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1. HAYMANOT ALEMAYEHU ………………. 02170/09

2. LETAY AREGAWI…………………………... 02513/09



JUNE 30, 2019

Woldia, Ethiopia

First of all, we would like to thank the almighty GOD for his kindness, loyalty and tolerance in
all our works till now. Our special thanks also go to our advisor, Mr. Abdulaziz K. (MSc) for
devoted his valuable time and for his fatherly and professional advice from starting to
completion of the study.

We want to confess that we never do anything entirely by our self. Many people contribute their
ideas and financial needs to our research and we would like to take the opportunity to thank them
for their generous help, cannot possible cite, but the most impact full contributors were Ato
Nigusse who gave important suggestion and any financial requirements (needs) at different stage
of the preparation of this paper.

Our last but not least thanks were for Woldia university business and economics faculty for
designing such project through which student develops their knowledge.

The detailed examination of this research was focused on the contribution of Micro finance
institution (credit and saving institution) in small business creation in case of Woldia town. This
study was conducted to evaluate the performance of MFIS to follow up its clients in order to
improve themselves, to point out the significance of ACSI in small business creation and how
support its clients to start their own business.

The methodologies used to collect the primary data were questionnaires and interviews.
secondary data were gathers from books, published and un published documents, from reports
and likes, data analysis was made using descriptive method and interpreted by tabulation,
percentage and make and sampling method. The borrowers of ACSI are totally 1072, out of this
91 respondents were selected a samples.

Based on result of analysis, most of the clients had positive attitude toward interest rate, due
date and loan period. Similarly, most of the clients have also positive attitude towards improve
them solves after came to ACSI.

ACSI=Amhara credit and saving institutions.
SMEs=Small and medium scale enterprises.
MFIS=Micro finance institutions.
TVET=Technical and vocational education training.
CSA=Central statistical authorities

Table of content

Content page

Acknowledgment -----------------------------------------------------------------------

Abstract ----------------------------------------------------------------------------------

List of table ------------------------------------------------------------------------------


1 Introduction ---------------------------------------------------------------------------1

1.1 Back ground of the study -------------------------------------------------------1

1.2 back ground of the organization ----------------------------------------------1

1.3 statement of the problem-----------------------------------------------------------2

1.4 Research questions-----------------------------------------------------------------3

1.5 Objective of the study --------------------------------------------------------------3

1.5.1 General objective ----------------------------------------------------------------5

1.5.2 Specific objectives--------------------------------------------------------------3

1.6 significance of the study -----------------------------------------------------------4

1.7 scope of the study ----------------------------------------------------------------------4

1.8 Limitation of the study ---------------------------------------------------------------4


2 Literature Review---------------------------------------------------------------------------5

2.1 Theoretical literature-------------------------------------------------------------------5

2.2 definitions of MFIs---------------------------------------------------------------------------------5

2.3 The need for development of MFIs--------------------------------------------------------

2.4 Micro finance revolution ----------------------------------------------------------------------------

2.5 The need for MFIs ----------------------------------------------------------------------------------

2.6 Goals of MFIs-----------------------------------------------------------------------------------------

2.7 Credit delivery mechanisms------------------------------------------------------------------

2.8 Historical background of small business---------------------------------------------

2.9 Definition of small business----------------------------------------------------------------

2.10 Advantage of small scale business-----------------------------------------------------

2.11 Problems of small business in Ethiopia----------------------------------------------

2.12 Small business failure factors-------------------------------------------------------------

2.13 Problems of MSEs -----------------------------------------------------------------------------

2.14 Source of startup capital -----------------------------------------------------------------------

2.15 Problems and techniques of MFIs in small business---------------------------------------

2.16 Empirical review…………………………………………………………………..

3. Research Methodology --------------------------------------------------------------------------------

3.1 Research design and approach-------------------------------------------------------------------

3.2 Data source--------------------------------------------------------------------------------------------

3.3 Data type ---------------------------------------------------------------------------------------------

3.4 Method of data collection----------------------------------------------------------------------------

3.5 Population, Sampling technique, and sample size----------------------------------------

3.5.1 Target Population----------------------------------------------------------------------------------

3.5.2 Sampling techniques----------------------------------------------------------------------------

3.5.2 Sample size-----------------------------------------------------------------------------------------

3.6 Methods of data analysis and presentation---------------------------------------------------------

4 Data presentation, analysis and interpretation --------------------------------------------------

4.1 Profile of sample respondents ----------------------------------------------------------------------

4.2 Analysis of closed ended questions------------------------------------------------------------------

4.3 Interview question analysis and interpretation ----------------------------------------------------

5. Conclusion and Recommendation-----------------------------------------------------------

5.1 Conclusion --------------------------------------------------------------------------------------

5.2 Recommendation ------------------------------------------------------------------------------


Table 1.1 Age and sex distribution of respondents……………………………………………

Table 1.2 Educational levels of respondents………………………………………………….

Table 1.3 Types of business activities of respondent………………………………………..

Table 1.4 Respondents source of initial working capital…………………………………….

Table 1.5 Respondents feedback on distribution of size of loan to client’s amount…………

Table 1.6 Respondents feedback on activity performed by clients by using loan………….

Table 1.7 Respondents experience ability…………………………………………………..

Table 1.8 Respondents feedback on areas of problems they faced…………………………

Table 1.9 Respondents feedback on training given to them………………………………..

Table 1.10 Respondents feedback regarding types of training they get…………………..

Table 1.11 Respondents feedback on credit repayment on time…………………………..

Table 1.12 Respondents feedbacks on reason for not repay credit………………………..

Table 1.13 Respondents feedbacks on advantage of credit……………………………….

Table 1.14 Respondents living standard before and after they get credit facility…………

Table 1.15 ACSI responses for loan request for customer………………………………..

1.1 Background of the study
Small business enterprise has broader base of participation in the society by the creating job for
the community and give both employee and employer a state of succession in the future. It builds
social and political stability, and it provides the kind of innovation, and it creates gains,
productivity, increasing local and even national prospect. However, micro and small scale
enterprise cannot perform and grown by them, they have to be support by governmental as well
as micro finance institutions (Ledgerwood, 2000).

Both governmental and non-governmental organizations investment in small scale business

benefits not only the business to exist, but also encourages citizens to give small business owner
ship. However, along with government good policies micro finance institutions play a significant
role for the creation of small business enterprise by extending a wide range of services. Micro
finance gives people's new opportunities by helping them to get and secure finance so as to
equalize and make them responsible for their own capital (Meghan, 1999).

It is known worldwide that the poor cannot borrow from its banks. Banks don't lend to them
because they don't have what is required to be granted a loan or to be provided with a bank
services. The lack of financial power is the contributing factor to most of societal problem.
Micro finance institutions provide working capital for small scale business in the form of loan
for individual to engage themselves in those businesses. However, MFIs need some securities for
the loan. It is hard for the individuals and societies to secure collateral (Morduch j., 2010).

In addition, MFIs also set a specific period of time for the repayment of loans which cannot be
meet the enterprise. Surprisingly, no matter the case micro finance institutions have continue to
be the best sources of capital for small business enterprises, sometimes extending some
additional incentives are necessary (Kihandkr, 2000).

1.2 Background of the organization

Woldia town is the capital of semien Wollo zone in northern Ethiopia, located in north of Dessie
and south east of Lalibela in Amhara region. This town has an elevation of 2012 meters above
sea level. Based on the 2007 national census conducted by CSA of Ethiopia this town have total
population of 46,139, of whom 23,000 are men and 23,139 are women. This town also located
around 521 Km from Addis Ababa.

