HAWASSA UNIVERSITY BSTL COLLEGE OF

DEPARTMENT OF ACCOUNTING AND FINANCE

ASSESSMENT OF CREDIT PROVISION AND

SAVING MOBILIZATION INCASE OF OMO MICRO
FINANCE IN YIRGALEM SUB BRANCH
A RESEARCH PROPOSAL SUBMITED IN PARTIAL
FULFILMENT OF THE REQUIREMENTS FOR
BACHLER (BA) ART DEGREE IN ACCOUNTING
AND FINANCE
PREPARED BY: AMARE BABO
ADVISOR: NIGATU (MSc)

JUNE, 2020 E.C

HAWASSA, ETHIOPIA
 ACKNOWLEDGMENT
First of all I would like to thanks my GOD for about his valuable help to finish my research.

I would like to express my deepest gratitude for my advisor KIDIST (MSC) for her valuable
advice, guidance, constructive comment, reviewing, improving and professional assistance
on the paper at the every stage to make the more accurate.

Finally I would like to express my heartfelt gratitude to my family for their support
financially and morally to perform the intended tasks during my stay in the university and
thanks to all the members of HAWASSA UNIVERSTY AWADA CUMPUS library staff for their
aiding in searching for materials requested and provision of these materials for writing and
developing the paper.
 ABSTRACT
The main objective of the study focused on assessment of credit provision and saving
mobilization in case of OMO MFI in yirgalem sub branch and it investigated some problem
related to credit provision and saving mobilization. This study is also to understand the
contribution of micro finance institution in alleviating poverty and encourage saving of
society as well as minimizing unemployment. In addition to these the study has identified
the factors that affect the life of client. The data has been collected from both primary and
secondary source .Primary data has been collected through unstructured interview and
questions, while secondary data was obtained from financial report of institution. In this
study the researcher was used descriptive method of data analysis and simple random
sampling techniques .Finally descriptive analysis has been presented through tabulation
and percentage.
 ACRONYMS

OMO: open market operation

NGOs: nongovernmental organization

UNCDF: united nation commission of development forum

CDs; certificates of deposit

 Table of content

CONTENT PAGE
Acknowledgment …………………………………………………………………………................

Abstract………………………………………………………………………………………..................

Acronyms……………………………………………………………………………………..................

CHAPTER ONE
1. INTRODUCTION.............................................................. ....................
1.1Background of the study ……………………………………………………………............

1.2 Background of the organization………………………………………………………….

1.3 Statement of the problem ………………………………………………………….............

1.4 Objective of the study…………………………………………………………………...........

1.4.1Generall objective of the study ………………………….................................

1.4.2Specific objective the study ………………………………...................................

1.5 Significance of the study ………………………………………………................................

1.6 Scope of the study ……………………………………………………….................................

1.7 Limitation of the study ……….………………………………………..................................

1.8 Organization of the study……….…………………………………….................................

CHAPTER TWO
2. LITERATURE RIVIEW...................................................................
2.1 Definition of micro finance ………………..……………………….…..............................

2.2 Types of saving account………………………………………………….............................

2.3 Types of credit market instruments……………………….………..............................

2.4 The need for micro finance…………………………….……………….............................

2.5 Type and loan amortization………………………………………..…...............................

2.6 Collateral………………………………………………………………………..............................

2.7 The limit of credit ……………………………………………………….….............................

2.8 Type of loan …………………………………………………………………..............................

2.9 Problems face by micro finance in Ethiopia……………………..............................

2.10 Empirical review the literature…………………...………………................................

CHAPTER THREE
3. RESEARCH METHODOLOGY………………………………….......
3.1 Research design …………………………………………………….........................................

3.3 Sources of data………………………………………………………........................................

3.3 Target population…………………………………………………..........................................

3.4 Sampling technique …………………………………………….............................................

3.5 Method of data collection………………………………………..........................................

Methods of data analysis and interpretation………………............................................

CHAPTER FOUR
4.1Analysis of data from questionnaire………………………............................................

4.2 Types of saving in the institution………………………….............................................

4.3 The reasons that motivate of customers to save money institution..............

4.4 Analysis of interview question……………………………..............................................

CHAPTER FIVE
Conclusion and recommendation...................................................
5.1 Conclusion.................................................................................................................................

5.2 Recommendation...................................................................................................................

Reference..........................................................................................................................................

Appendix.........................................................................................................................................
List of table…………………………………………………………………….page

Table 4.1: Respondents sex composition………………………………………

Table 4.2: Respondents age composition……………………………………..

Table 4.3: Marital status of respondents……………………..........................

Table 4.4: Education status of respondents………………………………….

Table 4.5: Time interval of respondents when they

start saving in the institution……………………………………

Table 4.6: Types of saving in the institution………………………………..

Table 4.7: Reason for voluntary saving……………………………………….

