DILLA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND
FINANCE

FACTORS AFFECTING THE PERFORMANCE OF

MICROFINANCE INSTITUTIONS IN CASE OF DILLA
TOWN OMO MICROFINANCE INSTITUTIONS

BY: - EYERUSALEM MULUGETA

ID. NO: - 061/16

ADVISOR: - SOLOMON (MBAF)

A RESEARCH PROPOSAL SUBMITTED TO DEPARTMENT OF

ACCOUNTING AND FINANCE ON THE PARTIAL FULFILLMENT
FOR THE REQUIREMENT OF BACHELOR OF ART DEGREE IN
ACCOUNTING AND FINANCE

July 2021

Dilla, Ethiopia
 Acknowledgements
First of all honest thanks goes to the almighty of God for let me to stopover in life to this day
and authorizes them to wide-ranging academic life. We also would like to direct genuine
gratefulness to the main advisor Solomon (MBAF) for his treasured effort for the process of
the research and for his real-world and pleasant-sounding comments which have given the
benchmark for his stance with them.

I am significantly thanks for the family special they had been assisted the schooling life and
to give advice how can we goes with my planning activity to finish the academic schooling in
this college.
Finally we would like to acknowledge all individual and institutions that have facilitated
them materially and honourably during the preparation of this project.

ii
 Table of Contents
Acknowledgements....................................................................................................................ii

LIST OF TABLE.......................................................................................................................v

CHAPTER ONE........................................................................................................................1

1. INTRODUCTION............................................................................................................1

1.1 Background of the Study..............................................................................................1

1.2 Statement of the Problem............................................................................................2

1.3 Research Questions.......................................................................................................3

1.4 The Objective of the Study...........................................................................................3

1.4.1 The General Objective..............................................................................................3

1.4.2 The Specific Objectives.............................................................................................3

1.5 Significance of the Study..............................................................................................4

1.6 The Scope of the Study.................................................................................................4

1.7 Organization of the thesis.............................................................................................4

CHAPTER TWO.....................................................................................................................5

2. REVIEW OF LITERATURE..........................................................................................5

2.1 What is Microfinance?..................................................................................................5

2.2 History of Microfinance................................................................................................5

2.3 Microfinance Institutions in Ethiopia.........................................................................5

2.4 The Need for Microfinance..........................................................................................6

2.5 Performance Measurement of MFIs...........................................................................7

2.6 Challenges of Microfinance Institutions.....................................................................7

2.7 Factors Affecting the Performance of MFIs...............................................................8

2.8 Empirical Literature Review.......................................................................................9

2.9 Conceptual Framework..............................................................................................10

CHAPTER THREE..................................................................................................................12

1 RESEARCH METHODOLOGY..................................................................................12

iii
1.1 Research Design..........................................................................................................12

1.2 Research approach......................................................................................................12

1.3 Target population........................................................................................................12

1.4 Sampling Techniques and Sample Size.....................................................................12

1.5 Source Of Data Collection..........................................................................................14

1.6 Data collection techniques..........................................................................................14

1.6.1 Primary Data Sources................................................................................................14

1.6.2 Secondary Data........................................................................................................15

1.7 Methods Of Data Analysis..........................................................................................15

CHAPTER FOUR..................................................................................................................16

4 WORK PLAN AND BUDGET......................................................................................16

4.1. Work plan..........................................................................................................................16

4.2. Cost budget........................................................................................................................16

References................................................................................................................................17

Annex one................................................................................................................................19

iv
 LIST OF TABLE
Work schedule 16

Research Budget in Birr 16

v
 CHAPTER ONE
1. INTRODUCTION
1.1 Background of the Study

Microfinance institutions are found among the institutions which provide different financial
service for the poor who are out of the conventional banking system particularly in
developing countries. Microfinance Institutions (MFIs) provide financial services to poor
clients who in most cases have no access to formal financial institutions. During the last three
decades, microfinance has captured the interest of both academics and policy makers. This is,
among other things, due to the success of the industry (Assefa et al., 2013).

Since the first Proclamation of 1996 that gave the legal background for the operation of the
micro-financing business, the industry has witnessed a major boom. Today, there are 31 MFIs
registered with the National Bank of Ethiopia serving clients. The Ethiopian microfinance
market is dominated by a few large MFIs, all of which are linked to regional state
government ownership. The three largest institutions account for 65% of the market share in
terms of borrowing clients, and 74% by loan provision. These are Amhara (ACSI), Dedebit
(DECSI) and Oromia (OCSSCO) Credit and Savings Institutions (Ebisa et al., 2013).

