SAMARA

UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ECONOMICS

ASSESSMENT OF ROLE OF OROMIA CREDIT AND SAVING SHARE

COMPANY TOWARD SOCIO ECONOMIC DEVELOPMENT FOR TULU
BOLO TOWN.

A RESEARCH PORPOSAL SUBMITTED TO THE DEPARTMENT OF ECONOMICS FOR

THE PARTIAL FULFILLMENT OF THE REQUIREMENT FOR BACHELOR OF ARTS
(B.A) DEGREE IN ECONOMICS.

BY:EBISA TAERA ID:1301757

ADVISOR:WUBIE T.(MSC.)
January:2024
Samara; Ethiopia
Acronym

DBE development bank of Ethiopia

DECSI dedebit credit and saving institution
MFIs micro finance institutions
OCSSCO oromia credit saving share company
ORNS oromia regional national state
PPS population proportion to size
SFPI specialized financial promotion institution
SMES small and micro enterprises
UN united Nations

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Acronyms......................................................................................................................... I
Abstract.......................................................................................................................... III
CHAPTER ONE.............................................................................................................. 1
INTRODUCTION............................................................................................................ 1
1.1 Background of the study......................................................................................... 1
1.2. Statement of the problem....................................................................................... 3
1.3. Objective of the study............................................................................................ 4
1.3.1. General objective............................................................................................ 4
1.3.2. Specific objectives.......................................................................................... 4
1.4 Research Question of the study.............................................................................. 4
1.5. Significance of the study.......................................................................................4
1.6 Organization of the study........................................................................................ 5
CHAPTER TWO............................................................................................................. 6
LITERATURE REVIEW................................................................................................. 6
2.1. Theoretical literature............................................................................................. 6
2.2. Empirical Literatur................................................................................................ 7
2.3. Conceptual Frameworks of the study.....................................................................8
CHAPTER THREE........................................................................................................ 10
3. RESEARCH METHODOLOGY................................................................................ 10
3.1. Study area............................................................................................................ 10
3.2. Source of data...................................................................................................... 10
3.3. Methods of data Analysis..................................................................................... 10
3.3.1 Research design............................................................................................. 11
3.4. Target population................................................................................................. 11
3,5 Sampling size and Sampling technique.................................................................11
3.5.1. Sample size................................................................................................... 11
3.5.2 Sampling technique....................................................................................... 12
3.6. Method of data analysis....................................................................................... 12
3.6. 1 Descriptive analysis..................................................................................... 12
3.6.2 Econometric Analysis................................................................................... 12
3.7 Variable Definitions,Measurement and Working hypothesis................................13
3.7.1 Dependent Variable....................................................................................... 13
3.7.2 Explanatory Variable.................................................................................... 13
References.................................................................................................................. 15

II
Abstract
The main objective of this study will be the assessment of the role of Oromia Credit and
Saving Share Company towards socioeconomic development for Tulu Bolo town,
specifically focusing on the Tulu Bolo branch. Low standards of living have been a
common phenomenon in Ethiopia. The prevailing operation of conventional financial
institutions in Ethiopia has been inefficient in providing financial services to the poor.
The challenges that Ethiopia is facing today in reducing poverty and achieving sustained
economic growth for healthy national development are significant. One of the economic
policies of the country is the introduction of microfinance institutions in the country.
Currently, microfinance practices are being implemented in the country as a tool to
deliver financial services to the poor with the objectives of alleviating poverty. The
objective of this study will be to assess the role of Oromia Credit and Saving Share
Company towards socio-economic development for its clients.
This study will be conducted using primary and secondary sources of data. Primary data
will be collected through structured questionnaires from customers using a stratified
sampling technique. Secondary data will be gathered from published materials and other
previously conducted research studies.
Keywords: Microfinance, Poverty, Economic Development, Savings.

