IMPACT OF MICRO FINANCE INSTITUTION ON RURAL AND

URBAN POOR OF ASELLA DISTRICT

(Case study on Oromia credit and saving share company, Asella Branch)

A Research Paper Submitted to Accounting Department in Partial Fulfillment for

The Requirements of Bachelor of Arts Degree in Accounting

SUBMITTED BY: JIBRIL HUSSEN

ADVISOR: ATO AYELE MAMO

DEPARTMENT OF ACCOUNTING

COLLEGE OF BUSINESS & ECONOMICS

JIMMA UNIVERSITY

MAY, 2012

JIMMA, ETHIOPIA

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 Abstract

This study was aimed to assess the impact of Oromia credit and saving Share Company, Asella
branch on poverty alleviation during the last 10 years from 1994 - 2004. The country has been
formulated the strategy for the alleviation for poverty and improvement of agriculture sector
improve of credit to the urban and rural poor therefore the objective is tried to examine the
impact of microfinance institution impact on individual and house hold level. In this study
primary and secondary data were used. The secondary data was collected from different
department of Asella credit and saving institution internet and related literature from different
source of research. Both primary and secondary data were analyzed by simple descriptive
method using table figures. Finally recommendation like using group work, group lending
system and providing loan with minimum interest rate and service charge and also give good
training for clients.

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 Acknowledgement

First I wish to express my sincere appreciation and thanks from the bottom of my heart to my
advisor Ato Ayele Mamo for his outstanding and constructive and advise more over.
I also would like to thank Jimma University, Faculty of business and economic for giving me
this chance to prepare a proposal for the graduation research and my family who provided me all
necessary material in the development of this research project.

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 Table of Contents

Contents Page
Abstract..................................................................................................................................................I
Acknowledgement.................................................................................................................................II
Table of Contents..................................................................................................................................III
CHAPTER ONE
1. INTRODUCTION..................................................................................................................................1
1.1. Background of the Study..................................................................................................................1
1.2. Background of the organization (study area)....................................................................................2
1.3. Statement of the Problem................................................................................................................3
1.4. Objective of the Study......................................................................................................................4
1.4.1. General Objective......................................................................................................................4
1.4.2. Specific Objectives.....................................................................................................................4
1.5. Significance of the Study...................................................................................................................5
1.6. Scope of the Study............................................................................................................................5
1.7. Limitation of the Study.....................................................................................................................5
1.8. Organization of the Study.................................................................................................................5
CHAPTER TWO.......................................................................................................................................6
2. REVIEW OF THE LITERATURE..............................................................................................................6
2.1.1. The concept of poverty..................................................................................................................6
2.1.2. Micro finance and poor.............................................................................................................7
2.1.3. Feature of Poverty in Ethiopia...................................................................................................7
2.2. Development of Financial Institution in Ethiopia..............................................................................8
2.3. Structure of Financial Institution in Ethiopia....................................................................................8
2.3.1. Development bank of Ethiopia (DBE).........................................................................................8
2.4. The role of micro finance in poverty alleviation...............................................................................8
2.5. Micro Finance Institution in Ethiopia................................................................................................9
2.6. Impact of Micro finance service......................................................................................................10
CHAPTER THREE...................................................................................................................................11

III
3. METHODOLOGY................................................................................................................................11
3.1. Source of Data................................................................................................................................11
3.2. Methods of Data Collection............................................................................................................11
3.3. Sample Design and Procedures......................................................................................................11
3.4. Methods of Data Analysis...............................................................................................................11
CHAPTER FOUR
4. Data Analysis and Interpretation......................................................................................................12
4.1. Characteristics of Sample Respondent...........................................................................................12
4.2. Personal Characteristics of Clients..................................................................................................13
4.2. Factors Decrease Demand for Loan................................................................................................15
4.3. Clients Additional Information........................................................................................................15
4.4. Factor affecting the clients in participating micro finance institution.............................................16
4.5. Impact of OCSSCO (Asella credit and saving Share Company) on clients........................................17
4.6. Impact of micro finance on personal saving...................................................................................18
CHAPTER FIVE
5. CONCLUSIONS AND RECOMMENDATIONS.......................................................................................20
5.1. Conclusions.....................................................................................................................................20
5.2. Recommendation...........................................................................................................................21
References.............................................................................................................................................22
Appendix...............................................................................................................................................23

IV
 CHAPTER ONE
1. INTRODUCTION

1.1. Background of the Study

Poverty is one of the problem for all developing countries according to world Bank (World
development report 2000/2001) poverty means lack of, capabilities, sense of violent censes &
vulnerability to external shocks (Geteneh, 2004).