According to the Federal Micro and Small Enterprise Development Agency (FeMESDA), a
total of 70,455.00 new micro and small scale enterprises were established in 2011/12
employing 806,322.00 people. The total employment has grown by 23.8 %, compared to a
year ago. The total amount of loan received from micro finance institutions was more than
Birr 1.088 Billion under the review period, 9.5 % higher than last fiscal year. This shows that
the role of microfinance institution is significant in many aspects. The loan given by MFIs for
micro and small enterprises contributes for the acceleration of the development process of the
country. Based on the proclamation on microfinance business, micro finance institutions can
be engaged in accepting both voluntary and compulsory savings as well as demand and time
deposits. In addition to this micro finance business are allowed to participate in extending
credit to rural and urban farmers and people engaged in other similar activities as well as
micro and small-scale rural and urban entrepreneurs.

The proclamation gives the right to MFIs for drawing and accepting drafts payable within
Ethiopia, to participate in micro-insurance business as prescribed by directive to be issued by
the National Bank, purchasing income-generating financial instruments such as treasury bills
and other short term instruments as the National Bank may determine as appropriate,
acquiring, maintaining and transferring any movable and immovable property including
premises for carrying out its business.

1.2 Statement of the Problem

Micro finance institutions play a great role in supporting the economic activities of the rural
and urban poor in developing countries. Studies show that African MFIs are important actors
in the financial sector, and they are well positioned to grow and reach the millions of
potential clients who currently do not have access to mainstream financial services
(Lafourcade et al., 2005).

Ebisa et al. (2013) found that microfinance institutions are decisive way outs from the vicious
circle of poverty particularly for the rural and urban poor, particularly in a country like
Ethiopia where many people live barely below the absolute poverty line. The micro financing
industry of Ethiopia is escalating in the face of the growing deep concerns for inflation and
low interest rate in the microfinance industry affecting the financial health and viability of
MFIs.

Many studies which are conducted on microfinance institutions also indicate that, the
contribution of these institutions for poverty alleviation is significant. But the institutions face
many challenges that inhibit their contribution for the development of the country. Hurissa
(2012) identified the challenges of microfinance institutions by conducting research on the
selected MFIs in Addis Ababa city. But the conclusion of her research is limited to the
selected MFIs in Addis Ababa. The situation can vary from one MFI to another. So it is
difficult to use her conclusions for all microfinance institutions.

Though the strengths of the Micro Financing Industry outweigh its weaknesses, there are still
big challenges facing the microfinance institutions (Ebisa et al., 2013). This study also
concludes that the importance of MFIs is unquestionable. They contribute a lot to support the
Ethiopian poor who are out of the formal banking system. The challenges of the Ethiopian
microfinance institution were identified at a country level in this research. The conclusions
are also more general and do not show the case of MFIs in Dilla Town separately.

According to Amha and Narayana (2000), the Ethiopian MFIs have many problems related
with the regulatory framework in the microfinance industry, limited support to micro and
small enterprise development, the activities of NGOs on providing credit as a grant, absence
of solid linkages between MFIs and Commercial Banks, lack of fund for loans and an
institution to establish microfinance fund and access to soft loans from NGOs, very limited
research and innovation in the microfinance industry and other problems also identified on
his research findings. The finding of this research was more general and the case of MFIs in
Dilla town was not indicated specifically in this research. In addition to this, the findings are
out-dated. Within these twelve year period, there may be many policy changes and the
situation might be changed.

By considering the gaps of different researches conducted on microfinance institutions, this

study focused on filling this research gap by focusing on assessment of the factors which
affect the performance of selected micro finance institutions in the study area.

1.3 Research Questions

The following are the basic research Question:

 What are the major factors which affect the performance of MFIs?
 Do all MFIs face similar problems which affect their performance?
 What are the rationales behind the success and failure of MFIs?
 What factors are related to clients of MFIs?
1.4 The Objective of the Study
1.4.1 The General Objective

The general objective of the study will be Factors Affecting the Performance of Microfinance
Institutions in Case of Dilla Town OMO Microfinance Institutions.

