THE CONTRIBUTION OF MICROFINANCE

INSTITUTIONS (MFIS)
TO THE ECONOMIC ACTIVITIES OF THE YOUTH AND
WOMEN IN
LUWERO DISTRICT. A CASE OF FINCA UGANDA

by

KYEYUNE CHARLES

2003/HDI0/1911 U

A Dissertation Submitted in Partial Fulfillment of the

Requirements for the Award of the Master of Business
Administration (MBA) Of Makerere University

DEDICATION
I dedicate this book to my dear parents, Mr. and Mrs. Bernard C. Mbaziira of Kabalagala who
sewed the first seed of civilization into me, along with formal education, and who, by God's grace,
have seen it grow to this level of Education. I also dedicate it to my dear brothers and sisters, Peter,
Theresa, Joseph, Ann Mary and Margaret, who have kept my morale up in pursuit of this course.

Iii

ACKNOWLEDGEMENT

I would like to thank my dear parents, brothers and sisters plus the entire family ofMr and Mrs
Edward Kiggundu of Kansanga as well as uncle Joe, for their never ending support to me; they
consistently covered all the gaps in my life which had been created by the pressures of the course.

Special thanks go to my supervisor, Dr. Nkote Nabeta, for the patience, encouragement, criticism
and constant guidance to me all through the course. All my future lay in his hands and here he is
giving it back to me.

Many thanks go to the management ofFINCA Uganda for their help in my search for knowledge
and information. A special token of appreciation to the CEO, Fabian and Evelyn, the officer in
charge of Wobulenzi branch.

To my supervisor at my workplace, Ernest and to MTN Uganda as a whole, I say thank you for the
facilitation.

Finally and most important, I would like to thank the Almighty for the divine intervention that saw

me through the many ups and downs since I started my life and particularly during this course.

Thank you all once again

IV

ABSTRACT

Following the several services and products offered by MFIs to rural women and youth in
rural areas, a study was conducted to investigate the contribution of FINCA on the Economic
activities of rural youth and women in Wobulenzi. The study was guided by the following research
objectives: to examine the nature of financial services offered by micro finance institutions to the
rural youth and women in Wobulenzi, Luwero; identify the indicators of growth in economic
activities of micro finance beneficiaries in Wobulenzi, Luwero; establish the contribution of micro
finance funding to the economic activities of the youth and women in Luwero. And to design
appropriate strategies that will increase the outreach of micro finance institutions so as to enhance
economic development.
The researcher used both primary and secondary data. The primary data was got from FINCA clients
(past, present and non beneficiaries) and from management. The information was obtained by use of
self-administered questionnaires and interviews. Secondary data was obtained from published
materials, which included journals, textbooks magazines, internal reports and newspapers. The study
came up with the several conclusions, notable among them is that FINCA offers several services to
clients; there are several indicators of growth in economic activities; FINCA has positive
contribution on economic growth of rural youth and women to cite a few. The study yielded the
following recommendations; lower interest rates, lengthen the repayment period, sensitization of
client, expanding the product portfolios, emphasizing village banking, evaluation of project proposals
to cite a few.

VII

CHAPTER ONE
1.0

BACKGROUND

Micro credit and micro finance are relatively new terms in the field of development, first coming to
prominence in the 1970s, according to Robinson (2001) and Otero (1999). Prior to then, from the
1950s through to the 1970s, the provision of financial services by donors or governments was mainly
in the form of subsidized rural credit programmes. These often resulted in high loan defaults, high
losses and an inability to reach poor rural households (Robinson, 2001).

Robinson states that the 1980s represented a turning point in the history of microfinance in that MFls
such as Grameen Bank and BRI began to show that they could provide small loans and savings
services profitably on a large-scale outreach. They received no continuing subsidies, were
commercially funded and fully sustainable, and could attain wide outreach to clients (Robinson,
2001). It was also at this time that the term "microcredit" came to prominence in development
(Micro finance Information Exchange, 2005).
The difference between microcredit and the subsidized rural credit programmes of the 1950s and
1960s was that micro credit insisted on repayment, charging interest rates that covered the cost of
credit delivery and by focusing on clients who were dependent on the informal sector for credit
(ibid.). It was now clear for the first time that micro credit could provide large-scale outreach
profitably. The 1990s "saw accelerated growth in the number of micro finance institutions created
and an increased emphasis on reaching scale" (Robinson, 2001). Microfinance had now turned into
an industry according to Robinson (2001).

Along with the growth in microcredit institutions, attention changed from just the provision of credit
to the poor (microcredit), to the provision of other financial services such as savings and pensions
(micro finance) when it became clear that the poor had a demand for these other services (Micro
finance Information Exchange, 2005).

Currently close to 500,000 (Five hundred thousands) clients have access to micro financing in
Uganda with a total loan bill of 100 billion Uganda shillings. The average loan size ranges between
Uganda shillings 50,000 and 20 million and the majority of the clients are the low-income earners
and salary earners. MFIs have a deep outreach of over fifty major branches country wide including
Wobulenzi and this is expected to grow further.
Data extracted from FINCA Uganda Internal Management Report (2004), revealed that of the total
number of groups operating in Wobulenzi, eight (8) client loan groups exhibited a 33% drop out rate
and these were: Tukolebukozi, Balikyewunya, Bamunanika, Nezikokolima, Tusaba Katonda,
Mazima, Tusitukirewamu, and Kamukamu. They had received a total loan disbursement of
Ugshs48,587,000 from FINCA Uganda Microfinance.
Despite the fact that FINCA disburses a loan portfolio of nearly Ugshs150,000,000 (one hundred and
fifty million) to beneficiaries in Wobulenzi, its impact still remains low. The challenge therefore is to
evaluate and ascertain whether these MFIs have created a positive or negative impact to the
economic activities of the population through the creation of accessible sources of funding to the
small scale businesses as well as individuals at less stringent conditions. The above background sets
the basis of the study.

