~MENT OF MICROFINANCE INSTITUTIONS'

SOCIAL PERFORMANCES: THE CASE OF ADDIS ABABA

I A Project Submitted to the School of Graduate Studies 4 A ddis

Ababa University in Partial Fulfillment of the Requirementsfor
tIle Degree o/Master in Business Administration

By

/ Aweke Berih~ _

" '
.'. )'
..
• Under the supervision of

Dr, Tariku Atomsa

Ju ne , 2008
 Addis Ababa University

Faculty of Business and Economics

MBA Program

ASSESSMENT OF MICROFINANCE INSTITUTIONS' SOCIAL

PERFORMANCES: THE CASE OF ADDIS ABABA

By: Aweke Berihun 'i.;"."

.. II •

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... 41 -
CII '"
.-:
• <> •
•., ~I·
Approval of Board of Examiners ....
4
4
,
'

Chairma n, Graduate Committee Signature

Dr, Tariku Atomsa M~J+

{J
Superviso r Signature

Dr. Laximinkahntam

Exami n er Signature
 1

flcftnowrecfgement

I am gready inde6ted to (j)r. 'Yari/tu }ltomsa wlio as my supervisor assisted

me witli liis useju[ comments in tlie course of tlie project. I liave 6enefited

from liis encouragement and If.gen interest in tlie purpose of tlie stUdy.

I am afso tliankful to a[[ wlio liacve procvided me witli data tlirougli

interviews as we[[ as sliared tlieir v iews on tlie su6ject of tlie stud).

 Table of Contents

Title Page

Acknowledgement

Li st of Tab les

List or l'i g ures

Li st of Abbreviatio ns

Abstract

CHAI'Tlm ONE

I. Probl cms& Its A pproaches .....

I .1. Hack ground of the study ... .. 1

,
1.2. Sta telllent of the problem. .0

1.3. Objectives o f the study ....... . ... . .. .. .... . .. . . ........... .... ....... . .... . 5

1.4. S ignifi cance of the study .......................... .... .... ........................ ....... . 5

1.5. Scope and limitati on of the study .... . . . . .. . . . .. .. . .... . .. . .... .. . .. .. . 6

1.6. Research Methodology ....... . . . .. . ..... ... . .. . . .. .. . . .. . ... . .. . . .. . . . . . . . 6

1.7. Organi zati o n of the study ....... .. .. . ........ . ... .. .... .. ....... . ... . ............. 7

CHAPTER TWO

2. Li terature Re view 8

2. 1. Need fo r M FI s ......... ... ....... .... .... .... .. ... ...... .. .. ... ...... .. . 8

2.2 Services of M FIs... ...... .. . . .. .. .. . . ..... .. .... .. .. . . .... ... .. .......... .. .... ... . . . . ... ....... 9

2.3 Ou trcac hes o f MFTs .... . ..... .... ..... .... ..... ......... ... .. ........ .... ... ...... ........... ........... ... ...... . 12
 2.4 Social capital & MFls program ................... ............ .................. ...................... .......... 13

2.5 MF ls &Deve lo ping wo rlc1 ........... .............................................. .............................. . 15

2.6 Overview of MFIs in Ethi opia ................ .. ......... .. .. .. ................... ...... .. ....... .... .. .... .... 18

2.7 Conceptual framework ................... ............ ....... ............................. .............. .... ........ 23

CHA PTER THREE

3. Data presentatio ns& A nal ysis .... ... ...... .... ........... ...... .... .... .... ................. ................. ....... 29

3. I Descripti on of the Sampl e MFls ................. ...................................... .............. .. .. 29

3.2 Soc ia l perfo rmance ofMF ls by d imensio ns.... .. .... ........... .. ......................... .. .. .. 30

3.3 MFI Specific perform ance .................. ................... .... .... .. ........ ........... ..... 36

3.4 Comparing Performances of MF ls by major di mensio ns .... .... ........ .. . 41

ClI APT EH FOUR

4. S ummary, Conclusions and Recommendat ion .................. ....... ................................... 44

4.1. Summary ............... .. ............ ................................. . .. ... ............... 44

4.2. Conclus ions ..... 47

4. 3. Recommendat ion ............ ..... ...................... ................................... ..................... 49

Bibli ogra phy

A1\1NEX
 LIST OF TABLES

Table 2.1 Wo rld wide outreach of micro credi t ....... .. ............................. ............... .. .... 16

Tab le 2.2 Worl d wide Vo lum e of Acti vity of MFls ............ .. ... ................... ...... . ... .. .. .... 17

Tab le 2.3 Average perform ance ofM Fl s ..... .......... .. ............... .. ............. . ......... ............. ... . 17

Tab le3 .1 Mfls years of operation, perso nnel, bo rrowers and market share.... .. . .. .. . .. .. .29

Tab le 3.2 MFls with maj or foc us of di ffe rent dimension ...... .. ........ ............. ............. ...3 2

Tab le 3.3 Performances of ADCS I ...... .... ............ .. ...... ...... .. .... ........... ......... ...... .. ............... 36

Tab le 3.4 Performance by d imension (Agar) .......... .. .. .......... ... ............... .. .. .. .. 37

Table 3.5 Performance by di mension (Eshet) ............ ............. ........... .... .. .... 38

Table 3.6 Performa nce by di mension (Mekl it) ........ ............ ...... .... ..... .... .. ... .... .. .. .3 9

Table 3.7 Perfo rm ance by d imension (Metemame n) ....... ...... ..... ........ . 40

Tab le 3.8 (a) Relati ve performances of MFls ................. .. 41

Tab le 3.8 (b) Relati ve perform ances of MFls .................. ........ .. . . .. .... ....... 4 2

..

:.,.. .
:", ~
::. ~:
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..;" I :
• ••
 LIST OF FIGURES

Figure 2.1: Gross loans ........ ............. .... .... ... .. . .. . . .. . .... . . .. ... .. .. .. . .... .. . . . .. .. . . . ... . .. ... 20

Figu rc 2.2: Trends in Indu stry Outreach ....... . . ... .. 2 1

Fig ure 2.3 .Susta inabi lity as meas ureci by ROA & RO E .... . .... .22

Fig ure 2.4. Chain of M icro finance acti viti es ..... .. ........ .. ......... .... . ....... ............... .... ....... 24

Figure 3 . 1. MFl s with m a in fo cus o n d ifferent dimensions .. ... ... ...... .... .......... 3 1

Figure 3.2 . Pe rforman ce by d imensions (AD CS I) ......... ... ......... .. . ..... ............ .. 37

Figure 3.3. Performan ce by dimensions (Agar) .. .. ... .. ...... .... .... ..... .... ...... .. ..... .. 38

Figure 3.4. Pe rformance by dimension s (Eshet) ... ..... ... ... ... ........ ... ........... ... ... 39

Figure 3.5. Pe rforma n ce by dimen s ions (Mc kli t) .................... ... ... .. ............... 3 0

Figure 3.6. Performance by dime nsion s (M e tcmarne n) ... ... .... . . . ... .... .4 1
 ,
'"

List of Abbreviations

ADCSI: Add is Cred it and Saving institute

DECSE : Dedebit Credit a nd Savi ng Institute

MFI Micro finance Instituti on

MFIs: Mic ro finance Institutions

MSE: M icro and S111all Enterprises

NCO: Non Governmental Organization

OESSCO: Or0111ia Credi t and Saving Share Co.

SPI : Social Performance Indicator

 Abstract

/viicrofinance programs have been used in many developing countries like Ethiopia as poverty

alleviation tool. . However. their success depends on the availability 0/ adequatefill1ds. adequate

instifutional capacity, efficient coordination and active participation 0/ clients in the planning of
lI1icrofinance programs. Us ing the CERfSE Social Performance indicator Tool, with a certain

modification. the study examines the social iJeI/ormance offive MFis operating in Addis Ababa.

The collected data were based on the lour social dimensions of MFls: outreach to the poor and

excluded; adaptation 0/ products and services to clients; improvement of the social capital of

clients; and social responsibility 0/ kiFls. The result shows that the iviFrs are not concerned

particularly about social capital improvement. Shortage of loanable .lill1e/. and high employee

turnover are the mCU'or problems lUFfs/acing in addition. discrepancy hetween objective set and

aetllal performance 0/ kiFis are observed Thus, these MFis need to reline their strategies lI'ith

regard ta clients social capital. They also need to address high employee turnover and base their

action on objective set.

-.',,, , , .-
 Socia{ Performance of:M g.'!s

CHAPTER ONE

1. Problems and Its Appt'oachcs

1.1. Backgt'ound of the stu dy

In most deve loping co untri es po verty IS prevalcn t amo ng the la rge proporti on or th e en tire

popul atio n. Poverty is lack of access to public se rvices re lated to heath , ed ucation ; and in secu rit y,

vulnc rabi lity. low self-co nfidence and powerl essness (Rajasekhar, 2004).

In Ethiopi a. morc than 4 5% o f the tota l population li vcs be low the nation a l pove rt y lin c (AEMI : 1.

2(01). Thc majority of these poo r res ide in rura l a rea s o f thc cou ntry. Ho weve r, due to natura l

populati on growth in thc c ities/towns and rural -ur ban mi gration. the numbcr of' res ide nts in urban

areas ha s i:lCl'eascd and a lso urban pove rty has been in creas in g from tim e to time.

I)overty in L-:thiopia is manifes ted because of lack of basic needs. increasing un empl oy ment,

inadequate income, droug ht, ill iteracy, limited access to resources, etc. (Wolday, 2003 ). Lack o r

access to produ cti vc rcso urces and abscnce of o ppo rtuniti cs to deve lo p skill s and human

capabi lities made the poo r to relTlain in abso lute po verly co nditi on. Thi s mal' res ult in enurmous

socia l damage, in stability. crim e. dru g use and so on w hich wi ll a ffect the o ve rall economi c

develop me nt of the co untry.

Thus. I'm co ulllri es Iike I~ thiopi a whe re po vert y is wide ly preva le nt. poverty allev iation e J'i(lrt s

in vol vin g measures that pro vide the poor w ith small loa ns tll stmt bus inesses andlor s upport their

bu siness endeavor is needed. [n line with thi s, Ge bre hi wol (2002) sta ted that pove rly a ll evi at ion

e fforls includ e meas ures thal deve lop the capacit y of the act ive poor to engage ill pe lt)' trade .

71ie case ofjlaais J16a6a

 Socifl{Peifonnance of:M'FIs

micro and sma ll enterprises etc, so as to enhance their earn ings and reduce povert y. Such

measures may help to overcom e tho se social proble ms menti oned above and contribute to the

growth of' th e eco nomy.

Micro financing , in its forma l structure, started in Ethiopia in 1996 when the regulatory structure

lar Micro Finance Institutions (MFl s) was established recogn izi ng the growing demand and need

IClr Microrinance serv ices among the poor and Micro and Small Ente rpri ses (MSEs) sector.

Acco rding to the proc lamation NQ 4011996 ; obtaining lice nse from Nat ional Bank 01" Eth iopi a

author izes an MFI to accept deposits, to draw and accept drafts payable (transfer money JIl

Ethiopia) and manage fund s 1'01' the purpose of on-le ndin g them to clie nts (NBE, 1996).

Thus, the lethiopian governme nt has reco gni zed the importancc of MI' ls to red uce povert y.

Accordingly, it supported MFls in order to expand access to micro credits to poor peopl e and

MSEs to enhance broad -based development and reduce poverty (MOFED, 2002). It is with in thi s

context tbat more than 20 MFls we re estab lished since 1996 in the cou nty. The main so urces of'

capital for MFis are shareholders capital , contributio ns [-i-om reg ional governm ent s, donors. and

commercial bank of Ethiopia. The main objective ofMFls, as Wo lday stated (2003), is: -

"the delivelY of/inancial services (micro /oons , micro savings, Illicro -insurance,

lJloney Iransfel' ele) 10 a large number q/produC/ive but resource-poor p eople in

I'ura/ aile! urban areas including jv[. .,ra~,;s ;17 {/ cos! e./Jeclive and slIsw;nohle \I'(~y

The interventions o/NIFfs are int ended 10 make a positive alld measurable impact

017 {he lives qf the poor and they offer group-based lending and require g roup

gllol'm/lees.

'Ilie case of)l.{ft[is )l.6a6a

 -.r. - :

Soci1lCPeiformance oj'M'!'!s

As indi cated a bove, E thi op ian MFls have a socia l mi ss ion. They aim to reduce povert y and

fac ilitate the gro wth of MSEs by providing fin anc ial services to the poo r and exc luded . Thi s he lp

the un employed to beco me se lf empl oyed, the re by inc reasin g the ir income a nd consum pti on and

reduc ing pove rty.

Since most m icrofinance inte rvention aimed at poverty reducti o n by im pro ving the socio-

economi c deve lopment o f the poor, it wou ld be necessa ry to assess th c ir per fo rma ncc in ligh t o f

the contri buti o n they made. As compared to the form a l fi nancial in stitutions, MFl s have a

potential to reach and assist low income peop le by pro vidi ng financial services des igned

s pecifica ll y fo r them . MFls he lp the c li ents to improve and strengthen their soc ia l and po lit ica l

capit a l. T hi s w ill e nhance the ir soc ial organi zati o n and self cnnlide nce to fac ilitate their eco nom ic

and socia l develo pme nt. Abo ve all these, g iven the ir greater fl ex ibi lity, low capi tal and

techno logy require ment and la bor intensive nature, mi c rofinance acti viti es can he lp to build

locall y ma naged s ustainabl e in stitution s (Ledgerwood , 1999).

Il owever, there a rc limited studi es on th e impact of mi c rolinancc o n povert y reduc ti on. In

addi ti o n, there is no ev idence of systemati c performan ce e val uation of th e impact o f mi c rofinancc

on econom ic deve lo pme nt in Ethi opia (Steven son and Stonge, 200 5). Those limi ted studi es

foc used at local leve l as we ll as on the finan cia l s ustainability of the instituti o ns.

1.2. Statement of the Pl'Oblem

Mi crofinance pro gram is take n in many deve lo p ing coun tries as one o f the strategies in the ir

cffort to poverty red ucti o n. Man y stakeho lde rs such as NGOs, do no rs. gove rnme nts etc. put

money in mi cro fin ance with the be li eve that mi cro finance he lps the poo r by provid ing quali ty

serv ices a nd imp ro vin g cli e nts lives.

