THE CONTRIBUTIONS OF MICROFINANCE

INSTITUTIONS IN INCOME GENERATION AND JOB

CREATION IN CASE OF (OCSSCO) IN DUKEM TOWN.

A RESEARCH PROPOSAL SUBMITTED TO THE

GRADUATE DEPARTMENT OF BUSINESS
ADMINISTRATION

SUBMITTED BY: ZELALEM TESFAYE KEBEDE

ID NO: _______________

LEADSTAR UNIVERSITY COLLEGE

FACULTY OF BUSINESS AND LEADERSHIP
GRADUATE DEPARTMENT OF BUSINESS
ADMINISTRATION

DECEMBER, 2016
ADDIS ABABA, ETHIOPIA
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Table of Contents

Table of Contents.................................................................................................................I
CHAPTER ONE..................................................................................................................1
1. Introduction......................................................................................................................1
1.1. Background of the Study..........................................................................................1
1.2 Statement of the Problem...........................................................................................3
1.3 Objective of the Study...............................................................................................3
1.3.1. General Objective..............................................................................................3
1.3.2. Specific Objective..............................................................................................3
1.4 Significance of the Study...........................................................................................4
1.5 Scope of the Study.....................................................................................................4
1.6 Limitation of the study...............................................................................................4
CHAPTER TWO.................................................................................................................5
2. Review of Related Literature...........................................................................................5
2.1. Definitions of Microfinance Institutions..................................................................5
2.2 Objective of Microfinance Institution.......................................................................6
2.3. Role of Microfinance Institution..............................................................................7
2.4 Financial Development..............................................................................................8
2.5 The Ethiopian Microfinance Experience...................................................................9
CHAPTER THREE...........................................................................................................10
3. Material and Methodology............................................................................................10
3.1 Data (materials).......................................................................................................10
3.2 Source of Data.........................................................................................................10
3.3 Method of Data Collection......................................................................................10
3.4 Sampling Technique................................................................................................10
3.5 Method of Data Analysis.........................................................................................11
CHAPTER FOUR.............................................................................................................12
4. Time Budget and Cost Budget.......................................................................................12
4.1 Time Budget............................................................................................................12
4.2 Cost Budget.............................................................................................................14
Reference...........................................................................................................................15

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CHAPTER ONE

1. Introduction

1.1. Background of the Study

Microfinance was beginning in the 1980 as a response to doubts and research finding. In
the 1970, government agencies were the predominate method of providing productive
credit to those with no preview access to credit facilities.
Governments, international donors and NGO,’s assumed that poor nations requires cheep
credit and sales, promoting agricultural production by small land holders. Also the aim of
microfinance institution is “to teach the poor farmer how to save and grow” Robinson
(2001)

It is widely accepted that the issue of micro financing actually have received a great deal
of attention as priority area, that are crucial for stimulating economic growth in both
developed and as well as developing countries.

Poor household, pursing microenterprises are denied access to institutional credit due to
the high collateral and antiquated lending practice of the normal banks. An alternative
innovative approach to provide credit to the poor has been designed and successfully
tried in many developing countries. The best example which is the gram bank of
Bangladesh offers credit on the bases of group collateral. This approach was introduced
in Ethiopia in 1993 under the market town development programs. Wolday Amaha
(2002).

For many developing countries the growth of sustainable economic activity in the rural
sector is a key priority. The challenge is to develop and implement policies, institutional
structures & effective mechanisms to support such growth. Dejene (2001)

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Oromia credit and saving share company (OCSSCO) is micro financing institution
operating in Oromia national regional state. OCSSCO is a transformation of Oromia
credit and saving schemes development project that was organized and operated under
the Oromo self help organization (OSHO). The scheme was transformed to a company in
August 4, 1997 under the proclamation No. 40/1996.

The institution is helping the poor people through the provision of credit and saving
services for self employment creation opportunities in the rural areas. The major part of
OCSSCO’s loan goes to finance agricultural activities such as assisting farmers, who
need cash to buy fertilizers and improved seeds to increase their productivity.
(www.Oromiamicrofinance.com)

When it was established at company level, OCSSCO had only four branches and 1,529
clients. Nowadays, OCSSCO is one of the leading micro finance institutions in Ethiopia
which possesses 18 zonal offices and 301 branches with total active client number
of 808,810 as of 2013/14 Annual report. Its disbursement also reaches more
than 3.5 billion birr during the same time. Similarly its saving mobilization was raised to
about 2,210,329,680 birr. Its insurance premium service also shows significant
increment. (www.Oromiamicrofinance.com)

One of OCSSCO sub-branch is OCSSCO Dukem Sub branch; which is located in Oromia
regional state of unique zone of around Finfine Dukem town which is far from the capital
city Addis Ababa 23 KM to the eastern south. Now a day the organization has nine
hundred fifty (950) of customers and more than 13 permanent employees with more than
20 million capital including loan. (Written document from Dukem sub-branch)
This research proposal may help to find out the role of micro finance institution in
income generation and job creation particularly in Dukem town. This helps to analyze the
significance of the organization in development of the town.

