CHAPTER ONE:

INTRODUCTION

Microfinance has the ability to raise the living conditions of the poorer segments of

the population, but the performance of most of the Micro-Finance Institutions in Liberia, in the

repayment of loan to approximately 25,000 borrowers has been disappointing. This research is

an effort to cross check or investigate the defaults of loan repayment of client to Micro-Finance

Institution in Liberia. It is proven all over the world that Microfinance played an important role

in the alleviation of poverty. Central Bank of Liberia (CBL, 2016). Microfinance institutions

(MFIs) are one of the specialized financial institutions Mosley & Hulmey (1998). They are the

agencies or institutions which are either established by private individuals, government, donor

agencies as well as non-governmental organizations with sole aim of ensuring financial

inclusion. The essence of MFIs are to provide microfinance services such as provision of micro

loan, micro saving, micro insurance, transfer services and other financial products targeted at

poor or low income individuals. Kurfi (2008).

1.1 Background of the Study

Loan repayment is the act of paying back money in maturity previously borrowed from

a lender. Repayment usually takes the form of periodic payment that normally includes part

principal plus interest in each payment Alemut (2002). Microfinance is a source of financial

services to low income individuals and small business that don’t have access to banking and

related service khandiker (1995). The beginnings of microfinance movement are most closely

associated with the economist Mohammed Yunus, who in the early 1970’s was a professor in

Bangladesh. In the midst of a country-wide famine, he began making small loans to poor

families in neighboring villages in an effort to break their cycle of poverty. The experiment was

surprising success, with Yunus receiving timely repayment and observing significant changes in

the quality of life for his loan recipients. Unable to self-finance an expansion of his project, he

1
sought governmental assistance, the Gramen bank was born. In 2006, Yunus was awarded noble

peace prize Perkins (2008).

On the other hand, the defaulters’ percentage in microfinance is increasing day by

day. There are many evidences from different countries stating that more delinquencies in

personal loan, credit card, and microfinance etc. Increasing defaults in the repayment of loans

may lead to very serious implications. For instance, it discourages the financial institutions to

refinance the defaulting members, which put the defaulters once again into vicious circle of low

productivity. Therefore, a rough investigation of the various aspects of loan defaults, source of

credit, purpose of the loan, form of the loan, and condition of loan provision are of utmost

importance for both policy makers and the lending institutions. Kelly (2005).

However, increasing non-performing loan (bad debt loans) was a reason for

provision and other administrative charges and on the other hand drastically reduces the banks

income and profitability due to suspension of interest on non- performing loan. This undesirable

fact tarnishes the image of the bank and negatively contributes to play its part in the countries

development endeavors. Besides, ties the bank’s capital, affects its liquidity position, and

reduces its competitiveness locally or in the global market and hence not compatible with a

development bank that is expected to play an active and indispensable role by maintaining its

sustainability. Most deposit taking microfinance institutions consider financial investments; that

is a portfolio of assets you put money into with the intend it grows or appreciate such as

purchasing new equipment or a launch of new product, as these institutions forecast their future

strategy. Future investments require financial resources to pay for those investments (Ali, 2004).

2
1.1.1 Microfinance Institutions in Liberia

Pursuant to the provisions of Part II, Section 3, of the New Financial Institutions Act

of 1999 and the Microfinance Regulatory and Supervisory Framework for Liberia, the Central

Bank of Liberia (CBL) promulgates and issues regulations to regulate the establishment,

operations and business conduct of microfinance deposit-taking institutions (MDIs) that seek to

take deposits from the public and engage in microfinance lending (CBL, 2010). The inception of

the New Financial Institutions Act of 1999 and the Microfinance Regulatory and Supervisory

Framework for Liberia of the microfinance Act of 1999, saw a number of emerging and existing

micro-finance institutions applied for licenses to permit them to take deposits from members

and the general public. The main objective of the Microfinance Act is to regulate the

establishment, operations, business and conduct of microfinance institutions in Liberia through

licensing and supervision. Central Bank of Liberia (CBL, 2010).

According to a report by CBL (2018), the number of licensed banks in the economy

remained 9 in 2018 with 93 branches across the Country, from 90 in 2017 while Diaconia MDI

remained the only deposit-taking microfinance institution In Liberia. There has been a

monumental proliferation in non-implementing loans in deposit taking microfinance institutions

over the last 6 years; this has led to a proliferation in liquidity, this gloomy impact on the

investment decisions of the firm leading to poor financial performance of the firm (AMFI,

2013). Central Bank of Liberia 2018 monthly economic review volume 4 No.7 shows that non-

implementing loans decrease by 15.2% with decline in total commercial banks loans by 4.9%.

When a microfinance institution clutches sufficient liquid assets to fund its calculated plans, it

demands no supplementary fund to go after those investments CBL (2018).

3
 1.1.2 Profitability

Profit is the ultimate goal of most firms. Profitability is the ability to make profit

from all business activities of an organization. It measures management efficiency in the use of

organizational resources in adding value to the business. Profitability may be regarded as a

relative term measurable in terms of profit and its relation with other elements that can directly

influence the profit. Profitability is the relationship of income to some balance sheet measure

which indicates the relative ability to earn income on assets. Irrespective of the fact that

profitability is an important aspect of business, it may be faced with some weakness such as

window dressing of the financial transactions and the use of different accounting principles. The

issue of firm’s profitability and performance efficiency been considered in a number of

theoretical and empirical researches of different kinds. However, return on assets (ROA) and

return on equity (ROE) have always been mentioned among the main indicators characterizing

firm’s profitability. Return on Assets (ROA) is a common ratio used to measure profitability of

a firm. It is a ratio of net income to the total assets (Khrawish, 2011).

It measures the ability of the firm’s management to generate income by utilizing

company assets at their disposal. In other words, it shows how efficiently the resources of the

company are used to generate 16 the income. It further indicates the efficiency of the

management of a company in generating net income from all the resources of the institution

Khrawish (2011).

According to Wen (2010) states that a higher ROA shows that the company efficiently

uses its resources. Return on Equity (ROE) is a financial ratio that refers to how much profit a

company earned compared to the total amount of shareholder equity invested or found on the

balance sheet. Thus, the higher the ROE the better the company is in terms of profit generation.

It is further explained by Khrawish (2011) that ROE is the ratio of net income after taxes to the

total equity capital. It represents the rate of return earned on the funds invested in the bank by its

4
stockholders. ROE reflects how effectively a firm’s management is using shareholders’ funds.

Thus, it can be deduced from the above statement that the higher the ROE the more effective the

management in utilizing the shareholders capital.

As stated by Maverick (2016) that in order for a firm to prosper in the long-term, it

must be able to survive the short-term first. Liquidity is also a key component used in assessing

or to measure the financial health of a business, there are other financial metrics that will also be

used. Liquidity ratios are used for this purpose, including the current ratio and the quick ratio

which are the two most commonly used ratio.

Liquidity not only helps make sure that an individual or business always has a reliable

supply of cash on hand, but it is also one of the powerful tool when it comes to measuring the

financial health of an entity of future investments as well (Clementi, 2001). Investopedia.com

(2016) also describes Liquidity as the degree to which an asset or security can be quickly bought

or sold in the market without affecting the asset's price. It is also generally defined as the ability

of a financial firm to meet its debt obligations without incurring unacceptably large losses

(Maness & Zietlow 2005)

When studying the financial health of firms there are four financial metrics to consider

and they are: liquidity ratios measure a firm’s ability to meet its maturing financial obligations.

The focus is on short-term solvency as if the firm were liquidated today at book value. The

current ratio (CR) is the most common liquidity measure and provides an indication of a firm’s

ability to pay short-term claims with short-term assets, financial leverage/solvency ratios

measure the relative amount of funds supplied by equity and debt holders.

The focus is on the long-term solvency of the firm. In general, the higher the amount

of debt financing relative to equity financing, the more leveraged the firm is and the greater the

risk its owner faces, efficiency ratios sometimes called asset management ratios, measure the

efficiency with which a firm manages its assets, and profitability ratios measure the firm’s

5
efficiency in generating profits. The most used liquidity ratios are: ratios concerning receivables,

Inventory turnover, working capital, Current ratio and Acid test ratio. Other ratios related to the

liquidity of a firm deal with the liquidity of its receivables and inventory. The ratios indicating

the liquidity of a firm's receivables are days' sales in receivables, Accounts receivable turnover,

and Account receivable turnover in days. Chaplin et al. (2000).

1.1.3 Financial Performance

Financial performance of any firm tells about the financial health of a firm helping

numerous lenders and stakeholders take an informed investment decision. It is actually

generated from the financial statement and composition of a firm which is the standard to assess

and monitor performance. Business senior managers use financial statements to create an

inclusive financial projection that will maximize shareholders wealth and minimize viable risks

that may advance. Financial Statements assess the financial position and performance of a firm.

These statements are made and produced for external stakeholders for example: shareholders,

government agencies and lenders (Rahaman, 2010). Financial performance determines how ably

a firm creates wealth for the owners. It can be ascertain through diverse financial metrics such as

profit after tax, return on asset, return on equity, earnings per share, and any market value ratio

that is generally accepted (Pandey, 1985).

1.1.4 Liquidity Risk and Financial Performance

The 2007–2009 financial crises highlighted the vulnerability of banks to liquidity

risk and the implications of banking business. During the crisis, the identification of proper risk

management for different business models was challenging (Altunbas et al. 2011). Moreover,

banks that exhibited traditional characteristics during the financial turmoil had a “survival

advantage” (Chiorazzo et al. 2018). This led to the need for specific regulation regarding both

the management and measurement of liquidity risk with a view to achieving greater stability in

the financial system.

6
 According to the definition of the Basel Committee on Banking Supervision (1997),

liquidity risk arises from the inability of a bank to accommodate decreases in liabilities or to

fund increases in assets. Meaning that, when a bank does not have sufficient cash on hand, it

cannot acquire enough funds to make payment on deposit or settle its obligations and other

commitment, either by proliferating liabilities or changing assets at a reasonable cost thereby

affecting profitability.