1.1

STATEMENT OF THE PROBLEM

Although micro finance services have endeavored to offer financial services to the vulnerable
groups, (youth and women), their impact on the economic activities of the beneficiaries still remains
low. For instance the percentage drop out rate of the FINCA Wobulenzi beneficiaries stands at 33%
on average (FINCA Internal Annual Management Report 2004). Some drop outs may be due to
improvement in welfare of the people while in other cases some have lost even the little they used to
own (Nakawesi, 2003). This therefore sets the basis for the study.

1.2

PURPOSE OF THE STUDY

The purpose of the study was to assess whether micro finance institutions have had an impact on the
economic activities of the rural youth and women of Wobulenzi, Luwero.

1.3

OBJECTIVES OF THE STUDY

The study was guided by the following objectives

i)

To examine the nature of financial services offered by micro finance institutions to the rural
Youth and women in Wobulenzi, Luwero.

ii.)

To identify the indicators of growth in economic activities of macro finance beneficiaries in

Wobulenzi, Luwero.

iii.)

To establish the contribution of micro finance funding to the economic activities of the Youth
and Women in Luwero.

iv.)

To design appropriate strategies that will increase the outreach of micro finance institutions so
as to enhance economic development

1.4

RESEARCH QUESTIONS

The study was guided by the following research questions

i.)

What is the nature of financial services offered by micro finance institutions to the rural youth
and women in Wobulenzi, Luwero?

ii.)

What are the indicators of growth in economic activities of micro finance beneficiaries in
Wobulenzi, Luwero?

iii.)

What is the contribution of micro finance funding on the economic activities of the rural Youth
and Women of Luwero?

(iv) What are the appropriate strategies put In place to Increase the outreach of micro finance
institutions so as to increase on their contribution to economic development?

1.5

SCOPE OF THE STUDY

Subject Scope

The study focused on the contribution of micro finance institutions (MFIs) to the Household Income
and Asset Development of the rural youth and women In Wobulenzi, Luwero.

Geographical Scope.

The study covered the youth and women in Wobulenzi, Luwero.

1.

1.6

SIGNIFICANCE

The information will enable financial managers of small-scale industries / businesses to assess and
evaluate potential viable development projects and also give them an insight into the likely problems.

It will also assist the credit officers of MFIs to advise the potential borrowers of how and where to
invest in order to benefit from the loans and also reduce on the failure rate that creates bad debts to
MFIs.

The individuals who are seeking projects to invest in can also use this information to assess their
potential in investing in priority areas. It can also help them in their investment appraisals. The
information will reveal other factors that are responsible for the successes or failures of
organizations.

The information can also be used by various stakeholders to avoid re occurrence of past mistakes
thus ensuring continuity and sustainability of economic activities in low developing countries.

CHAPTER TWO
2.0

LITERATURE REVIEW

This chapter reviews the existing literature on key micro finance concepts, looks at the nature of
services offered by MFIs, identifies the indicators of economic activities growth and evaluates the
contribution of MFIs to the economic activities of the rural youth and women in Wobulenzi, Luwero.

2.1

Micro Finance Services

Sinha (1998) states, "Micro credit refers to small loans, whereas micro finance is appropriate where
NGOs and MFIs supplement the loans with other financial services (savings, insurance)"; therefore
micro credit is a component of micro finance in that it involves providing credit to the poor, but
micro finance involves additional non-credit financial services such as savings, insurance, pensions
and payment services (Okiocredit, 2005). The provision of micro finance services focuses on three
core dimensions of poverty alleviation. These are centred on the terms "Promotion" (promotion of
individuals and households out of poverty) and "Protection" (protection of people from vulnerability
because of fluctuations of income) Rogaly (1999).

The MFIs offer Enterprise Development facilities by assisting people, individually and in groups, to
access financial services to start and grow enterprises which can sustain them and their families
above the poverty line. This is mainly done through the provision of access to Microcredit services,
for building up self-employment, in form of loans at interest free, low interest and market rates (
Rogaly 1999). Making inexpensive credit available to the rural poor has been key to breaking the
vicious circle of low capital, low productivity, low savings thus overcoming poverty.

They also offer loans for Consumption and Asset Development which help beneficiaries to build up
asset bases for their families or consume certain products that they would not consume if they were
earning low incomes (transport, meals, and weddings). This may be enhanced through encouraging
of Savings especially using low or no fee small deposit savings accounts. Saving is at least as
important, if not more so, than loans in the effort to help households to accumulate resources
(Shreiner and Morduch, 2001). Savings are financial assets that the poor can accumulate against
emergencies and long term needs.

Insurance and Income Protection services are also offered such that people protect themselves from
income fluctuations and become financially protected from life misfortunes (illnesses, death,
accidents) Through Insurance, that is by raising of distress funds and forming of small scale
insurance cooperatives, MFIs can assist individuals and groups to become more financially secure.
Savings can also act as guarantee against outstanding loans and are mandated payments especially
for emergencies.