Similar to another poor Africa countries, the socio – economic situation of Ethiopia is
characterized by low economic growth, in adequate social service, high population growth and
high un employment rate etc. as result several poverty illiteracy and malnutrition, disease are
wide spread affecting more seriously women and children (Federal Negarit Gazeta, 1996)

The study estimate that nearly 52% of population is poor poverty in urban area was estimated at
58%, while rural poverty was approximately 48% 9world bank, 1993). Similarity World Bank
estimate indicated even lower level of per capital income of USD)110 in terms of 174 countries
as measured by human development index of UNDP in 2000 and precipitate income is 167 is one
of the poorest countries in the world (Mekebebe, 2004). Above 85% of population, living depend
on agriculture which is rain feed. The declining size of land holding, in adequate supply of farm
technology is factor limited agricultural production.

Currently in the struggle to scope poverty micro finance institution (MFI) get more and
acceptance to prove poor with access to saving and credit service as poverty reduction strategy as
gained provinence in development countries for rural and urban poor landless, low in income,
and other like women to ensure their economic improvement and sustainability. it is believed
that luck of access credit coupled with the population growth in relation to the limits economic
development is the cause and consequence of poverty the development of financial sector in
Ethiopia affects economic and social development in general. According to Mulat (1998) only
21$ of the world in the country have bank branch is and even in these are due to high collateral
equipment, the poor have limited access to the formal banks. Thus the demand for finance is met
through informal sector (friends, relatives, Idir, Iqub etc) and micro finance institution.

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The concept of micro – finance have been started in Bangladesh which the German bank was
established as a research project or rural economic program to help the poor under the chiffagang
university in 1976, the central mission was render financial service to the active poor people
especially women mean while even in modern banks in Ethiopia are century old phenomena
which originated in 1905 the finance factor of Ethiopia has no developed well.

Since micro credit delivery and sawing mobilization in Ethiopia are performed by NGOs.
Government department proclamation number 40/1996 which a maid to provide for the licensing
and supervision of the business of microfinance clearly indicate of licensing.

1.2. Background of the organization (study area)

In Ethiopia the first micro fiancé institution is present phenomena and it is at fasts stage
compared to with other of developing countries currently the range of service and area of
operation of micro- finance institution are increasing but not as such operation following, the
proclamation no of micro fiancé institution are proclamation no 40/1996 association of Ethiopia
micro fiancé institution expand its branch in to 26 in regional state. Some main (ities among the
branch of Ethiopia micro – finance institution expand its branch of Ethiopia micro – finance
institution Oromiya credit and saving share company is the most regional cover in Oromiya. It
established 1985 at beginning of February 4/1996 GC it has a 4 branch now a day Oromiya
credit and saving share company open its branch at more than 91 district in Oromiya the
Oromiya credit and saving share company serve urban and rural poor a small source of found to
empower them to participate in economic activities like agricultural activities, trade activities,
the organization record remarkable gain during last 8 years by employment more than 524
people and serve 86,996 clients, in organization the number of women increase due to more
attention for them.

The main objective of credit and saving share company, Asella branch to improve living
condition of rural and urban poor households even through many constraint to teach the goal
example high collateral group learning methodology which may exclude the poor who cannot
find colleagues attitude of the clientele while most of them are illiteracy, lack of financial from
bank that charge low interest rate and long term loan (Birhanu 1999).

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Inspire the above problem the increasing in income through credit and saving encourage being
self sufficient in Food, improve in nutrition and educational service and increase in saving is the
positive impact of micro finance institution on owning small loan size and short term period,
which are major feature of informal credit in both rural and urban areas of Ethiopia, the demand
for product of micro finance has been growing (waylay; 2000) delivery of micro finance service
has been considered as one of the policy instrument to enable rural and urban poor increase
output and productivities.

The study conduct on Oromiya credit and saving Share Company Asella start 1993 – 2000 the
organization serve people in rural and urban means of poverty reduction. This institution is found
in Arsi zone Asella city 175km from Addis Ababa on Arsi – bale main road the zone have 26
woreda and 34 cities. The majority of people (87%) life in rural while 13% life in urban the
major area is characterized by high altitude and cold climate city since it began to operate it
serve many poor clients in the rural and urban in the rural the major clients are male while in
urban female are large proportion this organization works to best by means eliminating poverty
from the area by financially empowering a activity poor of these are un able to work due to less
of capacity.

1.3. Statement of the Problem

In money developing counties, micro finance institutions are accepted as unquestionable as most
important of poverty alleviation recently micro – finance institutions are increasing in number
and area coverage in our country but the problem is dealing with poor (especially credit related
issue) is not easy as poverty alleviation so that many challenge their contribution to development
when the loans provided to the poor, borrowers may not be able to use the loan effectively that is
because they lack of opportunities for profitability self employment and risks involved in using
the credit may be high micro fiancé institution play great role in poverty reduction program
(Lakshm)

But such micro – finance institution are subjected to many constraint, high transaction lost of
small loans, information problem, lack of appropriate collateral and informal nature of their
business (Mulat Demeke, 2001)

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The main objective of Oromia credit and Saving Share Company, Asella branch to improve the
living condition of rural and urban households. Even though, many constraint to teach the goal.
Example high collateral group leaning methodology which may excluded the poor who cannot
find colleagues, attitude of the clientele while most of them are illiteracy, lack of financial,
completion from formal bank that charge low interest rate and long term loan.