A group of poor, low income and unemployment segment of the community of the town was
not able to have access to financial services provided by the private and public banks, because of
lack of collateral. On the other hand the surrounding rural people do not have access to service
offered by the banks as they live in remote distance rural areas. Micro finance institution arose in

1980's as response to doubt and new research findings about state delivery of subsidized credit to
poor farmers. In 1990's government agencies were predominant methods of providing productive
credit to those with no previous access to credit facilities, peoples who had been forced to pay
high interest rate or subject to rent seeking behavior. Government and international donors
assumed that the poor required cheap credit and saw this as a way of promoting agricultural
production by small land holder.

Amhara credit and saving institution started operation in1995 as a department of local NGO, the
organization for rehabilitation and development of Amhara (ORDA) and has grown to become
one of the largest micro finance institution in Ethiopia.

Vision of ACSI

To see poverty eradicated not only in Amhara regional state but also in the country through the
provision of high quality of financial services by establishing a competent, strong, efficient,
stable and sustainable financial institutions in our continent.

Mission of ACSI

The mission of ACSI is to improve the wellbeing of those individuals operating in the areas of
subsistence agriculture, micro, small and medium enterprises by increasing their income and
wealth through provision of quality and sustainable micro finance services.


Create job opportunity for the unemployed part of the population by promoting micro small and
medium enterprises in the region, build financially sound and sustainable institution

1.3 Statement of the problem

Small scale enterprises which include activities like manual laborers in forestry, mining, small
and marginal farmers, weavers, hawkers, vendors and workers in house hold micro enterprise,
small entrepreneurs who have gone in for commercial crops and others engaged in diary, poultry
and among nonfarm activities those in villages and slums engaging in processing or
manufacturing activities and other are important in creating a job opportunities for the largest
segment of the population and source of income for the people and engine to the development of
the country (Wolday, 2001).

The development of the small scale business enterprise face many challenges including
shortage of initial or working capital to start up the business, no access to the business
opportunities, lack of markets, inputs and demand, low level of entrepreneur ability from
individual prospective can be depicted important factors affecting the development of small scale
business enterprises(Menigstu, 2001).

Micro finance institutions require small business owners to repay the loan easily, which is
sometimes difficult to the individuals to repay within the limited period of time. Moreover,
government also provides some credit for the individuals to engage themselves in small business
and improve their way of life. However, micro finance institutions continue in the provision of
loans for the poor and low income households who engage in small scale business (Schreiner &
Colombet, 2001).

Therefore, the role of microfinance institution in the expansion of the enterprises by extending
of other services like savings, insurance, money transfers, credit, pension payment, gold
management, current account, leasing and social services such as group formation, development
of self confidence and training in financial literacy and management capabilities among
members of the group which constitutes the non financial intermediation activities of
microfinance institutions which are important for improving the lives of the people and to the
countries development as a whole (Ledgerwood, 2000).

The previous conducted research specially (Alemneh, 2005) on contribution of MFIs on small
business creation reaches to find out problems related with lack of easy access to capital market
and problems faced by SMEs with regard to finance. By having look of these findings the
researcher needs to add value by examining the contributions provided by MFIs to small scale
enterprise and, the mechanisms used by MFIs to encourage expansion of SMEs.

1.4 Research questions

• What are the contributions provided by micro finance institutions to small scale

• What are the major problems faced by small scale enterprises with regard to finance?

• What are the mechanisms used by micro finance institutions to encourage the expansion
of small scale enterprises?

1.5 Objective of the study

The studies have two main objectives. These are: General objective and specific objectives.

1.5.1 General objective

The general objective of this study is to assess the contribution of the microfinance institutions in
the development if small business enterprises.

1.5.2 Specific objectives

Specific objectives of this study are listed as follows;

• To assess the accessibility of the credit.

• To examine the major problems faced by small scale enterprises with regard to finance.

• To find out the mechanisms used by micro finance institution to encourage expiation of
small scale enterprises.

1.6 Significance of the study

From the researcher point of view the study provides the following significances: The study
would create awareness about the benefits gained from the microfinance institution, to initiate
the concerning party to give the dual attention to help microfinance institutions in providing the
financial goods and service, and the output of these study help other person who wish to make
further study of the topic.

1.7 Scope of the study

Even though the problems are serious in Ethiopia, the scope of this study was delimited to
Amhara region, Woldia only. Because of financial and time constraints studding the whole ACSI
is difficult. The study would address the contributions of microfinance institution in enhancing
household’s welfare and challenges that micro and small scale business enterprises may face.

1.8 Organization of the paper

The research paper has five main chapters. The first chapter consists; Background of the study,
background of the organization, statement of the problem, objective of the study, research
questions, significance of the study, scope of the study and limitations of the study. The second
chapter describes the literature review related to the subject matter. The third chapter presents the
methodology of the study. The fourth chapter, which is the main body of the study on data
analysis and presentation, is presented, and the fifth chapter provided conclusion and
recommendations on the study.

1.9 Limitation of the study

The study faced the following limitations.

• respondents un willing to give relevant information

• lack of time to collect, organize and analyze the data

2.1 Theoretical Literature
2.2 Definition of Micro finance Institutions
Many authors define MFIs in almost similar manner. To mention some; Wolday Amaha defines
micro finance as suitable financial and other service which are usually provide by institution by
using innovative methodologies and system at low cost to meet the need of low women section
of the population (wolday,2000). Pianos (1994) define the term as provision of vey small loans
which are used for income generation and emergency needs. Providing such loans prevent
people, having people to pay extortionate payment to many lenders and there by allocating
poverty and promotes income generation and broad based economic growth.

As presented in home pair of micro finance gate way, Micro finance defined as financial
service for poor and low income clients. In practice the term is often used more narrowly to refer
to loans and other services from those themselves as MFIs. These institutions commonly tend to
use how method developed over the last 30 years to delivery small loans to borrowers, taking
little or no collateral. This method includes group lending and liability, pre loan selling
requirements, gradually increasing loan size and simplicity graduates of ready access to future
loans. Its present loans are repaid fully and promptly, more broadly. Micro finance refers to
moment that envisions a world in which low income households have permanent access to
arrange of high quality financial services to finance their income producing activates, build
assets, stabilize consumptions perfect against risks. This service is not limited to credit but
includes saving, insurance and money transfers ( gateway. com).

In Ethiopian context, the federal democratic republic of Ethiopia proclamation No 40-1996

defines Micro finance business as “ an activity of extending credit in cash or in kind to peasant
farmers are urban entrepreneurs, the loan site of which shall determined out faxed by the
national Bank of Ethiopia (NBE)”.

2.3The need for and development of Micro finance

Different economists & organization have put many needs for MFIs especially in rural sector.
Theodore Geioer and Winfred in their book” the development of African private enterprise stated
that” … for small entrepreneurs, the initial capital investment usually comes from saving derived
from wages; therefore a need for formal lending and saving institution arises”.

The problem of lacking credit can be conceptualized by looking at the supply & demand size of
financial market. The supply side constitutes financial institution of conventional banking,
saving and credit cooperatives, NGOS, Government Project semiformal and informal sectors and
MFIs. However, informal financial systems have a No problems such as: - Interest rate fluctuates

seasonally because there are seasons where peasants need more funds, at this time interest rate
rise, interest rate in the informal sector is very high, there is transparency in lending activity,
there is no specialization that most of the lenders informal financial sectors are not professionals
(Robinson, 2000).