III
 CHAPTER ONE
INTRODUCTION
1.1 Background of the study

Initially, microfinance was introduced to the globe by Muhammad Yunus in 1976 in

Sabra's village in Bangladesh. It has currently been an effective instrument for poverty
reduction . However, the contribution of microfinance services in poverty reduction got
more attention in 2005, after the United Nations (UN) announced the year of
international microcredit. Many microfinance institutions have arisen and have attracted
the poorer communities and have developed new strategies to realize their vision

most developing countries have been using microfinance as the best strategy to eradicate
poverty .
Several microfinance institutions (MFIs) have emerged in Africa to fulfill the limitless
need for financial services and provide different benefits in the past decades. For
instance, some of these microfinance institutions have successfully addressed material
shortages, providing tangible goods and intangible services to realize them. Once
properly managed, micro-finance's material benefits can range beyond the household into
the community. However, some scholars describe that few of these microfinance
institutions focus solely on offering loans, whereas others offer both credit facilities and
gather deposits (Alemu KT 2008).

In developing countries, microfinance, like in Ethiopia, microfinance institutions have

emerged as financial institutions with the aim of providing small-sized financial services
to the poor who are in need of financial services but lack access to formal commercial
banks. The services provided by microfinance institutions include the provision of small-
sized loans, savings, insurance services, money transfer, and other relevant services to the
target poor people who are excluded by conventional commercial banks due to lack of
collateral requirements. Due to the absence of collateral, the poor found it difficult to
obtain an adequate amount of credit from formal sources and were charged high rates by
monopolistic informal money lenders (AEMF, 2015). The formal microfinance in
Ethiopia started in 1994.

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In Ethiopia, many microfinance institutions have been introduced and have been working
in order to solve the credit access problems of the poor specially to those participating in
the small business. Nowadays, the government plan to provide credit through
establishing micro credit institution in different part of the country. Moreover, the
microfinance services are considered as an intervention instruments that government and
non-government sectors are using to enable low income groups of both rural and urban
communities to improve their lives through increasing income, increase their
productivity levels, enhance the ability of providing quality inputs to the market,
reducing poverty and ensuring food security Currently there are 23 licensed MFIs
reaching about 905,000 credit clients and some saving clients. Considering the potential
demand, particularly in rural areas, this only satisfies an insignificant proportion
(Gobezie, 2005)

The Oromia Credit and Saving Share Company (OCSSCo) microfinance institution was
introduced in the Oromia region in 1996 to deliver microfinance facilities (credit and
saving) to the farmers in the rural areas in the region . The OCSSCo microfinance
institution is one of the country's biggest microfinance institutions in terms of loan
provision and having a high number of customers .Many research findings in Ethiopia
link microfinance to poverty reduction. For instance, Abebe on the Specialized Financial
Promotion Institute (SFPI) showed that after the households took the loan from the
institution, their average monthly income increased and the intervention improved the
beneficiaries' living standard. Similarly, a study of the Dedebit Credit and Saving
Institution (DECSI) indicated that the institution contributed to the beneficiaries'
financial and physical well-being (household consumption and housing
improvement(Banerjee A2015)

Oromia Credit and Saving Share Company (OCSSCO) is currently operating largely in
rural areas to complement the agriculture-led and rural-centered development efforts of
the Federal Government of Ethiopia in general and Oromia Regional National State
(ORNS) in particular. Tulu Bolo town is also one of the places where OCSSCO is
providing credit for its clients. The study attempted to assess the role of OCSSCO toward
socioeconomic development for the study area. It was conducted by assessing the
customers of the institution who were participating in the program.

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1.2. Statement of the problem

Access to institutional credit is very limited in Ethiopia. The poor have access to
financial services through informal channels such as money lenders and Iqub. Therefore,
targeting credit to the poor through microfinance institutions has been found to be one of
the main instruments for poverty reduction. Despite successes in information outreach
and the size of clients, there are challenges such as weak management information
systems, limited sources of funds, problems related to entrepreneurship, quality of
clients, limited technical and banking skills, and lack of market access. These institutions
are increasing in number, but dealing with the poor, especially related to credit issues, is
not as easy, as poverty alleviation requires their contribution to development might be
restricted.