Inspire the above problems, the increase in income through credit and saving encourage being
self sufficient in food, improved to access health and educational service, improve in nutrition
and increase in saving is the positive impact of microfinance institution owning small loan size
and short term period, which are major feature of informal credit in both rural and urban areas of
Ethiopia, the demand for product of micro finance has been growing (waylay; 2000)

Generally, the cause of remarkable change in the organization, in the case of client number, loan
size percentage of female client. In the urban and female client in rural are take under cases
duration the study also try to give clear information above the performance of there organization
factor affect clients to get credit from institution and the improvement in the life of clients after a
loan.
1. What is the impact of micro financial institution on income of clients?
2. What is the main objective of micro financial institution?
3. What are the factors that determine the participation of rural and urban poor in micro
enterprise?

1.4. Objective of the Study

While identifying the impact of MFI on rural and urban poor Asella district the researcher has
some general and specific objective.

1.4.1. General Objective

The purpose of the study is to evaluate factor affecting development and performance of micro
fiancé institution and assess the reason and consequence of the factor.

1.4.2. Specific Objectives

1. To assess the impact of micro – finance on income of clients
2. To assess factor that determine participation of rural poor in micro enterprise.

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 3. To assess the performance of association of credit and saving institution.
4. To assess the impact on poverty alleviation.

1.5. Significance of the Study

Even though the scope of the study is limited to Asella town and its district, it provide a very
typical picture of the services provided by micro financial institution share company Asella
branch. More specifically the improvements record on production and productivities, poverty all
alleviation, food security, increase standard of living on targeted group and other effect on
society will be call for further study and initiate citizen and the government to form other
institution with similar objective with Oromiya credit and saving share company Asella branch.

1.6. Scope of the Study

The overall scope of the study is focused on the extent to which the research objectives are
concerned. To avoid discrepancies, ambiguity, misunderstanding and other related problems, in
conducting the research objectives.

This study was conducted on Asella district, so as to search or critically assess factor affecting
the development and performance of MFIS in Asella branch to search or remarkable results from
the study, by attempting to answer the stated question on the statement of the problem.

1.7. Limitation of the Study

Due to the limited of budget, shortage of time, involuntary of the respondent to give accurate
information, lack of experience on conducting research on the side of the research is study is
limited to analyze few variable and limited number of beneficiaries chosen by the sampling to
assess all problem.

1.8. Organization of the Study

The proposal includes 3 sections. The first section included background of poverty status and
micro finance institution as a whole, statement of the problem, objective of the study and
significance of the study.

The second section deals with literature review. The third methodology which was concerned
with data analysis.

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 CHAPTER TWO
2. REVIEW OF THE LITERATURE

2.1.1. The concept of poverty

The delivery of efficient and effective micro finance service to poor require conductive micro
economic policies and establishment and enforcement of legal and regulatory frame works in the
country and good governance.

The term micro finance refers to small scale financial service. Primary credit and saving
provided to people who operate small enterprise, provide, service for individual and groups at
local level of developing countries other rural and urban area (Robinson, 2001), the effective
finance system provides the function for success full poverty alleviation program prudential
financial regulation according to chives and Gonnelez – vego (1994) refers to general principle
or legal rules that aim to contribute to stable and efficient performance of finance institution and
market, ensure the safety of the system. The sustainability of micro finance intuitional is
measured in terms of generating revenue to cover the cost of all factor of production and
loadable found for target clientele (Yaron, 1994)

At the house hold level the of micro fiancé instition may be measured by ne increase in house
hold income asset measured by charge interpose income, employment, asset and volume of
production, at individual level is measure by capacity to make decision and investment that
improved personal income and enterprise performance clients control over resources and clients
participation (Samson, 2003). The major services in corporate in micro fiancé institutions are
credit provision saving mobilization and technical service (Kebede, 2003). Credit as defined by
Thodore and Ronald (1969) in their work called “credit and collection” power or ability to obtain
goods services in exchange for promises to play latter. Similarly it is the power or an ability to
obtain money borrowing process.

Smith (1963) stage that credit means obtained purchasing power by means of promise to at some
times in the feature it turn human want in to effective demand credit is needed to support faming

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consumption increase to bad wither condition and low yield. It can be granted in cash kind and it
can originate from private institution.

Price and employment are the major variable that are much affected by (Desar, 1994). Services
provided by micro finance raise the purchasing power of poor at the same time can affect them
negatively exposing them to higher risk and may lead them to sell their asset to settle the debt.