Liquidity risk may cause a fire sale of the assets of the bank which may spill over into

an impairment of bank's capital base. If the financial institutions face a situation in which it has

to sell a large number of its illiquid assets to meet the funding requirements perhaps to reduce

the gearing in conventionality with the demand of capital acceptability the fire sale risk may

arise. This scenario may dictate to offer price discount to attract buyers. This situation will have

a knock on effect on the balance sheets of other institutions as they will also be obliged to mark

their assets to the fire sale price (Brunnermeier & Yogo, 2009).

As propounded by Diamond and Rajan (2001) that a bank may refuse the lending, even

to a potential entrepreneur, if it feels that the liquidity need of the bank is quite high. This is an

opportunity loss for the bank. If a bank is unable to meet the requirements of demand deposits,

there can be a bank run. No bank invests all of its resources in the long‐term projects. Many of

the funding resources are invested in the short term liquid assets. This provides a buffer against

the liquidity shocks (Holmstrom and Tirole, 2000). Diamond and Rajan (2005) also emphasize

that a mismatch in depositors demand and production of resources forces a bank to generate the

resources at a higher cost. Liquidity has a greater impact on the tradable securities and

portfolios. Broadly, it refers to the loss emerging from liquidating a given position. It is essential

for a bank to be aware of its liquidity position from a marketing point of view. It helps to expand

its customer loans in case of attractive market opportunities (Falconer, 2001). A bank with

liquidity problems loses a number of business opportunities. This places a bank at a competitive

disadvantage, as a contrast to those of the competitors (Chaplin et al., 2000).

7
1.2 Statement of the Problem

It has been observed that Microfinance institutions are faced with challenges of loan

repayment defaults by clients. Increasing defaults in the repayment of loans by clients may lead

to very serious implications. For instance, it discourages the financial institutions to refinance

the defaulting members, which put the defaulters once again into vicious circle of low

productivity. The banking sector in Liberia has been facing various challenges and constraints.

One of the biggest challenges was management of non-performing loans. The soaring low

achievement of repayment performance may have adverse impact on the financial performance

of the bank as well as the progress of the economy. Wondimagengehu (2012).

Microfinance can play a great role in the battle against poverty. Many empirical

evidences indicate that Liberia is one of the poorest countries in the world and also among the

lowest to be found in the category of low income countries in Africa. World Bank revealed that

nearly 50% of the Liberian population lives below the line of poverty. Due to this, its economic

history has been the history of how it has become more and more difficult for the people to meet

even their minimum requirement of subsistence. One of the reasons behind the poverty and

backwardness of Liberia is the culture of saving and loan. Microfinance is a general term to

describe a financial service to low income individual or to those who do not have access to

typical banking services. Microfinance is also the idea that low income individuals are capable

lifting themselves out of poverty it given access to financial services. It is in this regard that this

study was designed to assess loan repayment of clients to Micro-finance. World Bank (2008).

1.3 Significance of the Study

This study provides resourcefulness for many users, specifically it helps the

microfinance institutions to improve their performance, the strategies they used in loan recovery

as well as the way they evaluate and monitored clients since they will understand loan

repayments default by clients as well as the challenges faced in loan recovery. The paper also

8
helps us to know microfinance institutions deeply and also it serves as input for further

researches. From these findings micro finance institutions can determine proper mechanism to

mitigate the already existing challenges and any emerging problems. This study will hopes to

shed more light to the governing bodies and regulators of microfinance institutions and risk

management departments of financial institutions to be aware of liquidity and financial

performance of the firm.

1.4 Objective of the Study

The study was aimed to assess loan repayment performance of clients to micro Finance

institutions. To answer the above research questions the following 4 objectives were identified

and were considered for the purpose of this study:

 To investigate the problems and challenges facing loan repayments

 To determine the implication of defaults of loan repayments had on micro-

Finance Institutions

 To identify ways to mitigate the defaults of loan repayments

1.5 Research Question

The researcher will use the following research questions as a guide for the study:

 What are the problems and challenges facing loan repayments?

 How were the implications of defaults of loan repayments?

 How were the ways to mitigate the defaults of loan repayments?

1.6 Scope and delimitation of the study

This research will focus on Diaconia Mdi and other microfinance institutions in

Liberia. This research will investigate the effect of liquidity on the financial performance of

deposit taking microfinance institution in Liberia among employees/staffs and top management

9
b/w (18-54yrs) at the indicated bank above from 2012-2017. Data will be collected through

structural questionnaires from staffs and top management at the indicated bank(s) in Liberia.

1.7 Limitation of the study

The research will encounter numerous summonses which will restrict its acceptable

procedure of implementation. The use of subservient data will be one of the limitations to the

research. This is because the data was not originally collected for the purpose of this study. The

huge finding requires for this research work, lack of adequate materials for support will also be

some of the limitations. Acquiring of data from the banks will be a great summons as most of

them will not issue their audited reports in their webpage. The process of categorizing facts from

various sources will be time compelling as no precise source will give all the needed data.

The research were faced with financial constrain as well which will prevent the

researcher from delving into and gathering details information that would facilitate the

researcher work to a greater extend. Moreover, some of the respondent will be unable to

response to the questionnaire in time due to issues that might relate to confidentiality.

1.8 Definitions of key terms

Network of microfinance Institutions in Liberia-

Central of Bank of Liberia- is the bank responsible for licensing, regulating, and overseeing

the financial sector in Liberia.

Commercial Banks- banks that accept deposit from the public and giving loans for investment

with the aim of earning profit.

Deposit Taking Microfinance Institutions-often defined as a financial service for poor and

low income clients offered by different type of providers.

10
 Micro Finance Institutions- an organization that offers financial service to low income

populations

Profit before tax- also called Ebit, Is a measure that look at a firm’s profit before the firm’s has

to pay corporate income tax

Return on Assets- measure or show the percentage of how profitable a company asset is in

generating revenue.

Return on Equity-is a measure of a company’s annual return or is a measure of how well a

company’s uses investment to generate earnings

Market risk - refers to the risk that an investment may face due to fluctuations in the market.

The risk is that the investment’s value will decrease. Also known as systematic risk, the term

may also refer to a specific currency or commodity.

Product Mix - also called as Product Assortment refers to the complete range of products that

is offered for sale by the company. In other words, the number of product lines that a company

has for its customers is called as product mix.

Non- implementing loans- is a loan in which a borrower is default and has not made any

payment of principal or interest for some time especial after 90 days.

Asset quality- is an examination or evaluation of asset to measure the credit risk associated with

it

Liquidity risk- is a risk that occur when an individual investor, business, or financial institution

cannot meet its short- term obligation

Operation efficiency- is used to measure the effort extended to achieve the target efficiently

and effectively

11
Loan repayment- It is an arrangement of in which a lender gives money or property to a

borrower and borrower agree to return the property and repay the money, usually along with

interest at some future time

Default-Defaults is defined as failure to pay a debt loan at the right time or who did not repay

the loan within due date

1.9 Organization of the study

The study was organized into five chapters. Chapter one will give the introduction to

the study. It is subtitle as background of the studies, statement of the problem, research

questions, scope and delimitation of the studies, significance of the studies and definition of key

terms. Chapter two will contains review of related literature on factors associated with liquidity.

Chapter three will focus on the research methodology which contains the research method,

research design, population of the studies, sample size and sampling techniques, research

instrument, data collection procedure and data analysis, chapter four will emphases on the data

collected, interpreting the data collecting and analyzing the data while chapter five will

summarize the study, draw conclusions and make recommendations.

12
 CHAPTER TWO:

REVIEW OF RELATED LITERATURE

2.0 Introduction

In this unit, we will discuss the literature that is accessible concerning credit risk and financial

Performance. This chapter will covers the theoretical framework, the empirical studies,

determinants of financial performance and the summary of the literature review.

2.1 Theoretical Framework

The research will focus on three theories namely Liquidity Risk Theory, Liability

Management Theory and Commercial loan theory of liquidity. These theories provide the

theoretical proof on the relationship between credit risk and financial performance of Firms.

2.1.1 Liquidity Risk Theory

According to a research conducted by NJERI ( as cited in Halling & Hayden,2006)

explains that a bank should define and identify the liquidity risk to which it is exposed for all

legal entities, branches and subsidiaries in the jurisdictions in which it is active. Every bank

irrespective of their size faces eight risks and these risks shape every banking institution. One of

the eight risk face by these institutions is credit risk.

According to the Bank for International Settlements (BIS), credit risk is defined as the

potential that a bank borrower or counterparty will fail to meet its obligations in accordance

with agreed terms. It is most likely caused by loans, acceptances, interbank transactions, trade

financing, foreign exchange transactions, financial futures, swaps, bonds, equities, options, and

in the extension of commitments and guarantees, and the settlement of transactions

(Gangreddiwar ,2015).

13
 Because the bank is aware of the fact that the borrower might not settle his or her

obligation, the banks give money for short duration of time. This is because the money they lend

is public money. This money can be withdrawn by the depositor at any point of time. So, to

avoid this chaos, banks lend loans after the loan seeker produces enough security of assets

which can be easily marketable and transformable to cash in a short period of time.

A bank is in possession to take over these produced assets if the borrower fails to

repay the loan amount after some interval of time as decided. This is important as the bank

requires funds to meet the urgent needs of its customers or depositors. The bank should be in a

condition to sell some of the securities at a very short notice without creating an impact on their

market rates. The borrower should be in a position to repay the loan and interest at regular

durations of time without any fail. The repayment of the loan relies on the nature of security and

the potential of the borrower to repay the loan. Unlike all other investments, bank investments

are risk-prone.

A bank’s liquidity needs and the sources of liquidity available to meet those needs

depend significantly on the bank’s business and product Mix which also refer to as Product

Assortment refers to the complete range of products that is offered for sale by the company. In

other words, the number of product lines that a company has for its customers. Balance sheet

structure and Cash flow profiles of its on- and off-balance sheet obligations. As a result, a bank

should assess each major on and off balance sheet Position, including the effect of implant

choice and other unforeseen exposures that may affect the bank’s sources and uses of funds, and

determine how it can affect liquidity risk. A bank should consider the interactions between

exposures to funding liquidity risk and market liquidity risk (Jeanne & Svensson, 2007).