Fedler and Webster, 1996, in their study of the informal sectors of West Africa, stated that the
entrepreneur asked to report their most serious financial constraints… indicated lack of money,
specifically insufficient working capital and inability to get sources of borrowing as at measure
problem facing their business. Thus making credit available is considered to be essential to small
business creation.

2.4 Micro finance as a means to Economic Growth

Agricultural production in particular and urban development in general many researcher
findings indicates that more than 80% of the world’s population does not have access to financial
services from formal financial institutions for either credit, loan or saving. Among those of
course nearly all poor of the developing world are separate needs of credit and saving services
(Mengistu, 2001).

Micro finance client manage their cash focus and apply them to whenever, they judge most
important for their own welfare. Thus, micro finance is an essentially participation and non
paternalistic development input. Access to flexible, convenient and affordable finical services
empower and equips the poor to make their own choice and build their way to get out of poverty
in sustained and self determined way. Unfortunately poor people in most countries have virtually
no access to formal financial service (Robinson, 1998).

2.5 The need for MFIs (Micro finance Institutions)

The need for rural financial intermediary raises at least two facts. Firstly access to formal
financial institution particularly commercial bank provider difficult for the rural population. This
arises from the fact that the rural areas in developing countries are not convenient for the formal
financial transactions more over credit is often limited to few production purpose. Sometimes
input in Ethiopia case ignores the demand for credit for other farm and nonfarm enterprises as
well as for stabilizing trade consumption. Secondly, informal financial sector can react flexible
to the inherent difficulties of real financial intermediating. The major problem associated with
the informal market includes; exorbitant rate of interest, limited supply of credit compared to demand,
local guaranteed on a personal basis and request of repayments in the term of product or service
(Mengistu, 2001).

Formal financial institution has played less extend in financing urban and rural poor people
because of banking requirements for collateral and existence of banking procedures which in
most cases very difficult for this to deal and not appealing to the bank credit from informal
source is adequate and very high interest rate changed on such loan is too much exploitive costly
nature of informal financial sources led to the establishment of financial institution with

purpose of extending credit to the rural and urban poor in the following objectives; To extend the
banking facilities to the poor women and men, to eliminate the exploitation of money lender, to
credit opportunities for self employment (Meegher, 1998).

Micro finance as a provision of financial service to the poor involving small deposit loan as
stated by (Johansson, 1997), MFIs use poor monitoring is joint liability structure to overcome the
seeing monitoring and informant problem country in countered formal lending institution. MFIs
are often define in terms of the following characteristics; Targeting the poor (especially women),
promoting small business, building capacity of the poor, combining credit with saving, changing
commercial interest rate (world bank, 2000).

2.6 Goals of Micro Finance institutions

In many countries, poor people ranging from ultra poor to those engaged in small scale
enterprise are not usually beneficiaries of banks. The banks consider those underserved people as
non bankable for the last two decades. MFIs have been trying to fill this gap.

MFIs in different countries have varied setting but similar objective in a study under taken by the
World Bank (Ledgerwood, 1999). The following are impact based objective were frequently
cited: To create employment and income opportunities, to increase productivity and income, to
diversify source of income. In addition to impact based objective MFIs also consider two long
term goals;

1. Sustainability
Sustainability of MFIs is the “ability of a program to produce out puts that are valued sufficiently
by beneficiaries and other stake holders that the program receives enough resources and inputs to
continue a production”. It can also be defined as the ability to cover annual budgets including
grants, donations, and other fund raising or excess of operating income over operating cost.
Currently sustainability refers only two levels of sustainability associated with the micro finance
industry. These are

• Operational self sufficiency (OSS)

OSS indicates whether enough revenue has been earned to cover the MFI’s direct cost excluding
the cost of capital but including actual financing cost.

• Financially self –sufficiency (FSS)

FSS portray the actual financing health of MFIs. Financial sustainability indicates that income
from the micro finance services should be greater than the cost of providing services.

2. Outreach

Efforts to extend micro finance service to the people who are underserved by financial
institutions are classified as outreach. Outreach can be measured in terms of breadth No of
clients served and volume of services and depth- the socio economic level of clients that MFIs
reach. Outreach performance of MFIs can be measured by the No of clients, the percentage of
female client’s total value of assets, amount of savings on deposits, value of outstanding loan
portfolio, average savings, deposits size, average credit size and number of branches.

Explicitly or implicitly the goals of MFIs finances institution progeny rests on reducing poverty
through increased income. Explicitly determinations of the impact of MFIs on the well being of
clients vary different for the following reasons: If loan are used for purpose other than loan
application, borrowers are tempted to give false information, a complex source and use of funds
does not easily allow establishing a causal relationship between past and loan. It is difficult to
establish what would happen in the like of the borrowers without the loan, the existence of in
adequate income living below the poverty line is not the only problem with poor people. Their
income also fluctuates from the level of below poverty line situation to above poverty line and
vice versa (Khodlear, 1998)

2.7 Credit Delivery Mechanisms

Much of the literature on situation or formal credit concluded that directed rural credit programs
have rarely crated viable financial institution. Micro over policy maker have been ranged to
liberalize financial markets and to design credit programs that engage in true financial
intermediation rather than merely delivering credit from government or do not funds. These
include raising interest rates to cover costs. Nevertheless a small body theoretical research has
shown rising interest rates will not necessarily improve loan recovery rates since systematical
information and in perfect enforcement plague rural credit markets besides targeted loans may
also fail to reach target households even if the price of the loan is right (Khodlaer, 1998).

Many micro finance rely on group based lending and other method to receive the problem of in
perfect information and imperfect enforcement mechanisms in o lending by relying on poor to
monitor and enforce constricts. Group based lending provides and incentive for borrows to repay
and help to avoid, adverse selection of borrowers thereby improving loan recovery responsible
for each individual loans these represent a form of “social collateral” which is contrary to
physical collateral of land or assets that the former sector services usually require and which
poor people are un able to offer the rational of group lending is that if member having difficulty
with repayments other in the group will put pressure on that member defaults on the loan, the
whole group will repay the loan on behalf of the member (Susan & Rogaly, 1999)

2.8 Historical Back ground of Small scale business

Small scale business has played a role in history since particular time beginning of recoded time.
To first known pieces of writing on small business describes how bankers loaned money at
intercity appeared more than 4000 years ago. Small business flourishes almost ancient culture,
the Arabs, Babylonian, Egyptians, Jews, Greeks, Romans and etc.

During the 1980’s and 1990’s small business began to enjoy steam and prestige than even
before. A job security eroded and because also of the past years more men and women opted to
start their own business and take their chance on success or failure.

2.9 Defining small scale business

Definition of small business
Small scale business is defined as one that is independently operated and dominated in its field of
operation. A small business is also defined as one having fewer than 100 employees in regard to
retail stores, because most retail establishment have few employment and most retail enterprises
have few establishment. There are two approaches to define small scale businesses. These are:-

• Using and economical control: - This covers market share in independence and
personalized management.

• By some measure of size: - This type of measuring size criteria of small scale
business includes sales volume, asset size, insurance and others.

2.10 Advantages of small scale businesses

Despite the failure records of business, the desire for individuals to own and operate their own
business is still growing individuals pursuing a career in business ownership. Numerous benefits
(advantages) can be attained personally as well as professionally. The following lists are some of
the advantages of small scale businesses

• Family employment:- Is the opportunity to provide family members with a place of


• Community service:- Some times and individual will realize that a particular goods and
services are not available if the person has reason to believe that public will pay for such
output, he/she will start company to provide it.