Dejene (2001) defined micro finance based on its main characteristics; its targeting of the poor
promoting small business, building capacity of the poor, extending small loan without
collaterals, combing credit with saving and charring commercial interest rate. Saving services
allow savers to store access liquidity for future use and obtain return on their investment, on the
other hand credit service involve the use of anticipated other hand credit service involve the use
of anticipated income from current investment or consumption.

2.1.2. Micro finance and poor

Basically the micro finance institution stand for poor the help financially for the sake of
empowering the poor those cannot borrow money from bank and formal financial institution due
to the problem of collateral that can persons who subist below level of real income that can
sustain only a base minimum standard of living (kebele, 2003). Thus the anti poverty strategies
not only need to create income earning opportunities, but, most also ensure empowerment of the
poor in the sphere of state.

2.1.3. Feature of Poverty in Ethiopia

Poverty and food insecurity are the main challenges and fundamental issue of economic
development in Ethiopia.

This describes how is the income of the people to cover the minimum basic needs in other
scholar whose how much high is incidence of poverty in Ethiopia. The 1991/2000 household
income, consumption and expenditure are welfare monitoring survey conducted central statical
authority indicate that 42% of the population can no afford to spend enough to by minimum food
requirements.
The same survey further states that percent of the population who live in rural are un able to
acquire this minimum (Robinson, 2001) the interim poverty reduction strategy paper also asset

7
the wide spread and deep rooted nature of poverty in Ethiopia an estimate of 1995/96 shows that
45.5% of the population were below the poverty line. Poverty was prove cent both in rural and
urban areas, cover rage of 47 and 33% of population (World Bank).

2.2. Development of Financial Institution in Ethiopia

Because of the failure of targeted subsidized cheap crediting program micro finance institution
involve in 1980, as response to benefit the poor. The new approach considers micro fiancé as
integral part of financial institution emphasizing sustainable development operating on market
principle to service the poor micro credit fiancé activate some Ethiopian have been offered by
NGO, where mainly constricted on urban area of which their impact have been showing positive
and negative impact. Development of microfinance in Ethiopia is view as an identification of
considerable level of un realized demand are potential market growth for financial and shift by
NGO, sector and government from the relief assistance to sustainable developments.

2.3. Structure of Financial Institution in Ethiopia

As a general the formal financial sector play an important role that informal financial institution
in Ethiopia. The major ones are the following.

2.3.1. Development bank of Ethiopia (DBE)

It is a main source of agricultural input credit for the past several years. The agricultural and
industrial development bank of Ethiopia and her Ethiopian investment bank cooperation in 1997
with the main objective of saving socialized sector of the economy that include state enterprise
and cooperative and some extent hand craft and small scale industry.

2.4. The role of micro finance in poverty alleviation

Microfinance is an important financial sector that targets who are at the financially needs of the
poor who are of a very from the formal financial sector.

The fund positive and significant effect of credit program participation on house hold food
consumption and muntritonal status of children also mentioned on other research which was
conducted by year (1994) the result should that house holder with excess to consumption loans
have greater capacities to stabilized foods consumption since micro fiancé institution plan
important role as mentioned above in enabling the active poor those who can participated in
these socio economic development process, if they are provided with capital and some sort of

8
training to become self sufficient by creating employment of themselves) improving access to
micro fiancé should be one of the strategy in alleviating poverty program in this connection some
of the major roles microfinance could plays are:-

I Employment creation
It provides initial investment or working capital for those willing capable and leady to engage ein
income earning employment the approach emblemized the use of locally available resource and
skills to attain self – sufficiency at low cost.

II Rural Development extension services facilitation

The life of the peasantry requires a variety of agricultural impute improved implementation and
adaptation of new the technology and method of financing these input require liquid cash that is
net already available for the reason. Hence provision of micro fiancé serves at their door stp
would respond to the poor formally timely need, effective by facilitating complementing the
rural development exertion service.
III Enhancement of Food Security
Food security at the house hold have defined in its more basic form as access by all people at all
time of the food needed for a health life, the concept of credit and saving for food security
address financial deem for agricultural production but also include other demands of households
such as finical food consumption, health, care and save guarding the asset base of the house hold
or investing in non agricultural self employment strategies under this circumstance micro fiancé
for poor households would facilitate access to food by creating capacity to purchase food from
off farm activities learning financed through the credit for the purchase of food in order to
stabilize consumption of the house hold and thereby protecting the productive asset of the house
hold which otherwise would have been sold to finance food needs of the house hold and food
available by available fund for expansion or increase of food production (Development Review
2003)

2.5. Micro Finance Institution in Ethiopia

Micro finance institution in Ethiopia are supervised by the national bank of Ethiopia (NBE)
many of them operate in rural areas were electricity and communication facilities do not exist
most of them have social objective rather them profit in most cases there is a need for

9
introduction highly dynamic innovative credits and saving technologies to increase outreach
lower operational cost and this make them finically sustainable.
The first micro finance service in Ethiopia was introduced as an experiment in (1994) when the
relief of society to rehabilitate drought and war affected people through agricultural credit
schema it was in spared by other countries experience and adopted to the condition.