A bank that gets liquidity from capital markets should accept that these sources may

be more uneasy than traditional retail deposits. For example, under conditions of stress, lenders

in money market instruments may demand higher premium for the risk they intend to take, at

14
considerably shorter maturities, or refuse to extend financing at all. Moreover, dependency on

the full functioning and liquidity of financial markets may not be realistic as asset and funding

markets may dry up in times of stress (Perera et al., 2006).

In the study conducted by Nasir (2013) “contemporary issues and challenges of

microfinance in India”, has discovered that the pressing challenges in MFIs are lack of product

diversification, low outreach, high interest rate, late payment or delay in payment by

microfinance clients , inadequate funding, neglecting urban poor and high cost of transaction.

The paper has dual on the challenges of MFIs without providing any viable solution to address

them. According to Nawai, and Shariff, (2013) have found that one of the major obstacles of

MFIs is loan re-payment problem. They identified the remote causes for the poor loan

repayment in Malysia. In the paper they implored the reasons why MFIs clients are lackadaisical

in loan repayment. The paper shown that among the causes of poor loan re-payment are

borrowers` attitude toward their loan, amount received, business experience and family

background. Therefore, in the conduct of this research the researchers used qualitative approach

while quantitative approach can also be used.

A bank should recognize and consider the strong interactions between liquidity risk

and the other types of risk to which it is exposed. Various types of financial and operating risks,

including interest rate, credit, operational, legal and reputational risks, may influence a bank’s

liquidity profile. Liquidity risk often can arise from perceived or actual weaknesses, failures or

problems in the management of other risk types. A bank should identify events that could have

an impact on market and public perceptions about its soundness, particularly in wholesale

markets (Akhtar, 2007)

15
2.1.2 Liability Management Theory

According to will Kenton (2018) Liability management is the practice by banks of

maintaining a balance between the maturities of their assets and their liabilities in order to

maintain liquidity and to facilitate lending while also maintaining healthy balance sheets.

Liability management plays an important role in the health of a bank's bottom line. During the

run-up to the 2007-08 financial crises, some banks mis-managed liabilities by relying on short-

maturity debt borrowed from other banks to fund long-maturity mortgages, a practice which

contributed to the failure of UK lender Northern Rock, according to a government report on the

crisis.

Diamond & Rajan (2001) postulated that liability management theory focus in banks

issuing liabilities to meet liquidity needs. Liquidity and liability management are closely related.

One aspect of liquidity risk control is the buildup of a careful level of liquid assets. Another

aspect is the management of the Deposit taking institutions.

Asset and liability management is one of the most important risk management measures

at a bank. It is one of the essential tools for decision making that sets out to maximize

stakeholder value. It is important to track the external factors of the asset and liability

management in the market to remain in the long term and to prepare for negative effects.

Banking sector analysis could be the instrument to measure the sustainability of the country's

financial sector (Goddard et al., 2009).

Asset liability management is the management of the total balance sheet dynamics

and it involves quantification of risks and conscious decision making with regard to asset

liability structure in order to maximize the interest earnings within the framework of perceived

risks. The primary objective of asset liability management is not to eliminate risk, but to manage

it in such a way that the volatility of net interest income is minimized in the short run and

economic value of the organization is protected in the long run. The liability management theory

16
function involves controlling the volatility of net income, net interest margin, capital adequacy,

liquidity risk and ensuring an acceptable balance between profitability growth and risk

(Diamond & Rajan, 2001).

The proponents of this theory argue that, through proper Asset liability Management,

liquidity, profitability and solvency of banks can ensure that commercial banks manage and

reduce risks such as credit risk, liquidity risk, interest rate risk and currency risk. The liabilities

of a bank have different categories of varying cost, depending on the tenor and maturity pattern.

Similarly, these comprise different categories with varying yields depending on the maturity and

risks factors. The main focus of this theory is the matching of liabilities and assets (SBP, 2010).

2.1.3 Commercial Loan Theory of Liquidity

According to Adam Smith, commercial loan are short term loans advances to finance

salable goods on the way from producer to consumer are the most liquid

loans the bank can make. These are self-liquidating loans because the good being financed will

soon be sold. The loan finance a transaction and the transaction itself provide the borrower with

the fund to repay the bank. He further describes these loans as liquid because their purpose and

their collateral were liquid. The goods move quickly from the producer through the distributors

to the retail outlet and then are purchased by the ultimate cash paying consumer (Comptroller of

the Currency, 2001).

The liquidity of assets refers to the ease and certainty with which it can be turned into

cash. The liabilities of a bank are large in relation to its assets because it holds a small

proportion of its assets in cash. But its liabilities are payable on demand at a short notice.

Therefore, the bank must hold enough large amounts of its assets in the form of cash and liquid

assets for the purpose of profitability. If the bank keeps liquidity the uppermost, it will profits

below. On the other hands, if it ignores liquidity and aims at earning more, it will be disastrous

for it. Thus in managing its investment portfolio a bank must have a balance between the

17
objectives of liquidity and profitability. The balance must be achieved with a relatively high

degree of safety. This is because banks are subject to a number of restrictions that limit the size

of earning assets they can acquire (Brunnermeier & Yogo, 2009).

The proponents of this theory argue that the most liquid of assets is money in cash. The

next most liquid assets are deposits with the central bank, treasury bills and other short term

bills issues by the central and state governments and large firms, and call loans to other banks,

firms, dealers and brokers in government securities. The less liquid assets are the various types

of loans to customers and investments in long term bonds and mortgages. Thus the principle

sources of liquidity of a bank are its borrowings from the other banks and the central bank and

from the sales of the assets. But the amount of liquidity which the bank can have depends on the

availability and cost of borrowings. If it can borrow large amounts at any time without difficulty

at a low cost (interest rate), it will hold very little liquid assets. But if it is uncertain to borrow

funds or the cost of borrowing is high, the bank will keep more liquid assets in its portfolio

(Crowe, 2009).

A fully matched position is ideal a self-liquidating balance sheet but this is not

observable in real life, because of the conflicting objectives of a bank and its borrowers, nor is it

desirable due to its negative impact on profitability; a reasonable level of mismatch enhances

profitability (Crowe, 2009)

2.2 Determinants of Financial Performance

The financial performance of firms can be discovered by either internal factors or

external factors. Internal factors could be bank specific determinants while external factors are

Industry specific determinants and macroeconomic determinants. These indicators include:

capital adequacy, assets quality, operational efficiency, liquidity and external factors.

18
2.3. Liquidity

Liquidity of the firm is a key determinant of the firm’s financial performance.

Liquidity risk can be measured by two main methods: liquidity gap and liquidity ratios. The

liquidity gap is the difference between assets and liabilities at both present and future dates.

Liquidity is the amount of capital that is available for investment and spending. Capital includes

cash, credit and equity. Most of the capital is credit rather than cash. That's because the large

financial institutions that do most investments prefer using borrowed money (Jeanne &

Svensson, 2007).

2.3.1 Asset Quality

The firm’s asset is another bank specific variable that affects the financial

performance of the firm. The bank asset includes among others current asset, credit portfolio,

fixed asset, and other investments. Often a growing asset (size) related to the age of the firm.

More often than not the loan of the financial institution is a key asset that generates the major

share of the banks income (Jeanne & Svensson, 2007).

Loan is the major asset of most financial institutions from which they generate

income. The quality of loan portfolio determines the financial performance of firm. The loan

portfolio quality has a significant impact on the financial performance of the firm. A review or

evaluation assessing the credit risk associated with a particular asset. These assets usually

require interest payments such as a loans and investment portfolios. How effective management

is in controlling and monitoring credit risk can also have an effect on the what kind of credit

rating is given (Kashyap, Rajan & Stein, 2002).

According to Bernanke, Lown, and Friedman (1991), non-implementing loans or

lower asset quality, in economies that have bank based financial systems which is also known as

"credit crunch", may defer economic recovery by decreasing operating profit margin or eroding

19
capital base for new loans. For Klein (2013), non-implementing loans will affect profitability of

banks which is their main profit source and ultimately financial stability of economy. Lower

asset quality or non-implementing loans reaching substantial amount may lead to bankruptcies

and economic slowdown (Adhikary, 2006; Barr & Siems, 1994; Berger & DeYoung, 1997;

Demirguc-Kunt, 1989; Whalen, 1991).

Considering that one of the main reasons for the 2008 global crisis is lower quality

assets, which can be defined as toxic assets, measuring non-performing loans, analyzing their

effects well and producing required economic policies have significant importance for whole

economy as well as the banks themselves. Accordingly, especially within last 25 years,

regulations are put in to effect by national and international institutions in order to determine

asset quality with regards to the importance of it.

In 1995 at the United States of America, United States Federal Reserve Board bring

“Standards for safety and soundness” into force which stipulates regular reporting obligation on

asset quality for board of directors of banks in order to evaluate the risks on deformation of asset

quality and to form asset quality supervision systems by financial institutions in order to define

problems that may arise with regards to asset quality (Eze & Ogbulu, 2016).

Seven(7) of the twenty-five (25) fundamental principles determined, by Basel

Committee on Banking Supervision (BCBS), for the effective supervision of banking system are

related with the asset quality of bank and loan risk management and this indicates that the asset

quality become an important aspect for supervision authorities of each country worldwide

(Abata, 2014). Hence, criteria which are started to be published by BCBS in 2000 titled Basel I

are legalized by European Union with the directives on capital adequacy. The mentioned criteria

are revised in accordance with the developments on financial markets and global financial crisis

started as of the end of the 2007. Lastly, Basel III criteria are put in effect in 2013.

20
2.3.1.1Frequency of loan payments

Loan payments can be made on an installment basis (weekly, biweekly, monthly) or

in a lamp sum at the end the loan term, depending on the cash patterns of the borrower. For the

most part, interest and principal are paid together. However, some MFIs charge interest up front

(paid at the beginning of the loan term) and principal over the term of the loan, while others

collect interest periodically and the principal at eh end of the loan term. The frequency of the

loan payments depends on the needs of the client and the ability of the MFI to ensure repayment

(Ledger wood, 1999).