• Independence:- most small scale businesses owners enjoy their own boss, they like the
freedom to do things their own

• Financial opportunities: - many small scale business owners make more money to run
their own company than working for someone else.

• Job security: when one owns a business, job security is answered

2.11 Problems of small Business in Ethiopia

Small scale industries have not been able to contribute substantially as needed to the economic
development, particularly because of financial production and marketing problems. These

problems are still major handicaps to their development. Lack of adequate finance and credit has
always been a major problem of Ethiopia small business. Small scale units do not have easy
access to capital market because they mostly organizing they do not have cases to industrial
services of finance because of their size and partly based on the fact their surpluses which can be
organized to repay loan are legalized based on limited profit, the reach for funds for investment
purpose (Hailay, 2007).

2.12 Small business failure factors

Every year many small scale business enterprises case operations. The most frequent cause is
failure to pay debts in which case it is common for the owners to declare bank raptly and to seek
to accommodate the creditors such as paying them 25 cent's. In other means, businesses go out of
existence because the owners realize that although currently they are solvent, if they continue
operations they will incur debts they cannot meet. In these instances a business failure can be
defined as a half of the operations (Hailay, 2007).

Year after year, the major reason that business that business failure is incompetence. The
owners simply do not know how to run the enterprise they make major mistakes and
experienced, well trained entrepreneur would be quickly and easily side step. The second most
common reason business failure is unbalanced experience. This means owners do not have well
sounded experience in the major activities of the business such as purchasing, production
finance. Because the owner lacks experience in one or more of these critical areas, the
enterprises gradually fails (Ibid, 1997).

2.13 Problems faced by micro and small scale Enterprises

The major challenges identified by various studies include that follows below. However, their
challenges are from time to time through out to be addressed by policy and institutional
starvation in all countries but not always to a great deal of avail.

The first problem faced by micro and small scale business enterprise is shortage of finance.
Given their limited means usually low profit, MSEs are always minted by in adequacy of finance
particularly that of working in adequacy, limited access to institutional services, mismatch b/n
required loans. The second major challenge of small business is that of marketing dependence on
one or very few customers, no product range, lack of understanding of customer needs, smaller
areas of operations, poor quality of production, poor distribution, promotion and advertisements
etc. The third problem is production, this means poor productivity, out dated technology,
frequent machine failures, lack of knowhow, poor quality control of raw materials etc. The
fourth problem of small business is management which is dishonesty and lack of integrity, lack
of managerial skills, death, removal or non availability of key personnel, delay in a project
implementation in proper and unplanned expansion of the projects. Costly, miscellaneous
problems of government decision like export import policy excise duty (Armendarize, 2010).

More over recent studies on small business indicated that small businesses in Ethiopia are
confronted by many problems. The constraints facing small business in most developing
economics are similar, unfavorable legal and regulatory environment in some cases,
discrimination regulatory practices, lack of access to markets, finance business information, lack
of business premises at affordable rate, low ability to require skills and managerial expertise, low
access to appropriate technology and poor access to quality business infrastructure,
(Endalkachew, 2008).

According to CSA report, the major obstacles experienced by small scale manufacturing
industrial were the irregular and erratic supply of raw materials and a shortage of suitable
working premises was also found to present difficulties for the informal sector operators who
faced. With in sufficient capital were often impended from the start (CSA, 2003).

2.14 Source of startup capital

“The use of money is all the advantage there is in having money”.(Benjamin Franklin). Setting
up a business need, a business idea that does not have to be original, but does have to meet the
needs of clearly identified groups of customers. People set up business for many reasons.
Generally there are two important factors influencing their decision. These are:-

1. Push factor: - factors such as unemployment, lack or income that “push” a person into self

2. Pull factor: -factors such as perception of an opportunity or a desire that “pull” the person in
to self- employment

The capital needs of the business will stem from two sources. First they are the major assets
needed bay the business such as machinery, plant, vehicles and buildings. Second any small
business will invest in its working capital such as stock on debtors through trade. Creditors will
provide source of the funds by supplying goods on credit.

The major source of capital for any new business will probably confine two places. First, you
will have to find a major part of funds by yourself and that could mean using you’re saving,
taking out mortgage on your house or ever taking out a personal loan. The second major source
will be you trade creditors, suppliers of goods who are willing to wait for payment as you
yourself may have to for payment from your customer. After that it is a case borrowing money
from banks or other institutions such as MFIs or making use of the various government starts up
scheme designed specifically to help small scale business (Benjamin Franklin).

2.15 Problems and Techniques of micro finance institutions is small business

MFIs play a key role for the creation and developments of small business through providing their
financial service for those of low income society. And the technique used by the credit institution
on the creation of small business includes: First, besides financial service the credit institutions

use techniques such as examining for the client before the client start the credit facilities. Second,
the credit institution also gives the client on orientation on how they can properly use the credit.

However, during the provision of financial service credit institution face problems (challenges)
like; Refuse to repay the borrowed money by clients, losses by small scale business, and deaths
of clients are among the core problems that MFIs face, but MFIs also use different techniques to
minimize the challenge; Force clients who refuse to repay the borrowed money, the MFIs use
group to refuse to repay the other are responsible, in care of losses by small business the MFIs
has the repayment technique of extending the time required for repayment i.e. after the client
with case of business become recover, challenges like death of the client, the MFIs transfer the
responsibility of repayment his/her representative because during credit facilities the client
represent his wife/her husband (Benjamin, 2006).

Therefore, by all the techniques used by MFIs the main concern is creation of small business.

2.16 Empirical Literature

Empirical review is derived from or related with experiment and observation rather than theory.
The researchers review research did on contribution of MFIS on small business creation as a
source of empirical review. The contribution of MFIS on small business creation is defined by
different researchers in different place and time and those try to assess it by their own effort.
From those researchers some are:-

According to Alemneh (2013) during his study, he tries to examine the contribution of MFIS on
small business creation in Axum University. The past researcher uses only primary source of
data collection method and it collects the primary data through interview and in addition to this
the research approach was qualitative. When this researcher collect the data through interview
and questionnaires the questions were unstructured and open ended and he used descriptive data
analysis method to assess the contribution of MFIS on small business creation. His research
made based on the above information listed.

According to Kindu (2015), who’s study to examine contribution of MFIS on small business
creation and also try to examine how the ACSI know the saver of households and estimate it’s
important of saving for the households. Its source of data, approach and data analysis method is
almost the same as Fentahun Kiros that study in Wollo University.

According to Atinaf (2017) during this study, try to examine the contribution of MFIS on small
business creation in Debre Markos University. The researcher use primary source of data and
collected through open ended questionnaires and unstructured personal interview. And uses
descriptive method of data analysis to transform of raw data in to form and would make easy to
understand to the reader and institution.

Knowledge gap

Our study has interested to know the contributions provided by MFIS for small business
enterprises in ACSI. The past researcher collects data only through personal interview of selected
division of the customers. But this not preferable because personal interview only is not
economical /expensive, and the interview is focus only selected division of the customers so this
is not preferable because other customers are not participate in the interview as a result this not
fair in order to assess contributions of MFIs on small business creation. And the communication
way is one to one and it is difficult to ask each individual by oral and the respondents not answer
the questions by their own freedom.

Generally by considering the above past researcher’s druses /gap and to fill up the druses the
researcher collect the data through questionnaires in order to limit the cost and to give the chance
of the customers according to sampling techniques, and structured interview with ACSI manager,
and in questionnaires the questions are close ended. It is appropriate if the question is addressed
in the form of questionnaires rather than personal interview except ACSI manager.