Other Micro finance services that are offered by MFIs include provision of:- Financial Literature by
training people to develop basic financial competencies which can be used to guard their assets from
being eroded by misusing the already available resources. Counseling and Financial Management
which help people develop debt management skills to avoid loan defaulting which can lead to loss of
the securing assets or collateral security.

2.

2.2 Indicators of Growth in Economic Activities of Households and Groups

Economic activities require commitment, cooperation, and cohesion at all levels of development individual, household, community, and national. While micro finance alone does not improve roads,
housing, water supply, education and health services, it can play an important role in making these
and other sustainable contributions to the community. The following are some of the indicators of
growth in economic activities that can be enjoyed by beneficiaries of MFIs: - Consumption and Asset
Development can used as a measure of growth in economic activity. As the incomes of beneficiaries
increase, there is likely to be an improvement in the consumption patterns of the people as well as in
the asset bases for their families. Beneficiaries can now afford some of the expenditure and assets
that were out of their reach originally.
Growth in profitability is also one of the indicators of improvement in economic activity. Such
growth should be reflected in profitable enterprises, growing enterprises, and conversion into
medium or large enterprises. In addition, small-scale businesses' growth can be measured in terms of
profits. Profit making organizations look at the rate of return on the resources of the firm (Pandey,
1996).
According to section 5(5) of the income Tax Act, payment of income tax by enterprises is sign of
growth since they are seen as engines of development, employing 90% of the non-farm economically
active poor people (Ministry of Finance and economic activities Report, 2000). The growth in
business can make it possible for firms to train its employees. Naisbitt (1985), growing businesses
have human resource objectives such as helping employees improve their career opportunities or
improving performance through job skill training.

Increase in the Market Share is also a sure way of measuring growth. According to Kotler (2000), the
company's growth will be determined by the increase in rate of growth of its market share. The
increase in the market share will be reflected in the increased volume of sales and establishment of
distributional channels for the goods and services to target market segment.

Growth in economic activities is measured by strong management. Owners of businesses usually

have previous managerial experience. In fact the competitive strength of the firm is often based upon
the founder's unique skills on cost control, sales and so on. The managers of the business must be
able to take risks. Management must be willing to work hard to overcome the challenges associated
with growth possibilities.

Customer care also stands out as a signal of growth in enterprises. Donald (1987) stated that growth
of economic activities could be viewed in the level of customer service offered to customers. The
customer service is offered in form of product quality, diversification or innovation.

Technological advancement in enterprises can also be viewed as a sign of development. Enterprises

will say move from the use of typewriters to the use computers or even where they have computers,
to continuously upgrade their equipment. This may not be the case in the developed countries where,
because of market opportunity and likely success due to environmental enabling factors, it is easier to
secure new technology. Besides, this technology originates from the developed countries and unlike
in the developing countries where it must be imported, it is relatively cheap (Coleman, et al, 2005).

Improved savings and economic assurance: MFIs can help people become more economically
secure. Savings serve as reserves for important household expenditures (such as school fees, feeding
and other emergencies), and as insurance against sudden crises (such as illness, natural disasters, or
accidents) that can otherwise result in destitution for people already living at the poverty line
(Cheston et al 1999). MFIs can build upon Africa's traditional savings ethics to enhance outreach and
quality of services. It is important to keep in mind that for any financial service to have a lasting
impact on poverty eradication, it must be flexible and innovative to adapt to the needs of its clients
(Joanna, 1999)
The greater the rate of increase in number of employees, the greater the likelihood of growth. MFIs
help people start or improve their own small businesses, providing income generation and
employment for themselves and their families (Okiocredit, 2005). Studies on CERUDEB, an MFI in
Uganda, show that loans given to small farmers have resulted in substantial increases in part-time
and permanent wage labor of non-clients. Expansion in scale of production leads to the development
of departments and consequently increase in number of employees (Afrane, 2002).
Credit can be used as working capital so that clients' efforts become more productive; for example,
clients can buy produce in bulk at discounted or wholesale prices and resell at retail prices for more
profitability (Brau, et al, 2005). As clients become more productive, their incomes increase and they
are able to accumulate savings for other investments as well as improvements in welfare (nutrition,
hygiene, housing) and emergencies (Hashemi, 2003). Improvement in economic activities of the
beneficiaries of MFIs will mean substantial improvements in their clothing, sanitation, feeding,
housing, medical care, household property/equipment owned and ability to cover costs related to
school fees, transportation and other physiological needs (Armendariz et al, 2005).
10

2.3

Contributions of Micro Finance Funding to Economic Activities

When properly harnessed and supported, micro finance can scale-up beyond the micro-level as a
sustainable part of the process of economic empowerment by which the poor can lift themselves.
Considerable debate remains about the effectiveness of micro finance as a tool for directly improving
on the economic activities and about the characteristics of the people it benefits (Chowdhury, Mosley
and Simanowitz, 2004). Sinha (1998) argues that it is notoriously difficult to measure the impact of
micro finance programmes on social economic activities.