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1.2 Statement of the Problem

Microfinance institutions have greater potential to generate income and create job
opportunities, which are key factors for development.

Our country is known in poverty, famine and low income which results in lack of job
creation and initial capital in comparisons to the majorities of African countries. So, this
study will focus on the contribution of microfinance institution in generating income and
creating job in case of Dukem town.
Lastly, this study will be attempted to answer the following basic questions.
 What are the contributions of microfinance institutions in job creation and
income generation for the community?
 What are the constraints of microfinance institutions on income generation
and job creation?
 What is the ultimate objective of MFI income generation and job creation?

1.3 Objective of the Study

1.3.1. General Objective

The general objective of the study is;
The over all objective of the study is to asses the contribution of microfinance institution
in income generation and job creation in Dukem town.

1.3.2. Specific Objective

- To assess the role and objective of MFI in income generation and job creation in
Dukem town.
- To asses the rate of MFI in income generation in Dukem town.
- To asses the challenge of microfinance institution in income generation and job
creation.

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1.4 Significance of the Study

This study will focus on the role of microfinance institutions in Dukem town for different
purposes and reasons in terms of income generation and job creation.

The study will increase the information towards the contribution of MFI in income
generation and job creation in the future. Also this research will identify different
problems that MFI in Fitche town have been faced. Also this paper will help government
bodies and NGO’s in order to look for the problem the community faced. It will help the
policy markers to design better policy for the community to overcome problems of
unemployment and poverty reduction.

1.5 Scope of the Study

The scope of the study will be limited to the contribution of microfinance institution in
income generation and job creation in case of Oromia credit and saving Share Company
in Dukem town. Also the study will be confined to the economic development aspect of
microfinance institution in providing income generation and job creation to society,
particularly in Dukem town.

1.6 Limitation of the study

The research will face the following limitations when conducting the research;
- The time given to conduct the entire research especially for the collection of data
will not enough.
- The distance of the organization from home town brings high financial problem.
- Resource limitation is the main constraint for this research proposal including
money and materials.
- Willingness of respondent is also a problem to get the correct data.

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CHAPTER TWO
2. Review of Related Literature
2.1. Definitions of Microfinance Institutions

A microfinance institution has been defined in literature by many authors. The following
authors have defined MFI in different ways.

Kebede (2002) defined “MFIs are among the formal financial institutions targeting the
poor both in Urban and rural area and providing microfinance service. Robinson (2001)
defined the term of MFI’s as “Micro- credit is the provision of very small loans to poor
individual who are outside the conventional bank system”.

Dejene (2001) defined MFI’s based on it’s main characteristic “MFI is that targeting of
poor, promoting small business, building capacity of the poor, extending small loan
without collaterals, combining credit with saving and sharing commercial interest rate
also saving service allow saver to store access liquidity for future use and to obtain return
on their investment.”

“Microfinance activities usually involves: small loan, typically for working capital,
informal appraisal of borrowers and investment also collateral substitutes such as groups
guarantees and compulsion saving, access to repeated and large loan, loan on repayment,
secure saving product.” Ledger wood (1999)

“Generally these microfinance institutions provide financial services to clients that are
usually excluded from formal financing system. They do this by employing variety of
operating models such as improved saving mobilization and flexibility in-service delivery
both mandatory and voluntary saving schemes are effectively used by these financial
institutions whose saving play a significant role in granting access to credit.” Mesfin
woldrufael (2001)

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2.2 Objective of Microfinance Institution

The principal objectives of microfinance institutions are to eradicate poverty i.e. to raise
income levels and to broaden financial markets by providing financial service, such as
saving, loan (credit) service, etc. and non-financial service are advisor service training
customers and local money transfer to the financially excluded people microfinance
targets to poor and the economically active poor in the society to assist them to create
wealth, accumulate assets and raise income to smooth consumption.

Microfinance is gaining general acceptance by a small loan, saving account which are
affordable ways to send pay check home and can make all the difference to a low-income
family or to small scale enterprise. Microfinance access to people is better for people to
protect themselves from unexpected losses & set back and with ability to collateralize
their assets, they can move beyond day to day survival towards planning their future that
means they can invest in better nutrition, housing, health and education for their children.
(Ledger wood, 1999, p. 33).