3.1 Research design and approaches
The researcher used a descriptive research design in the study to describe the contributions of
micro finance institution on small business creation. Descriptive study is related with arranging,
analyzing, presenting, and summarizing of numerical data in the form of table that the reader can
understand easily. In addition research design refers to the type of research question, design and
data analysis that will be applied to give topic and try to determine cause and effect, it constitutes
a blue print for the collection, measurement, and analysis of data (Creswell, 1994).

3.2 Data source

The researcher used both primary and secondary data to answer the questions. Primary source of
data are those, which are collected for the first time and are always given in the form of raw
material and original in nature. It is a real time data which are collected from the field by the
researcher or under the control and supervision of the investigator. Secondary data are those,
which have already been collected by someone and which have already been passed through
statistical process. It is a data that is revised and it is collected for the other purpose.

3.3 Data type

The researcher used mixed research data (i.e. both qualitative and quantitative). Quantitative data
are characterized by collection of information which can be analyzed numerically. Qualitative
data is used to identify factors that are related to the title and also it helps to know the way or
system of defining the issues (parina, 2005). The purpose of using both qualitative and
quantitative data is to enrich the results with different information.

3.4 Methods of data collection

For conducting effective study the researcher used both primary and secondary sources. The
researcher collected primary data by using questionnaire and structured interview. The
questionnaire has closed ended. A close ended is a one which you provide response categories
and the respondent just choose one. The secondary data which have relevant to the study were
collected from books, published and unpublished documents, from Internet and report from
different governmental organizations.

3.5 population, sampling method, and sample size

3.5.1 Target Population
Population is a list of element or the aggregate of all elements sharing of some common state of
characteristics that comprises the universe for the purpose of solving research problem. Target
population is a specific group those are relevant for the study. For this study the target
populations were all clients and employees of the ACSI, Woldia sub branch. The whole

borrowers of ACSI are 1072. Because the population of the study is very large it is difficult to
collect data for each owner and managers of SMEs, therefore from the total population the
researcher taken samples.

3.5.2 Sampling Techniques

Sampling is a process of selection of a portion of groups of a related item for the purpose of
obtaining information. Sample is a representative of the population. For this study, stratified
random sampling was used to collect primary data. Because stratified sampling classifieds the
whole population into homogeneous subgroups to get separate results for each stratum. In this
regard, the whole borrowers of the ACSI of Woldia sub branch were stratified in to three groups;
regular borrowers, urban packages and small business of TVET. There were a total population of
710 regular borrowers, 290 urban packages and 72 of TVET.

3.5.3 Sample size

Sample size is the number of sample selected from the total population. The sample size in this
study is determined by using Taro Yamane’s formula by using 90% of confidence interval:

n= N/1+N (e) ^2, where n=sample size

e=sample error =10%

N=total population


Then, n=1072/1+1072(0.1) ^2

= 91

The sample size of each stratum was calculated as follows;

Let A= regular borrowers, B= urban package, C= business TVET

Sample size of each stratum = number of population in each sector * sample size/ total

N = Po * n/N

A= 710*91/1072=60

B= 290*91/1072=25

C= 72*91/1071=6

Therefore the researcher used simple random sampling to take sample from each stratum as

No Clients Total population Sample size Percentage (%)
1 . Regular borrower 710 60 65.9
2 . Urban package 290 25 27.5
3 . Business TVET 7 2 6 6.6

3.6 Method of data analysis and presentation

After all the available data were collected and recorded the study would face the descriptive
analysis to understand easily and interpreted by using tabulation, percentage and mean. For
simplicity and understanding the study used appropriate method of data presentation. For
purpose of data presentation the researcher mainly used tables.

4. Data presentation, analysis and interpretation
4.1 Profile of sample respondents
The profile of sample client is indicated by their age distribution, sex, and educational level they

This chapter also deals with analysis, interpretation and presentation of data collected from
both primary and secondary sources. Secondary data were collected and analyzed from the
concerned bodies, reports and likes. Primary data were also collected from the beneficiaries of
ACSI of Woldia branch through well formulated questionnaire. The total, sample taken of
respondents are 91 and total of 91 questionnaires were distributed to randomly selected study

4.2 Analysis of closed –ended questions

4.3 Demographic characteristics of sample respondents
A. age and sex distribution
Labor force is back bone for the country and the country’s productivity is mostly depending on
labor force. So that, the credit healthy development of these should be sufficient labor force
productive age. The survey below shows that the mean age respondent average around 39. Thus,
most of the sample respondents are on their productive age.

Table 1.1 Age and sex distribution of respondents

Item Alternative Respondents
male female total percent
1.Age Below 20 3 1 4 4.4%
20 – 29 14 7 21 23.1%
30 – 39 30 15 45 49.45%
40 – 49 7 5 12 13.2%
Above 50 6 3 9 9.9%
Total 60 31 91 100%
2.Sex Male 57 62.63%
Female 34 57.37%
Total 91 100%
Source: Author’s own computation based on survey data (May, 2019)

As shown on the above table1.1, from the total No of respondents, the largest no of the
respondents were between the ages of 30-39, which is about 49.45%. Among these males have
the largest share 32.96% (30) of the respondents and 16.48% (15) of the respondents were

females. The second largest age groups of respondents were between ages 20-29, which account
23.1% (21) of the respondents. The third age group of respondents was between age of 40-49,
which accounts 13.2% (12) of the respondents and the fourth age group of respondents were
above age 49. Finally the remaining 4.4% (4) of the respondents were below age 20.

In the sex distribution of the sample respondents the table shows that out of the total
respondents 62.63% (57) of the respondents were males with the remaining 37.37% (34) of the
respondents were females. Generally the above table shows that most of the beneficiary lies
under male groups and most productive age groups.

B. Educational status of respondents

Education is a key for running of any business. As an individual have been an educated, who
have and educational back ground or know- how about any business activities it is easy to solve
the problems that hinders his/her business activities. So that matter, education is ultimate goal of
any success.

Table 1.2 educational levels of respondents

Item Alternative Respondents

Male Female Total Percentage

3.Educational Elementary 25 13 38 41.75%

Junior 25 11 26 28.57%

High school 4 4 8 8.8%

Diploma 12 7 19 20.8%8

Degree - - - -

Above degree - - - -

Total 56 35 91 100%

Source: Author’s own computation based on survey data (May, 2019)

According to the table 1.3, 41.75% (38) of total respondents have completed elementary
education. They can read and write as much as possible. Among this males account 27.47% (25)
of the respondents, whereas female accounts 14.28% (13) of the respondents. 28.57% (26) of the
total respondents have junior education, 20.88% (19) of the total respondents have diploma
education and the remaining 8.8% (8) of the total respondents have had high school education.
However, none of the respondents are degree and above degree graduates. This indicates that
individuals with lower level of education have higher interest in engaging themselves in

borrowing money. Where as individuals with high level of education have less interest in
borrowing of money from credit institutions.

4.3.1 Client response regarding business activities Types of business activities
Nowadays business firms engaged in different types of business activities in order to get
profit. Small scale business firms engaged in different business activities like farming, trade,
service, laborer, processing, manufacturing etc. The point to focus here is to achieve the
objective of a firm. Entrepreneurs should engage in small business activities that give their profit
by carefully analyzing of the characteristics of each business activates. Therefore, firms must be
identify and evaluate in which business activities they should engaged to make profits before
they start up their business. The following table shows some of the business activities in which
the firms engaged.