1.4.2 The Specific Objectives

The specific objectives of the study will be to:-

 To assess the major factors which affect the performance of OMO Microfinance
Institutions
 To identify the similar problems which affect OMO Microfinance Institutions in the
study area.
 To identify the rationales behind the success and failure of OMO Microfinance
Institutions in the study area.
  To assess factors related to clients of OMO Microfinance Institutions in the study
area.
1.5 Significance of the Study

Micro finance institutions play a great role in supporting the economic activities of the rural
and urban poor in developing countries. This study will be shows Factors Affecting the
Performance of Microfinance Institutions in Case of Dilla Town OMO Microfinance
Institutions. This study also has significance to provide relevant information to different
stakeholders like policy makers, and local development planners working on youth
unemployment.

Furthermore, this research will be can serve as potential reference for those individuals who
want to conduct further studies on Micro finance institutions. Finally, the research findings
will fill the knowledge gap in the field of study.
1.6 The Scope of the Study

The study will be delimited only with regard to Factors Affecting the Performance of
Microfinance Institutions in Case of Dilla Town OMO Microfinance Institutions. The depth
of the study focuses SNNPR, particularly in Dilla Town the area will be is taken as a point of
reference.

Because of the homogeneity of the kebeles the research will be focuses on only three Kebele,
which are Hasa DAla, Buno and Harorasa. In this kebele there are large numbers of
population, but the sample size of this study will be 91 OMO MFI client’s in Dilla town
OMO Microfinance Institutions. According to time frame, the study will be delimited with
the period of 2013 E.C.