2.6. Impact of Micro finance service

There have been very limited studies which assessed the impact of micro finance institution on
perty reduction for instance Amahan (2001) in her case study of micro finance institution reveals
that overall credit provision had a significant impact on increasing agricultural production
through buld up of production assets, particularly drought and increasing the amount of land
formed by clients oxen who were able to refrieve land previously land through sent.

Trading activates engaged in by clients also increased in scale female clients were particularly
able to take on trading activities which had previously been in accessible to them due to lack of
capital he/she found that the increased income generated by the credit input had a positive impact
primarily on household food supply and on educational provision for children as well as clothing
and other basic necessities finally she concluded that the provision of financial service to the
poor had crucial role to play in providing house hold food security and alleviating poverty.

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 CHAPTER THREE
3. METHODOLOGY

3.1. Source of Data

Both primary and secondary source where used for this study the primary data was taken from
Oromia credit and saving share company, Asella branch and from main office this constitutes
two branch and from main office this constitutes two parts.

The primary data was obtained by interviewing and distributing questionnaires for 60 sampled
beneficiaries were taken from beneficiaries of Oromia credit and saving Share Company Asella
branch.

The secondary data was obtained by revising various literatures, books, Journals, internet,
magazine annual reports published etc.

3.2. Methods of Data Collection

The primary data were collected through, questionnaires and secondary data was obtain from
different records.

3.3. Sample Design and Procedures

In order to determine the type of sample design and procedure, a brief review about the
magnitude and other characteristics of beneficiaries is examine at present Oromia credit and
saving share company Asella branch has 8691 as a general which 5280 from rural and 3411 from
urban but the survey was concerned those in the urban and rural area. The samples survey for the
study was sixty clients.

The sample size is restricted due to scarcity of resource, time and lack of information or
imperfect information of clients address to distribute the questionnaires.

3.4. Methods of Data Analysis

Descriptive statics was used to analyze the data. Such as percentage, proportion, table are used to
analyze the data using the above method, the data is analyzed by comparing whether method, the
data was analyzed by comparing whether the income of beneficiaries increase or decrease
improve in their consumption or not, increase or decrease in house hold asset, increase or
decrease in saving, performance of institution, asses the repayment rate and interest rate etc.

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 CHAPTER FOUR

4. Data Analysis and Interpretation

Two cluster of client have been first identified from the total population to select the respondent
for the sample survey. The criteria for being a member of a cluster is based to the time spent in
the program, because it is easy to understand the impact or change that came due to the use of
loan in a term of years i.e new browsers which is start to use a loan since 2004 and frequent
borrower those being to use the loan since beginning or more than one year the selection of the
respondent has been based on simple random sampling of clients from rural and urban.

4.1. Characteristics of Sample Respondent

Due to limited times the sample size taken for this study is sixty (60) the sample also not include
the rural clients those are far from the city but the use Asella branch as a center for their monthly
meet. The characteristics sample respondents included personal characteristics (like age) marital
status, house hold size, level of education, loan size and types of activities in which the
beneficiary are engaged.

Table 4.1: Sample Size by location and length of programme

Location New borrower Old borrower Total
Rural 15 23 38
Urban 10 12 22
25 35 60
Source: Survey Questionnaire

As show on the above sample size is 60 the sample presented in terms of programs location and
length of program by program location divided into two major groups. i.e. urban and rural
clients, urban clients are 22 in number while rural clients are 38 in terms of length of programs
participation 25 were new borrower while 35 were frequent borrower. To see the time pay in the
program is more preferable because the investments of their income, health, expenditure are
taken under consideration.

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4.2. Personal Characteristics of Clients
Personal characteristics have a great role in the participation of micro finance example married
customer and single clients have no equal chance to be profitable because those who have large
family size mostly incur expense for consumption rather than investment.

Table 4.2: Table individual Information

Description Urban clients Rural clients Total clients
Married 8(28.57%) 26(68.42%) 56.67%
Single 16 (57.14%) 6(15.79%) 36.67
Windowed 2 (7%) 4(10.53%) 10%
Divorced 2(7%) 2(5.26%) 6.67%
Source: Survey questionnaire
As shown in the table 4.2 the major clients are married 68% rural and 29% urban clients this data
shows that they use loan for family consumption rather than investment. Generally 56.67% of the
clients are married, 36.67% are single, 10% are widowed and 6.67% are divorced.

Table 4.3: Showing personal saving

Response Frequency %
Yes 25 42
No 35 58
Source: Survey Questionnaire

As shown in the above table 4.3 the majority of the clients have no saving 35 corresponding to
58% and 25 clients having at the present this data shows that the majority of the clients use their
profit from the loan they use for consumption rather than investment. Because the majority of
the clients are an educated, they do not know how to use the profit that gets from the loan.