Table 1.3 Types of business activities

Item Alternatives Respondents

Male Female Total Percent

4.Types of Manufacturing 3 2 5 5.5%

activity Service 11 11 22 24.17%

Trade 37 17 54 59.34%

Others 5 5 10 11%

Total 56 35 91 100%

Source: Author’s own computation based on survey data (May, 2019)

From the above table out of the total respondents 59.34% (54) of the total respondents were
engaged trading activities. Among this 40.66% (37) of the respondents were males and the
remaining 18.68% (17) of the respondents were females. At the same time out of the total
respondents 24.17% (22) of the respondents were engaged in service activities (tea, hotel, tool,
Barbary and etc). 11% (10) of the respondents perform other activities such as, weavers,
vendors; construction, diary etc lastly, out of the total respondents 5.5% of clients were engaged
in manufacturing activities.

Therefore, credit Institution provides credit facilities for those of low income people. Then by
engaging in different business activities that they want to perform in order to change their living
standards by making profits to reduce unemployment.

4.3.2 Regarding source of capital Financial institutions
In most developing countries like Ethiopia the major problem of small business is lack of initial
working capital. However MFIs play a significant role in altering this problem by contributing
initial working capital for small scale business enterprise

Table 1.4 Source of initial working capital

Item Alternatives Respondents

Male Female Total Percent

5. Source of Credit 40 26 66 72.53

capital institution

Own capital 3 4 7 7.7

From banks 6 10 16 17.58

Friends and 2 - 2 2.2


Idir - - - -

Others - - - -

Total 51 40 91 100%

Source: Author’s own computation based on survey data (May, 2019)

From the above table 72.53% (66) of the total respondents get initial working capital to start up
their business from ACSI Woldia branch. Among these male accounts 43.95% (40) of the
respondents and female accounts the remaining percent of 28.57% (26) of the respondents. This
shows from the total respondent’s majority of the respondents start up their business by the
initial capital only they borrowed from the ACSI, Woldia sub-branch. About 17.58% (16) of the
respondents and 7.7% (7) of the respondents start up their business by the initial capital they get
from banks and their own capital respectively. Only 2.2% (2) of the respondents get their initial
working capital they get from their friend and relatives. However, none of the respondents get
their initial working capital from Idir and from other sources other than the above mentioned
sources. Surprisingly credit and saving institutions play a significant role for the initial source of
capital for small scale business enterprises which in turn creates and development of small
business in Woldia town.

27 Size of loan taken by the client
Size of loan taken by different clients is different in amount. This depends on their interest; their
capacity to repay the loan on time, and soon. The table below shows size of loan taken by
different respondents.

Table1.5 Distribution of site of loan to clients in amount

Item Alternatives Respondents

Male Female Total Percent

6.Size of loan 1 – 500 - - - -

500 – 1500 11 8 19 20.88%

1500 – 2500 16 9 25 27.47%

Above 2500 32 15 17 51.65%

Total 59 32 91 100%

Source: Author’s own computation based on survey data (May, 2019)

From the above table we can understand that most of the respondents take loan size above
2500.i.e 51.65% (47) of the respondents. Among this 35.56% (32) of the respondents and
16.48% (15) of the respondents were males and females respectively. At the same time out of the
total respondents 27.47% (25) of the respondents take loan size of 1500-2500 from ACSI of
Woldia sub branch. While the least of the remaining respondents take loan size of 500.1500, i.e.
20.88% (19) of respondents. However, none of the respondents take loan size of 1-500, since it is
very small amount to start up their business.

Generally the above table 1.5 indicates that ACSI of Woldia sub branch provides enough initial
working capital to its beneficiaries

4.4 Activity performed by using loan

Table 1.6 Activities performed by clients by using loan

Item Alternatives Respondents

Male Female Total Percent

7.Activity Metal and wood 7 2 9 9.89%

Construction 11 4 15 16.48%

Shopping 27 14 41 45.06%

Electronics 10 6 16 17.58%

Others 7 3 10 10.99%

Total7 62 29 91 100%

Source: Authors own computation based on survey data (May 2019).

The above table shows that about 45.06% (41) of the total respondent are performing shopping
activity. Out of this 29.67% (27) of the respondent are males and 15.38% (14) of respondent are
females. And 17.58% (16) of respondent are engaged in electronics, and the remaining 16.48%
(15) and 9.89% (9) and 10.99% (10) of respondents were involved in construction, metals and
wood work, and others respectively.

4.5. Clients experience ability

Experience is the term used to measure simply the performance of the certain activities. Most of
the time experience of those activities serves as the ability to meet the objective of those
activities. So the experience is the most useful term for a given activities in order to create your
business more powerfully.

Table1.7 Respondents Experience ability

Item Alternatives Respondents

Male Female Total Percent

8. Experience Highly experienced 4 - 4 4.4%

Moderately Experienced 50 32 82 91%

Less experienced 2 3 5 5.49%

Total 56 35 91 100%

Source: Author’s own computation based on survey data (May, 2019)

The above table shows that about 91% (82) of the total respondents moderately experienced for
the activities they perform. Out or this male accounts 54.94% (50) of the respondents and the
remaining 35.16% (32) of the respondents were females. Other 5.49% (5) of the total
respondents are less experienced in their business activities. From the total respondents 4.4% (4)
of the total respondents are highly experienced in their business activities they engage.

4.6 Regarding problem faces business activity.
The table given below shows the major problems that small scale business activities faced in
their business venture during running of their business.

Table 1.8 Respondents feedback on areas of problems they faced

Item Alternatives Respondents

Male Female Total Percent

9. Areas of Capital problem 39 24 63 69.235

Market problem 12 8 20 21.98%

Knowledge 6 2 8 8.8%

Others - - - -

Total 57 34 91 100%

Source: Author’s own computation based on survey data (May, 2019)

The above table indicates out of the total respondents 69.23% (63) of the total respondents have
a problem of insufficient of money capital during running of their business. Among this males
have 42.86% (39) of the respondents and females account 26.37% (24) of the respondents. The
remaining 21.88 %( 20) of the respondents and 8.8% (8) of the respondents have a problem of
market and knowledge respectively. The survey shows that male clients are more imposed to the
problem of capital followed by females during running of their business. Therefore, ACSI should
provide them additional training on how to clients properly balance the credit and using the
planned program for their business venture.

4.7. Training how to use credit

Training is the activity performed by credit institutions in equipping the clients about the way
they use to meet their objectives. The objective of small scale business enterprise owners may be
generating a good income, or self employed. So that credit and saving institution serves on how
to meet their objective by training them. The training given by the credit institutions to their
clients may be measured either they can be meet their objectives or not.

Table1.9 Respondent’s feedback on training given to them

Item Alternatives Respondents

Male Female Total Percent

10. training access Yes 41 30 71 78%

No 11 9 20 22%

Total 52 39 91 100%

Source: Author’s own computation based on survey data (May, 2019)

Above table shows 78% (71) of the total respondents had taken the training given them by credit
and saving institutions, out of which male accounts 45.05%(41) of the respondents and female
accounts 32.96% (30) of the respondents. The remaining 22% (20) of the total respondents were
not given training by the credit and saving institutions. Therefore the credit institution
encourages small scale business enterprises through training how to use credit, how to save, how
to record financial activities and generating income etc.

4.8 The type of training given to clients

1.10 Respondents feedback regarding the type of training they get

Item Alternatives Respondents

Male Female Total Percent

11. types of How to save 21 9 30 42.25%

How to record 8 2 10 14.08%
financial activity

How to generate 21 10 31 43.66%


Others - - - -

Total 50 21 71 100%

Source; Authors own computation based on survey data (May, 2019).