1.7 Organization of the thesis

This research will be organized into five chapters. Chapter one covers the background of the
study, statement of the problems, objectives of the study, significance, scope, and limitation
of the study. Chapter two will be present review of related literatures. Chapter three it include
description of the study areas, design of the study, source of data, sampling techniques and
data gathering instrument and method of data analysis. Chapter four will be covers data
analysis which includes respondent personal information and major finding of the study,
respectively and Chapter five will be covers summary, conclusion and recommendations of
the study. At last reference and appendix will be attached.
 CHAPTER TWO
2. REVIEW OF LITERATURE
2.1 What is Microfinance?
Microfinance is the supply of loans, savings, money transfers, insurance, and other financial
services to low-income people. Microfinance institutions (MFIs) —which encompass a wide
range of providers that vary in legal structure, mission, and methodology offer these financial
services to clients who do not have access to mainstream banks or other formal financial
service providers (Lafourcade et al., 2005). Similarly, Parker et al., (2000) defines
microfinance as provision of small loans (called “micro-credit”) or savings services for
people excluded from the formal banking system.
Microfinance is a type of banking service which provides access to financial and non
financial services to low income or unemployed people. Microfinance is a powerful tool to
self empower the poor people especially women at world level and especially in developing
countries (Noreen, 2011). While Steel and Addah (2004) describe micro finance as small
financial transactions with low income household and micro enterprises, using non standard
methodologies such as character-based lending, group guarantees and short term loans.
The definitions of microfinance given by different scholars contain some similar pointes.
They describe microfinance as provision of a small amount of loan for the poor, specifically
the rural poor living in developing country. Some microfinance institutions provide non
financial services for their clients. But in our case, most of the micro finances are known by
the provision of a small amount of credit and saving services.
2.2 History of Microfinance
Bornstein (1996) cited in (Zeller and Meyer, 2002) stated that Professor Mohammad Yunus,
a Bangladesh, addressed the banking problem faced by poor villagers in southern Bangladesh
through a program of action research. With his graduate students at Chittagong University, he
designed an experimental credit program to serve the villagers. The program spread rapidly to
hundred of villages. Through a special experimental relationship with local commercial
banks, he disbursed and recovered thousands of loans, but the bankers refused to take over
the project at the end of the pilot phase. They feared it was too expensive and risky in spite of
its success (Zeller and Meyer, 2002). When we see the condition of most microfinance
clients, giving loans for them seems risky. Because getting the money back from the
borrower needs special follow up and also the absence of collateral for lending aggravate the
fear.
2.3 Microfinance Institutions in Ethiopia
The development of microfinance institutions in Ethiopia is a recent phenomenon. The
proclamation, which provides for the establishment of microfinance institutions, was issued
in July 1996. Since then, various microfinance institutions have legally been registered and
started delivering microfinance services (Wolday, 2000). The number of micro finance
institutions as well as the number of clients is increasing from time to time. The existing
political and economic condition of the country contributes a lot for the development of the
microfinance industry. According to Getaneh (2005) the Licensing and Supervision of
Microfinance Institution Proclamation of the government encouraged the spread of
Microfinance Institutions (MFIs) in both rural and urban areas as it authorized them, among
other things, to legally accept deposits from the general public (hence diversify sources of
funds), to draw and accept drafts, and to manage funds for the micro financing business.
In this case some MFIs have strong capacity to serve a large number of clients by using their
financial and geographical advantage. These three institutions take more than 50% of the
market share. This means they are reaching and serving many poor in their areas.
2.4 The Need for Microfinance
Microfinance institutions play many roles in the development process. The need for
microfinance is also increasing in many countries. According to (Parker et al., 2000), in the
right environments, microfinance can accomplish many roles such as financer people’s
economic choices, diversifying household income, making household less vulnerable to
downturn in the economy or personal, smoothening income flows of the household, improve
quality of life throughout the year and strengthen the economic position of women so that
they can take greater control of decisions and events in their lives. In addition to this MF
contributes in the process of household asset building. It also provides savings service,
allowing poor households to accumulate safe, but flexible cash accounts to draw on when
needed.
Microfinance services lead to women empowerment by positively influencing women’s
decision making power at household level and their overall socioeconomic status. By the end
of 2000, microfinance services had reached over 79 million of the poorest of the world. As
such microfinance has the potential to make a significant contribution to gender equality and
promote sustainable livelihood and better working condition for women (Noreen, 2011).
According to United Nations Millennium Development Goal (MDGs) microfinance is a
strategy to change the life of the poor people in terms of generating revenue to cover the
necessary cost and institutions meet the demand (United Nation, 2011). Micro finances
support the process of development by changing the situation of the poor through facilitating
different services which are necessary for poor.
2.5 Performance Measurement of MFIs
According to Basu and Woller (2004) cited in (Wale, 2009), two different perspective on
which the MF performance is to be measured has created two opposing but having the same
goals school of thought about the MFI industry. The first one are called welfarists and the
second one institutions. Welfarists argue that MFIs can achieve sustainability without
achieving financial sustainability. They contend that donations serve as a form of equity and
as such donors can be viewed as social investors. Unlike private investors who purchase
equity in publicly traded firm, social investors don’t expect to earn monetary returns. Instead,
these donor investors realize a social (intrinsic) return. Welfarists tend to emphasize poverty
alleviation, place relatively greater weight on depth of outreach relative to the breadth of
outreach and gauge institutional success according to social metrics. This is not to say that
neither breadth of outreach nor financial metrics matter. Welfarists feel these issues are
important, but they are less willing than institutions to sacrifice depth of outreach to achieve
them. On the contrary, institutionists argue that unless we build sustainable MFI that are
capable of running independent of subsidies the promise of MFI of eradicating world poverty
will not be met. They argue that sustainable MFI helps to expand outreach and reach more
poor people.
Hence, even if the two schools of thought seem contradictory, they are actually not. Their
goal is eradicating poverty. Their difference lies on how to go about it. Welfarists say we
have to target the very poor and profitability shall be secondary. They prefer to charge
subsidized and low interest rates by relying on donor funds. Institutionist argues donor funds
are unreliable and MFIs must by themselves generate enough revenues to reach more poor
people in the future. They favour marginally poor customer. They charge higher interest rates
and focus on efficiency of MFIs to generate profit and reach more poor. The debate between
the two schools of thought is endless and today many players in the MF industry use both the
welfarists and instututionist perspective to assess the performance of MFIs (Wale, 2009).
2.6 Challenges of Microfinance Institutions
Most microfinance programs are small and vulnerable to resource constraints. Most operate
in a few locations and serve specific clusters of clients, so they are exposed to the systematic
risks of undiversified loan portfolios. Most mobilize few savings and not financially self-