Table 4.8: Time interval of respondents when the

y starts taking loan from the institution……………………

Table 4.9: Type of loan used in yirgalem sub branch…………………..

Table 4.10: Respondents response regarding to

requirements get loan from the institution…..………….

Table 4.11: Demonstrates the purpose of customers

to take loan from the institution……………..………………

Table 4.12: Status of house hold income level after loan...…………..

Table 4.13: Reason of customers to save money in the

institution……………………………………………………………...

Table 4.14: Loan granted micro finance institution…………………….

 CHAPTER ONE
1. INTRODUCTION
1.1BACKGROUND OF THE STUDY
Micro finance can help economically active poor society to expand and diversify their
enterprise and increase income. It can also help to lower level of economically poor society
in developing and financing their enterprise.

Primary role of saving is mobilization of money in order to lend them sound basis (world
book encyclopedia, 2001).Credit refers to the amount given by somebody to someone all
the basis of term and conditions. It also audacity in which it create debt at a time aid in
hence two parties involve in the activity of credit so the concept of credit strongly
corrected to the budget siltation of the country because it is argued that credit is not well
managed. It can also create inflation and deflation (world book encyclopedia, 2001).

Micro finance is intended as a tool for providing credit and saving and as a general used as
a tool for reduction of poverty most micro finance institutions are established in lined with
this objective .In attacking poverty omo micro finance institution established in lined with
this objective. In attacking poverty micro finance institution give financial assistance,
these institution provide training for those who enter in to the business world , facilitate
that saving scheme and create loan by motivating and bringing up the entrepreneurial
together.

1.2 Back ground of the organization

OMO micro finance institution is one of the biggest micro finance institutions
in Ethiopia, operating in south nation’s nationalities and people’s regional
state.

It was established on august 14/1997 with the objective of providing efficient

and sustainable financial service in collaboration with governmental
nongovernmental organizations in order to stimulate individual initiatives for
self sufficiency and take part in the struggle to alleviate poverty in the region
as well as in Ethiopia. Since its establishment it has been providing saving –led
credit provision and saving service to the low income societies in its
operational area.
OMO micro finance institution (s.c) is established in 1997 by registering with
bureau of trade and industry of SNNPR and the national bank of Ethiopia in
line with the licensing proclamation No 40/1996 and began operation in
1998.

The institution has a head office on hawassa, 15 branches and 164 sub branch
office in the region currently, it is operating in all zones, city administrations,
woredas and special woredas.

The institution is constructing modern office buildings for all branches, sub
branches and the head office to create suitable work condition for staff and
better service for customers. Construction for all of the buildings is completed.

Since its establishment the institution has been providing saving and loan
services to the regional community. In addition to this, it manages different
funds from other organizations according to their agreement, and also it pays
social security for pensioners in the region.

The is undertaking different change activities using different tools of change,

among others, BPR (business process re-engineering) BSC (business score
card) and automation works. In this regard, BPR is fully implemented.

1.3 STATEMENT OF THE PROBLEM

One of the fundamental issues of economic development is challenging of poverty
reduction. Poverty reduction is not simple task. It talks long time and coordinated effort of
different sector. So to achieve such strategy the finance sector especially omo micro finance
institution should play an important role.

The primary objective of omo micro finance (MFIs) is to provide finance service (credit and
saving) to the poor in order to release financial constraints and to help alleviate poverty.
MFIs are usually non gavernment organization(NGOs) assume poverty is created through
social proces that deprive the poor of their right ful acccess to social resources including
credit. People with the opportunity to save some good amount of money. Another aim of
micro finance is to provide poor people with loan which are provided with very flexible
terms and low interrest rate.(Otero,1999).

Lending to the poor or lower income groups raises many debts among practitioners and
acadamicians. These poor are usually excluded from credit facilities because of many
reasons; These includes insufficient collateral to support their loan, high transaction cost,
unstable income, lower literacy and higher monitoring cost.

But there is no any study under taken at Yigalem sub branch OMO micro finance institution.
Most there are also a problem in achieving targeted objectives effectively, efficiently and
timely in perspective of credit provision and saving mobilization. So, studying the credit
provision and saving mobilization in Yirgalem sub branch omo micro finance institution in
case of this sub branch was answer the problems.

This study tries to address the following basic questions:

 What is customer attitude towards the institute and how their level of awareness
with regard to credit and saving?
 What types of loans and saving that granted/collected by the institution?
 What are the criteria to be fulfilled by the applicants to get loan?
 What are the reasons that motivate the customers to save money in the institution?

1.4 OBJECTIVE OF THE STUDY

1.4.1General Objective
The general objective of the study was assessing credit provision and saving mobilization in
OMO Microfinance in yirgalem sub branch.

1.4.2 Specific Objective

• To assess the customers attitude towards the institute and how their
level of awareness with regard to credit and saving.

