design and implement effective strategies to attracts and retain
customers (Khan et Al).