sufficient, so they are dependent on the whims of donors and government for their future
existence (MEYER, 2002). Microfinance institutions may face financial problems which
affect their performance. When the customer of the institutions increases the required money
for loan disbursement also increase. On the other hand, when the operational areas of the
institutions is limited (less outreach), it is difficult to be profitable.
2.7 Factors Affecting the Performance of MFIs
Huang (2005) cited in (Vanroose, 2008) distinguishes three groups of factors: policy,
geographical and institutional factors.
Policy Factors: There are different macro-economic factors related to MFIs. The first factor is
the income level. Westley (2005) cited in (Vanroose, 2008) states that regions with higher
levels of income have less developed microfinance sectors. He provides two reasons. Firstly,
micro-entrepreneurs with higher incomes have more opportunities to self-finance through
savings. Secondly, they may benefit more easily from informal finance through family and
friends, as well as from formal finance.
Similarly, Schreiner and Colombet (2001) argue that one of the reasons why microfinance in
Argentina has not developed is due to the higher wages people earn. Traditionally,
microfinance also focuses on the poor excluded clients, so microfinance should be reaching
more clients in regions that are poor. The other factor is economic instability of the country.
Microfinance is more developed in countries that have relatively in stable economies. The
international donor community has historically played an important role in subsidizing the
emergence and further development of microfinance programs.
Imboden (2005) cited in (Vanroose, 2008) stated that, as most institutions started as non-
governmental organizations, external financial intervention was needed.
Geographic Variables: Stieglitz and Weiss (1981) cited in (Vanroose, 2008) stated that
transaction and information costs influence financial development. In some cases, they lead
to market failures. Good interconnectivity between regions, the availability of electricity,
communications and sanitation networks lower these costs. A high population density also
helps. According to Sriram and Kumar (2005) cited in (Vanroose, 2008) two contradictory
arguments could be made. The first is that formal financial institutions may be more
developed in regions with higher population density and good regional interconnectivity.
Thus the need for specific MFIs may not be present. The second is that, if the development of
the two sectors is complementary, these factors could eventually also stimulate the
development of the microfinance sector. Hulme and Moore (2006) cited in (Vanroose, 2008)
also support the hypothesis that microfinance tends to develop much faster in densely
populated areas.
Institutional Variables: Institutions play an important role in the development process of a
country. One institution that is often mentioned in the microfinance literature is the
educational system. The role of human capital in financial sector development is widely
recognized (Vanroose, 2008). Paulson (2002) cited in (Vanroose, 2008) finds that regions
with higher levels of education have more developed financial systems. Guiso et al (2004)
cited in (Vanroose, 2008) also find positive effects of social capital in financial sectors.
2.8 Empirical Literature Review
Many studies were conducted on the issue related to microfinance institutions performance,
challenges their impact on the economic and social condition of the rural poor. The study
conducted by Ebisa et al., (2012), shows that the mean amount of loans extended by 30
microfinance institutions in the country is 2.2938, whereas the mean borrowing customers
equal an amount of 8.2434. As it is indicated in this study the R square value is 0.913
implying that 91.3% of the variations in the amount of loans extended by 30 microfinance
institutions in the country are explained by the number of borrowing clients. On the other
hand, the Pearson correlation indicates strong positive linear relationships between number of
borrowing clients and amount of loans extended. The total number of active borrowing
clients of the microfinance institutions in Ethiopia reached over 2.4 million customers in
2011 whereas the total credit extended by all microfinance institutions amounted to Birr 6.9
billion. Of the total credit granted, the share of the three largest Microfinance institutions is
Birr 5.1 billion. The market shares based on the number of borrowing clients are 28.1, 16.1
and 20.4% for Amhara Credit and Saving Inst (ACSI), Dedebit Credit and Savings Inst
(DECSI) and Oromia Credit and Savings (OCSSCO), respectively.
Lack of skilled personnel is the common problem in Ethiopian Microfinance Institutions.
This situation is more exacerbated by high turnover of experienced personnel either for the
need for better jobs or hate to work in rural areas with minimal facilities provided as
compared to urban areas which offer better living conditions. There is also a problem of using
modern core finance technologies for many of MFIs specially those microfinance institutions
operating in remote rural areas having poor infrastructure development. As a result, there are
problems of non-standardized reporting and performance monitoring system. On the other
hand, MFIs face challenges of obtaining loans in the existing financial market, particularly
from banks, which hampers strive for addressing various needs of clients. There is an illegal
way of doing the micro financing business from the side of the government, NGOs and other
agencies which continue to provide uncollectible loans by violating the proclamations ratified
by the House of People’s Representatives. Apart from this, there are deep concerns within the
microfinance sector about the growing issue of inflation on the profitability of MFIs, and the
ability to maintain low interest rates (Ebisa et al., 2013).
A Contrast of Grameen Bank to a Traditional Bank
The Grameen bank differs from that of traditional banks in so many ways. According to
Hassan (2002) the Grameen diverges from traditional banking in the selection of the clientele
that it has chosen to serve, in the methods it employs to serve this clientele and in the
products that it offers to this clientele. Accordingly Grameen has chosen to serve the
‘‘poorest of the poor’ ’ in rural Bangladesh and has targeted women, believing that they are
the most needy of the poor. Through its lending and social policies, Grameen intends to
permanently elevate these poor to an acceptable level within their society. Women are among
the most vulnerable group of the society in Ethiopia. Most of the clients of MFIs are women.
This shows the idea of Grameen bank is shared by many micro finance institutions.
In addition to this, Grameen differs from traditional banks in the value of the principal
amounts and types of the loans it offers, the terms of its loans, the repayment conditions of its
loans, its lending procedures and in the overall social consciousness and guidance that it
incorporates in its loan policies. Grameen is attempting to reach a very large population of
uneducated, rural poor. Much of this population rarely, if ever, dealt with the Bangladesh
Taka currency, but lived in a barter society. Grameen could not expect these people to come
to the bank, as traditional banks expect, but was required to deliver the bank to the people
(Hassan, 2002).
2.9 Conceptual Framework
The performance of Microfinance Institutions can be affected by different internal and
external factors. Studies indicated the success or failure of the institutions is directly or
indirectly related to different factors. Institutional, social, economic as well as environmental
factors play a great role on the performance of the institutions. Institutional factors related to
the financial capacity, the capacity of the institutions to serve their clients, the use of different
cost effective and efficient technologies in the institution and other related issues. Social
factors on the other hand are related to the conditions of the clients. Social factors include the
tradition, saving habit of the people, the existence of other means for borrowing in the
community and so on. In addition to this, Environmental factors such as geographical
location of the clients, availability of infrastructure, and others contribute for the performance
of the MFIs. Economic factors also have a significant effect on the performance of
Microfinance Institutions. For instance, the economic level of the country in which MFIs are
operating is directly related to the outreach of the institutions and their sustainability. The
following diagram shows the relationship between the factors and performance of MFIs.