'11ie case ojj[rfalS j[6a6a J

 SociaC CPerfomumce of'J,N'Js

T hus, there is a need to measure success in terms beyo nd the fina ncial that is both fi nanc ial

perfo rman ce and soc ial performance matte rs. Soc ial performance loo ks at the e ntirc process by

whi ch impact is created unlike th e traditional eva luation which focuses on e nd results and im pact.

Soc ial performance incl udes ana lys is of the declared social objecti ves of the instituti ons, the

effectiveness of the ir system and services in meeti ng these objecti ves and rel ated o utpu ts. Thi s

can improve the fi nance bottom li ne through better re tenti on of cli ents a nd reduci ng costs

(Hashemi , Foose, and Badawi 2005). Accordingly, the social pe rforma nce has bee n defined along

four main dim ensions.:

I. outreach to the poor and ex cluded

2. adaptation of services and products to target cli ents

3. improving clients socia l a nd po litica l cap ital

4. social rcspo nsibility of Micro Finance Insti tutions

Thus, this study attempts to investigate these fou r d ime nsions that MF ls sho ul d achi eve.

Based on the backgro und of the stud y, the state ment o f the p roblem and literature surveys, thi s

research raises the fo ll ow ing basic research questions to be a na lyzed.

I. What are the strateg ies of the MFls regarding o utreach to the poor and excluded?

2. I-low many differe nt prod ucts do MFls provide to meet cl ient needs?

3. How MFls contrib ute to the improvement of the socia l and pol itical ca pital of the ir

clientsry

4. How MFl s are pe rformi ng their soc ial responsibi li ti es towa rds cli e nts. empl oyces and

loca l commun ity?

'11ie case ofjItftfis jI6a6a 4

 5 ooor (]!erformflnce of:J,tq.]s

1.3. Obje ctives of the S tudy

Gener al object ive

The main obj ecti ve of the study IS to assess th e soc ial pcrfo rmanc es and pro blems of MF ls

operati ng in Addis A baba.

Specific object ives

rma nces ofMF l s with regard to

The specific object ives of this study are to assess the social perfo

the fo llowin g d im ensions :

r Outreach to th e poor and excl uded

r Adapta tio n of prod ucts and service s to target cli ents

r Impro vement of soc ial and polit ical capital of cl ients

"y Soc ial respon sibili ty of MFrs.

mance
r Ultima tely to propos e ways of overco ming probl ems tor better perfor

J.4. S ignifi cance of the Stud y

in va luab le importance for man y

The study of soc ial perfo rm ance of MFls in Addi s Ababa has an

us to identify their streng th s and

reasons. F irst, assess ing the perfo rmances of MF ls wo uld enabl e

ment can make those concer ned

weaknesses and propos e some improv ement s. Seco nd, the assess

ca n be e ffi cient in deli ve ring

bod ics be awa re of potentia l areas fo r supporting MFls so that they
stu dies whi ch examin e socia l
the ir service s to thei r target cli en ts. Thi rd, there are hardl y such

thi s gap. Fi na ll y. the study. if

performa nces of MFls. Thu s, it may contribute a lot in fillin g

the status of MFJs.

comm uni cated to stake holders, can help them be info rmed abo ut

71ie case of }1.cCcCis }1.6a6a

 Socia{IPerfonrUlnce of'MHs

1.5. Sco pe and limita tion of the Stud y

Th e study was onl y und ertaken on five MFls in Addis Ababa. The results wo uld have becn

generali zed if all MF ls have been taken in to account. Due to time and fi nancial constraints the

stud y is limited to mi crofi nance in stitutions operat ing in Add is Ababa.

1.6. Resea rch Method o logy

·Thc study used a survey des ign to assess the social perfo rmances MFl s. \3 oth Primary and

secondary data ava ilabl e with in the MFls and obtained fi·om management were used .

Sa mpl e design

Thcre are about 14 microfinance institutions in Addi s Ababa. Of these institut ions 10 wc rc

included in the sampl e and self-adm ini stered questionn aire was di stributed. However. onl y 5
;;,

MFi s returned the q uestionnaire. Therefore, analys is o f is based the data collected fronl'~~ese

instituti ons.

Data collection Method (:

CE RISE socia l performance indicator tool with som e modificati on is used. Key informants such

as coo rd inators/managers of MF ls were interviewed to solicit as much obj ec tive info rmati on as

poss ib le. Documents such as repo rts were also used to co ll ect the necessary data.

Data Ana lys is

The in fo rmati on coll ected through questionna ire on each of the four dimensions is sco red In a

scale o f 25 po ints, fo r a total of 100 po ints. Analys is is made by d im ensions and sub dimension

by we ighti ng the scores obtained by each Mrl in each dimensions and sub dimension s by the

maximum score that can be obtai ned. Th is enables to show the orientati on of MF ls and to dis play

'lJie case ofj!aais j!6a6a 6

 Socia{Peifonnance of;MrFfs

the result gra phi call y. In add ition , in order to com pa re the relati ve performances of M Fl s average

results for each di mension were computed and their pe rforma nces were ca tegorized according to

their devia tio ns from the average.

1.7. O rga ni za tion of th e Stud y

The study is organized in fo ur chapters. The first c hapter covers a brief introduction o f the

prob lem and its approach. The second chapter tries to cover the related literature re views. The

thi rd chapter dea ls w ith data presentation and analys is. Based on the ana lysis and the findin gs, the

last chapter presents the summary, conclusions, and recommendations of the stud y.

)
'llie case of}!aais }!6a6a
 Socia( CFerfonnance of'MfJ:Js

CHAPTER TWO

Literature Review

2.1 Need for MFIs

Access to finance helps to reduce poverty. [t enables the poor to in vest in profitable busin esscs

and increase income . It a lso helps the poor to reduce the ir liquidity con straints and con sumpti on

vari abi lity (A lemayehu et ai , 2006).

Ho wever. d ue to hi gher tran saction costs per unit of lendin g for small loans, the poor are lell out

o f the formal financial system. Moreover, even when the poor appears to have access to a fo rma l

fin ancia l in stitution , the services on offer may not much their nceds . Depos it acco unts ma y ha ve

minimum amo unts and infl ex ible withdrawal rules. And loans usua ll y ha ve co ll ateral

requirements that excl ude most of the poor (Littlefield and Rosenberg, 2004).

Th us, these unserved or exc lud ed group con stitute the dema nd sid e for microfin3nce services and

Mi crofinance Institution s are needed to fill the gaps and integrate the poor in to the form al market

(Ledgerwood; 1999).

Ini tiall y, Microfinance focused on providing very standardi zed cred it products. But thc poor just

like anyo ne else, need a diverse range of fin ancial in stru ments to bc abl e to build asscts,

stabi li ze consumpti on and protect them selves agai nst ri sk (Juanah , 200 5). Thi s is ev idenced, for

instance, by the works of the Gram een Bank in Bangladesh, KREB in Kenya, PPPCR in Burkina

Faso, etc. Moreover. many mi crofinanee program mes have shown remarkable success not only in

'11ie case ofjI.aalJ jl6a6a 8

 Socin{Perfomumce oj'M'Hs

all eviati ng poverty but also in "deb unking myths abo ut credi t for the poor" (Lilli efi e id and

Rosenberg, 2004) by de monstrating that the poor can be served permanently a nd profi tabl y. The

poor will repay unco llaterali zed loans reli a bly, are willing and abl e to cover the cost o f deli verin g

the service, a nd that they req uire a varie ty of financia l services (Ibid). T hus, thi s ind icates the

broadenin g of the concept of mi crofi nance.

However, the curre nt challe nge is to fi nd effi cient a nd rel iable ways of pro vid ing a var iety of

mie rofinance product (Jua nah , 2005) .

2.2 Serv ices of MFIs

Micro fin a nce usua ll y refers to the provlslon of finan cial services to low income people.

Ho weve r, some MIF s may al so prov ide non fin a nc ial interm ed iation service. In the followin g

paragrap hs the diffe re nt fi nancial and non fimUl cial services offered by MF ls are presented

Financiallntcnncdiation

The fin a ncial services pro vided by MFls include c red it, sav ings, insurance, and payment se rvices.

C,'edit Services

Th is is givin g small loa ns to the poor people for short peri od with regu lar a nd freq ue nt loan

payment. Th e loan s may be made for investment in producti ve acti viti es, ho using o r for a ny

purpose that ease the liquidity co nstrai nt of the poor (Led ge rwood: 1999).

In additi on, access to credit is impo rtant fo r consumpti o n smoothing at ho useho ld level help ing

the poor to respond to e me rgencies and overcome dec line in revenue ( A le may hu e t al. 2006).

Wi th regard to thi s, .luanah (2005) stated that th e c red it fac ili ty " enh ances the ability of the poo r

'lJie case ojjldalJ jl6a6a 9

 Socia{Peifonnance oj"'!"}]s

to face ex ternal shocks and reduce the di stress se lling of their assets. Ultimatel y. the impact on

the ho useho ld w ill include hi ghe r income, more di versifi ed so urce of in come. inc reased

househo ld co nsumption and better education for the children" . Moreover, c red it serv ice of MF ls

reduces the exposu re of the poor on expensive personal and informal exp loitati ve so urces

(.Joh nson and Regally, 1997; a nd Juanah , 2005).

According to Ledgerwood ( 1999) cred it can be deli vered to ind ividuals or to a group of

individuals. In dividual lending is based on some form of co llateral or security. Such form of

lend ing requi res the screen ing of potential clients by cred it checks and characte r refe rence. a nd

the tailoring of the loan amou nt a nd term to cli ent needs. rt a lso requ ired a significant investme nt

of staff time and ene rgy to establi sh c lose relation ship with client. (Waterfield a nd Dural (1996)

as ci ted in Ledgerwood, 1999). Group-based lend ing makes loans to a group of indi vid uals

ha ving a commo n wish to access ti nancial service. Thi s approach is based on th e mode l or

rotati ng sav ings a nd cred it association. But it prov ides additional flexibilit y in loan size and

terms al lowing g ro up membe rs (borro wers) to access c red it when needed rather than wa iting fo r

thei r turn (Ledgerwood, 1999).

Sav in g Sel"viccs

The provisions of sav ing servIces hel p the poor to acc umu late capital whi c h e nhances th eir

capaci ty fo r self-investme nt and to acq uire productive assets (Juana h. 2005). Vanderlack a nd

Sh rci ne r (200 I ) also emphasized the importance of saving stat ing that " borrowing is ri ski er than

sa ving·' a nd that sav in g services hel p the poor to improve their we ll bein g.

'I1ie case of)l.aais )l.6a6a 10

 Socia[rperformLlnce oj'M'FI s

unable to access savin g sc rviccs

Ledge rwood (1 999) ind icated that " low inco me clients are often

relucta nce of bank s to deal with

from traditi onal banks due to a limited branch netwo rk o r the

low incom e cli ents ca n save

sma ll amo unts of mo ney. A lth ough it has been demo nstrate d that

amo un ts and may not fi nd it cost

substa nti al sum s. traditi onal ba nks are not set up to co ll ect small

s by M Fls.
effic ie nt to do so" . Thu s, thi s refl ects the need fo r sa ving service

Insura nce, Payme nts and Money Trans fer Servic es

nd red uces the ri sk and pote ntia l
In suranc e se rvice e ncoura ges more savi ng in fin ancial assets a

services reduce the impact of

losses in times of unfo resee n circum stance. Parti cula rl y insura nce

ng the rural poor to in vest. T hc

ex ternal shocks . A s a resul t, it leads to an increa sed desire amo

and greate r securi ty.

ultimate impac ts are grea ter incom e. less vo lat ility in consum ption

ue ntl y trade and in vestme nts.

Ma ny trans fer service fac ilitates the f"i-ee flo w of mon ey a nd subseq

fro m pe rson to perso n is a I'cry

The easy tra nsfe r of money from one place to ano ther and

placcs near and fa r. Thus with

effect ive instru ment in faci litati ng busine ss betwee n peo ple a nd

to easil y access money . greate r

ba nki ng servic es that e nhance in vestor s and e ven indi vidual

mption level in creases (Juana h.

inco mc is a vail able among peopl e in the rural area and their consu

2005)

Non financ ial Interm ediati on servic es

to fin ancial manag eme nt anc!
The non fin ancia l interm ed iatio n service s includ e service s re lated

bu siness acti viti es, anc! social needs. The fina nc ial ma nage me nt anc! business c!evelopmen t

t, e tc, . N o n fin ancial se rvices

se rvices inc ludes busine ss trainin g, record keepin g, fa m ily budge

1I
'ITie case of)!ddlS )!6a6a
 Soru{rPerfomUl1ue of'fiN1 s

wo rkers, gender sens iti zati on,

related to soc ial needs includ e literacy trainin g, access to health

etc (ledge r wood , 1999; and CERIS E, 2005 )

2.3 OutJ-cach of MFI

the people who are unse rved o r
Outrea ch refers to the efforts to extend mi crofi nance eservic e to

. An o utreach measu res thc

underserved by forma l fina ncial instituti ons (Lafourcade, et ai, 2005)

the degree to whi ch it has met

ex ten t to wh ich an MF I has succee ded in reachin g its clients and

the deman ds of fin anci al services.

rs ca n be used to measu re it.

Outreach is a multid imens ional concep t and differe nt indica to

need to look at in ord er to

Theref ore. differe nt literat ures identified different dim ension s that

r of cli en ts servcd (breadth

measure outreach of MFls. Meyer (2 002) indi cated that the numbe
the va ri ety of fi nancia l service s
includi ng numbe r of wo men served ), the depth of poverty and

(scopc ) are the predom inant dime nsions of outreach.

outrea ch: depth, breadth. sca le.

Acco rding to Gu lli (1998) howev er, there are fi ve dimen sions of

level o f cii !;lltS. Breadth 0['

qua lity and geographical. Depth of outrea ch identifies the po verty
,
ch refers to numbe r of c lients
outrea ch measures whi ch sector s are engage d in. Sca le of outrea
qua lity of the service and th e
se rved. Qua lity of outrea ch and geographi cal o utreac h refer to

locatio n of cli ents.

in term s of breadth or depth .