2.4

Designation of Appropriate Strategies

Objective four sought to find out appropriate strategies that would make FINCA services readily
accessible to its potential and actual targeted groups. The strategies include among others; lower
interest rates, lengthen the loan repayment periods, Scrap off collateral security, rural outreach,
expansion product portfolios and Project appraisal

Ryne et al, (2002), argued that lowering the interest rates is a strategy geared at making MFIs
services more accessible to them. This would go a long way in enticing users to become users as well
as ensuring increased use of the services by the current clients. It will also enable MFIs clients to
benefit more as interest rates are lowered since it will favorably impact on their profitability.

11

Gyasi (2002) argued that the management of MFIs should revisit the loan repayment period
offered to clients. This is due to the fact that majority of the F CA clients in Luwero depend on
agriculture and trade which needs a long period to reap from the operation. Lengthening the
repayment period would enable them meet their financial obligations in time. The respondents also
wanted FINCA to give them a grace period before start of the payment period to enable them start
the payment schedules after a reasonable degree of business stability.

Jerik, (2005) argued that one of the hindering factors limiting accessibility to MFIs services is
collateral security. He suggested that it should be scrapped off so as to enable those without it to
access the services freely. This may however not be practical since security is a requirement by all
banks.

Palakow (2003) argued that most MFIs branches are in urban and peri-urban areas. He suggested that
FINCA should endeavor to open up more branches in rural areas so as to make its services more
accessible to all target groups. Currently most of the clients are supposed to travel to head office or to
district headquarters for meetings and remitting of their weekly loan installments. This however,
increases their operational costs and is time consuming as well (Walter, 2002).

Sebstard et al, (1996) argued that MFIs need to expand or increase on the product portfolio offered.
The products currently offered are very few compared to the clients' demands. This in a way has
fueled the misappropriation of funds received by the clients to other purposes not prescribed in the
loan contract which increases high default rate (Hoque, 2004).
12

Coleman et al, (2005), argued that management of MFIs should endeavor to appraise and recommend
projects to be funded. Their experience over time should assist them to realize the types of businesses
with the least failure rate and be able to advise their clients accordingly. The management should go
an extra mile to periodically monitor the operations of the projects funded so as to reduce on the
default rate.

13

CHAPTER THREE
3.0

RESEARCH METHODOLOGY

This chapter outlines in detail the manner in which the study was executed. It highlights the areas of
study, the research design, the sampling design and procedure. It also states the data collection
methods, the data processing and analysis, which the researcher used.

3.1

Research Design

The study was cross-sectional; both descriptive and analytical methods were used. The data was
collected from both primary and secondary data sources, from FINCA in Wobulenzi region, and the
study focused on the contribution of MFIs to the economic activities of the rural youth and women
for the period 2004-2006.
3.2

Study Population

The study covered a total population of 400 people, namely, 100 past and 200 present FINCA clients,
50 non-beneficiaries and 50 management staff. Since the type of information required was qualitative
in nature, judgment sampling! purposive was the most appropriate to use.
3.3

Sample Procedure and Size

The study population was selected using purposive sampling technique basing on the fact that the
researcher was well knowledgeable about the economic activities parameters and that the
respondents were believed to have appropriate information pertaining to the study. For purposes of
obtaining the relevant information, the researcher targeted 140 FINCA clients (past and present and
non beneficiaries) and 10 FINCA management officials (credit officers) as shown in table 3.1.
Stratified random sampling was used to obtain the clients.
14

3.

Table 3.1 Population & Sample size structures

Nature of the respondents

Population

Expected Sample

Past FINCA clients

100

40

Present FINCA clients

200

80

Non- beneficiaries

50

20

Management

50

10

400

150

Total

Source: Primary data

3.4

Sources of Data

The researcher used both primary and secondary sources of data.

Primary Data

The data was obtained from FINCA clients (past, present and non beneficiaries) and from
management. The information was obtained by use of self-administered questionnaires and
interviews.

Secondary Data

This data was obtained from published materials, which included journals, textbooks magazines,
internal reports and newspapers. They included among others, minutes, internal and credit officers'
reports of FINCA, which talked about the control and utilization of loanable funds and customer
business operations.

15

3. 5 Instruments of data collection

The researcher used a number of data collection instruments namely, questionnaires, interview
schedule and observation.

Questionnaire.
The researcher designed self administered questionnaires which were distributed to FINCA
management staff, past and present clients as well as non beneficiaries of FINCA services. The
completed questionnaires were then picked from respondents for analysis.

Interview schedule
The researcher designed appropriate questions relating to the topic of discussion and then presented
the questions to FINCA respondents noting the responses thereof. The collected responses were then
be analyzed.

Observation
The researcher employed the observation method to note whatever was taking place in the
organization and its clients. For instance, the general appearance of the FINCA premises, staff attire,
interior and exterior design, equipment in use, staff attitudes (disgruntlement, receptive faces and
others), the dressing code of clients, their health plus other attributes.

3. 6 Data Analysis
The researcher used both descriptive and statistical approaches in processing and analyzing the data.
Mostly qualitative data was obtained from the questionnaires and analyzed using statistical methods
to give it a broader and more meaningful picture of the sample.