Relative to the experience of other developing countries, microfinance development in its

institutionalized form has been a recent phenomenon in Ethiopia. Lack of financial
resources is one of the major problems facing poor households. Formal financial
institutions are inefficient and inaccessible in providing credit facilities to the poor
(Assefa et al., 2005). Likewise, the clients of Oromia Credit and Saving Share Company
in the case of Tulu Bolo branch are influenced by many factors such as lack of facilitated
infrastructure, limited funding alternatives, limited financial products (small amount of
loan), short repayment period, weak internal control system, shortage of technological
support, and lack of strong regulatory frameworks. Hence, the researcher attempted to fill
the gap which arose from the previously conducted research by assessing the impact of
high tax charges on clients by the government, lack of working place, and poor market
connection for the clients' businesses.

1.3. Objective of the study

1.3.1. General objective

The general objective of this study will be to find out the assessment of the role of
Oromia credit and saving share company toward socio economic development for Tulu
Bolo town a case study on Tulu Bolo branch.

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1.3.2. Specific objectives

- To identify the socio-economic variables for socio –economic changes and their
contribution to the town will be a key focus..
- To identify the impact of Oromia credit and saving share company, Tulu Bolo
branch on socio-economic development of the town.
- To evaluate the benefits of group lending mechanism for the customers of
institution.
- To determine whether there is any increase on income of customers by obtaining
credit from the institution.

1.4 Research Question of the study

1. What are the socio-economic variables for socio –economic changes and their
contribution to the town?
2. What is the impact of Oromia credit and saving share company, Tulu Bolo branch
on socio –economic development of the town?
3. What re the benefits of group lending mechanism for the customers of institution?
4. Is there any increase on income of customers by obtaining credit from the
institution?

1.5. Significance of the study

The findings of the research paper will be used for both internal and external
consumption. Internally, the findings will assist in taking measures for Oromia Credit
and Saving Share Company to adjust and prepare conducive operational policies to attain
its objectives. Additionally, they will be helpful for policymakers in formulating
strategies to alleviate the identified problems.
Externally, donors and supporters of Oromia Credit and Saving Share Company will be
able to obtain explanatory information on how to support economic growth and
development in the region, as well as alleviate poverty among the people.

1.6 Organization of the study

This paper will be organized in to five chapters. Chapter one Background of the study,
Statement of the problem, Objective of the study, Research question of the study,

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Significance of the study, Chapter two reviews of the literature, it has two sections one
deal with theoretical literature and the other would be empirical literature, and Chapter
three contains methodology of the study which means methods of data collection and
analysis. Chapter four will deal about result and discussion. And the last chapter which
means chapter five provides conclusion and recommendation.

CHAPTER TWO
LITERATURE REVIEW
2.1. Theoretical literature

It is noted that the formal financial markets in developing countries will not provide
credit and saving services to small scale farmers, micro-entrepreneurs, and women. In
other words, it will not be accessible to the rural and urban poor. Consequently,
governments will start to fill this gap by establishing development financial institutions

5
since the 1930s (Humle, 1997). The earlier intervention of governments in rural credit
(i.e., provision of credit with cheap interest rates and limited saving and deposit
facilities) will not be successful in financial terms (Humle, 1997).

According to a World Bank study (1997), over half of the sample of 44 development
finance institutions known to the World Bank will have arrears rates of more than 50
percent. There will also be a problem of higher transaction costs (Ibid, 1997).

It seems that many countries in the developing world will intervene in the rural credit
markets without fully understanding the workings of these markets. It will be emphasized
that neither financial inter mediation nor higher interest rates will solve the problems of
imperfect information and imperfect enforcement that are endemic in developing
countries (Humle, 1997).

It will be pointed out that women will lack access to financial services because of the
lack of collaterals, low levels of literacy, lack of conveniently located institutions with
suitable hours of operations, and lack of sources of finance such as family, friends,
money lenders, and suppliers of credit (Tefera Zewudu 2000). Due to the above
discussion about formal and informal financial institutions (i.e., their failure to lend to
the poor), there will be a need for fostering financial inter mediation in Ethiopia. So that,
the poor would be productive using micro-finance institutions as one of the best
alternatives.