According to Ledger wood (1999), the loan term is one of the most important variables

in microfinance. It refers to the period of time during which the entire loan must be repaid. The

loan term affects the repayment schedule, the revenue to the MFI, the financing costs for the

client, and the ultimate suitability of the use of the loan. The closer and organization matches’

loan terms to its client’s needs, the easier it is for the client to carry the loan and the more likely

that payments will be on time and in full

2.3.1.2 Factors affecting loan repayment

Theoretical models generally confirm that joint liability leads to higher repayment performance

due to more and effective screening, monitoring and enforcement among group members. Most

studies on this issue support this vies. Several authors have empirical investigated the prediction

of high repayment performance of Grameen Bank and Bancosol. They focused on analyzing the

evaluation of microenterprise loan repayment performance (Ledger wood, 1999).

According to Ledger wood (1999), states that there are several factors affecting loan

repayment which include Loan size (amount): is another factor that can affect loan repayment

performance. Godquine (2004) showed that loan size has negative sign and is significant in

affecting loan repayment. This negative sign is theoretically explained by the fact that the loan

21
size increases the gains associated with extant and exposit moral hazard. The negative sign of

loan size of the loan could also be linked to borrowers’ inability to repay a large amount over a

given period (usually one year). It could be that, for a given duration large loans do not meet the

borrowing needs and are not suited to the local economy. The small holder loan repayment

performance, evidence from the Nigerian microfinance system, found out the loan size increases

the probability of delinquency. It implies that loan size is negatively related to loan repayment

Olomole (2000).

Follow up of loan is another factor of loan repayment. Manager should maintain

contact with borrowers and as far as possible should keep watch full. Eye to ensure that loan one

used for the purpose for which they are guaranteed. Any apparent deterioration on borrower’s

position should be immediately investigated and reported where appraiser. All outstanding loans

should be reviewed by mangers at least once in a month to ensure that repayment are being

made regulatory slackness in this respect only leads to more difficulties later if borrowers find

that the manager over look nonpayment of installments (Godiqine, 2004).

According to Das et-al (2011) has examined the strategies to address the

challenges microfinance. The paper has dual on macro and micro challenges to the delivery of

microfinance. They found that challenges encountered by MFIs include the inaccessibility of

micro finance services to the poor, the capital inadequacy of MFIs, demand and supply gap in

provision of micro credit and micro saving. They also discovered that high transaction cost, the

non-availability of documentary evidence and problem of re-payment tracking. They have

categorized the problems into micro and macro challenges.

According to Mabhungu, et-al. (2011) has studies the factors used by MFIs in

grating micro loans to micro and small enterprises. The paper has found that MFIs consider

factors such as business formality, value of assets, business sector, operating period and

financial performance in granting micro loan. This paper has used micro and small enterprises

22
as the population of the study rather than using MFIs. Therefore, the paper has shown that the

method adopted by MFIs may not ensure financial inclusion in Zimbabwe because the first

criteria used in granting micro loan is formality while most of micro and small enterprises are

informal

2.3.2 Operational Efficiency

Operational efficiency is one of the key internal factors that determine the

financial performance of the firm. It is represented by different financial ratios like total asset

growth, loan growth rate and earnings growth rate. It is one of the complexes subject to capture

with financial ratios. Moreover, operational efficiency in managing the operating expenses is

another dimension for management quality (Halling & Hayden, 2006). The performance of

management is often expressed qualitatively through subjective evaluation of management

systems, organizational discipline, control systems, quality of staff, and others. Some financial

ratios of the financial statements act as a proxy for operational efficiency.

The capability of the management to deploy its resources efficiently, income

maximization, reducing operating costs can be measured by financial ratios. One of this ratios

used to measure management quality is operating profit to income ratio (Halling & Hayden,

2006). Operational efficiency is also referring to as the backbone of every industrial, financial,

commercial or institutional undertaking. In the various sectors of the economy the operational

efficiency is to be measured to achieve a strong long lasting and growth oriented results,

whether to be in a developed country or developing country.

The concept of operational efficiency which is of recent origin signifies the quality

of skill and degree of success attained in the management and performance of various activities

of an enterprise. Efficiency in job has been a matter of deep concern to many social scientists

hailing from as diversified disciplines as industrial, engineering, sociology and social

psychology. When there are any organized activities social or economic, all related parties seek

23
to achieve the object or objectives behind these activities with the minimum expenditure or cost,

in other words getting the maximum output from available resources that are what can be called

operational efficiency.

Profits are an index of economic progress; national income generated and rises in the

standard of living. Operational efficiency indicates that how business manages its income and

uses them to generate profits. Maximizing operational efficiency is different for each individual

organization, every enterprise uses different type of techniques to maximize the operational

efficiency and minimize inefficiencies that smother earnings or growth.

In present scenario every industry is being challenged to perform efficiently. Amid the

national and international competition an organization must aim for improving its product /

service, quality, increase productivity, greater responsiveness to change in market demand and

to maintenance. Excellence in operations in any business is a critical drive for success. The

growth and progress of a firm depend on the accomplishment of adequate results in their

operations In order to achieve good results, there is a basic need to accomplish two essential

circumstances, i.e. to optimum utilize the available funds for the formation of its consequences

and for achievement of consequences which fulfills the desires of the customers. (Potocan,

2006)

2.3.3 Capital Adequacy

Capital ratio has long been a valuable tool for assessing capital adequacy and should

capture the general safety and soundness of financial institutions. In most cases well capitalized

banks face lower expected costs of financial distress and such an advantage will then be

translated to financial performance of the firm. A firm that exhibits a strong capital base is able

to take advantage of profitable investments that can yield high returns in future (Holmstrom &

Tirole, 2000).

24
 Capital adequacy ratio is also one of the most significant current issues in banking

which evaluate the amount of a bank’s efficiency and stability. The Basel Capital Accord is an

international standard for the calculation of capital adequacy ratios. The Accord recommends

minimum capital adequacy ratios that banks should meet. Using minimum capital adequacy

ratios causes promotion in stability and efficiency of the financial system by decreasing the

likelihood of insolvency in banks. In the aftermath of the financial crisis, there have been efforts

by regulatory authorities to make banks stronger. To accomplish this, governments across the

developed world are enforcing strengthen their balance sheets by increasing capital, and if they

cannot raise more capital, they are told to decrease the amount of risk assets (loans) on their

books. (Abba, 2013).

In 2010, the world’s central bankers, represented collectively by the Bank of

International Settlements (BIS) handed down Basel III-a global regulatory framework that,

among other things, raise minimum capital requirements from 4% to at least 7% of a bank’s

risk-weighted assets (Hanke, 2013). Capital adequacy as a concept has been in existence prior to

the era of capital regulation in the banking industry and there exist several literatures on the

determination of capital adequacy ratio (CAR) as well as its determinants. The concept appeared

in the middle of the 1970’s because of the expansion of lending activities in banks without any

parallel increase in its capital, since capital ratio was measured by total capital divided by total

assets (Al-Sabbagh, 2004).

This led to the evolution of international debt crisis and the failure of one of the

biggest American banks, Franklin National Bank (Koehn & Santomero, 1980). These events

forced regulatory authorities to stress more control procedures and to improve new criteria and

methods to avoid bank’s insolvency (Al-Sabbagh, 2004). Capital adequacy generally affects all

entities. But as a term, it is most often used in discussing the position of firms in the financial

section of the economy, and precisely, whether firms have sufficient capital to cover the risks

25
that they confront (Abba, 2013). Capital adequacy ratio for banking organizations is an

important issue that has received a considerable attention in finance literature.

According to Al-Sabbagh (2004), capital adequacy is described as an indicator of

bank’s risk exposure. Banks risk is classified into different risk including: credit risk, market

risk, interest rate risk and exchange rate risk that are considered in the CAR calculation.

Therefore regulatory authorities used capital adequacy ratio as a significant indicator of “safety

and stability” for banks and depository institutions because they view capital as a guard or

cushion for absorbing losses (Abdel-Karim, 1964). This ratio is used to protect depositors and

promote the stability and efficiency of financial systems around the world. Two types of capital

are measured that is tier one capital, which can absorb losses without a bank being required to

cease trading, and tier two capital, which can absorb losses in the event of a winding-up and so

provides a lesser degree of protection to depositors (Kashyap, Rajan & Stein, 2002).

2.3.4 External Factors

The macroeconomic policy stability, Gross Domestic Product, Inflation, Interest

Rate and Political instability are also other macroeconomic variables that affect the financial

performance of financial institutions. For instance, the trend of GDP affects the demand for

banks asset (Goddard, Molyneux & Wilson, 2009). During the declining GDP growth the

demand for credit falls which in turn negatively affect the profitability of banks. On the

contrary, in a growing economy as expressed by positive GDP growth, the demand for credit is

high due to the nature of business cycle. During boom the demand for credit is high compared to

the recession (Halling & Hayden, 2006).

2.4 Empirical Review

The Macaulay (1988) investigated the adoption of liquidity risk management best

practices in the United States and reported that over 90% of the banks in that country have

26
adopted the best practices. Effective credit risk management has gained an increased focus in

recent years, largely due to the fact that inadequate credit risk policies are still the main source

of serious problems within the banking industry. The chief goal of an effective credit risk

management policy must be to maximize a bank’s risk adjusted rate of return by maintaining

credit exposure within acceptable limits. Moreover, banks need to manage credit risk in the

entire portfolio as well as the risk in individual credits transactions. In their study Tianwei &

Paul (2006) investigated on the effect of liquidity on financial performance in agricultural firms,

a descriptive study was conducted and 50 firms were studied.

Lidgerwood (1999) questioning the impact of the characteristics of borrowers,

showed that traditional prejudices against women, young borrowers or large families should not

influence the determination of repayment ability. This means the age way not have impact on

loan repayment performance

The lenders of these firms strived to improve their credit risk management. Internal

management was interested in understanding the financial impacts of alternative strategic

decisions. And policy makers often assessed the magnitude and distributional effects of

alternative policies on the future financial performance of farm business. Berríos (2013)

investigated the relationship between bank credit risk and financial performance and the

contribution of risky lending to lower bank profitability and liquidity. The sample data that was

collected comes from the Mergent Online database, which stores ownership, executive, and

financial information about public and private companies.