16

CHAPTER FOUR
4.0 PRESENTATION, ANALYSIS AND INTERPRETATION OF FINDINGS
4.1

Introduction

This chapter presents the findings of the study. The findings relate to the discussion, analysis and
presentation as revealed by the field survey conducted by the researcher. Both primary and secondary
data was used. The findings are presented in percentage tables, bar graphs, pie charts and line graphs.
The presentation is guided by the following objectives; to examine the nature of financial services
offered by micro finance institutions to the rural youth and women in Wobulenzi, Luwero; to identify
the indicators of growth in economic activities of micro finance beneficiaries in Wobulenzi, Luwero;
establish the contribution of micro finance funding to the economic activities of the youth and
women in Luwero and to design appropriate strategies to enable the organization achieve its vision
and mission.

4.2

General Background Information

This section presents the general characteristics of the respondents. These include the response rate,
sex, marital status, age brackets, educational level and position of the respondents. These are
presented in the subsequent sections.

4.2.1 Response Rate

Out of the expected sample of 150 respondents, only 118 accepted to be interviewed and answered
the questionnaires, thus giving a response rate of 79%. The results of the study are presented in table
4.2 below.

17

Table 4.2: Showing the Composition of the Respondents

Particulars

Frequency

Percentage

Past FINCA clients

28

24

Present FINCA clients

58

49

Non beneficiaries

22

19

Management

10

118

100

Total
Source: Primary Data

According to table 4.2 , a total of 118 people accepted to be interviewed and answered the self
administered questionnaires thus giving a response rate of 118%. Those that accepted constituted
about 50% present FINCA clients, 25% past FINCA clients, 20% non beneficiaries and almost 10%
were from the management.
This means that close to 75% of the respondents are or have been actual beneficiaries of micro
financing through FINCA and this implies a good target group for the study.

4.3

Gender Distribution of the Respondents

The study examined the extent to which women used the services offered by micro finance
institutions using FINCA as example. Figure 1 shows the findings

18

From figure 3 above, nearly 48% represented the age bracket of (26-35); 29% represented the age bracket
of (36-45); 17% represented the age bracket of 45 an above and lastly 6% represented the age bracket of
(18-25). This implies that majority of the respondents were in the Youthful category (54%). That is, the
dynamic, enterprising, risk taking and working class age. They have the potential to grow their savings
and investment and consequently support themselves, the company and the economy at large. The future
of any bank lies in this age and this is why FINCA strategically targets such group.

4.2.5 Educational Background of the Respondents

The study wanted to examine if there was a link between the level of education attained by the clients and
the use of micro finance services. The respondents had different educational levels namely; primary,
secondary, certificate, diploma, degree and others as shown in the figure 4.

22

4.3

Nature of Micro Finance Products/Services Offered

The first objective of the study was to examine the nature of micro financial services offered to the youth and
women in Wobulenzi Luwero District.

4.3.1 Nature of Microfinance Products/Services

The study identified the types of services offered by FINCA micro finance institution and included among
others; insurance, money transfers and loans. The findings pertaining to this were extracted from a sample of
past and present FINCA clients and these are shown in Table 4.3

Table 4.3: The Ranking of Micro Finance Products/Services

Services /products

Rank

Money Transfer

Insurance

Loan for Education and Others

Loan for Small Business Enterprise

Loan for Housing

Source: Primary Data

24

According to the table 4.3 above, loans for small business was ranked number 1, loans for education
and others was ranked number 2, loans for housing was ranked number 3, money transfer was ranked
number 4, and insurance was ranked number 5. The above ranking from one to five shows the level
of importance attached to each particular service, the most important being ranked number 1 while
the least important being ranked number 5. The implication is that most of the client in MFis mostly
go for loans purposely to expand or open up business ventures as is one of the pillars for offering a
loan and other services are coincidental.

4.3.2 Time Taken Using FINCA Services

A study was also carried out to asses the time taken by the clients as customers of FINCA before

leaving for any reason. This was done on the past and present clients. The finding are recorded in
figure 5

25

4.4 Indicators of Growth in Economic Activities among Beneficiaries.

The second objective of the study was to identify the indicators of growth in economic activities
basing on the beneficiaries. Notable among these were business expansion, infrastructures, increment
in assets, prompt payment of financial obligations, increase in FINCA clients incomes and increase in
the purchasing power.

4.4.1 Economic Indicators for Business Growth

The clients were asked to choose and rank from the selected criteria, what they feel should be the
best measure of economic growth or their performance as they use the services of FINCA. The
findings relating to indicators of growth in economic activities are as summarized in Table 4.4.

Table 4.4: The Different Economic Indicators for Business Growth

Economic Indicators

Frequency

Percentage

Business Expansion

19

16

Prompt Payment of Loans

24

20

Increase in Assets

17

14

Ability to Pay Expenses

General Increase in Purchasing Power

17

12

Increase in FINCA Clients' Incomes

28

24

Improvement of Infrastructures

118

100

Total
Source: Primary Data
29

From the table 4.4 above, 24% of the respondents said that increase in people's incomes was the
major measure of business success, 20% said prompt payment of loans, 16 % said business
expansion, and 14% said meeting expenses in time, 12% said improvement in the standard of living.
The majority of respondents therefore prefer increase in income as the best measure of growth in
business and individual welfare, closely followed by the ability to pay back the loans.

4.4.2 Problems Encountered in Using FINCA Services

Several problems encountered in using FINCA services were enumerated as follows; high interest
rates, short repayment periods, lack of collateral security and inaccessibility of FINCA services to
mention a few. The respondent were asked to rank problems according to their individual feelings
and the results came out as in table 4.5

Table 4.5: Showing Problems Encountered in Using FINCA Services

Problems

Frequency

Percentage

High interest rates

26

22

Short payment periods

21

18

Lack of collateral security

28

24

Inaccessibility of FINCA services

35

30

Other

Total

118

100

Source: Primary Data.