Lafo urcade et a l (2005) stated that outreach ofMFs can be meas ured
vo lume of serviccs provid ed
The breadth of o utrcach refers to the numbe r of cl ients sc rved and
12
'l1ie case offltfc[lS fl6a6a
 Socia( Perfonnance of'hi 'f1s

by an MF I. And depth of o utreach eva luates the types of c li ents reached and their leve l of

poverty. the socio eco no mi c level of cl ients reached.

Rega rdless of the different dimen sions (indicators) of o utreach noted in li teratures, the ind icato rs

of o utreach to a particul ar MFI depend o n its objecti ves. And these indi cato rs can bc we ighted.

quantifi ed and priori tized according to their relevance to the inst ituti on (Ledgerwood, 1999).

2.4 Social Capita l and Microfinance Progl'ams

Accordi ng to Grootaert (1997) as cited by Van Bastelaer (2000), traditiona ll y, the co nce pt of

capital included the natural, physica l (produced) and the hu man capi tal as the core build ing

blocks of economic growth and development. However, nowadays it is recogni zed that these

cap itals determ ine on ly part of the process of econom ic growth beca use of the m iss ing of soc ial

capital. Social capita l determ ines the way the econo mi c ac tors interact and o rgani ze them se lves

so as to bri ng abo ut growth and development.

Van Bastelaer (2000) further stated that the inst itutio ns, the relati onships, the attitudes and value

that govern interaction among peop le and contribute to econom ic and social deve lopmen t

co nsti tute the soc ial cap ital of a society. Th us, social is no t on ly th e su m of the institutio ns that

underpin soc iety but a lso the glue that hold s them together.

Furthermore, socia l cap ital also incl udes the norms, shared va lues and rul es fo r social conduct

expressed in personal relationships, trust and a sense of respo nsi bi lity that makes a society mo rc

than a co ll ec tio n of indiv id uals (Van Bastelaer, 2000). These norm s and shared va lues of a

'lJie case of)l.aais )l.6a6a 13

 SociaUPerfornumce of:Mrns

soc iety fac ilitate exchange, reduce tra nsaction and informati on costs, and enab le manage ment o r

reso urces co ll ectivel y (F uku yama, 199 5 as cited in Woo lcock and Narayan , 2000) .

Nowadays, it is recogni zed that soc ial capita l has attrac ted poli cy mak ers and has become a

po li cy too l to reduce poverty in developing co untri es (Cecchi et al. 2005) . Acco rdin g to Cecc hi

(2005 : 5), soc ia l capital may co ntribute in alleviating po vert y th rough fo ur main channe ls:

I, info rmal social networks of relati ve a nd neighbors co nstitute a fertil e gro und fo r

mut ual insu ra nce mechani sms.

2. social bridging ties faci li tates the transmi ssion of informati on and tru st. the

enfo rceme nt of contracts, the creation o f info rmal credi t networks o r enable access to

formal c red it.

3. it hel p the poor to ac t co ll ective ly so as to improve their condit ions th rough advocacy

and lobbyi ng ac ti viti es that wo ul d be impossi bl e othc rwisc

4. it m ay pl ay an ind irect ro le at macro level in a llev iati ng pove rty and inequal ity through

its positi ve influe nces on economic developme nt

T hus, soc ial cap ital may be used as a too l fo r im proving the li ving stand a rds o f the poor th ro ugh

enha nc ing the ir capa biliti es and fostering their access to info rmatio n, fo rmal and info rmal cred it.

techno logy and ed ucatio n (Putterma n, 1995; Fox a nd Ge rshma n, 200 I as cited in Cecchi et al.

2006). Accordi ng to Van Bastelear (2000) both fo rm al a nd inform al cred it systems work bette r

when bo rrowe rs a re co tlnected to the so urces of fund s by socia l ti es.

Difre rent types of c redit a rrangeme nts targeted to the poor re ly on soc ial ti es a nd interacti on. as

pa rt o f the des ign a nd impl ementati on of their deli very and e nforce me nt mechan isms (Cecc hi

'llie case of}'uftfir }l.6a6a

 Socia{ !Per/onnance of'J,N''!s

et'al, 2006 and Van Bastelear, 2000). For instance, credit arrangements sllc h as rotating sav in g

and crcdit associatio n, th e loca l mo ney lenders, trade c redit and group-based microfinancc arc

based on the soc ial relations and pattern of persona l interactio n. G ro up-based microfinancc

bas ica ll y adapted the model of rotating savi ng and credit association, but it adds Oexibility in

loans s ize and terms and all ows borrowers to access funds when they need (Ledgerwood 1999).

Soc ia l networks (formal and info rma l) also "enable peo ple to carry out co ll ecti vc act ions. to

partic ipate in effecti ve local decisio n making, to lobby for improved services, and to sec ure

informa l in sul'<mce from fri ends, neighbors and the co mmunity (Narayan, 2000 ; Nara ya n and

Prifchett 1999; Koze l and Parker, 2002 as cited in Cecchi et al 2006).

Finall y, for clients of MFls soc ial cap ital enabl e them to enhance their social organi 7.ation

(co ll ective act ion, information sharing, polit ical lobbying etc) and develop se lf-confidence. Th is

in turn helps them to engage in sustai nable and profitable activiti es. On the other hand , group-

based le ndin g may help MFI to reduce transaction costs. And it also enables MFI to impro ve

(incrcase) repaym ent rates through screening of clients, inte rna l group monitoring and by usin g a

hi erarchica l structure, that is col lecting repayment from a group rather than from each gro up

member (Ledgerwood , 1999).

2.5 MFI and the Developing World

Since 1980s' microfi nance programs and MFls ha ve grown substant ially. Accord ing to wo rl d

wide in ventory of MF ls, between 1995 and 1996 the World Ba nk ident ifi ed 1,000 MFis in 101

countries. According to the survey, by September 1995 about US$7 bil li on in outstand ing loans

'!Fte case ofjIaais jI6a6a 15

 Socia{rPeifonnance of~'FIs

had bee n prov ided to more than 13 mi llio n indi viduals a nd groups. A nd about US$ 19 bill ion had

been mob il ized in 45 millio n accounts (Paxton, 1996).

At the end of 2000, 1,500 MFTs in 85 developing coun tries reached 54 milli on members. The

tota l volume of o utstanding credi t amounted to US$ 18 milli o n. The total savings c ul ti vated was

about US$ 13 bi lli o n w hich represents 72% of the o utsta nd ing loa n. From the pe rspective or thc

popu la tion of developing countrics, the outreach of micro finance rep resents on average 1.5% o r

the tota l pupation a re MFlmembers. The credit vo lume d isbursed were around US$5 pe r

inhabitant a nd US$ 3 pe r inhab itant were mobi lized sa vings (Lapenu and Zeller. 2001) .

Outrcach of Microfinancc

According to the Micro c red it summ it re port the ou treach o f mi cro cred it progra ms show

signi ficant world w ide increase as indicated in the table be low.

Tablc 2.1 World Outreach of Micro credit

Date Programs number C lients (n umber) " Poorest" client

.-
End 1997 618 13.5 milli on 7.6 milli o n
End 2000 1,5 67 30. 7 million 19. 3 milli on

Source. FDC, (2 003)

At the e nd of 2000, of the total 30.7 mill ion cli e nts th e Asian programs re ported 23.6 m il lio n

cl ie nts. o f who m 10. 5 milli o n we re c lassified as " poorest" . Bang ladesh alo ne houses a num ber of

'giant ' in stitutions, of w hi c h the Grameen Bank w ith 2.4 milli o n poorest clients. BRAC with 1.6

m illi o n, ASA w ith 1.0 1 million and PROSHIKA with 0.89 milli on. Thi s cl earl y indicates that

Asia is particula rl y acti ve for micro finan ce mo ve ment (Conroy, 2003 )

'Ilie case ofjllflfis jl6a6a 16

 5 ociaC Perfomumce of'M 'FIs

Performan ce of M Fls

In terms of vo lume of activities (tab le 2.2) As ia, incl uding Bang ladesh, leads in the nu mber of

MFls a nd cli ents as well as on the vo lume of savings and loans. Th e numbers of MF ls and clients

re main Illodest in Latin Amer ica compared to Africa; however, they mobi li ze a n impress ive

amo un t 0[' sa ving a nd pro vide it significant a mount of loa ns.

Table 2.2 Worldwide volum e of activity of MF ls

Latin Africa Asia

America
Percentage of MF ls 9 2 1.8 69.2 lIi'--..
~-~ - - '~------;--- '-----+-------,-::--::-I---
Pe rcentage of membe rs 12. 9
-:-~~~----~--+--~--~~----:-:::-::-+-----~----::-+.-----.----- ~
9.9
-
7.2 Z
..• ('
Pe rcentage sav ings 40.5 5 54.5 I ' .• .'. I:J '
: t • -l c::'l
- ~--.-- ~ ---,,--~-.,,-------l
Percentage of c redit 32.5 2.6 64.9
--~ ~~-~- --~-----'----------'------

So urce IFP II! (1999)

Ta ble 2.3 Ave rage p er fo rman ce of MFl s

- ._- --- -:- -
Latin Africa Asia
Ameri ca
- -- - - - - -- --
Repay ment
~ ~ _.
Repayment(u nweighted%) 93. 1 88.7 95.6
-
Re paymen t(weightedby 94.3 9 1.6 98.6
vo lume o f loans ,%)
- --- -~-~-~ ~ -

Staff (ll'Oducti vity

~ - - -.~-=-:--- ~-. ~- - - - ----~

Numbe r of loa ns 146 145 81

- - - --- r---:-:-:--- ' -
Vo lume o f loan s($) 59.329 21955 6,037
-
Vol ume of sa v i ng($) 5,888 16,25 3 3,034
---~~~ - - - - ----_.-

Source 1FPlI! (1999)

'11ie case of}laais }I 6a 6a 17

 Socin[(Performance of:Mq;Js

Staff Productivity measures the outreach and effi cie ncy of MFI in term o f number of borrowers

(number of loans) o r number of savi ngs mobili zed per staff mem ber. In the table 2.3 . it is

ex pressed as the rat io of number of loans to number of pe rsonnel, vo lume of loans to number of

personnci and vo lume of saving to number of personnel.

A fr ican MF ls ha ve the lowest repayment rates. But Asia exhibits a good repayment rate (95.6%)

although its productivity, both in terms of num ber o f c1i ents( 81 ) and vo lume ( 6,037 and 3,034)

is very low co mpared to Afri ca(21 ,955) a nd Latin America 59,329) . Thi s may be due to the lowe r

cost of labor com pared to professional staff in Africa and Latin A meri can. T he loan portfolios in

La tin American have three times larger than African MF ls. African productivity is good intenns

of numbe r of loans but w ith lowe r tra nsaction volume (Lapenil and Zel ler, 200 I).

Overall , MF ls pro vide extensive coverage of Asia, Africa and Lati n Am erica and reached 54

mi llion me mbers, who have received 18 million in loa ns and accu mulated $ 13 hi lli ons in

sav lll gs . However, MFIs a re hi ghl y concentrated in size, 3% of the largest MFIs reach 80% of the

members. (Lapenu and Zel ler 200 1 and Conroy 2003).

2.6 Overview of MFs in E thiopia

Developm ent of M iuo financ e in E thiopia

It is obvio lls that th e poor in Ethiopian have low inco me that lead s to lo w investment. Thi s res ults

in low productivity and income. Access to institut io nal c red it that contributes to an increase in

investm ent is very li m ited in the cou ntry. The co nventi o nal ba nks in the co untry consider the

poor as ri ski e r and unprofitable since a loan size below 100,000 is cons ide red by these banks as

'lJie case ofJl.tftfis Jl.6a6a 18

 Socia{Peiformance of:MPIs

unallracti ve and unprofitab le. Th us, the majority of the poor get access to fin anc ial service

through info rmal channels such as money lend ers, iquib, idir, fr iends, relatives, traders etc

(Bezabih et'a l 2005). Accordin g to Bezabih (2 005), the informal finance plays a signifi ca nt role

in servi ng the community. It consti tutes about 69 percent of borrowers and 61 pcrce nts or loans

size. The informal lenders have hi gh loan recovery rates and fl ex ible term s. However, they charge

ve ry high interest rates .

Savings and credi t co operations and other multi -purpose cooperat ive are also the major financia l

service outlets particularl y in urban areas. NG O have also been invo lved in directl y fund in g

micro-credit activiti es targeting the poo r as part and parcel or thei r po verty alleviati on prog rams.

However, the micro-credit programs subsidized by NGO's were unab le to create sustainab le

financial institutions. They focu sed enti rely on the prov ision of loans with very low interest rates

and saving products (whi ch can be used as a source of loanabl e cap ital) were not considered in

the delivery o f financial services to the poor. As a result, these mi cro credit program s we re not

only unable to cover the ir operational costs but also encouraged dependency since donors were

considered the onl y so urce of loan fund s (Wolday, 2007).

Th us, the very hi gh interest rate of the informal finance and the problem of subs idi zed NGOs

micro credi t program necessitated a regu latory framework in order to promo te more sustainable

MFls in Ethi opia. As a result, the activities of MF ls brought under the monetary and financ ial

power rram ework of the country by proclamation NQ 4011996, empowering N BE to licen se and

supervi se MF ls (Wolday, 2007).

'lTie case ofjlt[(fis )I.6a6a 19

 Socia{q>eifomumce of9d'FIs

The Status of MFJs in Ethiopia

The mi c rofinance sector in Ethiopian is quickly expanding and institut ions have increased their

acti viti es. As of June, 2007 about 27 MF ls operate in the co untry. The foll owi ng paragraphs w ill

di scllss th e perfo rma nces of the Ethiopian MFls.

Outreach

Outreac h of MFls is meas ured in te rms of di ffe rent dim ensio ns. The num ber of acti ve cl ie nts,

vo luill e of sav ings, percentage o f loans to the poorest of poort etc are considered core indi cators

of o utreac h. The MF ls in Ethi opia have shown a remarkable progress in terms of outreach. As of

Ju nc 2007 . the MFls had an active loan portfo li o of about 2.7 billi on birr deli vered to about 1. 7

million act ive clients as show n by figure 2. 1 and 2.2.