• To assess types of loans and saving that granted/collected by the

institutions to get loan.

• To assess the reasons that motivate the customer to save

money in the institution.

1.5 SIGNIFICANCE OF THE STUDY

 The study may use as partially as policy and manual making guideline for the sector.
 Government and non government organization may use it as source of information and
policy guideline.
  It may also much significance for intellectuals and other bodies who want to make
further investigation related to the issue under consideration.
 It may also provide direction and information for borrowers about institution credit
policy.

1.6 SCOPE OF THE STUDY

The scope of the study covers only the role of yirgalem sub branch OMO micro finance
institution the provision of credit and saving, notification and also, it restrict on the
effectiveness of credit and saving in yirgalem sub branch micro finance institution and poverty
reduction.

The role of micro finance institution include all business groups of the country, but the study
focused only in Yirgalem sub branch OMO micro finance clients, because of time and financial
problem.

1.7 Limitation of the study

During conducting the study the researcher has been faced the

Following problems

 Lack of time to gather data.

 Lack of internet access.
 Unwillingness of respondents.
 Lack of sufficient information from institution and shortage of available written
document as well as references.

1.8 ORGANIZATION OF THE PAPER

The study consists of five chapters. The first chapter one deals with general introduction. This
chapter includes back ground of the study, scope of study statement of problem, objective of
the study, significance of study, organization of study. Chapter two deals with literatures
review. Chapter three is about methodology and design

Chapter four contains data analysis presentation. Chapter five also contains conclusion and
recommendation.
 CHAPTER TWO

2. LITRATURE RIVIEW
2.1 DEFINITION OF MICRO FINANCE
Micro finance refers to the provision of financial services to the low income society, this means
OMO micro finance provide financial service to those who are excluded from formal financial
institution likes banks and financial companies provide micro finance service to marginal clients,
therefore , MFI hare to create mechanism to bridge the gap created by poverty level,
illitracy,gender and remoteness of the society, becouse ordinary financial institutions are not
really enough to help and participate low income groupof the population.

There are two broad categories of products and servics that are provide to micro finance
clients, by MFI, financial and nonn financial services.(Rob Gnomom 2001)

The primary role of OMO MFIs is to provide financial intermediation of funds at a particular
time to those who have deficit at the same time.(Otero,1999).

According to the world bank (2002) study of micro finance revolution, OMO micro finance
refers to small and provided to people who firm fish, who operate small enterprises or micro
enterprise where food are produced recycled repaved or sold provides services who works on
commission, who firm in come from renting out small amount of vehicle draft animals or
machinery and tools to other individual and group at the local of developing countries both
rural and urban. How ever on the other hand defines OMO micro finance as saving and credit
and deposit entrepreneurial poor he also OMO micro finance activity usually included;

 Small loan, typically for working capital

 Informal appraisal borrowers and investors
 Substitutes for collateral such as group quarantines or compulsory saving
 Access to successive and large loans based on repayment performance
 Stream limited loans disbursement and monitoring
 Secure voluntary saving procedures.

Micro finance refers to small scale finance as services primary credit and saving providing to
people who farm or heard. Who operate small enterprises where food are produced recycle or
commission who fins income from renting out small amount of land vehicles, drafts animals or
machineries or tools and other individually or groups at to local level of developing countries
both rural and urban (Robinson 2001,).
2.2 Types of saving account
1. Voluntary saving account. Is saving types where by which an individual have the right to with
draw at any time which the need arise.

2. Compulsory saving account. is saving which is enforced and started simultaneously with the
loan that is approved.

3. Time deposit. A saving account or certificate of deposit (CD) held for a fixed term, with the
understanding that the depositor can make a withdrawal only by giving
notice. A time deposit is an interest bearing bank deposit that has a
specified date of maturity. A bank is authorized to require depositors to give
up 30 days notice before withdrawing funds from a saving account;
however, passbook accounts are typically considered readily available funds
and account holders can make withdrawals without giving advice notice.
Certificates of deposit are issued for a specified term, such as 30 days (the
minimum) up to five years. Although funds can be withdrawn from CDs
without notice (on demand), there are penalties for early withdrawal.

4. Box deposit saving. Is by which the institution lease the for customers boxes so that they
accumulate their money and other valuables in that box. The institution
charges fees for using the boxes.

2.3 TYPES OF CREDIT MARKET INSTRUMENTS

1. Simple loan: it provides the borrower with an amount of fund (principal) which of maturity
date must be repaid to the lender along with an additional amount known
as interest payment.

2. Fixed payment loan: it provides borrower with as amount of funds that is to repay by making
the same payment every month consisting the principal and interest for
asset number of years.

3. Coupon bond: pay owner of the bond at fixed interest of payment every year until maturity
period and principal or face value is repaid at maturity period.