30

4.4.3 Reasons for Poor Performance

The respondents were required to give account of the reasons as to why they perform/performed
poorly in any of the cycles they had or were going through. The outcomes of this question arose
from the work places of the clients and were centered around the reasons as highlighted in the Table
4.6.
Table 4.6: Reasons for Poor Performance

Reasons

Frequency

Percentage

Misappropriation of Funds

35

30

Bad Seasons

24

20

Shifting Business Premises

Destruction of Property /Goods

12

10

Electricity Shortages

24

20

Sickness and Other

17

14

Total

118

100

Source: Primary Source

From table 4.6 , it's clear that nearly 30% of the respondents said that the major problem facing
FINCA clients is misappropriation of funds, 20% said bad trading season, 20% electricity shortages,
6% said shifting of business premise and 14% said sickness and other reasons.
It is important that prior to acquisition of loans, training should be done to assist the clients acquire
some financial discipline tips thus avoiding misappropriation of funds. The rest of the problems are a
result of poor feasibility study or reasons beyond the control of the clients; Electricity shortages,
sickness are some of the examples.
32

4.4.4 Reasons for Excellent Performance

The respondents were asked to give factors that led to their excellent performance in any of the
cycles they had gone through or were going through at that time. Several reasons responsible for the
excellent performance were given namely group pressure, good clientele base, personal discipline,
good season, good monitoring and supervision. The results are merged and recorded in table 4.7
below
Table 4.7: Reasons for Excellent Performance

Reasons

Frequency

Percentage

Group pressure

35

32

Personal discipline

23

20

Monitoring

21

18

Good seasons

19

16

Good clientele base

17

14

Total

118

100

Source: Primary Data

From Table 4.7, it is clear that about 32% of the respondents gave 'group pressure' as the reason for
their excellent performance, 20% gave 'personal discipline' , good monitoring and supervision was
given by 18%, good season was given by 16 %, and good clientele base was cited by 14 % of the
respondents .The implication behind this is that most of the respondents had good reasons for
performing better and in order for FINCA to achieve its mission and vision, its important that such
attributes are incorporated in their strategy or policy. Group pressure, training and supervision should
be given priority in its strategic planning.
33

4.5

To Establish the Contribution of Micro Finance Funding on the Economic Activities of

the Youth and Women in Luwero.

The third objective was to establish the contribution of micro finance funding to the economic
activities of the concerned groups. The major contributors were the increment in working capital and
proper record keeping leading to a variety of outcomes. The findings pertaining to these were
extracted from primary data records and summarized in the subsequent sections.

4.5.1 Present Working Capital

The respondents were asked to reveal the amounts of cash they have received from FINCA so that
the amounts received are related to the kinds of businesses they have undertaken in order to asses the
effect of such advances on the their economic activities. The quantity of working capital in relation to
the kind of business undertaken greatly affects the economic activities. Table 4.8 contains records
about the working capital that the respondents received from FINCA.

Table 4.8: Present working capital

Working capital

Frequency

Percentage

50,000 - 500,000

76

64

500,000 - 1,000,000

24

20

1,000,000 - 5,000,000

14

12

5,000,000 - 20,000,000

118

100

Total
Source: Primary Data

34

From figure 9 above, it's evident that 50% of the respondents have good record keeping skills, 30% had
poor record keeping and 20% had fair record keeping. The implication is that majority of the respondents
were good record keepers though it also brings out the 30% poor record keepers. There is need for
improvement of this kind of status through training, supervision and politicization. It is possible that the
respondents in this category have made losses or profits but they are not recorded anywhere and this may
bring out an untrue picture of the growth of their activities.

4.5.4 Contribution of Micro Finance Institutions in Wobulenzi

Respondents were asked to rank how they feel about the contribution of micro financing in Wobulenzi.
Various criteria were used to determine the extent to which FINCA has helped in uplifting the standards
of living of the women and the youth plus their development ventures. Almost every body admitted that
there is an effect that FINCA has made in Wobulenzi and the respondents were required to identify the
areas where they feel the impact is more and then rank them accordingly.

36

Table 4.9 Showing the Economic Contribution of Micro Finance Institutions in

Wobulenzi.

Economic Contributions

Rank

Percentage

Business Expansion

30

25

Ability to Pay Taxes in Time

24

20

Improvement in Farming Practices

27

23

Increase in Peoples' Incomes

12

10

Improvement in Infrastructure

Meeting Customer Demands in Time

Meeting Financial Obligations in Time

13

11

Others

Total

118

100

Source: Primary Data

From table 4.9, its evident that 25% of the respondents said that the major economic contribution of
microfinance is business expansion, 23% said improvement in farming practices, and 20% said it's the
ability to pay taxes, 11 % said its meeting financial obligations, 10% said increase in people's incomes,
and 4% said improvement in infrastructures and meeting customers' demands in time and 3% for other
reasons respectively. Whereas there are various ways that can assist in gauging the performance, as
indicated by the 'other' category, it is clear from most respondents that once there is 'expansion of
business premises', there is obviously an improvement in the performance of the business due to a boost
in working capital.