2.2. Empirical Literature

The role assessment for credit programs will be essential to monitor the success of
programming major objectives or to see whether the program brings the desired benefits
to the group beneficiaries. Many studies in different disciplines will use different
approaches to assess roles. George O (2009) will use PSM in order to assess the effect of
microfinance among smallholder farmers in Africa. The main objective here will be to
assess whether households with credit are better off compared to those without. Results
will reveal that participation in microfinance credit improves household productive
incomes by a range of between USA $200 to USA $260 in a single production period.
Fitsum and Holden (2005) will indicate that households’ participation in microfinance

6
services has brought positive changes in per capita consumption expenditure but not
statistically significant.

The impact on off-farm income and children’s education will be statistically significant
positive changes. However, livestock holding will be negatively correlated with
participation in microfinance. The study undertaken by Asmelash H (2003) will show
that the total annual income of both rural and urban borrowers will increase compared to
non-borrower households in the study area. His findings will also imply that Dedebit
Credit and Saving Institute will have a positive impact on income diversification,
possessing better houses, increasing assets, and improving the ability to pay educational
and medical expenses of participants than non-participant households. Likewise, Feleke
B (2011) will analyze the impact of microfinance services on the income of urban
households in Digaf Microfinance Institution in Gullele sub-city. The study will conclude
that treatment households will show higher income improvements than control clients.

The study by Melese M (2013) will indicate the positive impact of microfinance on the
improvement of household income, consumption, employment opportunities, savings,
access to education, and medical facilities of program participants. Further, the results of
the study will indicate that the OCSSCO’s microfinancing scheme will have a positive
effect on improving the living standards of its clients using outcome variables such as
income, nutritional status, access to education, medical facilities, savings, and
employment opportunities.

Importantly, in Becho district where this study is conducted, some studies have been
conducted related to microfinance institutions in the area. For example, studies on the
financial and operational performance of microfinance institutions have been conducted
using simple descriptive analysis. Moreover, these studies have focused on factors
affecting the financial performance of microfinance institutions in the study area.
However, the studies have not said anything about the effect of microfinance services on
rural households’ income in the study area. Another study conducted by Birhanu G
(2016) on the role of microfinance institutions in the reduction of unemployment in the
study area. This study particularly focuses on youths’ participation in microfinance
services by analyzing factors affecting youths’ participation in microfinance institutions.
His findings show that microfinance institutions reduce unemployment by providing loan

7
and saving services. However, this study does not show the impact of microfinance credit
on its clients’ income. Moreover, in the Becho district study, there is no observed
evidence that shows whether the incomes of clients who participated in microfinance
services were improved or not.

This will motivate the researcher to conduct a study on the role of Oromia Credit and
Saving Share Company toward socio-economic development for Tulu Bolo town,
particularly for Tulu Bolo branch customers in the case of Becho District, South West
Shewa Zone, Oromia Regional State, Ethiopia.

2.3. Conceptual Frameworks of the study

Oromia Credit and Saving Share Company will have an effect on the transformation of
lives in the clients it operates in. Those individuals who access microfinance institution
credit will experience increased income, which in turn will transform to better incomes,
health, improved nutrition, saving, better education, employment creation, and high
productivity among others.

INDEPENDENT VARIABLES DEPENDENT VARIABLE

- Income
-
- Saving
-
- Better education
- Socioeconomic
Development
- Better health care
-
- Improved nutrition
-
- Employment creation
-
- High tax charge
-
- Lack of working place
-
- Poor market connection

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 -

Source: Solomon Amsalu. (2018), “Oromia credit and Saving Share Company
(OCSSCO) in Strengthening Small and Micro Enterprises (SMEs) of Guder Town, Toke
Kutaye District, West Shewa Zone of Oromia Regional State, Ethiopia.

CHAPTER THREE
3. RESEARCH METHODOLOGY
3.1. Study area
This study will be conducted on Oromia Credit and Saving Share Company, Tulu Bolo
branch, located in Becho, one of the weredas of the South West Shewa zone, situated
82km away from Addis Ababa. The wereda will be comprised of 19 kebeles, namely, 01
kebele, 02 kebele, Sedek Deka Guda, Batu Chiracha, Soyema Ganji, and Mande Tufisa,
among others.