Figu rc 2.1 G ross loans

Gross laon

3,000, 000 , 000 , - - - - -

~, 73 5 .66 0.400
2,500 , 000 , 000
2, 000 , 000 , 000 2 , 168 '4 8 4 ,000

1 , 500 , 000 , 000 1 ,623,5 1053 1_

~-----

gross la ;;;:;'
1 , 000 , 000 , 000 -- - 993,92 1 ,297
500 , 000 , 000 9=L978..ll63

Source. IIklF} (2008) and Be(ikadu (NBE, 200 7)

'Ilie case of}l.aalS }l.6a6a 20

 Soao.! q>eifornulnce of9rI q;Js

Figure 2.2 Trends ofIndustry outrea ch

~ ~.C((l, WJ 1- - - - - - - - - - - - - - - - - - - - - - - - - "
';:: ---+ '. 7· ·.e~
:t. 1/1 1,5:·) ,W) +----------------=~ ... 1.t·9.24:.- - -___j
...... ..... L~77 . 939 .--+'
~ .~ 1.cm,W J +------:::=.... ' .GOi .e-·t / · ' ; - - -- - -- ---------j
~ U 7
.. (55,0 3
,5)),WJ +--- - - - - - - - - - - - - - - - - - - - - ---1
c
:;
~ ) +-----_----r----_----_----~
~CC6 2))5 ~CC7

Periocl

Source. Befikadu (NBE, 2007)

As can be see n in the above fi gu res the industry outreach in terms of nu mber of active cl ients ri se

on average by 22 .9 pe rcent and outstanding loans showing an average yearl y growth of about

47.59% percent. T he MFI have attained significant growth bctween 2003 and 2007. The number

o r cl ients and volume of loan portfolio increased by 126.67% and 360.56% respectively as sho wn

in figure 2.3.

Financial perfonnance

MFl s earn financia l revenue from loans and other financia l services in the form of interest fees.

commi ssions etc . MF ls financial acti vities also generate vari ous expenses, from genera l operati ng

ex penses and cost of borrowing to allowance for the potent ial loss fi'om defaul ted loans.

'ITie case ofj[aais j[6a6a 21

 Socia{Perfonnance oj'MPIs

Figure 2.3 S ustainability as Measured by ROA and ROE

12
..
_...... ......
10 /"

.... --
8
'"<:: -+-Re:urn on .4sse:

..
L
13
" ....r
/-
__ Return on Eq UI;Y
'"
0: 4
2
--It-

0
~:O l 2002 2003 2004 ~05 2006 2007
Year

Source. Bejikadu(NBE, 2007)

At indu stry level MF ls are o perationally se lf-suffi cient as the return in assets and return on equil y

are imp rovin g over time as shown in fi gure 2.3.

MFls Products

A lthough m ost MFls focu s on loan provIsIon and saving products, few M FIs provide mi cro

insu rance. leasing pension, money trans fer and consultancy service (Befekadu. 2007). However.

few a lso restri ct themselves on loan provision. Acco rding to Befe kadu (2 007) , most MFl s charge

d ifferent interest rates ranging from 14% to 24%, but some charge fl at interest rate. Thi s

difference in interest rate amon g MF ls is due to variation in hu man power and material costs

invo lved in the process and fo ll ow up of the credit fac il ity ; and variation in ri sk in vo lved in the

type of the bu sin ess. Th e interest rate is very high compa re to commercial banks due to their

ex posure to expens ive risk and, admini strative and transacti on costs.

'11ie case ojjI(flfis jl6a6a 22

 SociaUPerfonnIlnce of'M'Fls

Challenges of MHs

According to Befekadu (2007), some of th e challen ges that MFis faced include the less

wi llin gness of commercial banks to lend to MFis with out co llateral , unfavorable environ ment in

e nfo rcing the loan contract, less savin g habits, etc .

In addition, the governm ent regul ation limited the operation of MFis to a specific region. Thi s

gavc a pa rticu lar MFi a monopo ly advantage and excl usive operation rig hts in the reg io n. Th is

has a negati ve impact on operations, effect iveness, co mpeti ti veness, and service quality for the

clients (Pitmaber, 2003) .

2.7 Co nceptual Ft'amework

Microfinance has been developed to reach people exc luded li'om the conventional financial

system. In most developing countries, projects and in stitutions have been successful , resulting

incrcased ou treach, diversified products for the target population, and hi gh repayment rate. In the

1990's, financial and institutional susta inability of microfinance institutions have bcen givcn

much emphasis. As a resu lt, tools to eva luate financial performances have been developed but

social performances were not considered , (CERISEE, 2005).

Nowadays, donors and soc ial in vestors ask MFl s to justify the funding: who are the clients

reached? How can social and financial objectives be combined? How to avoid mi ssion dr i ft ~

According to Hashemi et al (2005), the increas ing interest in soc ial performance stem from a lon g

held belief that whi le finan cia l sustainability is essentia l for massively scaling up services, it is

not sufficient to ensure that social objectives, whi ch anchor much of the passion and co mmitment

to mi cro fin ance, wi ll be automati ca ll y met. Mo reover, Hashemi et al (2005) also argue that

7Jze case ofJ/.(ftfis J/.6a6a 23

 5 odar Perfornulnce of ,WFJ s

dono rs, go vernments, fou ndat io ns, and many ind ividuals put money in mi c rofinance with Ihe

be lief that m icrofin a nce he lps poor peopl e. Therefore, if Micro ri na nce Institutions are reachin g

the poo rest, then they shou ld pro vide the ev ide nce to back it up.

Soc ia l performan ces

Socia l performance may be defi ned as the effecti ve translation o f a n inst itution 's soc ia l

m iss io ns/goa ls in to practice. [t includes susta inab ly servin g In creaS ll1 g numbe r of poo r and

exc lud ed peop le, im provi ng the quality and appropriateness o f fina nc ia l services, improv ing the

socio-econom ic condi tion of c li ents, a nd ens uring social responsibil ity to cl ie nts. employces and

the co mmunity it se rves (Hashemi et ai, 2005). Thus, th e social value of microfi nance re lates to

the way fina nc ia l services improve the soc io-economic co nd ition of the poo r and excluded

c li e nts . a nd widen the range of opportunities for co mmunities (IF AD , 2006).

T he co ncept of socia l pe rfo rma nce tocuses not on ly on the final impact, but also looks at the

en tire process by whi c h soc ial o bj ecti ves are achieved- impact is c realed (lFAD. 2006 and

Hashc mi et a i, 2005), as indicated in the diagram be low.

F igure 2.4 C ha in of M icro fi nance In stitution 's activities

Inlenrion Process Outcome

D esign - - - - ---'..~ ACilon - - - - --1... 1 ImpaCI
Pnnclple; Ompnr

. ... "
Economic
and ;oclal
performance

Soul'ce. C ER fSE, 2005

'Ilie case ofjtaais jt6a6a 24

 Socia{Performance of:Mrns

Like a ny othe r organ ization , th e chai n of activiti es of an MF I goes frOI11 its intenti on. princip les,

design. to the process a nd action il11plel11ented. outp ut obtained and fini shes with the outcol11e and

il11pact. Performances refer to optil11al possi biliti es of the institution o r resul ts obtai ned in term s

or des ign, outp ut and o utcol11e as indicated by broken arrows in the a bo ve fi gure. Socia l

perfo rl11 anee, the refo re, includes many d ifferent dim ensio ns from intent io n to impact. Thus it is

possible to measure the who le p rocess in a n MFI' s c hain of acti vities (CERISE. 2003 )

Diffe re nt approaches and tool s ex ist or are c urrentl y being il11plel11e nted to assess the social

pe rforl11ances 01' Microfinance In stituti ons. These approac hes/tools differ in th e ir emphasis on the

different dim ension s of soc ial performance. He re under, CERI SE Socia l Pe rfo rmance Indi cato rs

Tool w ill be d iscussed . Thi s too l w ill be used to assess the social perfo rl11ances of the institut ions.

,;~
CI'; IHS E: Social PCI'formance Indicators 1'001 1
/ f
The SP I tool eval uates the intentio ns, actiuns and correct ive l11eas ures' il11 plc rhentcd by an M FI.
* ,'

rather than transformat ion in clie nts. This too l is based on the hypothesis that proportionality or

l11eans to objecti ves can prov ide bette r client impact at the end of the chai n ( IFAD , 2006) .

There lo re. the anal ysis of interna l systel11 s and processes are adequate to deterl11ine whether an

institut ion has the avai lab le means to attai n its social objectives.

T he CERIS E too l exa l11ines the fo llowing four dimensions of soc ia l performance describe be lo w:

/. Outreach to the Poor and Excluded:

M FI ha ve generall y been de veloped to reach a popu lati on excluded fro l11 th e classical financ ial

systel11 . MF ls can have the obj ecti ve o r reac hing social ly exc luded popul atio ns or the poor. o r

I The exp tanatio n of C ER ISE S PI Tool is tak en from CERISE, (2005 ) and Hashe mi , (20 06)

'Ilie case offl.aalS }!6a6a 25

 Socia{Peiformance oJ'M'l:ls

simpl y to offer fin ancial services in a reg io n where class ical bankin g syste ms are absent. Th e

de pth o f outreach of the MFI ca n be measured to eva luate its focu s on the eco no mi ca lly and

soc ia ll y exc luded popul at ion.

The first d im e nsion chec ks if the MFl is intended fo r the poor and fo r the excluded. Thi s does no t

necessa ril y mean that it is addressed onl y to the poor. Generall y. three main strategies can be

o bse rvcd to reach th e poor and the excluded :

r Geographic targetin g: lo cation of branches o r MF I in poo r/iso lated areas. areas whcrc no

other formal fi nanc ial services are ava ilable;

r Ind ividual targeting: screening out peop le who do not meet the requirements andlo r

se lect ing those who meet the criteri a of poverty and/or excl usio n;

r Methodologica l ta rgeti ng or " pro-poor" mcthodo logy: design 0 [" the services to address

the specifi c needs o f the target populatio n, with the idea th at the non-target po pul at ion do

not ask fo r these types 0 f services.

T hus, the too l checks wh ich targeti ng strategy the MFI is fo ll owing, how the MF I veri lies th e

accuracy of the strategy and w hat the results of the strategy are in term s of outreach.

2. Adaplalion o/the services and producls 10 Ihe largel ciienls.

It is not enough to decide to reach a target population. M icro finanee servIces are too often

standa rd ized: s lllaJi loans, weekl y repayment. group so lid arity, etc. The MFI mu st learn abo ut th e

target pop ul ati on and work on designin g its fi nancial services so that they lit cli ents' variou s

needs and co nstrai nts.

'1Jie case ofJ'ufcfis Jl6a6a 26

 Socia{lPeifonnance of'M'FIs

Social performance ind icators analyze the process leadi ng to service defi ni tion and the ex tent to

whi ch the MFI knows about its cli en ts' needs .

3. Improving social and political capital of clients

For the MF I, trust between the MF I and the cli ents can reduce the transaction costs and improve

repayment rates . .It thus can fos ter co ll ective action and red uce free-ri d ing, opportuni stic

behav ior. and reduce ri sks. For the cli ents. strengthenin g their social and polit ica l ca pital can

enhance their social organization (co llecti ve action, info rmation shari ng, pol itica l lobbying. etc.).

Social performance indi cators shou ld

r Measure the degree of transparency, the effort of the MF I towards giving vo ice to its

cl ients within the o rgani zatio n and beyond (com munity, loca l gove rnme nts. national

government. etc.) . Self~confidence can a lso he lp them to engage in sustainable and

profi table ac ti viti es.

, Measure the degree of trust and so li darity and the MFI 's efforts towards br inging clients

together and giving them strength and respo nsibi lities wi thin the organization and beyond

(commun ity, loca l governments, national government. etc.) wit h a view to helpin g them

all eviate their econo mic and socia l constraints as much as poss ibl e.

-I. Social responsibility of MFJ.

Socia l awa re ness is a necessary prerequi site for socia lly respo nsibl e co rporate be havior. Soc ial

respo nsibi lity req uires a suitable human reso urces policy. adaptati o n of the MFl's corporate

c ultu re to its cul tura l and soc ioeconomic context. soc ial responsibili ty towa rds its clients and

towa rds th e co mmuni ty w he re it operates (credit guarantees suited to loca l conditions. balanced

'lTie case ofj laais jl6a6a

 Socia{Perfomwnce of'M'Fis

relation ships between staff and clients, in particu lar in MF ls wherc there are elected cli c nts who

participate in dec ision ma king, etc .).

Th us, according to Hashemi et a i, (2 005) and Zelle r et al (2003) rather than interviewin g clients

to determine d epth of outreach , the CERIS E tool exam ines internal sys te ms - the mi ssio n

statement , whe ther ta rgeting tools are used, loan s ize to ap prox imate whether poor cli ents are

actua lly be in g served. A lso rath er than analyzing clie nt empowerm ent at the ho use ho ld a nd

community level, soc ial and political capital of cli ents are determi ned through assessment of the ir

invo lvement in MFI dec ision making and in the transpare ncy of the fi nancial transactions. The

ava ilab le institutional informatio n is m ined to generate an assessment and avoids long cl ie nt level

survey, w hi c h enable to red uce costs

'lJie case ofjttfats jt6a6a 28

 S ocia{Peifonnance of'M'Hs

CHAPTER THREE

Data Pl'esentation and Analysis

This chapter deal s with the presentation and anal ys is of data collected through questionnaire,

interview and from relevant documents.

Th ere are about 14 MFls operating in Addis Ababa. Of these institutions, 10 were se lected usin g

simpl e random sampling. Out of the 10 questionnaires di stributed to the managers of these

institutions only 5 questionnaires were returned. Thus, the data analysis is based on o nl y 5 MFls.

3.1 Description of the MFIs

A lthou gh there are about 26 MFIs in the country, the microfinance ind ustry is dominated by

fo ur largest MFls (DECS L OCSSCO ADCS I and OMO) which are located outside Addi s Ababa.

'fhe se institutions alone accounted for about 83. 59% of the market share in terms of gross loan

portfolio and about 81% of number of borrowers. The remaining 22 MFTs represent onl y about

16.41 % of gross loan portfolio and 19% of num ber of borrowers (AEMF I, 2008).