4. Discount bond: is bought at price below its face value (discount) and face is repaid at
maturity date.

This four types of credit instrument requires payment of different times Simple loan and
discount bond make payment on that there maturity date while, fixed payment loan and
coupon bond have payments periodically until maturity as for as our country is concerned there
is no bond or security market in the country. Hence the known credit market is simple loan
having short or medium term payment and fixed payment loans like mortgage and involvement
loan which have mostly long term period payment (Taddesse Kenna , 2004 and Mishkin, 2004).

2.4 THE NEED FOR MICRO FINANCE

The problem of lock credit can be conceptualized by looking at the supplies and demand side of
financial market.

On the supplies side we can distinguish between the following institutions

 Saving and credit cooperative

 NGOs and government projects
 Micro finance institute

When were looks each of the above financial institution the conventional banks have failed to
meet the credit needs of poor people. This can be explained partly by transaction cost of
leasing and borrowing and the risk of difficulties in enforcing construct (the result if in adequate
legal frame work and in efficient work system, and lack appropriate instrument for managing
risk) capacity of conventional baking sector in (east developed countries has been too weak to
serve the need of microfinance. The micro and small enterprise operators have limited access
to formal bank alternative source of finance for rural agricultural sector aim small enterprise
operators are semi formal and informal sector (Woldey, 2002).
2.5 LOAN TYPE AND LOAN AMORITIZATION
Whenever a lender extends a loan, some provision will be made for repayment of principal (the
original loan amount might be repaid equal installment it might be repaid in a single lump sum
(Ross, 5th edition).

2.6 COLLATERAL
Collateral is the security held to back up the loan in the event of possible default. It can
anything of value which is readily salable micro finance institution are the group leading
mechanism so as to security the cross guarantee members of the group (Mergia bekele).

2.7 LOAN MONITORING

Proper credit risk management involves due credit analysis having the proration approved, cash
disbursed and ultimately follow up the loan in order to have extended credit repaid back may
good credits could become problem loan unless continuous follow up is made which enables to
deficit signs that reveal difficulties. The objective of credit monitoring and review include:-

 Ensuring to loans are directed to the intended purpose

 Ensuring that loan convenient are compiled with
 Following up borrowers business condition
 Maintain good quality the loan
 Check the end use the loan funds
 Identify the emerging problem assess a condition of borrowers
 Assess a condition of borrowers
 Assess financial need of the borrowers (Rose, 5th edition).

2.8 THE LIMITS OF THE CREDIT

Credit plays an important role in many economic activities are spread out over time the
adoption new technology or new crop acquires in put in advance with the revenue related at
the latter point in the productive activity requires in put in advanced with pay of coming in
latter even or going time (Debra J Ray,pp.527-528).

The two features of credit market that makes it problematic first it is often very difficult
monitory exactly what is being done with loan. A loan may be taken for an extensive productive
reason but may be used for other needs that cannot be easily transmitted in to monitor
payment. Secondly problem is voluntary or strategies difficult situations in which borrowers can
repay the loan in principal but simply does it find it in his interest to do so (Debra J Ray, 1997).

2.9 TYPES OF LOANS

Loan can be categorized in to three. These are:-

 Pure discount loan:-is a simplest form of loan with such a loan the borrower receives
money today and repays a single lump sum at the same time in future.
 Interest only loan:-a second type of loans repayment plan calls for borrower to pay
interest each period and to repay the entire principal at the same point in the future.
 Amortized loan:-only loan type principal is repaid at once with which the lender mat
require the borrower to repay part of loan amount over time (Ross, 5 th edition).

2.10 WHAT IS FINANCIAL INTERMIDIATION

Financial intermediation involves transfer of capital from those who have access to particular
at to time word bank saving and credit are needed more efficient were industry began to
transfer fund from firm and industrial that are accumulated fund willing to lose their liquidity to
those that desire to acquire liquidity. Two keys important that must be considered when
provident finance services are:

A, to respond effectively to the demand and reference clients.

B, to design product that are simple and can be easily understand by the clients.
2.11 FORMAL MICRO FINANCE INSTITUTIONS
Formal micro finance is research phenomenon in Ethiopia that is an infant industry so that
formal micro finance is not only new in the country but also not fur reaching. Although credit
provision to rural house hold agricultural input by developing bank of Ethiopia and commercial
bank of Ethiopia has been practiced credit scheme targeted at the urban and rural poor where
non existence until recent year. The credit scheme aimed at financing the market town
development project. The plan to improve infrastructure in town considered market and
service control for agricultural hinter land and to alleviate problems in selected urban areas of
the countries through employment federation and income enhancement. It is implemented by
the agricultural and industry development bank called development bank of Ethiopia and small
scale industry development agency. The microfinance industry in our country has shown
remarkable growth.