From the above table out of the total of 71 respondents which, taken training 43.66% (31) of
respondents have gain training about how to generate income and out of this 29.57% (21) of
respondents are males and 14.08% (10) of respondents are females. And the remaining 42.25%
(30), and14.08% (10) of respondents getting training about how to save and how to record
financial activity respectively.

4.9 Client response for credit repayment
The major source of finance for the micro finance institutions is revolving the credit they owned.
Timely repayment of loans by clients helps them to serve more clients. These also decrease the
penalty charges of the clients.

Table1.11. Respondents feedback on credit repayment on time

Items Alternatives Respondents

Male Female Total Percent

12.Repayment Yes 50 30 80 87.91%

of loans
No 7 4 11 12.09%

Total 57 34 91 100%

Source: Author’s own computation based on survey data (May, 2019)

From the above table about 87.91% (80) of total respondents are paying their credit repayment
on time and among these male accounts 54.95% (50) of the respondents and female accounts
32.97% (30) of the respondents. However, 12.09% (11) of the total respondents were not
repaying the credit or loan on time. Generally the above tables indicate that with the exception of
few clients, almost most of the respondents are paying this loan or credit on the scheduled
repayment period of time.

4.10 Reason for clients not repays credit on time

Table 1.12 Respondents feedback on the reason for not pay credit

Item Alternatives Respondents

Male Females Total Percent

13. Reason for Increase in 4 2 6 55.54%

not repayment interest rate
of loan
Losses of 1 1 2 18.18%

Shortage of 2 1 3 27.27%

Others - - - -

Total 7 4 11 100%

Source; Authors own computation based on the survey data (May, 2019).

As the above table shows out of the 11 total respondents, who are unable to pay debt 55.54% (6)
of respondents are not able to pay their debt because of increase in interest rate. Out of these
36.36% (4) of respondents are males and 18.28% (2) of respondents are females. The remaining
27.27% (3) and 18.18% (2) of the respondents are due to shortage of payment period and losses
of business respectively.

4.11. Advantage of credit

Credit and saving institutions play a significant role in helping of the poor to change their way of
living standard. Clients borrow the loan from credit and saving institutions in order to get some
advantages. The following table shows the advantage that small scale business owners get from
the credit facilities.

Table1.13. Respondents feedback on the advantage of the credit

Item Alternatives Respondents

Male Female Total Percent

14.Advantage Food security 6 5 11 12.06%

s of credit
Building houses 11 8 19 20.88%

Business expansion 31 27 58 63.74%

Children schooling 35 - 3 3.3%

Total 51 40 91 100%

Source: Author’s own computation based on survey data (May, 2019)

As the above table shows out of the total respondents 63.74% (58) of the respondents (clients)
expand their business by using credit facilities they gain from ACSI of Woldia sub branch.
Among this males have the largest share i.e. 34.06% (31) of the respondents and females have
29.67% (27) of the respondents in their share. At the same time out of the total respondents
20.88% (19) of the respondents and 12.08% (11) of the respondents built new houses and secure
their food security respectively. The other advantage from creditor is sending their children to
school which accounts only 3.3% (3) of the total respondents. Therefore, among the key success
factors for economic as wee as social development of the country, the contribution of MFIs
cannot be seen as a simple, they provide a high contribution for economic development through
serving small scale business enterprises.

4.12 Change in credit contribution
MFIs can offer their clients a variety of products and services. The primary role is to provide
financial services (credit provision) to the poor but active segment of the population in order to
improve living standard of the clients.

Table1.14. Respondents living standard before and after they get credit facilities

Before loan After loan

Respondent Respondent

Item Alternative Male Female Total Percent Male Female Total Percent

15. Improve - - - - 53 34 87 95.6%

standard No change 26 24 50 54.95% 3 1 4 4.4%

Worse 34 7 41 45.05% - - - -

Total 60 31 91 100% 56 35 91 100%

Source: Author’s own computation based on survey data (May, 2019)

From the above table, majority of the respondents 54.95% (50) of the total respondents does not
change their living standards before loan intervention among these male accounts 28.57% (26) of
the respondents whereas females account for 26.37% (24) of the respondents. Other respondents
that their living standard of living was worse before loan intervention were about 45.05% (41) of
the total respondents. Among them 37.36% (34) of the respondents and 7.69% (7) of the
respondents were males and females respectively. There is no any improvement of standard of
living before loan intervention, and improves their living standards after they join the credit or
loan. Among those males were 58.24% (53) of the respondents and females account 36.67% (33)
of the respondents. Around 4.4% (4) of the respondents do not change their loving standard after

In general, there is high contribution of MFIs for their clients to improve their living standards.
More than 95.56% of the respondent’s living standard improved after they get credit facility.

4.13. Response of credit institution for loan request

The table below shows the response of ACSI in providing solutions for loan request.

Table1.15 Shows the ACSI Response Providing Solutions for Loan Request to Customers.

Item Alternative Respondents

Male Female Total Percent

16.Solution Excellent 5 4 9 9.89%
for request of
loan Very good 38 21 59 64.84%

Satisfactory 14 9 23 25.27%

poor - - - -

Total 57 34 91 100%

Source: Author’s own computation based on survey data (May, 2019)

The above table shows out of the total respondents 9.89% (9) of the total respondents answered
excellent, 64.84% (59) of the total respondents answered satisfactory and no answer was
responded poor. This implies that the solution for loan request is in a good manner, since the
majority of the respondents answer on very good and satisfactory.

• Interview question analysis and interpretation

The researcher has interviewed the personal manager of Woldia ACSI office about the
contribution of ACSI for the creation of small business regarding to this study. Based on the
interview conducted the researcher observe using the following scheme.

Question1: what type of loan your institution provides to entrepreneurs?

According to him there are 11 types of loans (products) in Woldia micro finance. This size
and loan period varies depending on the type of loan. Loan is provided either in group guarantee,
individually with third- party guarantor through collateral. Major types of loans are described
below a follows:

1. Regular loan: -
• Provide to a solidarity peer of at least 3 members as guarantee

• Maximum loan allowed is birr 20,000 to clients who brought good progress

• The loan period is maximum 3 year

2. Agricultural in put loan:

• Given entirely for purchase of agricultural in puts like fertilizers and selected seeds

• The loan is given in collaboration with agriculture and rural development Bureau.

• Loan period is 1-year lone harvesting season.

3. Civil servant loan:
• They are unique customers of regular loan

• Loan to cover education fees, house construction and for purchase of house

4. Rural package (house hold centered) loan:

• Aims at ensuring food security at house hold level.

• Loan period is 1-4 years

5. Urban package loan:

• Provides special designed packages to owners of micro and small business
enterprises in the urban settings

• Loan period rages from 1to 3 years

6. Business loan:
• Designed for small and medium enterprises who are graduated from micro loans
and it requires shoes collateral

• The loan period is 3 years with a grace period of 3montehs

7. Housing loan
• Provided for construction of residential or business buildings

• The loan period is 5 years with a grace period of 3montehs

8. TEVT loans
• Designed for graduates of technical and vocational education training who are
grouped in the form of cooperatives

• Major types of products are metal and wood works, computer centers,
stationeries, poultry, small ruminants etc.

• The maximum loan period is 3years.

9. University and college graduated student’s loan

• Designed to crate job opportunities for university and college graduates who are
organized in the form of cooperatives.

10. Equipment leasing loan:
• Provided in kind/heavy machineries/ and in cash for working capital

• The loan size depends on the type and quality of machinery with maximum loan
term 3 years.