Table 3.1 MFls y cars of operation, personnc1, total assets, borrowcrs& market share
~.--.---.
--
M.F} Year of No. of Adj usted No. of acti ve Market share Mal
operat ion oersonne l tota l Asset bOITowers Iborrowers % loal
ADCS 6 454 174,676,390 54,920 3.6 5.8
1--. I---
Agar 2 "
.J.J 6,035 ,320 1,906 0. 1 0.1
~-----.-.-- - -- -I---
ESI-lET 6 121 31,246,331 24,490 1. 6 1.1
- - - _.. _ .
Mek li t 6 58 10, 134,231 7,426 0.5 03
- - _ .. _- - - --
Metemamen 4 31 5, 139,651 7,002 0. 5 0.1 8
---.
Total 6.3 7.6 8
-----

Source.' A EMF (2008)

'Ilie case ofjltfc[is jl6a6a 29

 Socia{Perfomumce oj:Mq'ls

As clearly shown in table 3.1 , th e total mark et share of th e MFls unde rstudy represent about 6.3'%

of the market sha re in term s of number of borrowers and 7.68 % of gross loan portfolio.

As indicated in the tabl e 3. I, ADCSI has the hi ghest total assets and number of borrowers whil e

Agar has the lowest number of acti ve borrowe rs . However, Agar indi cated to be the second

lowest of MFl interims of total asset holdings. These lowest tota l val ues a re supported by the fact

that the instituti on is infa nt, only three years of operations

From the market share po int of view, the number of cli ents served by MFls is related to the

vo lum e o f portfo lio lent. For exampl e, ADCS T has he hi ghest number of borro wers (3 .65 of tota l

MFI' s market in the country). On the other hand , Agar has the smallest market share bo th

interims of number of borrowers and loan portfoli o, 0.1 % a nd 0 .1 8%, res pecti ve ly

3.2 Social performances of MFIs

The social performance of MFls is anal yzed based on the data col lected from fi ve observational

sam pl es em pl oying the four main dimension s of soc ia l pe rfo rmances ide ntilied fo r the pu rpose of

the study.

Analysis by major Dimensions

Soci al performance refe rs to the e ffecti ve translation of an institution 's social mi ss ions/goals in to

prac ti ce. T hi s included serving increasing number of poor a nd exc luded peo pl e (o utreach),

pro viding a varie ty of quality financial products a nd services (adaptation o f products to client

needs), impro ving the socio-economic condition of cl ients (social capital impro vement), and

ensurin g soc ial res pon sibility to cli ents, employees and the community it serves. Howeve r, MF ls

may e mphasize one o r mo re of these di mensio ns depe nd ing o n their prima ry object ives .

'Ifte case ofjlaais jl6a6a 30

 Socia[PerfornUlnce oj'MPis

Th erefo re analysis of the performances by dimension helps to show the main orientation of an

MFI.

In the questi onnaire the Managers of the li ve MFl s were asked to rank the four dim ensio ns in

term s or the socia l obj ecti ve to be realized to identi fy their main foc us on the di fferent dimension.

Po ints I to 4 were ass igned fo r not an obj ecti ve, mino r o bj ective, impo rtant obj ecti ve and major

obj ecti ve res pecti vel y.

Figu rc 3.1 MFls with main focus on different dimensions

social adaptation
responsibi lity of product

: '-.--"

social capital
r ..:...- ADCSI ___ Agar Eshet
Meklit _ Metemamen
--------!

As can be seen fi'om the above fi gure, ADCSI and Agar focu ses more or less on all dimension

except on improvement of soc ia l capital of the ir cli ents. Meklit M FT o ri ented to ward s o n on the

product adaptability and social responsibility dimensions. But Metemamen and Mekl it arc

orie nted to ward s outreach and social responsibili ty dimensions, respectively .

'llie case ofj Uais }l6a6a 31

 Socia{IPeifonnance oJ'M'FIs

Analysis by sub dimensions

Ana lysis of' the performances of MF ls by sub dimen sions helps to visua lize in mo re detail th e

strengths a nd main focu ses of the institutions for the di fferent dim e nsion s. The pe rformance of

MF ls by sub dimensions wil l be described under the fou r main di mensions.

T he info rm a tion o n each fou r d imension is scored in a scale 0[25 po ints, for a total of' 100 points.

Th e sco red obta ined by MF IS in each dimen sion is therefore we ighted out of 25 points to

co mpute their performance. The percentages for each sub dim ension are calc ulated by dividing

the scores ofMFls a lo ng each sub dimens ions by the maximum score that co uld be obtain ed. The

tab le shows the pe rforma nces of'M Fl s in diffe rent dimen sion.

Table 3.2 MFTs with major focus on different dimensions

-
--1- -- -----
--~-
---

ADCSI Auat" Eshet Mcklit___ ._ ~~~ I~a l

Sub dimensions
-- -----
Maxi. scorc % score %
SCOrc (Yo score % - - score 0
-
Geographic
targeting 6 0 0 0 0 0 0 0
- -- - -- 0 0 0

_l ndi v i 9~-'-"-'- targetina

0 0
10 8 0.8 J 0.3 J 0. 3 7 0.7 8 0 .8
--
Methodology
targeting 9 6 0.67 7 0.78 6 0.67 5 0.56 7 0 .78
Range of se rvice 9 4 0.44 5 0.56 I 0.1 1 7 0.78 0
J
00
0 .JJ

Q u~ ityof service 11 6 0.55 6 0.55 7 0.64 6 0.55 5 - - 0 .45

5
0
0.6 I 0.2 1- 0
I
-
Non financial service J r-0 .2 J 0.6 0 .2
Trust tlild information
0 0
S h ~I_' ~lg -----.- 6 5 0.8 3 J 0.5 J 0.5 2 0.33 I 0 17

~?
Q ient r c prc sen l ct. li v~s _ _ II I 4 0.36 I -- 0.09 4 0.37 2 0 18
-
._. ~

_~mpowe rm e rlt 8 I 0.13 0 0 I 0.1 3 I 0.13 2 O. 25

J-lRM
--- --- -- ---
8 4 0. 5 5 0.63
.~-------
6- - - 0.75-
6 0.75 5 -
O. 63
SR clients
------- _=lL 7
4
0.86
0.44
4
I
0.5
0.11 .-
2. _ -- --_.
2
0.38
0. 22
5
5
- 0.63
0.55
-2-----. O. 25
4 --_._ - O. 4.:!..1
J'R_co mmunity ___ .1} - - - --- -

'lJie case ojjl.aais }l6a6a

 Socia{q>eifonnance of'M'FIs

Outreach to the poor and excluded

The ou treaches dimension of the social performances of MFfs includ es geographic targetin g.

ind ividua l targetin g and met hodol ogical targeting sub dim ension s.

Geographic targeting is concerned with a clear definition of criteria set by MFTs to target a

speci fi c area of operation and locati on of branches arou nd the target pop ul ation. As indicated in

the above tab le, al l of the fi ve MF ls set no clear defi nitio n and criteri a. Thi s imp li es these MF ls

are not targeting specific area in the city of Add is Ababa

With regard to indi vidual targeting, different dev ices such as fa mil y structure, ownership of

productive assets, poverty level, women , unempl oyme nt leve l etc may be used to facilita te the

sel ecti o n of the target pop ulati on. A ll of these, however, need the knowledge of the target

populatio n or the veri ficatio n of the information co llected at th e time of appl icati on. In the stud y

it was identiti ed that AD CS I (80%), Metemamen (80%) and Mek lit (70%) are better perfomers in

thi s dimen sion.

MF Is also need to design their services to faci litate their access to target c1i cnts. Thi s includes

provi din g loa ns secu red by social co ll ateral such as gro up based lendin g, reco mm endati on by

trusted third party . In add iti on, developi ng spec i fi c procedures, size of the loa n, the minimum

amount fo r in stallment repayments, and the minimum amo unt requ ired to open a savi ng account

are cons idered as methodo logical targetin g. In terms of Methodo logy, a ll MF ls showed good

perfo rman ce, howeve r. both Aga r (70%) and Metemam en (78%) prese nt better performance s

com pared to the others. Thi s indi cates, relatively their co mmitment to add ress thc speci fic target

clients.

'Ilie case of;taais ;t6a6a 33

 Socia{Peifomumce ofM'Hs

Product adaptab ili ty

MF ls mu st ide ntify their c li e nts needs and diversify th eir produ cts to mec t cli ents' need s. For

exa mp le, loan products can be diversifi ed in amo unt, d uration , type of guarantee, repayment

schedul e and purpose. In add ition, nexi bi li ty of repayments and vo luntary sav ing services can

al so address the needs of cl ients. In th is respect, Mekli t (78%) and Agar (56.%) presents bette r

performa nce partic ula rl y vol un tary savings while Eshet MFI (1 1%) ex hibiting the least

perfo rmance in deliveri ng a range of products.

Howeve r. Eshet (64%) exh ibits better efforts than others o n de livering quality se rvices. Quality

of scrvicc refe rs to rapid ity of services such as rapid disbursement of loans, transparency of

service re lated to the status of their financi al transactio n, s impl e and easily understa ndabl e

app li catio n procedures and percentage o f dropout.

A lth ough most MFls gave less attention to the non fi nancia l services (such as busi ness tra ining,

training on book keep ing, ski ll de ve lopment, en trepreneurship, gender sensi ti zatio n etc), they are

im porta nt to improve the effecti veness of the fi nancial services provided by MFls. Howeve r. suc h

non- financia l se rvices can be provided by partnership w ith NGOs or govern ment organi zation s

working o n deve lo pment acti vities. In the study, it was icl entified that, ADC S I (60%) and Mekl it

(60%) provide beller non finan cial service such as busi ness development services and skill

trai ning o n ho w to kee p thei r books of accounts. Thi s indi cates their effort to bu il d cli ents

capac ity to use the loan and sav ings in a more effecti ve way.

llaais 116a6a
(TFw case of ]4
 5 ooor lPerfoT'rrulnce of'M 'FJs

Social capital imp.-ovemcnt

T he soc ial capital dimension is based on the assumption that trust be tween the MF I an d clients

can reduce tra nsacti o n costs and im pro ve repayment rates. It can reduce opportuni sti c behavior

a nd promote co llective acti o ns. Th is dim ensio n a lso includes, em powerment of cli ents throug h

group formation , creatin g re lationship a nd networks with other program s and MFls to share and

resolve clients probl e m.

In additio n, cli ent's participation in organ izing and facil ita ting re payments a nd in the definition

o r services provided by MFJ are also important in improving social capital o f clients. However,

in the study it was repo rted that all MFls gave less emphasis fo r these three sub d imensions.

except Agar (50%) and ADCS I (83%) which present better efforts in buildin g trust betwee n thei r

o rgani za tion s and the ir respecti ve clie nts.

Social responsibility of M FIs

The socia l responsibi lity o f MF ls includes: responsibi li ty towards empl oyees, to clients and to

wards the co mmunity at la rge .

M Fl s res pon sibility towards their employees refers to the human resource poli cy of the institution

with regard to salary sca le, training suitable for their qual i fication , and fo r their ro le and

respon sibl y. It also includes the parti cipation o f employee in dec ision mak ing . As indicated in

ta ble 3.2, most MFls exhibits good concern with rega rd to human reso urce aspect o r th eir

responsibiliti es . However, in the inte rview it was reported that the re is hi gh employee turn over in

most o f' these in stituti ons.

'llie case ofjlcCcCis jl6a6a 35

 Soci1l[ IPeifomulnce of'M 'FIs

Mfls social respon s ibility towa rd s the ir c lients and th e community includes suc h lilctors as

r assessi ng th e level of indebtedness of their c li ents to avoid over indebtedness.

r ha ving expl ic it code of conduct regarding its action toward cli ents

r prov idi ng some types of in surance that free s the fam il y in case th e borrowe r dies and

);- assisting the loca l commu nity throu gh financial support or by participation in the

co mmun ity activities.

In the stud y it was identified that ADCSI (86% ) and Meklit (63%) showed re lat ively hi gh

pe rformance particu larl y in their effo rt to promote sav in g culture a mong clie nts but gave less

c mphasis on their res ponsibility toward s clients. A ll MFls exhibi ted better performan ce in the ir

human resource aspect of the soc ia l res ponsibility dimension.

3.3 MFI specific Performance

In this section. the main orientation of' each MFI with regard to its ['our socia l performan ce

dime nsion s is di sc ussed .

t A DCS I

Tab le 3.3 Performance of ADCS

--
A DCS I
1 - - - - - - - - . - - - - _.---

f------
Dim cn Slon score ~/o
- - - - - . __._--
Oulrea eh to the poo r 14 0.56
-----.~---- - .-~--- -- --

adaptab ility of products 13 0.5 2

- ---_.
social e apital 7 0. 2 8
----- . - - - - -- - - - - - - - - - - -
soc ial I'Cs po nsibi lity 15 0.6
---- -------~- --------- --~--~--- - - - --
Total 49

'lFze case ofjl.(ft[is jl.6a6a 36

 SoooCPerformo.nce of'M'l:ls

Figure 3.2 Dim ension s

Addis MF I

Outreach to the poor

20

15

so cial r osponsibility f---~-~>t---:;»-7> 3d3ptability of pro suct

soc ial c3pltal

T he a bove fig ures show better perform ances of A DeS I w ith regard to o ut reaches, prod uct

adaptabil ity and Socia l responsib ility. However, it exhibi ts low score, with respect to its social

capita l d im ens ion, compared to other di mensions. Th is ind icates its or ientation more to the three

dimension .

.. Agar MFI

Ta bl e 3.4 Pel'formance by dim ension

,----- ---
Agar

Dimension score %

Out reach to the poor 10 0.4

----
adaptabili ty of products 12 0.48

soc ial cap ital 7 0.28

socia l responsib ility 10 0.4

I-- --
Total 39
-

'lTie case ofj!.aalS j!.6a6a 37

 Socia[ Perfonnance oftrt 'FIs

Figure 3.3 Pe"formance by dimension s

Ag a r

Outreac h to the poor

20
15
10
5
social res ponsibi lity ?-+--.f
- 0 + +-c, adaptability o f prasue! [0 serieS1 1

social capital

Aga r MF J (fi gure 3.3 , above) has ex hi bited the hi ghest Score in prod uct adaptab il ity and

presents the lowest level of acti vity in impro vement of the soc ia l capital of its cli ents as

co mpared with its performance in the other dimensions.