2.12 INFORMAL MICRO FINANCE INSTITUTION

Informal lending is the most important source of to the rural and population. In recent years,
the informal sector has continued to assume to increase performance mainly due to restrictive
rules and regulations formal financial sector. Informal transactions are conducted on the basis
of trust and intimate knowledge or customers. The common culture back found and natural
obligation and prevent bonds of family friendship opera to promote the trust and accountability
and moral responsibility that are leaking official banking system. There are types of informal
organization in Ethiopia includes saving and credit group such as Idire and Equb. In Ethiopia Idir
and Iqub are the two most important organization based on the pre established societies.

2.13 PROBLEM FACE BY MFI IN ETHIOPIA

Despite the fact there is success in micro finance activity in Ethiopia with short period of times,
there are problems which needed to address those according to (wolday, 2000).The major
problem which is related with regulation frame works the MFI; the micro finance law in
Ethiopian proclamation No 40/1996 which was issued in 1996 has not yet been reviewed so as
to meet new demand of clients. This affects new financial products development of in a number
of ways for as the limited loan size of MFI that is only 5000 birr is effecting the development of
MSE (wolday,).Delivery of credit for low cost housing and can operation as the loans term as
per regulation is one years. This also affect to development of new financial product which
need more than one year the lending methodology group collate and peer pressure
(wolday,2002).

2.14 EMPIRICAL REVIEW OF LITERTURE

2.14.1 WHAT IS MICROFINANCE?

Micro finance according to Demelash (2014) is “the provision of financial service to income
poor and very poor self employed people. These financial service according the ledger would
(1999) generally include saving and credit but can also include other financial service such as
insurance and payment service. Schriner and Colombet (2001,) define micro finance as (the
attempt to improve access to small deposit and small loan for poor house hold neglected by
banks. Mix define micro finance as an organization that offers financial service to very poor
(mix, 2005).

According the UNCDF (2004) there are approximately 10000 micro finance institutions in the
world but they only reach four percent potential client.

2.14.2 MICRO FINANCE AND IT IMPACT ON DEVELOPMENT

Micro finance has very important role to play in development according to proponents of micro
finance UNCDF (2004) states that studies have shown that micro finance play three key role in
development.

 Helps very poor house hold meet basic needs and protect agent’s risk.
 It associated with improvement in house hold economic welfare.
 Helps to empower women by supporting women’s economic participation as so
promote gender equity.

The aim of micro finance according to Otero (1999) is not just about providing capital to the
poor to combat poverty on an individual level, it also has a role at an institutional level.

More recently commentators such as lotteries, Murdoch and Hasheem (2003) Simanowitz and
Brody(2004) and IMF(2005) have commented on citied role of micro finance in achieving the
millennium development goals.

Coleman (1999) evaluated micro finance program in Thailand, studying program participant,
non participant and what we call (willing non participant ) people who had signed up to
participate in the program.

 He found those micro finance participants are better off than these who does not
participate.
 He suggests that micro finance is important alternative source of credit.

CHAPTER THREE

RESEARCH METHODOLOGY
3.1 RESEARCH DESIGN
The researcher used mixed approach method in wich the researcher to conduct analysis and
interpret data by using both qualitative and quantitative approach.The reason for using both
this method the researcher may seek to review problem from multiple and single perspectives.

3.2 SOURCES OF DATA

In order to achieve the above stated objectives the researcher was used both primary and
secondary source of data. The primary data was collected from the employees and manager in
yirgalem sub branch OMO micro finance institution. In addition to primary source of data such
as books, journal, website and other related materials that would used to make the research
complete.

3.3 TARGET POPULATION

To conduct the study the researcher would focus on customer,employers and manager as the
major target population.

3.4 SAMPLING TECHNIQUES

The sampling technique appropriate for the study can be simple random sampling .This kind of
sampling technique assures that savers or borrowers of the institution has equal chance to be
including in giving their response.

The customers of the institution particularly in yirgalem sub branch are 1920. According to this
sampling size of the study would be around 95 customers. Actually this sample size was enough
but it is due to the fact that cost and time constraints, this much amount of clients could be
selected.

3.5 METHOD OF DATA COLLECTION

Even though secondary data was used the most important source of data could be relevant to
this study would be the primary data has been collected from individuals, customers and
manager of the institution using a well structured questionnaire for customers and planned
interview schedule by oral for manager and customer.

3.6 METHODS OF DATA ANALYSIS AND INTERPRETATION

The data has been analyzed by using descriptive, qualitative measurement and tabulation as
well as percentage. A summary of statistics of and tabulation are used to examine impact of
institutions intervention in improvement of house hold.
CHAPTER FOUR

DATA ANALYSIS AND INTERPRETATION

 4.1 ANALYSIS OF DATA FROM QUESTION NARIES
The researcher has distributed about 95 questionnaires to customers of OMO micro finance in
yirgalem sub branch.