Institutional Factors
Clientele
Factors

Success of
Factors Performance of MFIs
Microfinance
Economic Institutions
Factor

Political Factors

Figure 1. Conceptual framework of the study

 CHAPTER THREE
1 RESEARCH METHODOLOGY
1.1 Research Design
Research design provides the basic direction for carrying out a research project to obtain
answer to research questions. It is a master plan specifying the method and procedures for
collecting and analysing the need of information. Research design is needed because it
facilitates the smooth sailing of the various research operations, thereby making research as
efficient as possible yielding maximal information with minimal expenditure of effort, time
and money (Kothari, 2004:32). It helps the study to be relevant to the problem and it uses
economical procedures.
In this research the researcher will be use descriptive research approach, because it describes
and interprets findings from primary and secondary data.
1.2 Research approach

There are two methods in the research method such as Quantitative and Qualitative, where
one of them is not better than the others, all of this depends on how the researcher want to do
a research of the study (Ghauri and Kjell, 2005).This study will be use mixed research
approach that is both quantitative and qualitative research approach. When using the mixed
approach the researcher mixes different data collection methods. Which enable the researcher
to use the same phenomenon from different perspective in order to understand the problem
more completely (Creswell, 2007).
1.3 Target population
A survey population is the aggregation of elements from which the survey sample is actually
selected (Yeraswork 2010). The target population will be included both two types of subjects:
namely Dilla Town OMO Micro finance institution branches employees and clients. The first
one will be deal with 20 employees working in Dilla Town OMO Micro finance institution
and the branch was has 1006 active clients/customers.

1.4 Sampling Techniques and Sample Size

The study will be involve a multistage sampling i.e. a combination of purposive, cluster and
simple random sampling procedures to select the study area, kebeles and sample clients. In
the first stage, Dilla Town OMO Micro finance institution will be select purposively because
it has potential clients in service of Micro finance institution.
In the second stage, Dilla Town will be classifies in to three clusters because the total 9
kebeles have OMO Micro finance institution clients. Thus in cluster sampling the total
Population is divided into a number of relatively small subdivisions which are themselves
clusters of still smaller units and then some of these clusters are randomly selected for
inclusion in the overall sample (C. R Kothari 2004).