~ Es het

Table 3.5 Performance by dimen sion

-
~
Eshet
Dimension score %
Outreach to the poor 9 0.36
/ - -- . --
adaptabi Iity of products 9 0.3 6
social capital 5 0.2
soc ial responsibility II 0.44
To tal 34
L-.

'l1ie case ofj!.aalS j!.6a6a 38

 Socia{Peifonnance of'M'FIs

Figure 3.4 I'crformance by dimension

Eshet MFI
Outrcoch to the poor
20

social responsibil it y {--+-4~---o-+-~;»----"'----,) adaptabilit y 01 pt'osuct 0 Series 1

social c apital

Eshet MF ls (the fi gure above) showed the lowest performances in all dime nsio ns except the

soc ial respon sibility concern. This impli es that thi s institution may face s dif1i culties in achievin g

its objective .

.. Meklit MFl

Table 3.6 Performance by dimension

--
Meklit

Dimension score %
--
Outreach to the poor 12 0.48

adaptability of products 16 0.64

social capital 7 0.28

.-
soc ial rcs ponsib ility 16 0.64

lotal 51

'The case of}l.ddis )l6a6a 39

 Socia[rperfomw.nce oj'MPIs

Fi g ure 3.5 Performance by dimension

- - - ------- -
M e kl it M F I

O utre<Jc h to the poor

/~~
~
social responsibi lity "::"'~---o-l---~~ adap tability of prosue l I OScrios 1 1

soem' c apital

L-._ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ __

The res ult o btained w ith respect to the social performances o f Meklit M fl revea led tha t it has the

highest pc rfo rmances in two d ime nsions, product adapta bil ity and soc ial respo nsibil ity. T hi s

indicatcs the a ttentio n given by the insti tution to d iversified cl icnts need and its attempt to fulfil l

its soc ial responsib il ity. However, it presents the lowest level of ac ti vity in soc ial capital build ing

compared to other d ime nsions.

Mctcmam cll MFI

T ab le 3.7 Pc r fo rm a nce by d im ensio n
- -
\·1' '
-- : ~i •
,
.
--_._----- _._-- -- ------- -
Mete mamen ;: 4 5
Dime nsio n score -- % :~ r-.; ~
~---------------------------------------+_--------_+~~~ 1~
O utreac I1 to t Ile poor I ~" 0.6 n...••,
~----~__,__-----------__i_:----__i_,~__J-+
adapta bi lity of products 9 0.3 6 :~ •
-----------------------------------------1-----------1-------- "
socia l capital 5 0.2
----- ------------- ---- ----- - - - 1----
soc ial res ponsib ility II 0.44
--.---- - - - - - - - - _ . - - - - - - - 4-0 - - -1-- - - - -
Total

'lJie case ofjltftfzs jl6a6a 40

 Socia{Peifonnance of'M'FIs

Figure 3.6 PC"formance by dim ension

Metemamcn MFI

Outreach tQ the poor

'0

social responsibility ~-<::-~-0.t-----'*---7---7 adaptabill ly el prosuct

social C<lpital

As can be seen fro m fi g ure 3.6, Metemamen MFI presents hi ghest level of acti vity in outreach .

Neverthe less, it revea ls re lative ly lower level of activity in other d imension s.

Overal l. all the surveyed MFls exhib its lowest attention in improving the soc ia l cap ital of' their

cli ents compared the other di mensions.

3.4 Compari ng performances of MFls by major dimensions

Table 3.8 (a) Relativc performances of MFls

r-cc- . .
D imenSIOns Addis Agar Eshet Meklit Metem . Average STD-

I.Outreach to the poor and

exc luded 14 10 9 12 15 12 2.28
r-:: - - - -- ---
2. Adaptation of products 13 12 9 16 9 11.8 2.64
f-::-:-- - - - - ' - - -- - -
3. lll1pro vin g soc ial cap ita l of
clients 7 7 5 7 5 6.2 0.98
4. Social responsibility 15 10 II 16 II 12.6 2.42
Total( max . 100) 49 39 34 51 40 42.6 6.41
- - --- -
Dllllcsion scale: 0-25

'Ilie case ofjt{fais jt6a6a 41

 Socia{Perfomumce oj'Jrt'FIs

Tab le 3.8 (b) Helative pel'form ances of MFls

Dimensio ns ADCS Agar Eshet Meklit Metcmamen Average STD

-
I .O utreac h to the poor and exc luded H I L I H 12 2.2 8
-
2. Adaptati on of products H H L l-l L 11.8 2.64
- ~ ~- -
- 3--:J;""prov in g social capital of clients I~J H L H L 6.2 0.98

4. Soc ial respo nsibility H L J H I 12.6 242

H= above average I=Inrermediate (average - STD) L= be low A verage~ STD

In o rd er to co mpare the performance s of MFl s, the average and sta ndard dev iation (STD) [or

eac h main dimensions were comp uted and their performances categori zed as above average (H).

intermed iate (I) and as below average (L) to indicate the deviation of the performance of each

M Fl.

I[. we classify the relative performances of Mfl in each of one of the dimension,

• ADCS I and Meklit MFI are distingui shed by the ir abo ve average overall performa nce.

Here , A DCSI presents hi gh in a ll dim ensions. Although Meklit is relatively better than

ADCS I in o vcrall performances, it shows average acti vity in outreach (see tabl e 3.8 a and

b)

• Es het MFI is the lowest performer of all 5 MFl s in all dimensions except in out reac h

which is an average performance.

• Metemanm en presents lowest performance on product adaptab ility and on soc ial capital

build ing but highest and average perfo rmance in outreach and social responsibil ity

acti vi ty respecti ve ly

'lJie case ofjI.Jais }!6a6a 42

 Sociolrperfomulnce oj'M'Fls

• Aga r exhibits lower performance in social respon sibility , an ave rage perfo rm ance In

o utreach and high performance on product ada ptab ility and on socia l capital building

• Although A DCS I, Agar and Mek lit showed rel ati vely hi gh performance with respect to

soc ial capi tal , as ca n be seen in tabl e 3. 8 (a), al l MF I s gave less attent io n to th is

d imension co mpared to the other tlu·ee dimensions. The absence o f suffi cien t emphasis on

soc ial cap ital dimension may not help in strengthening the relation between the cli ent and

the in stitute, and between clients particularl y between those who borrow a loan on

so li darity group basi s. Thi s may res ult in loose trust among them and hence may decreasc

re payment rate and increase tra nsaction cost.

Problem s of the MFJs

Lastl y. in an interview questio ns, the Managers were asked to mention the main probl em that they

ha ve enco untered most of the time. Almost all of the respondents stated th e fo llowin g prob lems:

• shortage of loanable funds

• shortage of ex perienced human resource,

• inadeq uate capacity to deve lop d iversifi ed finan cial products to meet clients needs

• hi g h employee turn over

The managers we re also asked to menti on the main strategies adapted with rcgard to o utreach to

the poor and exc lud ed. The majority of them stated women and ex isti ng and potenti al mi cro

entrepreneurs are thei r target cli ents.

'Ine case ofjJ.rfrfis jJ.6a6a 43

 Socia[PeifomUlnce oj'MPIs

CHAPTER FOUR

Summa.·y, Conclusions and Recommendations

4.1 S ummary

Micro fin anc in g is used in any deve lopin g countries as one of the pove rty alleviati on tool s. In

Ethi op ia, mic rofin ance secto r is expand ing and number of MFIs reached 27, as .Iune 2007. The

main objecti ve of MFls is the pro vision o f finan cial services to large number of reso urce poor

peopl e. Access to finance helps th e poor to acqu ire assets, di versify and increase incomes and

case th ei r liquid ity constraint.

The objecti ve of thi s researc h was to assess the soc ial performances of M Fl s ope rati ng in Addi s

Ababa. To achi eve thi s objective, the study attempted to find an swers [-')I" the research quest ion

stated in chapter one

Questionnaire was adapted [rom CE RISE Social Perform ance Indicators Initiative with a certa in

modi fi cation. Th e questi onna ire was fo r MFls manage rs. Interviews were al so conducted with

these managers. Seco ndary so urce of data such as reports and publications were also consul ted

The Collected data were sorted out and g rouped in to four dimens ions of soc ial perform ance and

scores were ass igned fo r eac h of these questions. T he four dimens io ns represented fou r clusters 0 ('

25 points, or 100 points for each MF I. And this sco re was used to ana lyze the data .

'7Jie case ofjltfalS jl6a6a

 sooor(J'erjornul1ue of9rt rns

Summary of findings

Based on the analys is of the data co ll ected through questionnai re, inte rview and docume nts

rev iew , the fo ll owing findin gs were obtained

• In the study, it was fou nd o ut that the total market share of the five MF ls under stud y

represent 6. 3% of the market share in term s of number of borrowers and 7-68% o r grass

loan portfoli o of the country.

• In the study, it was identifi ed that the number of years of operation does not affec t

parameters like tota l assets and market share of Agar a nd Metemamen MFls

• From the geographi cal targeting point of view, all the five MFls are not targeting a

spec ific area (location) in the city of Addis Ababa.

• In the study, it was identified that ADCSL Meklit a nd Metema men arc beller

performances in using indi vid ual targeting devices (such as ownership of productive

assets, women, unemployment, etc)

• From the mcthodological targeting d imensions angle, although all the MF ls showed good

perform ance , both Agar and Me temamen relati vely ex hibits bette r performance In

addressing the specific need of the target po pulati o n particularl y in reducing barrier by

using social co llateral.

• In the stud y it was round o ut that in deli vering a range or products Meklit and A DCS I

ex hibits bette r perfo rmance particularl y vo lu ntary savings whe re as Es het deli ver a limited

'l1ie case ofjlaais jl6a6a 45

 SociaUPerfomUlnce of'M'FIs

number of products. However, Eshet exh ibits high performan ce in prov iding q ual ity

products (rapidity of service, simple and easi ly understandable a pplication procedures ctc)

• In del iverin g non-finan cia l servIces such as business training, tra ining In book s of

acco unts, etc, ADCSI and Mek li t are found to be the the hi gher perfo rm ers.

• 'fhe act ivities of the five MFls in the social capital dimension particularly in encouraging

clients' participatio n in organiz ing and facilitatin g repayments, and in the definition of

services provided by these institutions are insignifi cant. In addition , their effort is also

minima l in strengthening the socia l capital of their clients' through relationship with other

programes, networks, etc. However, in build ing trust through tran sparency, and

conducting meetin g, ADCS I, exerts the hi ghest effort.

• In the study it was found o ut that ADCSI and Mek lit showed hi ghest effort in promotin g

saving culture among their clients. However, Metemamen and Eshet are found to be the

least performers with regard to their responsibi li ty to cl ients

• In the study. it was found out that the targeti ng strategy of most MFls is to pro vide access

to financial services to wo men and, micro entrepreneurs. And also, it was fo und that

ADcs, Mekl it and Agar provide both cred it and vol untary Savings while the remai ni ng

two provide a variety of loan products.

• crom social capital dime nsion angle, all of the fi ve MF ls have less orien tation towa rds

thi s dimens ion compared to other d imensions of each of these institut ions. These MF ls

'l1ie case ofJl.lftflS Jl.6a6a 46

 Socia[<Perfonnance of:lrV}]S

also experie nced hi gh em ployee tu rn o ver although they exhibit overall good performance

in all aspect o f the human reso urce sub dim ension ..

• In the study it was ide ntified that Mettemamen, Agar, and Eshet gave less emphasis o n

the ir responsibility towards cli ents, and their commun ity. It was also identi fi ed that lac k

of lao nable fund s is the main problems of most M Fls.

• Most M Fl s repo rted that shortage of loa nab le funds, sho rtage of experi enced hum an

reso urce, inadequate capac ity to deve lop diversified fin anc ial products to meet clients

needs and hi gh emp loyee turner are the main prob lem s fac in g MFls.

4.2 Conclusions

I. Oi ITe rent types of credit arrangements targeted to the poor rely o n soc ial ties and

intcraction, as part o f the des ign and implementati on of th eir de li ve ry and enlo rcement

mechani sms. In the study it was identifi ed that 1110st MFls em ployee g ro up lendin g

procedure in prov idi ng loan to the ir clients However. these M Fis gave less or no emphasis

at all w ith regard to soc ial capital aspect of their cli ents . T his may have negat ive impact

o n repayment rate and may increase transaction costs of the institutio ns.

2. Prov iding d iversifi ed products and services helps to fit cli ents' needs. In the study it was

ide ntifi ed that most o f the MF ls provide at least mo re than two loan products. But o nly

two MFls, AOCS I and Mekl it provide part icularl y vo luntary sav ing serv ices and better

non financial services such as training in book keeping, marketi ng, and entrepreneurship .

rrn.e case of.lLtftfis .lL6a6a 47

 Soaa{Performance oj9rf'Fls

However, they are less nex ible in scheduling loa n re payme nts fo r th eir clie nts. Thi s lTI ay

have negative effect on the clients' ability to adapt the loan to their liquidity co nstraints.

3. N on fi nancia l services such as business traini ng, ski ll tra ining related to fin a nce etc are

a lso importa nt in impro ving the effectiveness of the finan cial services provided to c lient s

However, mo st MF ls (Aga r, Eshet a nd Metemamen), ex hibits poor performance in thi s

regrd. Th us these MFIs fa il to give more capac ity fo r their as to the use 0[' loan s and
~

savings in a more effective way.

4 . For microfinance program to be effective, a suitable human resource policy is req uired.

I:mployee trainin g and the ir participation in dcci s ion maki ng are important for the ir

motivatio n a nd invo lveme nt in their wo rk . However, the MFi s reported hi gh employee

turnover. Thus, thi s may indicates the weaknesses in their human resource poli cy and

motivation package.

5. There has bee n a discre pa ncy between th e objectives set by the MF ls and th eir ac tual

perform ance to ach ieve those object ives.

6. Lack of laonable funds is the mai n probl ems of most MFls. Th is prob lem wi ll have a

negat ive effect on the operation of MF ls in reach in g and servin g a large number of target

c lien ts.