This study will focuses on the concept of prudent lending by public state commercial

banks, insider ownership, and chief executive officer compensation and tenure, which are

governance related bank characteristics. Performance variables in analysis of covariance models

include net interest margin, return on assets, return on equity, and cash flow to assets. However,

findings were only statistically significant when the normality assumption was relaxed through

27
the robust regression method. Insider holdings and longer chief executive officer tenure were

negatively related to bank performance.

According to Arun (2005) one of the issue that has a significant concerned in MFIs are

the regulations that steer the conduct and activities of microfinance. According to his finding on

regulating and development the case of microfinance indicate that regulatory framework is one

of the issues that need to be addressed in order to have sustained MFIs. The paper argued that

MFIs need to be regulated by considering the nature and characteristics of the institutions not

using universal regulation of the financial system

Wanjohi (2013) assessed the current risk management practices of the commercial banks

and linked them with the banks’ financial performance. Hence, the need for banks to practice

prudent risks management in order to protect the interests of investors.

2.5 Summary of Literature Review

From the literature review above there are lots of challenges bedeviling MFIs such as

problem of regulations, high interest rate charge by MFIs, inappropriate human resource, poor

attitude of loan re-payment by micro finance clients, inadequate of fund on the part of the MFIs,

lack of products diversification and factors that are usually consider in granting micro credits to

micro entrepreneurs. It is obvious that the aforementioned challenges are the protracted

problems of MFIs that need to be addressed for effective and sustained MFIs to be attained.

28
 CHAPTER THREE:

RESEARCH METHODOLOGY

Introduction

This chapter covers the research methodology that was used by the researcher in

achieving the objective of this study. In this chapter, the researcher will discuss several

elements, namely research method, research design, population, sample size and sampling

technique, method of data collection, data collection instrument, data collection procedures and

data analysis.

3.1 Research Method

The researcher used a qualitative method of research in achieving the objective of this

study. According to Lincoln & Denzin (1998) Said that, in qualitative research, the objective

stance is obsolete, the researcher is the instrument and the subject becomes the participants who

made contribute to data interpretation and analysis. In addition to this, (leininger, 1994) says

that qualitative researchers defend the integrity of their work by different means,

trustworthiness, credibility, applicability and consistency are the evaluate criteria. Research

methodology will serve as the link between the research question formulated by the researcher

and the actual execution of the research (Creswell, 2009).

Traditionally, research methodologies are broadly classified into qualitative and

quantitative thereby creating a huge divide amongst researchers, especially in social sciences

(Onwuegbuzie and Leech, 2005). The difference between these two methods has been

prominent in many research methods publications (Howe, 1988; Neumann, 1997). For instance,

Myers (2009, p. 8) distinguishes that qualitative research is an in-depth study of social and

cultural phenomena and focuses on text whereas quantitative research investigates general

trends across population and focuses on numbers. Likewise, Miles and Huberman (1994)

29
maintain that qualitative research focuses on in-depth examination of research issues while

Harrison (2001) argues that quantitative design provides broad understanding of issues under

investigation.

3.2 Research Design

The researcher used a cross-sectional research design in obtaining information

pertaining to the Assessment of Loan Repayment of Client to Micro Finance Institutions. Cross

survey design basically, a type of descriptive research design which entails gathering of

information pertaining to a particular sample at once. The research design was preferred because

it allows generalization of the findings of the study at a particular parameter (Ngechu, 2004).

The method also enabled prudent comparison to be made under minimal

interference as the researcher has not direct control over the variables hence the most

appropriate. This enabled determining the exact strategies out in place by the companies and the

impacts they have on the organization and the influences these strategies have had on the

performance. According to Nworgu (2006), a research design is a plan or blue print which

specifies how data relating to a given problem should be collected and analyzed.

3.3 Population of the study

The populations of the study were 240 which comprise both employees and clients of

Diaconia. The term Populations involves all elements, individuals, or units that meet the

selection criteria for a group to be studied, and from which a representative sample is taken for

detailed examination (Mugenda and Mugenda, 2003). It can also be define as the total collection

of elements about which we want to make reference.

30
3.4 Sample size and sampling techniques

A sample size of 24 which comprising both staffs and clients were selected for the

study. To carry out this study, to evaluate the assessment of loan repayment of client to

microfinance institutions, out of the total 240 employees and clients, a total of 12 staffs and 12

clients each were selected for a sample which represent 10% of the population. According to

Curry, J (1984) which states that, when a population is less than 100, the researcher may use the

entire population; when the population is more than 100, the researcher may use 10% to get the

sample size and when the population is more than 1000, the researcher may use 5% to get the

sample size.

Neumann (2007) refers to sampling as the process of selecting a sample or subset of

the target population for the purposes of making observation or statistical inferences about the

study population. Latham (2007) on the other hand refers to sampling as a method used to

obtain research information where only a representative of the population is selected. The

sampling technique adopted in this study will be the purposive judgmental sampling technique

to select the sample size which gives a fair view of the population under study. Tongco (2007)

state that the purposive sampling technique , also called judgment sampling, is the deliberate

choice of an information due to the qualities the informant possess

3.5 Research Instrument

The researcher used closed ended (pick an answer from a given option) questionnaire

as well as interview as a data collection tool to gather data from sample respondents. The

questionnaires & interview were selected because it helps to gather data with minimum cost

faster than any other tool. The method of data collection which was employed to this study was

cross-sectional method (a method used to collect information from sample of individual). The

data collection instrument helps the researcher to make the right connection between the

research and the respondents Tagoe (2009). The researcher used a qualitative research

31
instruments which include: structural questionnaires, a questionnaire is a research instrument

consisting of a series of questions and other prompts for the purpose of gathering information

from respondents. Questionnaire is widely used esp. in descriptive survey studies (Borg & Gall,

1983).

3.6 Data Collection procedures

The research relied on purely primary data. Primary data is information obtained

direct from the field of study, and is yet to be published or document (Miles, and Huberman,

1994). This was preferred to the secondary data as it is more oriented to the study and is less

likely to be outdated or biased. Anonymity of the researcher was also maintained which

encourages the respondents to be more candid in their Reponses.

The primary data were gather by the used of questionnaires that constituted both open

ended and close ended questions. This enabled collecting both qualitative and quantity data.

Questionnaires are considered the most appropriate due to them being not only time saving but

also enabling collection of a wide range of data. Construct validity and pretesting were used in

testing the reliability for the study. The questionnaires were administered to the managers at the

companies through a drop and pick method. This method ensured the respondents have a

sufficient time to fill the questionnaires. Follow ups were done through emails and calls to

ensure that all the questionnaires are dully filled and collected.

In order to obtain the information from the bank, the researcher served the institution

a letter informing the head of the entity the purpose of the study. The researcher also served the

participant a formal letter informing them purposely of the questionnaire. The study also used

primary data sources for a period of 5 years from (2012-2017) depending on the availability of

this information. Data collection procedures are procedures that categorize data collection

method into primary and secondary methods. The primary method will comprises participation,

observation and in-depth interviewing, focus group discussion and review of documents

Marshall & Roseman, (1995)

32
3.7 Data Analysis procedures

The data analysis process constitutes meaningful information from the raw data

gathered. The completed questionnaires were accessed for consistency and completeness. The

internal consistency was calculated using Cronbach's alpha so as to ascertain that the data

gathered is valid and accurate. The data from the open ended questions was interpreted using

content analysis since the focus was on interpretation of the outcomes slightly than

quantification. Quantitative data from the close ended questions was analyzed by use of

statistical package for social sciences (SPSS) and analyzed through the use of descriptive

statistics which contain frequencies, percentages, standard deviation and mathematics mean.

These were chosen as they enable ease interpretation of the collected data. The data was

presented in Charts, tables and graphs through Microsoft excel. According to Mugenda (2003),

data must be cleaned, coded and properly analyzed in order to obtain a meaningful report.

33
 CHAPTER FOUR:

DATA ANALYSIS PROCEDURES

4.0 Introduction

This chapter present analysis and findings on the assessment of loan repayment of

clients to micro finance institutions in Liberia. As mentioned in the methodology, this research

is descriptive type research which includes survey and facts finding inquires with regard to loan

repayment performance of client to microfinance. Quantitative and qualitative analysis

techniques were used to analysis the collected data. So the analyses of the data are presented by

percentages and tables. The survey was conducted by distribution of questionnaires to staffs of

Diaconia MFIs as well as marketers. Closed and open ended questionnaire were prepared for

respondents on the basis of a simplified lists of yes or no, strongly agree to disagree and detailed

information requirements along with any kind of comment given by the requirements.

4.1 Staffs responsiveness towards questionnaire

The population of this research was all staffs of Diaconia Microfinance Institutions as

well as marketers or clients of Diaconia in Liberia which constitute 240 staffs & clients out of

which 24 respondents were selected. 12 of the respondents were from Diaconia while the

remaining 12 came from marketers or clients of Diaconia. In this regard, 12 questionnaires were

issued each to the respondents of both the credit department and the client. The 12 questionnaire

that were issued to staffs were fully filled and returned by respondent as indicated by table 1.

This translates to staff response rate of 100%

34
Table1: Staff responsiveness rate

Frequency Percentage %

Responded 12 100

Not Responded 0 0

Total 12 100

Source: Field Work (2020)

4.1.2 Gender of the respondents

The research seeks to determine the gender balance and disparity between the

respondents. The findings obtained indicate that 66.7% of the credit officers at Diaconia are

male who does most of the disbursement of funds to clients where as 33.3% of the staffs who

worked in the credit department are female and dose fewer disbursement as illustrated by table

2. This implies that both male and female were involved in the participation of loan

disbursement to client.

Table 2: Gender of the respondents

Items Responses

Frequency Percentage %

Gender

Male 8 66.7

Female 4 33.3

Total 12 100

Source: Field Work/Questionnaire (2020)

35
4.1.3 Age of the respondents

The research sought to find the ages of the respondent who were able to preside over

the disbursement of loan to client. As indicated in figure 1, the highest numbers of respondents

which consist of 50% (6) fall in the range of 32-38 years and 39-45 years. This implies that the

majorities of the credit officer’s charge with the disbursement of loan to clients were above the

ages of 25 and were therefore able to make well and informed decisions as well as provide valid

and accurate information with regards to the study topic.