Table 4.1 respondents sex compositions

Description No of respondents Percentage

Male 55 57.9%
Female 40 42.1%
Total 95 100%
Source: primary data The
above table shows that from the total 95 respondents 55(57.9%) are male and 40(42.1%) are
female. This indicates that there is less female participation in relative to male.

Table 4.2 respondents age composition.

Description No of respondent Percentage

14-29 20 21%
30-47 40 42.1%
48-60 25 26.4%
Above 60 10 10.5%
Total 95 100%
Source: primary data

The above table shows that more than one third of the respondents are found between 30-47
age next to that 25( 26.4%) are found between 48-60 age distribution 20( 21%) are between 14-
29 and 10 (10.5) are above 60 years.

Table 4.3 Marital status of respondents

Description No of respondents Percentage

Married 43 45.26%
Unmarried 35 36.84%
Divorced 17 12.9%
Total 95 100%
Source: Primary data

The above table shows that near to half respondents are married or 43(45.26) from the total
respondents are married, 35 respondents or (36.84%) are unmarried and 17 respondents or
12.9% are divorced due to many reasons.
 Table 4.4 Educational status of respondents

Description No of respondents Percentage

Illiterate 8 8.5%
1-4 12 12.63%
5-8 30 31.57%
9-12 25 26.3%
Above 12 20 21%
Total 95 100%
Source: primary data

Table 4.4 shows that from total of 95 respondents or sample 8.5% are illiterate, 12.63% of them
are completed 1-4 grade, 31.57% are 5-8, 26.3%, 9-12 grade and 21% of them are above
12grade. This indicates that there is educational influence on the need loan from the financial
institution onto engage in the business activities.

Table 4.5 Answer the question when did you start saving the
institution.

Item No of respondents Percentage

Before 5 years 14 14.7%
Before4 years 20 21%
Before3 years 27 28.42%
Before2 years 34 35.79%
Total 95 100%
Source: Primary data

Table 4.5 shows that the total sample of 95 respondents 14 of them (14.7%) are starting before
five years 20 respondents (21%) are started before 4 years and also 27(28.42) respondents
started before 3 years, and lastly 34 (35.79) respondents before 2 years. This indicates that
there is increment (increase) of saving customer from time to time.

Table 4.6 Types of saving in the YMFI.

Types of saving No of customers Percentage

Voluntary 40 42.1%
Compulsory 32 33.68%
Time deposit 6 6.3%
Box saving 17 17.89%
Total 95 100%
Source: Primary data
As per the table above 40 (42,1%)of the respondent are using the voluntary type of saving, 32
(33.68%) of the respondent are using compulsory saving, 17 (17.89%)of the respondents are
using box saving and 6 (6.3%) of the respondents are using time deposit.

4.2THE TYPES OF SAVING IN THE INSTITUTION

OMO Micro finance institution has four forms of saving scheme; compulsory, voluntary saving,
time deposit and box saving. By doing so the institution is contributing a lot in increasing the
amount of saving and saving mobilization. The first one is compulsory saving which is enforced
and started simultaneously with the loan that is approved for the individual. The second one is
voluntary saving by which an individual have the right to withdraw any time when they need.
The third one is box saving by which the institution leases the boxes for customers so that they
accumulate their money and other valuables in that box. The institution charges fees for using
the boxes.

The researcher asked the respondents the reason for choosing voluntary saving?

Table 4.7 Reason for voluntary saving

Reason No of respondents Percentage

Ability to save 25 26.37%
Incentive to save 6 6.32%
Opportunity to save 5 5.26%
Irregularly to save 4 4.21%
Total 40 42.1%
Source: Primary data

According to the above table 25 (26.37%) of the respondents choose voluntary saving because
of their ability to save, 6 (6.32%) of the respondents choose voluntary saving because of the
incentive to save, 5 (5.26%) of the respondents choose voluntary saving because of there is
opportunity to save and 4 (4.21%) of the respondents choose voluntary saving because of
irregularly to save.

Table 4.8 Answer questions when you took loan from the institution

Item No of respondents Percentage

Before 5year 12 12.06%
Before 4 year 20 21.74%
Before 3 year 28 29.47%
Before 2 year 35 36.84%
Total 95 100%
Source: Primary data
Table 4.8 reviles that from the total sample 12(12.06%) are taken loan before 5 years, 20
respondents (21.74%) are taken before four years, and also 28 (29.84) respondents are taken
before 3 years and lastly 35 (36.84%)of them are before two years. This indicates that there is
numbers of customers for loan from time to time.

Table 4.9 Types of loan used in YMFI

Item No of respondents Percentage

Short term loan 38 40%
Medium term loan 34 35.79%
Long term loan 23 24.21%
Total 95 100%
Source: Primary data

Table 4.9 shows that 38 (40%) of respondents are taken short term loan, 34 (35.79%) medium
and 23 (24.21%) of the respondents are long term loan. This indicate that as the term the loan
increase from short term to long term the number of customer who takes the loan decreased.