13
Table 4.4: Showing loan have any impact ton asset
Response Frequency %
Yes 45 75
No 15 25
Source: Survey Questionnaires
As shown in the above table 4.6 the majority of the clients are using loan for increasing living
standard 45 clients or 75% are profitable from the loan and 15(25%) clients are not beneficiaries
from the loan or 25% this indicate the asset of clients change from the initial.

Table 4.5: Age Distribution

Age Frequency %
20 – 30 10 17%
31 – 50 40 67%
51 – 65 10 15%
Source: Survey Questionnaire
Table 4.5 indicate that age distribution of sample respondent as observed from the above table
respondents 10% are youngest of age between 20 – 30 corresponds to 17% the 40 respondents
are age of between 31 – 50 the 10 respondents are age of between 51 – 65 this age group account
for 15% there are no sample respondents above age of 65 this shows that most of the time clients
age between 31 – 51 are involved.

Table 4.6: Educational Status of the Clients

Qualification Degree Diploma Below 12 12 complete
No of respondent - 2 42 16
% 0% 3% 70% 27%
Source: Survey Questionnaire

As it is clearly shown on the above table 4.6 most of Oromia credit and saving share company
Asella branch clients are below grade 12 and 27% of the clients are grade 12 complete and 3%
are diploma and no degree from the above table we can understand that the educational status of
clients are low. This it has negative impact on loan repayment.

4.2. Factors Decrease Demand for Loan

This factors does actually affect the participation of the clients but make them to be a passive
because they assume that no change to take a loan but they fear factor because they mean across.

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Table 4.7: Affect client willing to borrow
Description Rural client Urban client Total
Problem of collateral 3(7.9%) 2(9.09%) 8.33%
Lack of access to market for 19(50%) 5(22.73%) 40%
product or service
Lack of capital loan by institution 16(42.11%) 15(68.18%) 51.67%)
Source: Survey Questionnaire
As shown on the table 4.7 most clients are satisfied with the collateral or no problem of collateral
or no problem of collateral system. This is because of the system micro fiancé use female
customer repay their loan in the absence of collateral system so the firm necessitate that
customer will be granted loan only of they as applying as group with poor because they don’t
wan’t to take the liability of their group in the case of default the survey show 8.33% of such
problem.

Not only providing the loan for the clients is solving the problems of poverty but also search
market for clients product many clients produce many clients produce non – durable produce non
– durable product in where there is no infrastructure less of demand loss of quality are focus
problem affect as clients are not active to take a loan, like that problem (40%) have to solved
creating a clients union in all activities.

4.3. Clients Additional Information

Table 4.8 client’s basic education information
Descriptive Urban Rural Clients
Literates 9(40%) 7(18.42%) 26.66%
Illiteracy 13(59.09%) 31(81.58) 73.33%
Source : Survey Questionnaire
As shown in table 4.8 most member of micro fiancé are illiteracy in urban 59% of members are
illiterate while the number of rural illiterate is 82% these show the clients are not know how to
use the loan appropriately or not give their decision on loan expenditure or investment and
awareness about return.

15
4.4. Factor affecting the clients in participating micro finance institution
There are many problems that hindering the society in getting credit from micro fiancé institution
the collected sample survey show that clients part caption in the programs are slow or passive
due to some problem related with the service provided.
Table 4.9: factor hindering of getting credit from micro finance institution
Factor hindering from taking service Number of respondent Percent
High interest rate 8 13.33%
Loan tied saving 4 6.67%
Credit in accessibility for single 48 80%
Total 60 100%
Source Author’s survey
As mention in table 4.9 the big problem (factors) that facing the participate from the credit
providers are credit in accessibility for single person 80% the organization make this problem
due to prefer of group based lending because when the group clients are saving in group the
organization use this group saving as default a members. The next problem is high interest rate
and loan tied saving respectively.

Additionally, the least problem observed from the survey is problem of attitude of people or
cultural problem which is significant most of the time people attitude toward the service is poor
but a singly the survey show no any impact of cultural or religion toward the service. this is the
remarkable gain from the sample survey that may help to increase without any restriction.

Not only the problem mentioned above to prevent clients from using the financial service, also
problem like poor training education, effective follow up service charges, lack of information,
family or friend influence, awareness if the service providers group based lending high interest
rate for the planned investment in adequate amount of offered.

On the above table the most factor under clients to participate in to microfinance institution is
credit in accessibility for single person (80%) such problem is occurring due to the institution
prefer organized people rather than single person because, these organized people save their
monthly or yearly saving together among the group when one cannot able to pay the loan the
group take the responsibility to pay but to pay the default loan the groups have limited liability or
net pay from their asset but their group saving are occur the loan net paid this forms of saving is

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use for sustainability of the institution and used to avoid the problem of collateral that avoid poor
to borrow from formal bank and other formal institution.