Figure 1: Age of the respondents

Ages

25-31 years
18-24 years 8.33%
8.33%

39-45 years
25% 32-38 years
50%

Source: Field Work / Questionnaire (2020)

4.1.4 Education of the respondents

As indicated by figure 2 shown below, 66.66% (8) of the respondents had an

undergraduate/bachelor degree out of which 4 were female and constitute 33.33%. Male were

also 4 which constitute 33.33% as well. The remaining respondents were High School graduate

which constitute 33.34%. This shows that the majority of the respondents were knowledgeable

with respect to the research topic under discussion as well as the factors that interplayed in

disbursement of loan.

36
Figure 2: Educational Level

14

12

10

8 Series 3
Series 2
66.66% Series 1
6
0%
4 33.33%
33.33%

0
High School Other Master Bachelor

Source: Field Work/ Questionnaire (2020)

4.1.5 Position of Staff/Respondent in Diaconia

This segment of the study seeks to determine the position held by each respondent in

Diaconia. It signifies that each of the respondents had knowledge of the entity policy and

regulation with respect to the process and procedures of disbursement of loan as well as the

recovery and monitoring of clients. The results found as illustrated by figure 3 shows that

66.66% of the respondent were credit officers, 16.66% were recovery officers while 8.33% of

the respondents were the head of the credit department. This indicates that the respondents were

all knowledgeable and well informed about the operations of Diaconia with regards to the

strategies employed to disbursed loan as well as the recovery of loan.

37
Figure 3: Position of staff of Diaconia

14

12

10

8 Series 3
Series 2
66.66% Series 1
6
16.16%
4 8.33%
8.33%

0
head of credit d... Business recovery officers credit officers

Source: Field Work/ Questionnaire (2020)

4.1.6 Factors affecting loan repayment in MFIs

This section of the study provides information on the probable factors or challenges

affecting MFIs in Liberia. As indicated by table 3, loan default posed serious challenges to

microfinance institutions. All 12 respondents which constitute 100% strongly agree that the

interest rate offered by MFIs is very high as compared to traditional banks. 75% (9) respondents

agree that the MFIs determined the interest rate given to their clients and not government

through the CBL. 83.3% of the respondents (10) strongly agree that clients provide misleading

information so as to obtain the loan in order to do the business or carry on other project planned

by them.

66.6% which constitute 8 respondents also agree that the size of the loan is also

another impeding factor. 75% which constitutes 9 respondents agree that economic crisis

(Ebola) is another factor or challenges as well. While 8 respondents which are 66.6% agree that

the level of education is also a major challenge affecting loan repayment of client to MFIs. 8

respondents out of the 12 respondents disagreed that MFIs carry on poor assessments of the

38
client while the rest believe they didn’t carry on thorough investigation before getting the loan.

According to the head of the credit department in an interview, Mr. Jonathan Eastman said that

all of the above are challenges been experienced by MFIs except the issue of monitoring and

evaluation. But what remained unanswered by him is that, if their credit officers had thoroughly

monitor client, evaluate client as well as make following up to ensure the client business are

operating and running smoothly then why there is still an increase in non-performing loan?

This indicates that, MFIs have had serious challenges over the years or the above

mentioned are some of the major causes of loan repayment defaults of client to MFIs. However,

it also indicate that the staff or credit officer didn’t do the entity due diligence. Note: structured

questionnaire design on a 5 point likert Scales ranging from strongly disagree (1) to strongly

agree (5) were used in measuring the responses and collecting primary data directly from the

field.

Table 3: Factors affecting loan repayment in MFIs

No. Response

likelihood Frequency Percentages %

1 MFIs faced Challenges in terms of Strongly 10 83.33

default in loan repayment agree

Agree 2 16.66

2 MFIs Interest rate is high as compare Strongly 12 100

to traditional Agree

3 MFIs determine their own rate to client Agree 9 75.0

4 False information provided by client Strongly 10 83.3

(asymmetric information) agree

5 MFIs normally carry on poor Disagree 8 66.6

assessment and monitoring of the client

39
 business.

6 The size of the loan affects Loan Agree 8 66.6

repayment to MFIs

7 Economic crisis (Ebola) Agree 9 75.0

8 Education level Agree 8 66.6

Source: Fieldwork/ Questionnaire (2020)

4.1.7 Repayment Period, Strategies, Reasons for Delay in Repayment and Overall

Performance of MFIs

This section of the study provides information on the repayment period given to client,

the reasons for the delay in loan repayment by client, the measures put in place or strategies

adopted as well as the overall performance of loan repayment by MFIs in Liberia. As indicate

by table 4, 5 respondents which constitute 41.6% strongly agree that the repayment period

(time) in month given to client is actually sufficient enough for the client to made full payment

inclusive of the interest. 33.3% (4) respondents agree that the repayment period (time) in month

given to client is actually sufficient enough for the client to made full payment inclusive of the

interest while 3 respondents disagree which constitute25%.

eight (8) respondents (66.6%) agree that MFIs are aware of the delayed in loan

repayment while 4 respondents (33.3%) strongly agree as well. 6 respondents which constitute

50% disagree that From 2012-2017 MFIs have been performing greatly in terms of loan

repayment while 25% which constitute 3 respondents agree. Out of the 12 respondents, 5

respondents (41.6) strongly agree that MFIs are put in place measures or strategies to mitigate

defaults in loan repayment while 4 respondents (33.3%) disagree that MFIs are putting in place

measures to mitigate loan repayment. This implies that

40
Table 4: Repayment Period, Strategies, Delay in Repayment and Overall Performance of

MFIs

Findings/likelihood Response

Frequency Percentage%

The repayment period

Strongly Agree 41.6
(time) in month given to
5
client is it actually
Agree 4 33.3
sufficient enough for the
Strongly disagree
client to made full payment
Disagree 3 25
inclusive of the interest

MFIs are aware of the Strongly Agree 4 33.3

reasons for which there are Agree 8 66.6

delay in or the default of Strongly disagree

loan repayment by client Disagree

From 2012-2017 MFIs Strongly Agree 2 16.6

have been performing Agree 3 25

greatly in terms of loan Strongly Disagree 1 8.3

repayments Disagree 6 50

Disagree

Source: Fieldwork /Questionnaire (2020)

41
4.1.8 Measures or Strategies Put in Place to Mitigate Default in Loan Repayment

This section of the study seeks to provide remedy to mitigate the already existing and

emerging challenges MFIs face with or would face. As indicated by table 7, 10 out of the 12

respondents strongly agree that Government should come up with regulations to regulate interest

rate on loan given to client by MFIs which constitute 83.3% while 16.6% (2) respondents

disagree. 58.3% which is 7 respondents agree that Reliance should be place on both the

client/borrower information provided by CBL and the information provided as well by the client

while 41.6% (5) respondents disagree. 11 of the respondents which constitute 91.6% strongly

agree that thorough monitoring and follow up of client business should carry out by MFIs. This

signifies that government through the central bank of Liberia should put mechanism into place

or provide a frame work design to help mitigate the too many challenges faced by MFIs with

respect to loan repayment or non-performing loan as well as thorough monitoring and follow up

should be prioritize by MFIs if only they want to reduce the already existing risk.

Table 5: Measures to mitigate defaults in loan repayment

MFIs are putting in place Frequency Percentage%

measures to mitigate Government should Strongly 10 83.3

defaults in loan repayment come up with Agree

regulations to Disagree 2 16.6

regulate interest rate

on loan given to

client by MFIs

Reliance should be Agree 7 58.3

place on both the

client/borrower

42
 information Disagree 5 41.6

provided by CBL

and the information

provided as well by

the client

Thorough Strongly 11 91.6

monitoring and agree

follow up of client

business

Disagree 1 8.3

Figure 4: Measures to mitigate loan repayment

measures or strategies to mitigate loan repayment

Reliance on Both
GOL & Client other
58.3% 9%

Government Monitoring &

Regulation Follow up
83.3% 91.6%

Source: Field work/Questionnaire (2020)

4.1.9 Marketer’s/ Client responsiveness towards questionnaire

The population of this research was 240 which include all staffs of Diaconia

Microfinance Institutions in Liberia which constitute 120 staffs as well as the marketers or

clients which also constitute 120 marketers out of which 12 respondent were selected. In this

regard, 12 questionnaires were issued to the respondent. The 12 questionnaire were partially

43
filled and returned by respondent as indicated by table 4.1. This translates to client response rate

of 100%.

Table 6: Client responsiveness rate

Frequency Percentage %

Responded 7 58.3

Not Responded 5 41.6

Total 12 100

Source: Field Work (2020)

4.1.10 Gender of the respondents

The research seeks to determine the gender balance and disparity between the

respondents. The findings obtained indicate that 28.5% of the respondent were male who does

less of the credit of funds from Diaconia where as 71.4% of the respondents who takes or do

most of the credit were female as illustrated by table 4.10. This implies that both male and

female were involved in the participation of taking of loan and that female on the average take

more loan.

Table 7: Gender of the respondents

Items Responses

Frequency Percentage %

Gender

Male 2 28.5

Female 5 71.4

Total 7 100

Source: Field Work/Questionnaire (2020)

44
4.1.11 Ages of the respondents / Marketers/Clients

The research sought to find the ages of the respondent who were able to received

loan from Diaconia. As indicated in table 4.3, the highest numbers of respondents which consist

of 71.4% (5) fall in the range of 39-48 years and 29-38 years respectively. This implies that the

majorities of the clients who toke loan were above the ages of 28 and were therefore able to

make well and informed decisions void of any influence as well as provide valid and accurate

information with regards to the study topic. In addition, majority of borrowers were between

medium ages adult. The medium ages can serve the microfinance for long period in the future.