Table 4.10 Respondents response regarding to requirement to get loan from YMFI

Items Response No of respondents Percentage

Is their 78 82.1%
requirement to Yes
receive loan from
the institution No 17 17.9%
Total 100%
Source: primary data

Table 4.10 shows that 78 (82.1%) of respondents said that there is requirement to take loan
from the YMFI. The major requirement used in YMFI is customers has to form kebele
identification card, and verification of their ability to pay and also to form group to take loan
this for control purpose from the group, If the one of the borrower fail to pay the remain
member of the group has the responsibility to pay that amount.

Table 4.11 demonstrates the purpose of customers to take loan from the institution.

Description No of respondent Percentage

For agriculture 25 26.3%
For trade 36 37.9%
For consumption 20 21%
 For other purpose 14 14.7%
Total 95 100%
Source : Primary data

Table 4.11 portrays that all must 36 (37.9%) respondents purpose to take from YMFI is for
trade. Next to trade 25 (26.3%) of the respondents take loan for agriculture, 20 (21%)for
consumption and 14 (14.7%) for other purpose.

Table 4.12 Status of house hold income level after loan

Description No of respondent Percentage

Increase 60 63.2%
Stayed the same 27 28.4%
Decrease 8 8.4%
Total 95 100%
Source: Primary data

Even though in most case elements do not have the habit of keeping records of their activities
which may have an important on the accuracy information regarding income, the result suggest
that the positive contribution credit scheme or action increase income generating and creating
employment opportunity. In this regard table 4.12 shows that among the total 95 respondents
60 (63.2%) respondent is increase their income level, 27 (28.4%) of them stayed the same and 8
(8.4%) respondents income decreased. This shows that more than half respondents income
increase after loan.

4.3 THE REASON THAT MOTIVATE OF CUSTOMERS ARE TO SAVE THEIR MONEY
IN THE INSTITUTION.
Table 4.13 why do you save money in the institution

N Reason for saving No of respondents Percentage

o
1 For safety 20 21%
2 For emergency 24 25.3%
3 For retirement 21 22.1%
4 For education 30 31.6%
Total 95 100%
Source: primary data

The above table shows that the respondent of 20 (21%) said that for safety, 24
(25.3%) is for emergency, 21 (22.1%) for retirement and lastly 30 (31.6) of them respondent are
for education. This indicates that half presents of the customers are to save for future
unexpected expanse and least of the respondent for safety.

Table 4.14 Loan granted by YMFI

No Years Credit Collected Uncollected Percentage

1 2003 1,494,000 1,394,200 99800 93.32%
2 2004 1,900,000 1,815,000 85000 95.526%
3 2005 2,159,000 2,059,000 100000 95.37%
4 2006 2,460,000 2,355,000 105000 95.73%
5 2007 2,750,000 2,639,000 111000 95.96%
6 2008 2,948,000 282,300 125000 94.6%
Total 13,711,000 10,544,500 625800
Source: YMFI annual report

The above table shows that amount of credit granted, collected amount and uncollected
amount from 2003-2008 EC the researcher analysis that the credit granted was high but the
collected amount is fluctuated from year2003-2008.

Saving and Attitude of the society towards saving

Saving is amount of current income, which is not spent on consumption. Decision to save is
basically decision not to use up the income but to hold it in the bank or in the financial
institution security or in the form of cash on the hand. Keretal (1998-p2) argued that saving
faster financial institution discipline and helps borrowers to smooth out their consumption if
they incur income losses due to production failure.

Now a day the attitude of the society towards credit and saving is increasing. This is because of
the increasing number of educated peoples, the increasing effort of the government and
financial institution in creating awareness about the advantage of credit and saving and
emergency of several financial institutions and their expansion to the rural area.

4.4 Analysis of interview question

 What are the major challenges and problem that facing YMFI?
 As interview of YMFI manager the institution face some problems, they are repayment
of (depending on special situation), problem of using the borrower money for the
intended purpose, lack of awareness saving culture of society, these are the major
problems that faces by the institution while performing or providing service for the
society.

Problems of using borrowed money

As per managers of YMFI response most of borrower of the institution use the borrowed money
for the intended purpose. The said that; for example one merchant or urban borrower borrow
money for the purpose of business activity. But he for drinking and unwanted activities. So far
the researcher also interviewed the manager of the institution about the institution visiting
culture of client business and how the control the clients usage of the borrowed money, as he
said that the institution gives training in once a month for the clients

Problems of saving culture of the society or clients

As per the interview of the manager, under developed saving culture of the society is one of the
major problems facing by the institution. Especially those are found far from the town or
yirgalem. So far the researcher also interviewed the managers of the institution about culture
of promotion and advertisement in order to create awareness of the societies saving and loan
culture? As he said that, the institutions no give formal advertisement due to cost and in
accessibility of media.