37

4.6

Designation of Appropriate Strategies

Objective four sought to find out appropriate strategies that would make FINCA services readily
accessible to its potential- and actual targeted groups. The findings after the study satisfactorily
answered it. The strategies revealed included among others; lower interest rates, lengthen the loan
repayment periods, reconsider collateral security requirement policy, rural outreach, expansion
product portfolios and Project appraisal

The findings after the study revealed that most respondents suggested lowering the interest rates as a
strategy geared at making FINCA services more accessible to them. This would go a long way in
enticing non FINCA users to become users as well as ensuring increased use of the services by the
current clients. It will also enable FINCA clients to benefit more as interest rates are lowered since it
will favorably impact on their profitability.

The findings also revealed that FINCA clients have always complained about the short repayment
period. This is due to the fact that majority of the FINCA clients in Luwero depend on agriculture
and trade which needs a long period to reap from the operation. Lengthening the repayment period
would enable them meet their financial obligations in time. The respondents also wanted FINCA to
give them a grace period before start of the payment period to enable them start the payment
schedules after a reasonable degree of business stability.

38

One of the hindering factors limiting accessibility to FINCA services is collateral security
requirement policy. The respondents suggested that it should be scrapped off or reconsidered so as to
enable those without it to access the services freely. It will also assist users to access larger loans.
This may however not be practical since security is a requirement by all banks. The idea of group
pressure as security does not seem to be good enough for the respondents as it limits the advances
required by them to certain limits which are seemingly peanuts to people with big ventures.

The findings revealed that most FINCA branches are in urban and peri-urban areas. They therefore
suggested that FINCA should endeavor to open up more branches in rural areas so as to make its
services more accessible to all target groups. Currently most of the clients are supposed to travel to
head office or to district headquarters for meetings and remitting of their weekly loan installments.
This increases their operational costs and is time consuming as well.

The study further disclosed that the respondents wanted FINCA to expand or increase on the product
portfolio offered. The products currently offered are very few compared to the clients' demands. This
in a way has fueled the misappropriation of funds received by the clients to other purposes not
prescribed in the loan contract which increases high default rate.
FINCA for example is not interested in directly supporting the agricultural sector due to the long
gestation period of most crops. FINCA is also not keen at assisting 'starters' of whatever business
however good a client's feasibility study may be, because of the high risk involved in the initial
stages of business ventures.
39

The study further discovered that FINCA management should endeavor to appraise and recommend
projects to be funded. Their experience over time should assist them to realize the types of businesses
with the least failure rate and be able to advise their clients accordingly. The management should go
an extra mile to periodically monitor the operations of the projects funded so as to reduce on the
default rate.

40

CHAPTER FIVE
5.0 ANALYSIS OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS
5.1 Introduction

This chapter discusses the findings of the study, the conclusions and recommendations in relation to
the study objectives. The discussion explains the findings of the study in support or in contrast to the
literature after which conclusions and recommendations are drawn

5.2 Nature of Financial Services Offered by MFIs

The findings after the study revealed that loans for small businesses was ranked number one, loans
for 'education and others' was ranked number two and loans for housing was ranked number three.
Over 75% of the services offered by FINCA are loans, though for different needs. The loan service is
the most used by FINCA clients in Wobulenzi though they offer a number of other services which
include money transfer, insurance, and others at large. The study findings further revealed that there
is both minimal knowledge and at the same time little need for the insurance services. Money transfer
service is also not so commonly used in Wobulenzi despite the fact that it's a high income earner for
MFIs. Urban clients have more dealings in such a service than rural ones.

This is in agreement with Sinha, (1998) who provided the composition of Micro finance services as
stated above. The findings are also supported by (Rogery, 1999), who suggested that Micro Finance
services are for promotion of individuals and households out of poverty, and protection/insurance of
people from vulnerability of fluctuations of income. The argument is at the same time in line with
Afrane, (2002), who argued that the importance attached to money transfers is of limited use among
rural communities.

41

5.3

Indicators of Growth in Economic Activities

The findings revealed that 24% of the respondents suggested 'increase in people's incomes' as their
measure of growth in economic activities, while 20% gave prompt payment of loans, 16% said business
expansion, and 14% said meeting expenses in time, and 12% said improvement in the standard of living
as the indicators of growth in economic activities. The majority of respondents therefore prefer increase in
income as the best measure of growth in business and individual welfare, closely followed by the ability
to pay back the loans.

Most authors contend that there are several indicators of growth in economic activities, the above
indicators inclusive, notable among these are; Dyck, Alexander (1997); Hoque, Serajul (2004); and
Daley, Harris, Snodgrass, Sebstad (2002) just to cite a few. However, Ledgerwood, (1999), noted from
the clients that there are no particularly outlined ways of measuring growth in economic activities.

5.4

Contribution of Micro Finance Institutions Funding to Rural Women and Youth

The study findings deduced that out of selected attributes for the contribution of MFIs funding to the rural
women and youth, business expansion was ranked number one, followed by improvement in the farming
practices, prompt tax payment turned out to be number three, 'meeting financial obligations in time' was
ranked number four, increase in peoples' incomes became number five, others included improvement in
infrastructures and meeting customer demands on time. This therefore implies that MFIs playa vital role
in boosting up the incomes of their clients.