4.5. Impact of OCSSCO (Asella credit and saving Share Company) on clients
The loan received from the institution have the aim to change or improve the life of clients,
which required to be invested on the purposes for which loan is given based on the individual
clients loan plan and the institution currently financing the following activities or help as clients
to use the loan for the following purpose to improve their life.
A. Agricultural inputs loan is such as
 Selected seeds
 Fertilizer and chemical
 Herbicides and pesticides
B. To by oxen
C. Small trade activities such as
 Purchase and resale (sheep, goat etc)
 Small business entrepreneur like, shop barberry
 Animal husbandry practices
Change on house hold income after loan the income of the clients change may be due to use of
the loan for different purpose
Table 4.10 change on house hold income after loan
Total house hold Rural Urban Total
income after loan
Increase 34(89.47%) 15(68.18%) 81.67%
Story the same % 2(9.09%) 3.33%
Decrease 4 (10.53%) 5(22.73%) 15%
Source author survey
As shown in table 4.10 there impact of micro fiancé institution on the income of house hold
many people agree that the appropriated distribution of loan and wisely use of loan is increase
the income of the poor. Also this survey shows that most of the poor participated in the program
were increase their income after a loan which is desirable gain and no contain income of clients
after participating these loan program while 11% of clients show decreasing in income after the
join in the programme.

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As survey show the cause for decline income is in appropriate use of loan. In urban 68% of
clients shows their income is increased after they participate into this loan program and also
there is a client who their income is not changed while 23% clients told their income is
decreasing after they participate in the program when we compare with the rural clients it’s a
great downfall. The cause for decline is the fall of purchasing power of the many, inflation or
increase price of goods and services.

Generally, most of clients from rural and urban show the increasing of their income 82% and 3%
unchanged income and 15% clients are told their income is decrease.

4.6. Impact of micro finance on personal saving

Clients those use the program for long period of time have high personal saving. This shows that
the micro fiancé have positive impact on personal saving this shows that the micro fiancé have
positive impact on personal saving.

Table 4.11. Impact of OCSSCO on personal saving

Personal saving New borrower Frequent borrower Total
amount
Cash (100 – 500) 13(52%) 1(2.86%) 23.3%
Cash (500 – 2000) 7 (28%) 7 (2%) 33.33%
Cash ( 1000 – 1500) 4 (26%) 10 (28.57%) 23.33%
Cash (<1500 0% 18(51.43%) 30%

Source Author’s survey

According to table 411 personal saving of each individual increasing after they joined the
program the amount of clients saving is increasing through the year.

The clients those stated in the program for long period of time have large amount of cash saving
as the amount of saving cash increase the new borrowers clients are increase, when saving cash
is greater than 1500.00 new borrower have no saving but when saving cash is 100 to 500, 52% of
new borrower have saving.

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The frequent borrowers have large amount of saving greater than 1500, which this shows as the
clients stayed in the program their income is increasing.

Generally, 26% f clients are saving them income in cash greater than 1500.00 this shows the
financial privation for poor have crucial impact on client income as the saving increase it is the
corner store for the sustainable micro fiancé service on the other hand saving mobilization is a
key element in improving the current picture of the region capital formation.
 It is granted or sustainable of the company
 It uses as collateral for loans
 It uses a one criterion for clients identification.
To promote secured, the organization have to give high quality saving service because it is
necessary to develop a sustainable rule and regulation and system that followed by institution
like any amount in saving account will attract interest rate of 7%.

Mostly as observation from the survey show the micro fiancé institution (OCSI) have positive
impact on client by improving sanitation and electricity in urban while improve in productive
increase and also clients able to exploit their resource by themselves and also their asset income
is observed.

The survey show surpringly, that the income of house hold is increasing, for example 82% of
clients respond that their income is increasing after loan. While 15% of clients respond that their
income is decreasing due to different reason the personal saving is increasing through the year
due to this.

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 CHAPTER FIVE
5. CONCLUSIONS AND RECOMMENDATIONS

5.1. Conclusions
Analyzing poverty in Ethiopia will assist policy makers and other stake holders in understanding
the causes of poverty and designing appropriate policy. The cause and possible remedies are also
diverse, micro finance is taken as one of the effective instrument of poverty alleviation the
number of clients researches which out of these 62.5% is female the income of institution from
interest rate and service charge are increase and also loan repayment collected in good way.

Even if the service is play a great role, there are many factors that affect the client in
participating micro finance institution as survey shows credit in accessibility for single person
80% and lack of capital lend by institution 52% but social culture and religion have no any
impact on frequent borrower have high saving than frequent borrower example when personal
saving is greater than 1500 the frequent borrower is 51% while saving 500 birr, the number of
new borrower is 52%.