In the third stage, out of Three clusters in the Town one cluster will be select by using
simple random sampling techniques totally Three kebeles will be select from the selected
cluster. These Kebeles are Hasa dala, Buno, Harorasa. Finally, Due to limited resources and
time required a sample will be needed following the laws of the statistical theory of sampling
in order to draw valid inferences from the sample and to ascertain the degree of accuracy of
the results. Therefore, to determine the sample size the researcher was used Yamane, 1967
formula.
N
n=
1+ N ( e ) 2
Where;
n= sample size
N= total population =1006
e= error factor = 10%
Following this procedure, 91 sample clients will be selected from 1006 eligible clients. In
addition to that by using proportion to sample size 91 samples clients will be distribute in to
three kebeles by using the following formula.
Na
na= ∗n
N
na= cluster sample
Na= cluster population
N = total population
n = total sample
Table 1.1 sample kebele of the study
Name of the Total no of clients/customers in each Sample size in each kebele
kebele kebele
Hasa dala 121 35
Buno 89 26
Harorasa 102 30
Total 312 91
Source: - Survey Data 2021
1.5 Source Of Data Collection

To accomplish the objective of the study, all necessary and relevant data will be obtain from
both primary and secondary data. The primary data will be gathering through structure
question and interview. The secondary source will be collected from both published and
unpublished documents, such as book, journal, reports, internet and others related sources.
1.6 Data collection techniques

1.6.1 Primary Data Sources

The primary data will be collected through survey (Questionnaire, personal interview, and
field observation).

 Questionnaire:

The researcher will be prepare and distribute both open and close and questionnaire to
sample population: to extract reliable, valid and representative data about Factors Affecting
the Performance of Microfinance Institutions in Case of Dilla Town OMO Microfinance
Institutions.. The close ended questionnaire will be used to capture direct answers from
respondents. Whereas, open ended questionnaire will be employ to allow respondents to
express their view as they wish so that it is possible to fill the gap which is created by close
ended option.

 Interview:

Semi-structured interview will be employ to Branch Manager and Accountants and the rest
employee of the institution to gather information to support data which are collected through
survey techniques, and again to extract deeper qualitative data, and to get level of
organization management awareness and commitments on the impact of management
information system on organizational performance.

1.6.2 Secondary Data

The study will be use both published and unpublished secondary data collection techniques
like book, journal, reports, internet and others related sources.

1.7 Methods Of Data Analysis

The data will be collected through questionnaires will be analysing by quantitative and
qualitative data analyse method. The data’s those gained through questionnaires will be
analysing in the form of percentage histogram, pie chart and table.
 CHAPTER FOUR
4 WORK PLAN AND BUDGET

4.1. Work plan

The following work schedule is prepared in restrictedly adhering the given term of three
month time budget.
Table 1: Work schedule

S/no Activities Completion Timeline (Months)

June July August
1 Proposal development & provision
2 Reviewing related literature
3 Data collection
5 Data processing and classification
6 Data analysis and interpretation
7 Typing analyzed data on the ordinal paper
8 Final paper submission an presentation

4.2. Cost budget

Table 2: Research Budget in Birr

S/no Description Measurement Unit Unit Total cost

cost
1 Stationary materials (pan, paper. . .) no 2 270 540
2. Typing &Printing no 51 6 306
3 Transportation cost no 10 15 150
4 Internet & telephone cost 8 30 240
5 Photo copy no 51 2 102
6 Banding no 3 25 75
Sub total 1,413

References
 Amha, W. & Narayana, P. (2000). Review Of Microfinance Industry In Ethiopia:
Regulatory Framework And Performance, Aemfi.
 Assefa, E., Hermes, N. & Meesters, A. ( 2013). Competition And The Performance
Of Microfinance Institutions. Applied Financial Economics, 23, 767-782.
 Dasgupta, R. (2005). Microfinance In India: Empirical Evidence, Alternative Models
And Policy Imperatives. Economic And Political Weekly, 12291237.
 Derban, W. K., Binner, J. M. & Mullineux, A. (2005). Loan Repayment Performance
In Community Development Finance Institutions In The Uk. Small Business
Economics, 25, 319-332.
 Ebisa Deribie, Getachew Nigussie & Mitiku, F. (2013). Filling The Breach:
Microfinance. Jimma University, Ethiopia.
 Ethiopia, N. B. O. ( 2012). 2011/12 Annual Report. Addis Abeba: National Bank Of
Ethiopia
 Hassan, M. (2002). The Microfinance Revolution And The Grameen Bank
Experience In Bangladesh. Financial Markets, Institutions & Instruments, 11, 205-
265.
 Hermes, N. & Lensink, R. (2007). Impact Of Microfinance: A Critical Survey.
Economic And Political Weekly, 462-465. Jbas Vol.6 No. 1 June 2014 45
 Hurissa, R. (2012). Achievements And Challenges Of Microfinance Institution In
Addis Ababa, Ethiopia.
 Kothari.C.R. (2004). Research Methodology, Method & Techiques Second Revised
Edition. New Delhi, New Age International Private Limited Publisher
 Koveos, P. & Randhawa, D. (2004). Financial Services For The Poor: Assessing
Microfinance Institutions. Managerial Finance, 30, 70-95.
 Lafourcade, A.-L., Isern, J., Mwangi, P. & Brown, M. (2005). Overview Of The
Outreach And Financial Performance Of Microfinance Institutions In Africa.
Microfinance Information Exchange, Washington, Dc. Http://Www. Mix Market.