According to one study, success full micro finance (with repayment rate of 80 percent)
scheme had the following attributes: positives real interest rate intensive (monthly or
more frequent) loan collection, some provision for voluntary or insurance and incentive
to repayment. Harves marke (1996, p. 54).
OCSSCO has an objective of poverty alleviation through provision of financial services
(i.e. saving, credit and micro-insurance activities) to the poor. That is enhancing target
group income through their generating capacity. Additionally, it has a long term objective
of improving and strengthening household asset base through which sustainable
economic development is achieved. (Www. Oromia Microfinance.com).

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2.3. Role of Microfinance Institution

I. Employment Creation
Microfinance provides initial instrument or working capital, for those willing to capable
and ready to engage in income earning employment. The approach emphasized the use of
local available resource and skill to attain self-sufficient at low cost. (Published
Document of the organization 2003).

II. Access to Financial Service

Access to financial service, provides the poor with opportunity to accumulation assets to
reduce their vernuablity and shocks, such as; illness, crop failure, dramatic price
fluctuation and investing income generations activities. It also enable then to life through
better education, health and housing. Access to financial service can also enhance these
quality of life clients of their house hold members and save for children’s education,
including provision of high education levels. Microfinance development review (vol. 3,
2003).

III. Women Employment

Women face cultural barrier that often restricted them in to home, making it difficult for
them to access financial service. Due to these women entrepreneurs have attracted special
interest from microfinance institutions as they make up the poorest segment in the
society. Women clients are also seen as beneficial to the institutions, because they are
seen as credit worthy generally they demonstrated high repayment and saving rate.
Dejene (2001)
According to Albee Alana, (1996 p39) some of designs feature that meet women’s needs
are:
 Making loans available for trade and service as well as manufacture
 Using collateral substitutes such as solidarity group character references, Jewelry
and personal affect rather than asset collateral
 Provide deposit saving service and
 Set loan repayment schedules to fit women’s business cycle and etc

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IV Saving Mobilization
Saving mobilization are important features of many microfinance institutions. The
proponents of the new credit model argue that mobilized saving as well as, lending are
likely to be viable than intermediaries that only lend. Wolday (2002)

Saving is mobilized from people who live work near the institution out let. This permits
the institution to meet the local demand for saving service, collect small saving from the
poor, since the bigger account of larger saver raise and the average account size making it
cost effective for institution to mobilize from all level of the public. Generally,
microfinance credit was a key strategy in building global financial system that meet need
of most poor people’s. Simanawiz and Brody (2004)

2.4 Financial Development

Obviously the majority of poor in developing countries are experiences with the vicious
circle of poverty and unable to accumulate substantial saving. As noted by Goldsmith
(1969, p-37).

“Financial development is change in the financial structure of account. The structure

refers to the presence nature and related size to financial instrument and financial
institution in a country.” Goldsmith (1969 p.26).

The credit scheme aimed at financing the market towns development project planned to
improve infrastructure in towns consider markets and service center for the agricultural
inter land and to alleviated poverty problem in selected urban areas of the country
through employment generation and income enhancement. The employment generation
and income enhancing component of the project was originally planned to be
implemented. Befekadu Degefe and Berhanu Nega (1999/200.pp-330).

The activities being implemented related to marketing of product, granting of credit,

cooperative trading and technical counseling for augmenting the income of the member

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of the social movement. In order to intensify the social movement in developing a social
economical sectors credit and saving association has been developed income generating
activities to reduce poverty. Karmarker (1999)

Saving is not just another sector and like micro enterprise development. Gender
development or advocacy, saving and credit or income generation requires a holistic
approach to human development which ultimately leads to community development.
Karmarker (1999, p-180).

2.5 The Ethiopian Microfinance Experience

In Ethiopia microfinance experience provide credit to rural agricultural house hold for
purchase of agricultural inputs and tools have been practice by the country major states
owned banks (include development bank of Ethiopian, DBE) and commercial bank of
Ethiopia credit schemes targeted at urban poor. Where non existence until recent years
who NGOs, strait proving credit to poor house holds in some parts of the country,
Befekadu Degefe and Berhanu nega (19999/200) Annual report on Ethiopian economy
volume I (p330-331).