'Ilie case offlaais fl6a6a

 Socia{q>eifonnance oj'M<fIs

4.3 Recommendations

Based on the conclusions made in the previous section the follo wing recommendatio ns are given

» MFl s need to build their clients' social capital so as to deve lop tru st between the

instituti on and their cl ients. This will enable MFls to reduce transaction costs and increase

repayment rate.

» In ord er for MFls to meet their clients need s, they need to prov ide different types of loan

products, voluntary saving services, etc.

).- To supplement the financial services and build the capacity of the ir cli ents' as to th e use

of their services, MFls that exhibit poor performance in non finan cial services need to

exert max imum effort in providing such services either by themselves or through their

partners.

r The problems of high enlployee turn over need to be add ressed through various

incenti ves, benefits , and intrin sic motivation

"r M Fl s action shou ld be based on obj ecti ves set. Obj ecti ve based actions would enable

MFls to evaluate their performances and to use their resources effecti ve ly

>- MFls play significant role in enhancing the income of poor peopl e by pro vid ing access to

fi nancial serv ices. Shortage of loanab le funds affects the sustai nabil ity and outreach

performances of MFls. Therefore, commercial banks, deve lopment organizations, NGOs

and the government need to consider the contribution of MFl s in poverty red uction and

in reducing the vul nerabi lity poor people and extend their support.

'The case ofjtaais jt6a6a 49

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Perfo rm ance of Microfi nance In stitutions.

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I. apen u, Cecil e and Zell e r, Manfred (200 I ). Dist";bntion, G rowth, 11l1d Performance of

M icrofin"n ce Institutions in A fri ca Asia, and Latin Ame ri ca Inte rn atio na l Food P o li cy

Insti tute.

Ledgerwood , Joa nna (1999). M icrofinance Hanli book an Institutional and Fin ancial Perspective the

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Littl efield , E lizabeth a nd Rosenbe rg, Richa rds, ( 2 004) "Microfinance and the poor : Break ing

Do wn th e wa ll s betwee n M icrofi nan ce and Form a l Fin a nce" Fina nce & de ve lopment 4 1.
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Meaghe r. Patri ck (2002). Microfinance Regnlation in Developing Count";es. A Comparative

Review of C nrrent Practice. lR is Cen ter, U ni versi ty of Mary la nd.

Mcye r. R.L (2002) "Trac k Reco rd o f Financ ial In stitutions in Ass istin g the Poor in Asia" ADB Institute

Resea rc h Paper, NQ 49.

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Reduc tion Progra m (S DPRP), .Iuly 2002 AA.

2004).
Nat ional Bank of Ethi opia (N BE) Directive NQ 1- 17 Addi s Aba ba (1996-
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Paxton , Tu lia ( 1996). "A wodd wide Invent ory of M icrolin a nce

with the Poor. Wodd Bank Washingto n D C.

Ca pacity of Micro C redit : some

Pitamb e r, Su ni ta (2003) . Factor s Imped ing the Povert y Rednc tion

fi e ld Obser vation s fro m Malaw i and Ethi opia.

Concept Pub lishing Compa ny. ew

Rajase khar, D. (2004). Povert y Allevia t ion Strateg ies of NGOs.

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ding of the Interna tional Worshop

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on the Ro le of MSE in the Economi c Development of Ethiop ia.

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Ethiop ia (OPSD /AfDB ). Tu ni s.

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C redit.

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S usta inabili ty a nd Reach ing La rge N umber of C li ents in Ethio

18. AEMF L
es a nd Role in Poverty
.__ _ _ (2003). "Micr olinan ce in Ethiop ia Perfor mance , C halleng

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: Implic ation for Develo pment

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ring Socia l Perfor mance ol
I.ell er. Man fred ; Lapen u, Cec il e a nd G reeley, Martin (2003) . Measu

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Final Report. A rg idills Found ation and Consu l tat ive Group to
nnex
 MFI

INST ITUTE
FIRST PART : CONT EXT AND SOCI AL STRA TEGY OF THE
I I
1. Histo ry, value s and social mission of th e institu te
I
a. When and how was th e MF I created?

b. Who are the main stakcholders an d what is their social interest?

c! What would be the main va lu es that characteri ze the action of the MFI?

d. Does an exp li cit formulation of the institute social mission ex ist?

Has it changed sinc~ its crea ti on, in particular in relation to the growth of th e institute?

(managers.
c. Are th e social objectives of the institute shared among the stakeholders
staff, clients , other people involved in the institute)?
I

2
 MFI

mission')
f. Ho w is th e institute management ensuri ng the fulfillment of the socia l

D No a (te-..p-t
D yes, only at the top managcment
D Aillong most of the emplo yees
D Yes for all cmployees and clients

of financial
g. How would the sc ni or managcment of the institute rate the objective
sustainab iIit y')

D Not hing is done

a l miss ion
written in the adillinistrative rules with clca r communication of practic
D fi)Cus to starr at al l levels and to clients
on mi ssion
D written in the MFI statutes with internal system to monitor and report
comp lianee
financial
h. How would thc scni or management orthe MFI rate the objective of
sustai nabil ity'?

D Minor objectivc

D Impurtant objective but can not be reached in the short term

D Major objec ti ve tu be reached with in to 2 to 3 years

D The institution is already finan cially sustainable

2. Socia l strate gy of the illstit ute

and the exc luded?
a. What is th c st rategy ofthc in stitute regard ing outreach to the poor

cultural
b. What arc the stre ngths an d weak nesses of the eco nomi c, socia l and
ing the poor
enviro nmcnt that facilitate or limit the impl ementation ofa strategy regard
___ ___
and the cxcluded'! ___ ___ ___ ___ ___ ___ ___
 MFI

s and products to
c. What is th~ strategy of the institute rega rding th e adaptation of service ___ __
targc t c1icIlts·) ___ ___ ___ ___ ___ ___ ___ ___

d. What are the stren gth s and wca kncsses of the eco nom ica l, socia
l and cultura l
adapt th e
environment that f~, ci lit atc or limit the implem entation ofa strategy to ____
___ ___
products'! ___ ___ ___ ___ ___ ___ ___

the soc ial and

c. What is th e strat egy of the institute regardin g th e improv ement of
pol itical capital of its clic nt s·)___ ___ ___ ___ ___ ___ ___ __

----------------------------------------------------------r~. ~
What arc th e strengths ;,nd wcakn esses of the econo mi ca l, social and
cultura l
ing soc ia l
r =
:J r
!5
~:
cll vironm cntthat facilitatc or limit the impl ementation ora strat egy regard
ore. 3. _
andpoliticalc apital')

________________________________________________=r~~~I: •
')
g. What os the strateg y of th e 1I1st'tute rega rd,n g soc,al respon s,btlity

h. What arc th e streng th s and wcaknesses of th e eco nomi c, social

and cultura l
ing soc ial
environment that I~ , cilit"te or limit th e impl ementa tion ofa strategy regard
rcspon sibi Iity')

4
 M (1'1

3. I\la in sucial ohjeclivcs uf institute

Ilo w wo uld the institute rank th e ro llo w in ~ in terms of' soc ial objectives to be reached'.'

.-- .. --- - . --~, .- - -.- ..,---

•.
iM ajo-r--
Not an Minor Im porta nt
objective
objective
-_.__ .. _--- ---.. --. - -. - . -..... -.. 1!objcct
obj ec ti ve
- ive
. .-.-
.--~ . "- --

O utreach
Ada ptati on of se rvi ces and produ cis' ---.----- --.-- .-. - ··~- ·---·--~-~.·~.·~~-r-
~~.pF;~~lg.t00 al a;:~.i)oli~i~~I-c~i)Jt~il=_~'_-_~ ~'----'·-----·--'--f--------+-- -- - - --T-"'--
Soc ial respon s ibi lity .J
- " - --

SECOND PART: SOC IAL PERFORMANCE OF MFI

1. Outreach to the Poor and the Exc lud ed

I . I Docs th e in stitut e usc any of the followin g targetin g de vices for impro ving its depth
of pO"crt y outreach ?
- - - - - - - - - - -- - - - - - - - - - - - , - - - - - - - - - - - - ---,
'Yu of the currcnt ncw I
client selec ted
~·~-- -~-~-~-~~~---~~-----_+~,~~~·~~--------1
Ind icators based on ubi ect i vc c IiCI:.: + _______________
lI...:c:.:o",n:,:1::i ~ti:.:::o"n:::.s_ _ _ __ ._J
. par\ici~tory \\'ralth ranki ng ------1-----------.---
1

Othe r, speci ry _. __ .____.______ _ _ _ ____

-----'-----_._--

1.2 . HoI\' docs th e in stitut ion in surc CJ ualit y co ntrol in th e use orthe tool?

o ;-.la th ing is done 0 Inro rmall y 0 Formall y cross check in g orth e inrOrlll ali()n

/.3, Does th e in st itute ag reed pro"ide dOl\' ns secured onl y by "soc ial colla teral" "

____+ ';y,..c'._o_f _II_H._' outstanding I O:~l ~_

So l ida!"it y waul'
I ~cco mm cndati()n b:, trusted third part y ____ .
------~--------~ 1

Phys ical gua rantees \\" hich ha ve \'cry 10 \\ " CO lllllH: rcial
value but are inlj)t! rt<1nt lor the bOITO\\'ers _ - - - + - ---_ . -------- - ..
Othe r, spec i ry . _ _ ._____ _ _
-- ..- - - - -- " - - - -_ . _ - - - - - - - - -
 MFI

for soc ial co llatcral )

1.4. Does the institute develop specilic policie s or methodologies (exccpt
ents"
to reach and lor to facilitat e access for 3n exc luded popu lation or poor cli

DY es ONo

togeth er wi th the percent of outstun din g

If' yes' please desc ri be the spec ili c policy (po li cies)_____
loans_________________________ _____ _____ ____________________________

di sbursed - at
1.5. Over the last 12 month s, what is the di stribution of loan size (loans
individual level , on average )"
total loan s
Loan size at indil'i dualle "el ........ ........ ........ Percen tage of

-
- - - - - - - - - _ ... ..... ....... .. .... ... - - - - - - - - -
---.--~-------
.... ... ...... ... .... .... - - - - - -- - - --
-

-
- - - - - - - - - - - - _ ........................ - - - - - - - - - -
--' " - - - - - - - -_ .. ........ ........ .... .. - - - - - -
----
monthly
1.6. What is the size of the minimum installment amount, for loans with
_________
repayments'? (A t least 5 % cli ents can pay wi th this amou nt) __________

regu lar
1.7. What is the minilllulll alllou llt to open a savings account and make
_____ _____ _____ ___
deposits? _____ _____ _____ _____ _____ _____ _____

1.8 What is the pcrcenl<lge or Icnwlc bo rrowers?

_
What is perce ntage of ou tstandin g loans (in number): _____ _____ __

1.9. How does the MFI c lass ify c li ents in terms of indi vidual target in g?
% of curren t clients
\}'orke rs with unsecured stat us (no assets and
uncertainty of daily empl oyment) suc h as casual laborers
entrepreneur s who arc setting up their act ivity
Vuln erab le soc ial or ethn ic groups
Illiterate peoplc
Other targetin g cri teria, spccify:

N.n. Different boxes can be checked. Howeve r, one perso n (group of individuals) who
sa ti sfy different cri teria should be co unted onc e.

6
 MFI

(very poor
1.10 What is th e percentage of clie nts who arc alllon g the "ve ry poor,"
in the bottom half
defined as th ose who eithe r li ve on less than a dollar a day or who are
be low th e country's poverty line)"
o Not known 0 Less than 20% of th e cli en ts 0 More than 20% of th e clie nts

2. Adap tation of Se rvices and Produ cts to Targe t Clien ts

e? (th e difference may
2. 1 How Illany different types of loan produ ct does the MFI provid
be: purpose. durati on, type 01" guarantee, imerest rate. repayment schedule etc)

o On ly one or two o Mo re than two

2 .2 Does th e MF I provid e soc ial/e merge ncy loans?

r

ON o o Yes

soc ial needs?

2.3 Does the MFI provide loan products spec ifi ca lly tailored to cl ients'

o Housi ng o Educatio n 0 Loans above 12 Illonth s

__ __
o Other, spec ify: ___ ___ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

2.4 What is the nexibilit y ofrepaYllle nt for the clie nts?

o one pattern for al l the loans

o the in stitute uscs di ITerent pattern proposes different

o the sc hedule is decided with the cli ents when receiving th e loan

MFI')
2.5 What is th e importa nce of voluntary sav in gs products within the
r

o No voluntary sav ings products (or it concerns less th an 5% of the cli ents
or only 5'1., "I· tile vo lull1e or th e outsta nding loans)

o Vol untary sav ings se rv ices provid ed by the in stitute (or throug h anot her
fin ancia l institution)

en ts' soc ial needs?