42

This is supported by (Brau, James Gary, Woller, 2005), who conceded that growth was also reflected
by the increase in the different business ventures, prompt tax payment and meeting financial
obligations among others. However a few clients harbor a different view about MFI funding. They
argue that MFIs charge high interest rates coupled with the very short repayment period which
culminates into confiscation of property, imprisonment and general impoverishment and hence they
see no positive contribution at all. This argument is supported by Otero and Halt (1993).

5.5 Appropriate Strategies

The findings after the study revealed that certain strategies need to be adopted in order to make MFIs
work better. These include lowering the interest rates, lengthening the loan payment period,
reconsidering of the collateral security policy, and expansion of product portfolio, constant project
appraisal and increase in the rural outreach. Barry, (2000); Cheston, Susy and Larry Reed (1999)
also support the above strategies. Much as the strategies have to be put in place, there is need of
considering the investors motives of targeting a particular rate of return on investment. This therefore
places the implementation of the above strategies of MFIs into jeopardy leaving would be
beneficiaries into a take it or leave it situation (Gyasi 2002).

4.

43

5.6

CONCLUSION

Micro Financing is becoming increasingly important to poor countries like Uganda as an engine of
growth and development and it is therefore important that policy makers accord more attention to it than
ever before in order that the current and potential 'beneficiaries' can actually stand to improve on their
welfare.

On the MFIs services, the reason behind the massive use of the loan service as compared to the rest of the
services is that most small scale entrepreneurs require funds for starting up ventures, reinvesting in the
existing businesses or overcoming various financial obligations. Insurance services are not easily
adaptable to even people of a recognized degree of literacy due to their complexity and to make it worse,
the rural women and youth do not have the asset base that can warrant the need for such services. Money
transfer services are also rare in rural set ups and are therefore not attractive to Wobulenzi people. The
general poverty level coupled with the illiteracy rate in Wobulenzi are the major causes of the higher rate
in the use of loans as compared to the rest of the services. MFIs should for that matter concentrate more
on the improvement of this service than any other service.

Evidence from clients reveals that it is up to the clients to gauge from their individual situations and come
up with a way of accounting for their performance. The parameters for the measure of performance are
therefore bound to change from person to person, period to period and circumstances of the time.
Management of MFIs should therefore set up individual appraisal parameters for each client basing on
already drawn policies. Such policies should be flexible.

44

There is no single rule to use as the correct measure of the contribution of MFIs funding to the clients'
business growth. Loan officers can at the same time not dictate any parameters to measure this because
different clients will use different approaches. It is also not good to leave important information untapped
lest it is required in the future. Management should therefore device 'middle ground' parameter to use
especially where the client is undecided as to what parameter to use

Since micro finance institutions are proving important to the less developed societies, it is paramount that
various strategies be formulated to pave a way forward for them thus propelling the people from the
current status to greater heights.

45

5.7

RECOMMENDATIONS

The study findings yielded the following recommendations in view of the contribution of MFIs funding
on the Economic Growth of the rural youth and women of Wobulenzi.

Management of MFIs should emphasize village banking in order to overcome or reduce on the default
rate. Such a method creates psychological coercion amongst the clients to pay back the borrowed money.
Individual borrowers tend to default a lot which poses a big risk to the organization.

MFIs should provide conducive organizational environment where by their staff are provided with the
relevant tools, facilities, and incentives that enable them work comfortably. This will alleviate the
likelihood of officers working' for the sake' and will ensure proper planning and appraisal of the clients
dealings with in situation.

The management of MFIs should stretch further to rural areas so as to be able to serve the needs and
wants of the rural business men. Cost benefit analysis should be considered when such a decision is being
embarked on so that both parties can equally benefit from the venture.

The management of MFIs should increase on the product portfolios offered to the rural people. The
existing product portfolios do not cater for all the needs and wants of the rural people. The marketing
department should endeavor to research on the clients' desired options and be able to include the probable
and realistic ones onto the list.

46

The management of MFIs should endeavor to sensitize their clients about the need to secure loans from
one source other than multiple sources so as to encourage them to acquire loans they can afford to pay.
This calls prior training and briefing of clients

MFIs should be duty bound to lower the interest rates charged on the loans secured. The current interest
rates ranging from 24% to 36% per annum are too high. This can not easily be afforded by the low
income earners who are engaged in low profitability ventures. MFIs have the biggest percentage of their
income earners centered on interest on loans but it is advisable that the product portfolio be increased and
interest lowered in turn in order to achieve the goal. Management of MFIs should also endeavor to
lengthen the loan payment period. The current loan payment period is too short to pay the loan.

The management of MFIs should endeavor to evaluate project proposals for clients wanting to secure
loans. A department responsible for evaluating project proposals should be instituted. Past experience
together with secondary data sources should now be in position to assist the department to compile
dependable information that can be used to recommend a portfolio of viable ventures to clients in various
areas for investment.

External internal interference should be eliminated, donors should not impose their ideas on micro
finance institutions rather they should work together to achieve tangible results.

47

AREAS FOR FURTHER RESEARCH

The researcher recommends further research in the following areas.

The effect of MFIs funding on profitability of small scale businesses
The effect of information technology on MFIs funding
The effect of MFIs on the social, economic and political set up of Uganda.

48

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SOME ABBREVIATIONS
FI CA -

a leading Micro Finance Institutions in Uganda

MFIs -

Micro Finance Institutions

CERUDEB - Centenary Rural Development Bank

GO -

on Governmental Organization