11. Cooperatives loan:

• The majority of clients are young entrepreneurs, marginalized women, and
prison inmates.

Question 2: What type of collateral the company uses for giving a loan?
According to the manager, loan collateral generally Woldia Micro Finance lend to low income
clients who often have very few assets. Consequently, traditional collateral such as property,
land, machinery and other capital assets are not often available. Various innovative means of
reducing the risk of loan loss have been develop, including collateral substitutes and alternatives
one of the most collateral substitute that our institution use is peer pressure, either on its own or
jointly with group guarantees. Sometimes we also give based on people’s good reputation in the
community. Prior to making a loan our credit officer visits various establishments in the
community and asks about the potential client’s character and behavior (character based

Question3: What is the lending mechanism your institution use?

Our institution uses both individual and group lending methodologies

Individual lending mechanism: -

Loans are delivered to individuals based on their ability to provide credit institution with
assurance of repayment and some level of security. Provisions of credit to individuals who are
not members of a group those are jointly responsible for loan repayment. It is delivered to
individuals based on their ability to provide the MFIs with assurance of repayment and some
level of security.

Group lending mechanism:

Group based lending involves the formation of groups of people who have a common wish to
access financial services. The loan is made individually to each group members, but all in the
group faces consequences if any members into serious repayment difficulties. I.e. the concept of
“joint liability” is common in this approach. According to the manager transaction costs are
greatly reduced for credit institutions under group lending methodology, since multiple groups

are served with in a short period of time. Requesting borrowers to organize themselves into
groups had many advantages.

Question4: What look like the contribution of MFIs in small business

Based on data obtained through interview with personal manager of ACSI office of Woldia
branch, primary objective of the national strategy frame work of MFIs is to create an enabling
environment for small and micro enterprises. Giving such an enabling environment it is expected
that MSEs will themselves is responsible for creation, growth and progress of their enterprises.
In addition to this the MFIS: -s

• Facilitate economic growth and bring about equitable development

• Create long term jobs

• Provide the basis for medium and large scale business enterprises.

• Strengthen cooperation between MSEs.

• Strengthen client’s capacity of productivity by giving different supports like,

financing, marketing, business development service, training, technological support,
information and consultation service and making them competent in the free market

5.1. Conclusion
According to analysis and findings of the study, the following conclusions are drawn.

• ACSI provide financial service for low income people regard less of their age, sex,
marital status and educational level they attend to be engaged in different business
activities like trade, manufacturing, service, etc in order to generate profit and self-

• The credit scheme had constituted positively to increase the income of the
beneficiaries, to improve their living standard, increase saving level which is basic for
capital accumulation start their own business by providing them access to initial
working capital and creating employment opportunities and self-sufficiency.

• Most clients spend their majority of loan on business expansion.

• The clients of ACSI increase through time.

• MFIs serve small scale business owners by providing them training on how they can
engage indifferent business activities and orientation on the programmed based credit

• ACSI provide different types of loans such as regular loan, group collateral, business
loan etc, and assists their clients when the client faces challenges to repay the credit
through extending the repayment periods.

• Participation of women in this institution is low relative to men.

• Improving of the clients get enhance in their living standard after they join the ACSI
and their life is improved much than ever before.

• Most clients satisfied to ACSI, especially to meet their demand to find credit

• The studies indicate that the credit disbursing institution has achieved positive results
in terms of small scale business creation

• The contribution of ACSI could be taken as a good step in small business creation in
the country, particularly for society of Woldia town who are its clients

5.2. Recommendation
Based on the above findings the researcher forward the following recommendation to the
concerning bodies as follows.

• Now a days and business weather large, small or medium cannot become profitable
within short period of time. Hence the institution should longest repayment period,
reduce interest rate to loan and increase amount of loan.

• There should be all awareness creation among the residents and concerned official and
operators regarding the purpose of credit institution promotion of the contribution of
institution in small scale business creation.

• Institution should also encourage women to the loan

• The institution capacity of ACSI should be improved in order to move clients sustainable

• Discussion with clients by preparing workshops to get feedback about over all activity of
the institution is important and must be done in advice by institution to know weakness
and strong side.

• Looking other lending mechanisms than group based since default an individual in group
lends to share group risks, which do not motivate hard worker person in a group.
Consequently, it discourages the attitude of societies towards MFIs.

• Follow up of clients by institution is low, then it should improve

• The researcher also recommends that the institution to expand their loan size by
searching other source of funds.

• The institution should be organized with skilled, motivated, and business oriented
professionals. So that they can easily understand clients requirements for effective
support and development the institution.

• The encouraging achievements of ACSI in terms of income generation, employment

creation, improved access to business expansion and improved living standard for the
program beneficiary indicate that an important instrument in small scale business
creation in the city. Thus, such credit program should be encouraged and given attention
by the government and other responsible bodies.



A questionnaire on the contribution of micro finance institution /credit and saving institution/ on
small business creation in case of Woldia branch.

Dear respondents:

The researcher is graduating class of Woldia university, department of Accounting and finance,
to carrying out a research entitled contribution of microfinance institution/ credit and saving
institution on small business creation in case of Woldia town in partial fulfillment of the
requirement for the degree of Bachelor of art(BA).

The purpose of this questionnaire is to collect data on MFIS in your respective organization. Any
of your respondents to the questions include in the questionnaire is used for student researcher
for academic purpose.

The researcher would like to assure that the information and the data collected through these
questionnaires are only used for the above objective and not for only other purpose. Therefore,
we are asking respectfully to provide of question responses as pre requirement of each question.
In doing so write down appropriate answer in the blank space a"" mark in the right box.

 General information

1. Age A. below 20 D. 40-49

B. 20-29 E. Above 49

C. 30-39

2. Sex A. male B. Female

3. Educational background

A. Elementary D. Diploma

B. Junior E. Degree

C. High school F. Above degree

 Questions regarding the study

1. In what type of activity you engage?

A. Manufacturing B. service C. Trading D. Other,
specify please

2. What is your source of finance to starting your business?

A. From credit institution B. own capital C. Bank

D. Friends and relatives E. Idir F. Other, specify please

3. How much is your first loan?

A. 0-500 B. 500-1000 C. 1000-1500 D. Above 1500

4. What are the activities you perform by using your loan?

A. Metal and wood C. Shop E. Other specify please

B. Construction D. Electronics

5. For how many years you are doing this business?

A. High experienced B. Moderately experienced C. Less


6. What problem do you encountered during running your business?

A. capital problem C. Knowledge

B. Market problem D. Other specify please

7. Did credit institution give training in equipping the clients about the ways they use to meet
their goal?

A. Yes B. No

8. If yes? What types of training you get?

A. How to save

B. How to record financial activity

C. How to generate income

D. Other specify please

9. Can you able to replay the credit on time?

A. Yes B. No

10. If no? What is the reason?

A. Due to inability to pay the loan

B. Due to loss of business

C. Due to shortage of payment period

D. Other specify please

11. What are the benefits of credit for you?

A. Food security C. Business expansion

B. Building house D. Children schooling

12. How was your living standard before and after getting credit facilities?

A. Improved B. No change C. Worse

13. How is the response of institution in providing solution for loan request?

A. Excellent C. satisfactory

B. Very good D. Poor

1. What is the type of credit that MFIs (Micro finance institution) provide to entrepreneurs?

2. What type of collateral the company uses for giving a loan?

3. What is the lending mechanism that ACSI use?

4. What looks like the contributions MFIs in small business creation?

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