 Meyer, F. Z. R. (2002). The Triangle Of Microfinance: Financial Sustainability,

Outreach And Impact United States Of America, The Johns Hopkins University Press.
 Morduch, J. (1999). The Microfinance Promise. Journal Of Economic Literature, 37,
1569-1614. Noreen, S. Role Of Microfinance In Empowerment Of Female Population
Of Bahawalpur District. International Conference On Economics And Finance
Research, (2011). 318-324.
 Parker, J., Singh, I. & Hattel, K. (2000). The Role Of Microfinance In The Fight
Against Hiv/Aids. Development Alternatives, Inc. (Dai), Bethesda, Maryland.
  Sinha, F. (2006). Social Rating And Social Performance Reporting In Microfinance.
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 Vanroose, A. 2008. What Macro Factors Make Microfinance Institutions Reach Out?
Savings And Development, 153-174.
 Wale, L. E. (2009). Performance Analysis Of A Sample Microfinance Institutions Of
Ethiopia. Available At Ssrn1398167.
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 Yirsaw, A. ( 2008). The Performance Of Micro Finance Institutions In Ethiopia: A
Case Of Six Microfinance Institutions. Master’s Degree, Addis Ababa University.
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Sustainability, Outreach, And Impact, Johns Hopkins University Press

Annex one
DILLA UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF ACCOUNTING & FINANCE
Dear Respondent, This Interview Questionnaire is held to gather data with the topic on ―
Factors Affecting the Performance of Microfinance Institutions in Case of Dilla Town OMO
Microfinance Institutions..

The information that you offer in this Interview Questionnaire will be used as a primary data
in the research which I am conducting as a partial requirement of BA Degree on Accounting
& Finance in Dilla University under the school of Business and Economics. Personal
responses of the respondent of this questionnaire are systematically and objectively secure.
So you are kindly requested to extend your cooperation for the success of this study by
genuinely answering all questions in the questionnaire. I assure you that your individual
answers will be kept strictly confidential and will be use academic purpose only.

Thank You In Advance

General Interaction

 There is no need of writing your name.

 In all cases where answer options are available please tick (√) in the appropriate box.
1 Age
a) 20-35 b) 36-45
c) 45 and above
2 Sex
a) Male b) Female
3 Marital status
a) Single
b) Married
c) Widowed
d) Divorced
4 Educational level
a) Illiterate b Primary & Secondary school
c) TVET/ College d) Degree and above
5 Why you borrow money from OMO micro finance institution?

A. To start a new business

B. To upgrade the existing business
C. For medical cases
 D. For other purpose
E.
6 What Amount of money invested on income generating activities?
A. 100%
B. 50-75 %
C. 25-50%
D. Below 25%
7 Have you taken training from OMO micro finance institution?
A. Yes
B. No

8 Which types of training did you get so far?

A. Training related with the new business
B. Training related with entrepreneurship
C. Training related with saving
9 Did you get monitoring and support from OMO micro finance institution?
A. Yes
B. No
10 Do you have voluntary saving in OMO micro finance institution?
A. Yes
B. No

11 Level of agreement and disagreement of clients on different issues

S.N Item Strongly Agree Neutral Disagree Strongly

o Agree Disagree
1 MFIs are serving the
poor properly
2 Interest rate of MFIs are
fair to the poor
3 The repayment schedule
is comfortable to the
clients
4 The institutions have
easy process to get
service
5 The institution is near to
my home
6 The amount of the loan
given by MFIs enough
7 It is better to borrow
from MFIs than other
source
8 There is improvement in
my life after getting the
loan

Thank you