Not only the problems mentioned above to prevent the clients from using, the financial service,
also problem like poor training education, in effective follow up service charge, lack
information, family or friend influence. Un awarance of the service providers, group based
lending, high interest rate for the planned investment, in adequate amount of loan offered.

Generally, the uses of micro finance institution increase the households income which is increase
wealth of clients which 87% clients respond their income. the positive and significant effect of
credit program have greater capacities to stabilized food consumption, to become self sufficient
9creating employment of themselves) improving access to micro fiancé should be one of the
strategy in poverty alleviation program.
Some major roles of micro finance are:
I. employment creation: provide initial capital for those willing
II. Rural development extension service facilities farmers requires new technology and
method of financing

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 III. Enhancement of food security food security a hold, it is more basic from also access
by all people at all time of the food needed for health life.
IV. Agricultural input loan such as selected seed, fertilizer and chemical, herbicides and
pesticides etc.
As survey shows that most of poor participated in program were increase their income after loan
is desirable gain and no constant income of clients after participating these loan program 11% of
clients decreasing income after join in the program. The cause for decline income is in
appropriate use of loan.

5.2. Recommendation
Based on the finding of the study, the following point is recommended. Oromia credit and saving
institution Oromia credit and saving institution should focus on the responsiveness of its
financial product to the needs of its clients i.e the institute should earn from what its clients
wanted and then produce products by in cooperating the information from market research or
needs survey, on one hand and develop built in tools to measure the impact of its program on the
needs of clients on the other this types of assessment will assist the organization to collect
information which makes them financially and operationally sustainable.

There is a need for creation of enabling policy environment through the facilitation of linkage of
the formal linkage of the formal sector with the formal financial institution so that it enables to
scale up operations became financially viable and it would have more significant impact on the
overall poverty status of the country by providing credit for large number of poor.
 There should also follow up to check the rate of the beneficiaries business improvement
there by increasing the amount of the loan productivity of beneficiaries.
 Training and education should be given for beneficiaries on how to use the credit and
saving properly
 Loan size and terms of repayment should have to increase and provide loan with
minimum interest rate and decrease collecting service charge.
 The loan should be given for single person
 Education should be given for clients about family planning.

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 Bibliography

Tudaro, M.P. (1997). Economic development, 6th edition, Newy York.

Ameha, (2002). Micro finance development review, Addis Ababa.
World Bank, world development report attacking poverty, New York, Oxford University
press.
Association of Ethiopia a Microfinance Institution, 1988
Oromia Credit and Saving Share Company Annual Report, Addis Ababa Ethiopia.
Mulat, Demeke. (2003), Assessment of Credit Management, Wollo University.
Thodore, (1996), Fundamental of Corporate finance, 4th edition, Canada
Federal Negarit Gzaeta, 1999 Yaron, (1994) Managing Micro finance risk, 6th edition,
Smith, (1963), Financial Institution, 4th edition, UK.
Todoro Michael P, (200). Economic Development, 7th edition, Inc New York, USA.

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 Appendix
JIMMA UNIVERSITY
BUSINESS AND ECONOMICS COLLEGE
DEPARTMENT OF ACCOUNTING
RESEARCH QUESTIONNAIRES
Questionnaires for the surve on the impact of micro finance institution on poverty alleviation in
the case of Oromia credit and saving Share Company Asella branch.

These questionnaires are to be filled out by the beneficiaries (clients) of the company because of
to collect necessary data. Form the received and pay to asses and examine the impact of micro
finance institution in economic development.

Part I Interview Questionnaires

1. General background
1.1 Age 20 – 30 31 – 50 51 – 65
2. Education Status
Below 12 Diploma
12 Complete Degrees
3. Marriage status
Married Divorced Unmarried Widowed
4. Do you have any personal saving at present
Yes No
5. If yes please specify its amount ___________________________________________
_____________________________________________________________________
6. Factor prevent you to borrow the money
New Frequent
7. Factor prevent you to borrow the money
Loan tied saving Culture or religion
High interest rate credit in accessibility for single person

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8. Which one you not satisfied with it problem of collateral
Problem of collateral
Lack of access to marked for product or service
9. Is there the loan have any impact on your assets
Yes No

10. After you start to use the program your income?

Increase Decrease Stay the same
11. After you use the loan program how about your expenditure on consumption? ________
_______________________________________________________________________
_______________________________________________________________________
12. Are you satisfied with the repayment period and interest rate charged by the institution?
Yes No
13. Are you satisfied with a group lending or saving?
Yes No
14. Initial capital
A. up to birr 2000
B. From birr 2000 – 4000
C. From bank
D. From microfinance
15. Which of the following is the most cause of unemployment in your town?
A. Low educational status of the people
B. Lack of job opportunity
C. Poverty of the country
16. What are the contributions of micro MFI in your town?

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