The following are procedures regarding loan processing obtained from the
manager of yirgalem sub branch MFI
 Individual who wish to apply for loan or want to get information about organization
lending policy shall first contact with loaning department.
 The applicant after discussion with the loaning department can forward to the loan
application.
 The department may be accept or reject application based on policy and technical
ground.
 If the perfect is worthy the prospective borrower will be guided by the department to
the proper procedure of the applying for loan.
 The department receives the applicant with all required information.
 The department manager checks, reviews and forward the complete application file to
concerned loaning division for detail of project appraisal works.
 If the project is find act to be non viable rejection latter will be officially written to that
applicant including the reason for rejection.
 If the project is find out viable the posed loan will be submitted to the organization loan
committee for recommendation the loan goes through the loan approval in detail and
forward in which its recommendation to general manager for decision. One of the loan
approvals is recommended to the general manager for final approval.
 After the loan is approved the applicant would be communicated to sight loan contract
with the organization and fulfill the remaining requirement.
 Paying stump duty.
  The finally procedure is the release of disbursement program are fulfilled which is to be
verified by the organization follow-up and loan collection division.

Manager’s response in how to collect delinquent loan

It is evident that small portion of loan usually become delinquent and evidentially would be
written off. In order to reduce these organization takes major step by step based .That is first
institution needs reminder notating borrower to clear the arrears balance immediately. Then
institution should also so issue reminder to clear immediately defaulters in repayment.

If the borrower does not clear his or her arrears or reach at an agreement with the institution
as to clearance of the arrears after the defects rate is applied, the loan should be transformed
to the legal service department after reviewing each loan case by cases.

Manager’s response regarding the criteria used to give loan to the customer
The major criteria YMFI used in loan processing are that customer has expected to form Kebele
identification card and verification of their ability to pay the loan to form group this for control
purpose. If one of the group members failed to repay the loan the group has responsibility to
pay that amount.
 CHAPTER FIVE

Conclusion and recommendation

OMO Micro finance institution re designed to provide financial service to the poor who do not
have the opportunity to get the service from formal financial institutions. The yigalem sub
branch micro finance institution plays vital roles enhance the culture of the society. The
numbers of both sever and active customer is increase from time to time. And also monthly
income of the sample beneficiaries to increases from before taking the loan and after taking
loan trends .In addition to this the analysis shows that as the sample beneficiaries have good
attitude with regard to credit and saving. But still the institution not gives formal promotion. In
order to create awareness of the society saving culture and not give like rewards for those
clients who can save better than others.

The Hawassa branch OMO micro finance institution in yirgalem sub branch has both borrower
and saving customer. Mostly the borrower customer of the institution take short loan followed
by medium term but there is few customer to take long term loan yirgalem town and
surrounding area. Farmer and traders take the highest share in number of taking loan in the
institution. Whereas most of the saver customer of the institution save voluntary saving
account followed by compulsory account, and box saving. But there is low level of time deposit
due to lack of awareness of customer. On the other side large portion of customer preferred
voluntary saving because of their ability to save and incentives of the institution to save.

There is a predetermined criterion in yirgalem sub branch OMO micro finance institution to be
full filled by the borrower customer to get loan. Some of them are, the customer has expected
to form kebele identification and verification of their ability to repay the loan. The customer
also has to form a group for control purpose. But there no enough evaluation about the back
ground of borrower customers. Due to this reason there are some problems faces the
institution when they provide services. Like using the borrowed money, repayment problem
due to factors like when t clients businesses unfavorable and other factors.

The major reasons that motivate customers to save money in yigalem sub branch omo micro
finance institution are for emergence, retirement, education and safety. Half percent of the
customers save for the purpose of being prepared for unexpected future emergencies like, fires
and accidents. Followed by those who save their money to use it during their retirement or old
age periods. Those who save for the education purpose and safety purpose share the list
percent respectively.
Recommendation
The researcher tries to forward recommendable ideas for the problem observed during data
collection and data analysis.

The institution should give formal advertisement about their service in order to develop the
attitude of the society about the institution. The researcher also recommended the institution
should create awareness of the customer to take long term loan. Because when the customer
takes long term loan for purpose of business activities they create employment opportunity and
increase their income. And also to save in time deposit account because the customer saves in
time deposit account they gets higher interest other saving account.

The institution should give attention carefully evaluate the clients back ground before giving
loan. And also improve the culture of visiting the client’s businesses activities and training twice
a month after giving loan. The institution should arrange the loan collection period match with
the income generation period of the clients. And avoid fluctuation of loan collection. Because it
is better to reduce fluctuation of loan collection to provide fast service and smooth its function
as well.
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