2.6 Does th e institut e prov ide vo lun tary savi ngs specifica ll y tai lored to cli
o No
0 Yes

If'yes ', specify savi ng pruduct s provided

7
 MFI

to more than 5%
2 .7 Does the in st itu te provide innova ti ve fin anci al services access ible
(s uch as
its cli ents (d irec tly or through lin ks with oth er spec ialist orga ni zat ions)?
money transfe r, pay check)

DYe s

regul ar
2.8 Are loa n offi cers leav ing the institute premi ses to vi sit their cli ents fo r
ent, co llection
fin ancial transactions? (Such as loa n applica tion, loan di sbursement, repaym
of sav ings, not inc luding visits rclating tu repay men t probl ems)

0 , Yes ON o
;;,-
~ "111-,,,1, __
If yes'/v f cli ents served _ _ __ __ _ _ _ _ __ _ _ _ _ _ _

first loan and

2.9 What has been, on average, th e time between the application for the
s? (Includ ing
the disbursement of the loan, fo r new cli ents over the last 12 month
of avai labil llYof
trai ning, unex pec ted uelays due to constrai nts suc h as li qui dity shortages, lack
loan office rs. etc. )

?
2. 10 Do clien ts rece ive wr itten sta tements of each of their financi al transa ctions

o No writte n statelllC'll Ino information at all

and interest
o The cl ient knows linf'ol'll1edl at the time of each repayment, the capital
to be paid
a l and
Written statements that shows the differe nce betwee n the amount of princip
interes t to be paid

2.11 Does the institu te have a spec ifi c policy to facilitate access to fin anc ial services?
, Simpli ci ty and easy
Such as Spec ifi c open ing huurs (ma rket days, late or earl y openin g, etc.)
ents etc
unders tan di ng of appli cation forms and procedures, reducin g time spent by cli

o No o
If yes, speci fy _ _ _ ___ ___ __ _ __

8
 MFI

s to improve the
2.12 Over the last 24 month s, did the institute condu ct market survey
qualit y of se rv ices to clients?

o Neve r

o Informal ci isc ussion we some clients /fo nnal anal ys is of th e informati on

co ll ected for loan app li catio ns /
uti on
o Surveys of clients and non clients with analys is of the results and exec
plan/ formal and regula r participation of cli ents in co nsul tat ion procee ding/

2.13 Does th e in stitute kn ow the vari ous reasons why clients droppe
d ou t or are inactive?

for morc than one year or last iinanciu l yea r

Drop out or inacl ivc= No trall sacti on on credit and savings

o No Yes
,
___ __
If'ye s' , specify the reaso n ___ ___ ___ ___ ___ ___ /
/
th e last 12
2. 14 Wh,at is th e pe rce ntage of clie nt drop-ou t or inacti ve cl ients over
month s (n umber of drop-outs over the average numbe r of cl ients over the last
12
___ ___ ___ __
months/finan cial yea r) ___ ___ ___ ___

ate non-financia l
2. 15 Does the institute have a specitic and pro-active strategy to associ
services with financia l se rvices for cli ents (direc tl y or with partnershi ps)?

°No o Yes

non finan c ial

Does th e MFI e nsure tllat client s can have acces s to the fo ll owing
coope rati on with
servic e s (within th e sa ill c organiza tion or with fo rilla I partnership and
other organi zation)
ess trainin g,
2. 16. Non-financial se rvices related to financial manage men t (b usin
managc ment o f l ~lIllily budget, etc.)

D No D For some clients (or for all) on a compu lsory basis) i

t
D For all clients on a vo lunta ry basis
g, healt h services,
2. 17. Non-f ina n cia l se rvices relate d to social needs (literacy trainin
access to soc ial worKers, gender sensit ization, etc.)

D NtJforDall clien
For so me cli ents (or for all) on a compulso ry basis)
ts on a voluntary basis

9
 MFI

3. Impro ving Clienl s' Socia l and Political Ca pital

3.1 Do clients have acccss to th e in stitute 's finan cial statements?

o No 0 On requc st 0 Through publication and/or a presentation meeting

_
D Other, specify _ _ _ _ __ _ _ _ __ _ _ _ _ _ _ __ _

3.2 Does the in stitute provide opporlunities for discussion in case

of conflicts / claims or
complaints betwccn thc clicnl and an emplo yee of the institute?

D the loa n onicc r or cashic r is the client's only interlocutor

D the cli ent can meet a managcr, if need be

ts.
D there is a specific procedure or person in charge of dealing with conflic
s in the vo lum e (or
3.3 What is the percentagc of growth (or decline) over the last 12 month
number) of voluntary sav ings co llected?
I
!

DDe clinc D No saving services

D Stab!<.: or !<.:ss than 5% in crease eDM o re than 5% increa se

d in gs') (at
3.4 Can the cli cn ts of the in stitutc participate in any decision makin g procce
client or insti lliti on level through their representative)

D No DY es

as how
A. proceedings for decision making at the clients leve l (for issues such
zed
do cli ent s decide to facilitate repayments , how is repayment No organi

D Ycs D No

Ir ycs, arc the represc ntative elected

DN a Dye s

n. proccedillgs 1'01' co ntrol and deci sion making at a MFI leve l (client s
invol\'c: llcnt in gO\'cl'llance structure)

DYe s DNo

If 'ycs' , arc thc reprcscntative elected

DYe s DNa

10
 MFI

3.5. Is there an effec ti ve syste l11 of rotation for parti ci pating cli ents (in 3.4 a and/ or 3.4 b)

DYes DNa

3.6 What is th e percentage ofwo l11 cn al110ng client representati ves? (ifclicilts are
represented)

D No wOl11en representat ive D Fe w wO l11en rep rescntatives

D About the sal11e proportion as fel11ale clients

3.7. Is there a sys tem of training fo r represe ntatives lelected clients to help them fu lfill their
mi ssion in these proceedings?

D No D Yes, all irregular bases

DYes, on regula r bases, planed in the strategy and related to the rotation of
represe nt atl ve s

3.8 Have the instit ute operations so ught to strength en the social capital of the clients it
serves (through clrel'ul gro up l'ormat ion, co ll ec tive actio n, coope ration towards
co mmon goals, relation ships with othe r programmes, facilitation of access to
prev iously ina ccessible sCI'viees, etc.) ?

D yes D No

If 'yes' , desc ribe _ _ _ __ __ _ _ _ _ _ _ __ _ _ _ _ _ _ _ __

3.9. Does th e Mf' 1 (;lcilit;lte th e local creation of ski ll s for managel11ent or leaders hip')
(training for tcal11 bllildi ll ~, represe ntati on etc; va luing loca l sk ill in l11anagement etc)

D No D Yes, on irregular bases

D Yes, on regular bases, plancd in the strategy and related to the rotati on of
represent at ivcs

3.10 Have the action s ol' thc Mf' 1 and the re lationsh ips created between cl ients, and
betwee n cl ients ;'I,d loci! socioeco nomic stakeholders, created a network space for
discussion to sh"rc "Ild resolve sOl11 e of th e cl ient s' probl ems beyond access to
fi nan cia l serv ices' (Slich as access to pu bli c se rvices and goods. lega l problems.
sec urity in the cOll1ll1l1l1ity ctc) 0 Yes 0 No
If 'yes', specify _ _ __ _ _ _ _ __ _ _ _ _ _ _ _ __ _ _ __

II
 MFI

3.11. Ha ve the MFI' s operations so ught to increase its cli ents influen
ce with loca l or
the MFls
national government (thc MF I individually or through participation in
al publ ic poli cy of
network s: - MFI can participate in shapin g of th e nation
microfinan ce to thc be nefit of th eir cl ients and their acti vi ties)

DYe s DNo
__ _
If yes, specify _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

4. Social Hcspol1silJilit\' or the Institu tion

ch has a
4. 1 Does th e institute ha ve a salary table, (g iven to each empl oyee), whi
y?
sa lary de fin ed for each job desc ription and which is updated regularl

DY es D No

s with
4.2 Does th e in stitute have an annua l tra ining plan for staff whic h accord
differe nt j ob (kscriptiun),1

D No

4.3. If trainin g is pro vided by a th e MFI or by other trainin g institu

te (paid by the institute
or subsid izeu)

DY es D No

_ _ __
If 'yes' , desc ri be _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

4.4 Can the empl oyees partic ipate in dcc ision-making?

DN o
and
Yes Through sJlec ific and regu lar information and meetin gs between staff
D sc nlor management

DY es Thruugh an electcd co nsultative body or throug h participat ion

111 governa nce

loyees?
4.5. Does th e MFI provide sO ll1 etim es of health y coverage for its emp

DY es DNo

12
 MFI

s, as a
4.6 How many emp loyees have lert th e institute duri ng the last 24 month
smi ssal, end of
percentage of th e ave rage num ber of empl oyees (vol untary departure, di
contrac t, etc.)?

D more th an 15 % D less than 15 % D less th an 5%

mi c impact of
4.7. Has th e MF I ever cond ucted studi es to assess the social and econo
the servic es it provid es?

D Not done in th l: last 2 or 3 years

ati on
D Yes, interviews /focus group discussion with cli ents/; qualitative inform
!
collected wi th loan applica ti on
analys is
D Yes impact study conducted on a sampl e of cl ients and leadin g to a formal
of the result
to negati ve impac t
4.8 Has the institute eve r had to change its prod ucts and services due
y)?
on social cohes ion or cli ent welfare (in particular its loan collecting strateg
(except for indebtedness)

D not studil:d

D stud ied but no changes made so far

D studi ed and no problems record ed

D stud il:d and cholnges ma dl: aner idl:ntificatio n of the prob lem
_
If changcs ma tie , specify ___ ____ __ _ ___ ___ __

ta ke measures
4.9. Does th e institut c stud y the level of indebtedness of its clients and
against over- inde btedness?

D Not studicd

D Studied but no changes madc so far

I
D Studi ed and no problems rec orded

D Studied and Measures takcn aner identification of over indebtedness

_ _
Ifmeasures takcn, specify ___ __._ ___ ___ ___ ___

13
 MFI

action towa rds

4.10. Does the MF I have a written/expl icit code of condu ct regard ing its
cl ients'l

o No
_
If yes, specify ___ ___ ___ ___ ___ ___ ___ __

from the
4.11. Does the MFI provid e some types of in suranc e that frees the family
burden of" debt ill case of" death of the borrow er?

ONo Diy for some loans

DY es for all loans

If"o nly lor so mc loans" , which types of loans with insurance

values
4.12. Docs the MFI veri fy that its actions are in harmony with loca l cu ltures and
es)?
(such as clients and the community are not disturbed by the MFI activiti

o No specific action ove r the last 2 years

o Information has been collected .\:: .

~

• iii
~

If inforillation ha s been co ll ected, what kind ofinfo nnatio n "

•

4.13. Docs thl.! in stitul\: ha\'l: ;U1 acti o n that can positively chang e th e loca l cult ure')
(to cnlwllcc WOIllI.!Il'S empowe rm en t, democrat ic decision-mak
ing, transparency, to fight
against co rrupti on, etc.)

o No speciQt-act ioll
__
If'yes ", what kind oi"ac ti on/values? ___ ___ ___ ___ ___

4.14. Does the institute have a speci fic pol icy regarding the types of activ ity
financed by I
in dividual loans wit h '"hi gh soc ial va lue" fo r the loca l community?
I

% of outstanding loans
Local start-up bu sincss in order to finance risky but innovative
act ivities
Ac ti vities that have a positive socia l illlpact (on envi ronment, on
iob crea ti on, on soci:d sl'I"v icL' :' , ele.)
Ot her, specify

14
 MFI

4 .1 5 How olien ha s the MF I ass isted the loca l commun ity through financial support
(grant s or colkctiv(; loans) lor cO llllllunit y projec ts (scholl is. hospilals. rcli [! illlls
premi ses, part ic ipati on in loca llrauili ons, suppon/spo nsoring of local cultura l eve nts, sport,
ele.) or acti ve participation in loca l soc ia l activit ies (through promo ti on by the Mr. 1
and/or participation of stan)

D Neve r in the last 2 years

IPn an irregul ar basi s (and less than 1% of the loans or less than 5% of the annual
U profit / occasiona l parti cipation of staff)
On a regu lar basis, in the rules of th e MF I (more than 1% of th e loans or morc than
D 5% of the <l nnu<l l profit / high and reg ular participation of staff)

If the MFl ass isted the loca l co mmunity, forms of participation

4.16 Has th e MF I implemented a sys tem of so li dar it y between th e diiTerent bran ches 01'
th e institution (so lidarit y wit h new branches, with bran ches operatin g in diflicult
enviro nm ents, ctc.) or be twee n the different loa n products (cross-subs idi za ti oll )"!

D No

D So me degree of solidarity, but informalillee hani sills

D Yes, through fo rma l strategy (funds. difference in interest ra tes. etc.)

4. 17. Does the M F I ado pt specia I meas u res/ha ve spec ial funds in case 0 f co lleet ive
di sas ter"

DNo

D Measures take n 011 a case by case basis

D Funds or reserves are availabl e in case of co llecti ve di saster

If measures are taken speci fy the measures:

15
_ , l ' , ".- ,--., ... " -

MFI

4. 15 How often has thl' Mri ass isted th e local cO l11ll1unity throug h linan cial su ppurt
(grants or co lil:cti vl' loan s) Itl!' cO l11l11unit y projects (sc hools. tlllspiiais. rcli~ioLls
premi ses, participalion in loca l lraditions, support/spon soring of loca l cull ural even ts, spo rt ,
etc.) or active participat ion in loca l soc ial act iviti es (t hro ugh promotion by Ihe Mrl
andlor participation ofsta n)

D Never in the last 2 years

IPn an. irregular basis (a nd .Iess th an .l% ~ft h e loans or less than 5% of the annual
U prol lt I occasional pa rti cipa ti on 01sta fl)
On a regu lar bas is, in the rul es of the MFI (l11ore th an 1% of the loa ns or 1110re than
D 5% of the annua l profit I hi gh and regul ar participation of staff)

If th e MF I ass isteclthe local cOl11l11 unit y, form s of parti cipation

4.16 Has the MF I illlpl el11 ent ed a sys tem ofsolieia rit y between the d iffe rent branches of
the in stitution (solidarity with new branches, with bran ches ope rat in g in difficult
t:nv ironm cnts, ctc.) or betwecn the dilTcrent loan prod ucts (cross·s ubsieii zatioll}'l

DNo

D Some degrl'e of so lidarity, but informal lllccha ni sills

D Yes. throu gh l i.J rl11~rI strat egy (fun ei s, dil"ICrence in inte rest rates, etc.)

4. 17. Does the MF I aeiopt specia lill cas urcs/ha ve specia l fund s in case ofco lJec ti ve
disaster'!

DNo

D Mea su res taken on a case by case bas is

D Funds or reserves arc available in case of co ll ect ive di sas ter

If Illeasures arc taken specify the l11eas ures:

15
 ;

In terv iew Questions

I . What is the strategy of the M FI regarding outreach to the poo r and the
excl uded?

2. What are the main prob lems facing an MF I?

 Declaration

I. the und ersig ned, declare that thi s project is my ori g inal work, has not bec n prcse nted for th c

degree in othe r unive rsity and th at all sources of the material s used in thi s proj ect ha ve becn

dull y acknow ledged.

S ignature g..<;'~~~I1VWI~:::

Thi s proj ect has been submitted fo r examinati o n w ith my approva l as a uni ve rsity supe rviso r

r -- - -
Na me of s uperviso r: Tari ku Atom sa (PhD)

Signature

Date : June, 2008