Figure 6: Age of the respondents

Ages
49 & above years
18-28 years0%
0%

29-38 years
28.5% 39-48 years
71.4%

Source: Field Work / Questionnaire

4.1.12 Education of the respondents/Clients

As indicated by table 4.4.1 shown below, 42.8% (3) of the respondents had an

undergraduate/bachelor degree out of which 2 were female constitute 28.5%. Male were also

one (1) which constitute 14.28% as well. The remaining respondents were High School graduate

and TVET which constitute 33.33%. This shows that the majority of the respondents were

45
knowledgeable with respect to the research topic under discussion as well as it is may be an

indicator of the fact that the participation of women in receipt of loan is much better than men.

Figure 7: Educational Level of client

14

12

10

8 Series 3
Series 2
42.8% Series 1
6
28.5%
4 0%
28.5%

0
High School Other TVET Bachelor

Source: Field Work/ Questionnaire

4.1.13 Marital status of client

This section of the study provide information with regards to the number of

respondents that are married, singled, divorced and widowed while doing their business. As

indicated in table 12, four (4) of the respondents are married which constitute 57.14%. Out of

the four (4), three (3) were female and one (1) were male. Two (2) of the respondent were single

and constitute 28.57% while 14.28% were divorced which constitute one respondent. This

implies that majority of the respondents were married people and responsible and fall between

the ages 39-48 years.

46
Figure 8: Marital status of client

Marital status of clients

widowed
0%

divorce
14.28%
married
57.14%

single
28.57%

4.1.14 Years doing Business

This section of the study seeks to provide information with regards to the number of years client

or respondent been doing business. As indicate in table 14, three (3) of the respondents which

constitute 42.85% had been doing business between 5-10 years and 10-15 years respectively.

While the remaining 14.28% had been doing business between 0-5 years. This indicates that the

respondents had sufficient knowledge of the business they were doing.

Table 8: Years during Business

Years Frequency Percentage %

0-5years 1 14.28

5-10years 3 42.85

10-15years 3 42.85

47
4.1.15 Supervision, follow up and loan repayment

This section of the study seeks to provide pertinent information with regards to

factors or possible factors affecting loan repayment. As indicated in table 15, the majority of the

respondents are affected by the loan size and its interest rate which constitute 85.71 %( 6) when

the loan size is high as well as the interest rate, the borrowers are losing their confidence to

repay the loan. 85.71 %( 6) of the respondents did not repay loan fully on maturity. 28.57% (2)

respondents were affected by Political crisis E.g. in 2014, the Ebola crisis that hit Liberia cause

the borrowers to not repay the loan on maturity. Six (6) respondents which constitute 85.71%

were affected by Educational level as well as Lack of Supervision and follow up affects

57.14%(4) of the respondents to repay their loans properly, if the borrowers supervise regularly

then their motivation to repay the loan is increased. This implies that the size of the loan,

education level as well as supervision and follow up on loan were possible challenges or factors

that affect the borrower ability to repay loan in time and fully on maturity.

Table 9: Possible factors affecting loan repayment

No. List of factors or possible Response

factors affecting loan Yes No

repayment

Frequency Percentage% Frequency Percentage%

Did you repay loan fully 1 14.28 6 85.71

on maturity?

Does Diaconia supervise 3 42.85 4 57.14

and follow up over your

loan utilization

Loan size with its interest 6 85.71 1 14.28

rate

48
 Political crisis 2 28.57 5 71.42

Educational level 6 85.71 1 14.28

Source: Fieldwork/Questionnaire (2020)

4.2 Discussion of findings

4.2.1 Comparison of the Study Findings with Theories & other Studies

The study sought to investigate or determined the default in loan repayment of

client to microfinance institution in Liberia. It was determined that Microfinance Institutions

had been affected by the following: size of the loan, interest rate, failure to pay loan fully on

maturity, False information provided by client, educational level, determination of rate by MFIs

etc. As indicated in table 9, the majority of the respondents are affected by the loan size and its

interest rate which constitute 85.71 %( 6) when the loan size is high as well as the interest rate,

the borrowers are losing their confidence to repay the loan. 85.71 %( 6) of the respondents did

not repay loan fully on maturity as well as Lack of Supervision and follow up affects 57.14%(4)

of the respondents to repay their loans properly, if the borrowers supervise regularly then their

motivation to repay the loan is increased.

As indicated by table 3, 83.33% which constitute 10 respondents strongly agree that

loan default posed serious challenges to microfinance institutions. All 12 respondents which

constitute 100% strongly agree that the interest rate offered by MFIs is very high as compared to

traditional banks. 66.6% which constitute 8 respondents also agree that the size of the loan is

also another impeding factor. As indicate by table 9, it was also observed that 57.14% of the

respondent didn’t agree that as it relates to whether Diaconia supervise and follow up over their

loan utilization. As illustrated by table 5 figure 4, MFIs are putting in place measures to mitigate

the challenges of default of loan repayment by client to MFIs. 83.3% of the respondent strongly

49
that Government should come up with regulations to regulate interest rate on loan given to client

by MFIs. While 91.6% strongly agree that thorough monitoring and follow up of client business

should be carry out.

The findings obtained from table 3 show that 83.3% (10) respondents strongly agree

that client provide False information in order to pursue them give the loan, 75% agree that MFIs

determine their own rate to client, 66.6% (8) respondent agree that the size of the loan affects

Loan repayment as well whereas, 75% & 66.6% agreed that the Ebola crisis and educational

level also affects loan repayment respectively. Kelly (2005) found that defaulters’ percentage in

microfinance institutions is increasing day by day. More delinquencies in personal loan and

microfinance etc. Increasing defaults in the repayment of loans may lead to very serious

implications. For instance, it discourages the financial institutions to refinance the defaulting

members, which put the defaulters once again into vicious circle of low productivity. Therefore,

a rough investigation of the various aspects of loan defaults, source of credit, purpose of the

loan, form of the loan, and condition of loan provision are of utmost importance for both policy

makers and the lending institutions. Kelly (2005).

According to Das et-al (2011) have found that the challenges of MFIs include the

inaccessibility of micro finance services to the poor, the capital inadequacy of MFIs, education

level, provision of micro credit and micro saving, high interest rate, non-availability of

documentary evidence, size of the loan as well as problem of re-payment loan. Nasir (2013) like

Das et-al (2011) have investigated the challenges that face MFIs. Among the challenges are lack

of products diversification, low outreach or follow up, high interest rate, late payment or delay

in payment, inadequate funding, and neglecting urban poor and high cost of transaction.

According to Mabhungu, et-al. (2011) they researched on the criteria that usually follow by

MFIs in granting microfinance credits even though they used micro and small enterprises as the

population of the study. Therefore among the criteria usually used by microfinance includes

business formality, value of assets, business sector, operating period and financial performance.

50
The paper has shown the primary criteria used my MFIs in granting loan is business formality

whereas most of micro enterprises are operating at informal level this has cause havoc to the

micro enterprises to have access to microfinance. In this issue government need to participate in

training of micro and small entrepreneurs on the formalization of their businesses.

According Nawai and Shariff, (2013) have identified that the major challenge as

regard to the activities of MFIs is loan re-payment. They went ahead to pinpoint the remote

causes of loan re-payment problem. The paper shown that among the causes of poor loan re-

payment are borrowers` attitude toward their loan, amount received, business experience and

family background. Indeed the paper indicates that delay or late payment is the major havoc in

the operation of MFIs. However, client with high sense of integrity should be considered when

granting micro credits. According to Ikeanyibe, (2010) the problems of MFIs have to do with

human resources while Arun (2005) stated that the major problem of MFIs is related to

regulations of the institutions (MFIs).

The above discussion has showcases the factors or challenges of MFIs. Similarly, the

studies conducted have also established a positive relationship with review of related literature.

The studies has pinpointed the major problems of MFIs which consist of high interest rate, lack

of accurate information by microfinance clients, criteria used by MFIs in granting micro loans,

size of the loan, regulatory framework not determining interest rate, loan re-payment problems,

low follow up and monitoring of client business, human resource problem. However, the paper

has provides some of the measures to address the challenges.

CHAPTER FIVE:

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

51
5.1 Introduction

This chapter presents a summary of the key findings of the study as well as the

conclusions and recommendations made based on the findings. The chapter also presents the

areas that were pointed out during study for further research.

5.2 Summary

The study was undertaken with the aim of assessing loan repayment of client to

Micro Finance Institutions in Liberia with a case study of Diaconia (2012-2017). Primary data

was used in the analysis to study the variables. 5years data was collected from the publications

of the association of microfinance institutions in Liberia, the Central Bank of Liberia as well

from other statistical publications from (CBL). To address the aim of the study, inferential

statistics were conducted where frequency and percentage was used to study the association.

The study used a cross-sectional research method as well as a cross-sectional research design.

The population of the study was 240 of which 120 were employees of Diaconia and the rest

were clients of Diaconia as well. The study used a purposive and judgmental sampling

technique to select the size of 24 respondents of which 12 constitute clients of Diaconia and the

rest were employees of Diaconia. Two separate questionnaires were developed, one for staff and

the other for client.

From the analysis, the study found out that micro-Finance Institutions had

experienced or been faced with serious challenges with regards to default in repayment of loan

by client to MFIs which were cause by the following factors: size of the loan, high interest rate,

low supervision, monitoring and outreach of client business, educational level, client not paying

on time as well as the Ebola crisis which affected loan repayment as well which were supported

by other studies as well. As indicated by table 3, loan default posed serious challenges to

microfinance institutions. All 12 respondents which constitute 100% strongly agree that the

interest rate offered by MFIs is very high as compared to traditional banks. 75% (9) respondents

52
agree that the MFIs determined the interest rate given to their clients and not government

through the CBL. 83.3% of the respondents (10) strongly agree that clients provide misleading

information so as to obtain the loan in order to do the business or carry on other project planned

by them. 66.6% which constitute 8 respondents also agree that the size of the loan is also

another impeding factor. 75% which constitutes 9 respondents agree that economic crisis

(Ebola) is another factor or challenge as well as 8 respondents which are 66.6% agree that the

level of education is also a major challenge affecting loan repayment of client to MFIs. 8

respondents out of the 12 respondents disagreed that MFIs carry on poor assessments of the

client while the rest believe they didn’t carry on thorough investigation before getting the loan.