When referring to recent phenomena microfinance institutions was established in 1980

with the main vision of poverty reduction, unemployment problem and aims to bring a
positive change in the standard of poor peoples. Also the early formal microfinance is
following the signing of the credit negotiation between the government of Ethiopian and
international development association in 1990. Mengistu (1988)

The negotiation was made in order to bring secured and improved way of living the
people in the country. This was done by providing service in group based credit for small
micro scale enterprise. Wolday (2002)

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CHAPTER THREE

3. Material and Methodology

3.1 Data (materials)

Both quantitative and qualitative data will be used. Quantitative data are data that can be
expressed in numerical and monetary form. But qualitative data are data obtained from
personal feeling and point of view of people in the institutions and incorporating
customers say about the access of opportunity that how bring change in their life.

3.2 Source of Data

To make the data more reliable, primary and secondary source of data will be used.

3.3 Method of Data Collection

The data will be obtained from two sources, primary data and secondary data. Primary
data will be collected through questionnaires and interviews. The questionnaires contain
both open and close ended questions. Thus questionnaire will be distributed to the sample
customer and employee of the MFI. Structured interview will be conducted with manager
of the MFI to get information related to the study; secondary data will be obtained from
recorded document analysis and annual report of microfinance institution.

3.4 Sampling Technique

As every researcher has its own technique for gathering data, the researcher will use
simple random sampling techniques. Thus simple random sampling technique provides
equal chance for all customers or clients. The target group for this research is mainly
employees, managers and customers of microfinance institution in fitche town. The
researcher will use simple random sampling technique to select 30% from total customer,
Manager and employee as a sample to represent the total population respectively.

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The reasons why the researcher will have 30% of customers are to alleviate time
constraints and to make the information simple for analysis and conclusion.

3.5 Method of Data Analysis

The collected data will be complied, classified, processed, organized and interpreted
carefully to understand their complete meaning and implication. Information obtained by
the above technique will be analyzed in simplest and meaningful manner. After all, the
researcher will use tabulation and percentage, which helps to present all collected
information in simplest form to arrive at effective conclusion and possible
recommendation.

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CHAPTER FOUR

4. Time Budget and Cost Budget

4.1 Time Budget

The research work cannot be completed within a day or a weak, it involves many
activities. Hence, the researcher will be able to clearly plan and allocate his/her time for
each activity that will be under taken.

Activity Period
N Tasks 1st Month 2nd Month 3rd Month 4th Month 5th Month 6th
o Week Week Week Week Week
1st

1st

1st

1st

1st

1st
2nd
3rd
4th

2nd
3rd
4th

2nd
3rd
4th

2nd
3rd
4th

2nd
3rd
4th
Reviewing
secondary
data

(Literature
Review)
Questioner
developme
nt and
pre-testing
Editing
and coding
questionna
ire
Data
collection
& analysis

Writing
the 1st
Draft
Organizin
g Editing
the paper

Compiling
the annex

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and
appendix
Submissio
n of the
final
research

The following work plan is designed for the successful completion of this project within
the available time limit.

4.2 Cost Budget

The cost budget which the researcher will spend for field expenses for data collections,
pay for typist, pay for travel and all related items need to be detailed.

The researcher will expect the following expenses.

No Item Unit Quantity Cost unit Cost total

1. Stationary material

Paper Ream 2 120.00 240.00

Pen No 7 5 35.00
Pencil No 7 3.00 21.00
Flash(8GB) No 1 300.00 300.00
CD No 5 15.00 75.00
Printing cost No 400 0.60 240.00
page
2 Transportation cost trip 15 20.00 300.00
3 Researcher breakfast & day 15 150 2250.00
lunch expenditure for data
collection
4 Miscellaneous expense 500.00
Total 3961.00

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Reference

1. Robinson(2001) Micro finance revolution sustainable pr poor lesson, world bank,

Washington D.C
2. Mesfin Woldrufael (2007) Role of MFI in poverty reduction
3. Dejene. A(2001)Gender and microfinance in Africa microfinance development
review, vol. 2 No1, bulleting, Addis Ababa
4. Ledger wood (1999) Sustainable MFI’s quarterly finance with the poor
microfinance Hand book, an institution and financial perspective, World bank,
Washington D.C
5. Wolday Amaha (2003) Micro finance in Ethiopia performance changed and Role
in poverty reduction, MIF occasional paper NO7 Ethiopia, Addis Ababa.
6. Karmarker K.G (1999) Rural credit and self help group microfinance need and
concept in India.
7. Wolday Amaha (2002) Development of microfinance industry in Ethiopia
performance problem of prospective, Addis Ababa
8. Federal Negarit Gazeta (1996) Licensing and supervision of microfinance
institution proclamation number 40 (1996) July5, Addis Ababa.
9. Johnson (1997) Microfinance and poverty reduction Oxfam and action aid, UK
10. Website WWW. Oromia microfinance. Com

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