5.3 Conclusion

Based upon the data collected and analyzed using frequency, percentage, tables and

charts, the following conclusion were drawn the study:

 The study concludes that the size of the loan hampered the repayment of loan of client

to micro-finance institutions which cause borrowers to lose their confidence to repay the

loan

 The study also concludes that loan default posed serious challenges to microfinance

institutions.

 That the interest rate offered by MFIs is very high as compared to traditional banks

 Lack of Supervision, Monitoring and follow up affects the re-payment of loan of client

to MFIs. If the borrowers supervise regularly then their motivation to repay the loan is

increased.

 It has further been observed that education level also hampered the repayment of loan of

client to MFIs

 client not repaying loan fully on maturity

53
  The study also concludes that the Ebola crisis also affected the repayment of loan by

client to MFIs

5.4 Recommendation

With the data collected and information gathered during, the following

recommendations are for considerations:

 training of staffs as well as organizing a section for clients to create awareness with

respect to the implication it will have on them as well as the entity if they don’t repay

their loan

 MFIs should charge moderate interest rate as to enable client commit themselves to

repayment of their loan.

 participation of government with regards to setting the stage or standard for the

determination of interest rate of loan to client

 MFIs should ensure that thorough supervision, monitoring and follow up of client

business are done constantly

 Government should come up with regulations to regulate interest rate on loan given

to client by MFIs

 MFIs should give set out criteria on how to give out the loan with respect to the age,

experience as well as the educational level to ensure client are fully able to manage

said loan.

REFERENCES

54
Akhtar S. ( 2007) Pakistan: changing risk management paradigm perspective of the regulator,

ACCA Conference CFOs: The Opportunities and Challenges Ahead,

Alemut (2002) history of loan repayment performance

Anne Perkins (2008) Short History of Micro Finance, www. theguardian.com

Arun, T. (2005). Regulating for development: the case of microfinance. The quarterly review of

economics and finance, 45(2), 346-357.

Australia SBP (2008). Pakistan's Banking Sector Remarkably Resilient Despite Challenging

Economic Environment: SBP's Financial Stability Review, State Bank of Pakistan,

Islamabad

Berrios (2013). The Relationship between Bank Credit Risk and Profitability and Liquidity. The

International Journal of Business and Finance Research, “7 (3) p. 105-118. SSRN:

http://ssrn.com/abstract=2149816”

Brunnermeier & Yogo ( 2009). A note on liquidity risk management, AEA Session on

Liquidity, Macroeconomics, and Asset Prices, 12; 37-56.

Central Bank of Liberia (2013). Liquidity Risk Management Guideline, Bank Supervision

Department, Central Bank of Liberia.

Chaplin & Michael (2000). Banking system liquidity: developments and issues, Financial

Stability Review, 6; 93‐112.

Central Bank of Liberia (CBL, 2016). Liberia Financial Sector Development Implementation

Plan first

Initiative

55
Clementi, D. (2001). Financial markets: implications for financial stability, Banca D'Italia

Conference on International Banking and Financial Systems Evolution and Stability,

MCB University Press, Bradford,” 11; 13‐19. 47.

Comptroller of the Currency (2001), Liquidity: Comptroller's Handbook, Comptroller of the

Currency: Administrator of the National Banks, Washington, DC.

Crowe, K. (2009). Liquidity risk management more important than ever,

Harland Financial Solutions, 3(1):1-5.

Diamond, W. & Rajan, G. (2001). Liquidity risk, liquidity creation, and financial fragility: a

theory of banking, The Journal of Political Economy”, 109(2):287‐327”.

Diamond, W. & Rajan, R.G. (2005). Liquidity shortages and banking crises,

The Journal of Finance”, 60(2):615‐47.

Falconer, B. (2001). Structural liquidity: “the worry beneath the surface, Balance Sheet,

9(3):13‐19.

Gatev, E. & Strahan, E. (2003). Banks' advantage in hedging liquidity risk: theory and

evidence from the commercial paper market, working paper, The Wharton Financial

Institutions Centre, Chestnut Hill, MA.

Goddard, J. Molyneux, P. & Wilson, O. (2009). The financial crisis in Europe: evolution, policy

responses and lessons for the future”, Journal of Financial Regulation and Compliance,

17(4): 362‐80.

Goodhart, C. (2008). Liquidity Risk Management, “Financial Stability Review,” 11(6):17.

Guglielmo, M.R. (2008). Managing liquidity risk, Bank Accounting & Finance, 8(1):1-5.

56
Halling, M. & Hayden, E. (2006). Bank failure prediction: a two‐step survival time approach,

C.R.E.D.I.T. Conference, Austrian National Bank, Vienna, 31; 101-109.

Holmstrom, B. & Tirole, J. (2000). Liquidity and risk management, Journal of Money Credit

and Banking, 32(3):295‐319.

Jeanne, O. & Svensson, L.O. (2007). Credible commitment to optimal escape from liquidity

trap: the role of the balance sheet, “The American Economic Review, 97(1):474‐490.

Jenkinson, N. (2008). Strengthening regimes for controlling liquidity risk, Euro Money

Conference on Liquidity and Funding Risk Management, “Bank of England, London , 9;

16-28.

Kashyap, K. Rajan, R. & Stein, C. (2002). Banks as liquidity providers: an explanation for the

coexistence of lending and deposit‐taking, The Journal of Finance, 57(1):33‐73.

Karachi A. S. (2004) Islamic modes of finance and associated liquidity risks, Conference on

Monetary Sector in Iran: Structure, Performance and Challenging Issues, “1(2):221”.

Kimari, N. (2013). Effect of Credit Risk Management on Financial Performance of Kenya

Credit Union National Association

Maaka, A. (2013). The relationship between liquidity risk and financial Performance of

Commercial banks in Kenya, Unpublished MBA Project, University of Nairobi.

Macaulay, R. (1988). Some theoretical problems suggested by the movements of interest Rates,

bond yields, and stock prices in the Unites States since 1856. New York: NBE.

Majid, A. R. (2003). Development of liquidity management instruments: challenges and

opportunities, International Conference on Islamic Banking: Risk Management,

Regulation and Supervision, Jakarta Indonesia, 24; 18-43.

57
Mishkin, S., Stern, G. & Feldman, R. (2006). A review of Gary Stern and Ron Feldman's too

big to fail the hazards of bank bailouts, Journal of Economic Literature, 44(4):988‐

1004.

Mosley, P., & Hulme, D. (1998). Microenterprise finance: is there a conflict between growth

and poverty alleviation. World development, 26(5), 783-790.)

Muranaga, J. & Ohsawa, M. (2002). Measurement of liquidity risk in the context of market risk

calculation, working paper, Institute for Monetary and Economic Studies, Bank of Japan,

Tokyo.

Nyanga, O. (2012). Determinants of financial performance of commercial Banks in Kenya,

Unpublished MBA Project, University of Nairobi.

Obawale, S. & Oladunjoye, O. (2013). Risk Management and Financial Performance of Banks

in Nigeria, Journal of Business and Management, 14(6):5256.

Olongo, O. (2013). The Effects of Financial Fraud and Liquidity on Financial Performance of

Commercial Banks in Kenya”, Unpublished MBA Project, University of Nairobi.

Oludhe, J. (2011). The impact of credit risk management on financial performance of

Commercial banks in Kenya”, Unpublished MBA Project, University of Nairobi.

Oye, A. (2006). Financial management (4thed.), Lagos: El-Toda Ventures Ltd.

Pandey, I. N. (1985). Financial Management, India, New Print India Ltd.

Perera, S., Skully, M. & Wickramanayake, J. (2006). Competition and structure of South Asian

banking”: A Revenue Behavior Approach, Applied Financial Economics, 16:789‐801.

Plochan, P. (2007). Risk management in banking, Master thesis, University of Economics,

Bratislava.

58
Rahaman, A.S. (2010). Public Sector Accounting and Financial Management in a Developing

Country Organizational Context: A Three-Dimensional View: Armidale University of

New England, 1; 121-153”.

Ravi, P. & Sharma, P. (2012). The impact of credit risk management on financial performance

of commercial banks in Nepal, International Journal of Arts and Commerce, University

of New England

Yunus, M. (2003, 1999). Micro Lending And The Battle Against World Poverty,Halving

Poverty By 2015: We Can Actually Make It Happen. Banker To The Poor , 66-72.

Zachariah Z. Sowion
24th Street, sinkor, Tubman Boulevard
Monrovia, Liberia, Cell: 0775-671-723/0880-939-325
Email: sowionzachariah@yahoo.com

July 13, 2020

The management Diaconia Mdi

59
Johnson & Benson Street Intersection
Monrovia, Liberia

Dear Sir/Madam:

Ref: Requesting Permission to conduct a survey

I present my compliments and best wishes as we sail through these challenging

times in our country and the world at large. Amidst the spread of the deadly covid-
19 which has affected almost every aspect of business in our country as well as
our individual lives, we are still keeping the learning process alive.

I intend to conduct a research on An Assessment of the Effect of Liquidity on

Financial Performance of Deposit Taking Micro-Finance Institution in Liberia: A
case study of Diaconia Mdi. Predicated upon the above, I am kindly asking your
good office to please help me conduct such a survey by allowing your staffs to
please respond to a set of questionnaire.

Thanks for your usual understanding as I patiently await your response.

Regards,

ZACHARIAH Z. SOWION

Researcher

60
Appendix 1: pictorial view of Diaconia MDI

61
Appendix: 2 Pictorial view of Diaconia sign board

Appendix 8:

62
Appendix 3: Pictorial of respondent/ client of Diaconia business

63
Appendix 4: Pictorial view of respondent and I at his business site

64
Appendix 5: Pictorial view of a client/respondent at his business site down waterside

65
Appendix 5: Pictorial view of a client /respondent serving customer at her business site down

waterside

66
Appendix 5: Pictorial view of respondent/client at her business site down waterside

67
Appendix 6: Pictorial view of respondent/ head of the credit department Diaconia Benson &

Johnson Street intersection

68
Appendix 7: Pictorial view of respondent/ recovery officer at Diaconia

69
Appendix 7: Pictorial view of respondent & I at her business site

70