Awash Bune, Kora, and others. Among these, 01 and 02 kebeles are expected to have a
high number of small and micro businesses.
As of the current information available, Oromia Credit and Saving Share Company, Tulu
Bolo branch, serves approximately 4055 customers, with 3052 being male and the
remaining 1003 being female.

3.2. Source of data

researcher will use both primary and secondary sources of data. The primary data will be
collected from the customers of Oromia Credit and Saving Share Company, Tulu Bolo
branch, through close-ended questionnaires, which will help the researcher gather

9
relevant qualitative and quantitative data. Additionally, primary data will also be
collecThe ted from the manager through unstructured interviews conducted by the
researcher.Secondary data will be collected from the internet and other previously
conducted researches.

3.3. Methods of data Analysis

The data will be collected from the customers by the researcher using close - ended
questionnaires. The questioners will be felled by the researcher by forwarding each
question to the sample customer. This will enabled the researcher to collect detailed and
the necessary data from the customers and the data from the manager will be collected
through unstructured interview. These methods will be used because of its suitability to
collect information in greater depth and also helps in collecting supplementary
information about the institution has also a great value in interpreting the report.

3.3.1 Research design

To conduct this study, the researcher will apply descriptive research design. In this study,
descriptive analysis will be used because of its simplicity and clarity to draw inferences.
The study will be used both qualitative and quantitative research approach. Qualitative
approach will be used for non-numerical results. The quantitative approach will be the
fastest way to receive the research target answers and to be able to present the results of
the research by using figures and in writing. Measuring the answers will be made quite
easy by providing alternatives for the respondents to choose from. Additionally, open
spaces will be made for the respondent to write comments and give alternatives from the
options provided. It will also be easier to get an overall impression of the answers when
they are measured more as numbers.

3.4. Target population

The target population for this study will be the customers and manager of Oromia Credit
and Saving Share Company, Tulu Bolo branch. Among the 19 kebeles in Becho wereda,
01 and 02 kebeles will be purposively selected for their high number of people who are

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customers of Oromia Credit and Saving Share Company, Tulu Bolo branch, engaged in
various professional activities.

3,5 Sampling size and Sampling technique

3.5.1. Sample size

The use of sampling will save time and money (economical) and enable the researcher to
obtain detailed information, as the number of sample units will be relatively small,
allowing for intensive and elaborate study. The sample size for each kebele in the study
will be determined based on the Population Proportion to Size (PPS) of the specified
kebeles. Thus, the total number of customers found in 01 and 02 kebeles of Tulu Bolo
town will be 415, among which 270 and 145 customers will be from 01 and 02 kebeles,
respectively. From the 415 customers, 80 of them will be selected as the sample size,
with 52 from 01 kebele and 28 from 02 kebele. PPS will be used to determine the
distribution size of respondents for both kebeles, applying the formula PPS = N/NTn,
where N represents the total population of one kebele, NT represents the total population
in both kebeles, and n represents the number of sample size. Therefore, the sample size
for 01 kebele will be PPS = N1/NTn = 270/41580 = 52, while for 02 kebele, it will be
PPS = N2/NTn = 145/415*80 = 28. Thus, the overall sample size will be 80 respondents.

3.5.2 Sampling technique

The sampling technique used here will be stratified sampling techniques. This sampling
technique will be one of the probability sampling technique and it was used because of its
suitability to make the respondents have equal chance by the researcher. Primally, the
customers will be divided into different groups called strata according their common
characteristics. Hence, proportionate stratified simple random sampling will be used.
This will be aimed at making the sample to be respondents of the customers.

3.6. Method of data analysis

3.6. 1 Descriptive analysis

After gathering the data from the respondents, the researcher will classify the data
according to their similarity to make it suitable for analysis. For this study, the researcher

11
will use descriptive analysis because the collected data is more qualitative and
quantitative in nature. In order to make the study feasible, the researcher will use tables,
percentages, and charts.

3.6.2 Econometric Analysis

The role of Oromia Credit and Saving Share Company (OCSSCO) in the socio-economic
development of a region can be analyzed using econometric techniques.
In this context, econometrics can be used to measure the impact of OCSSCO's activities
on various socio-economic indicators such as employment, income levels, poverty
reduction, and access to financial services. Econometric analysis can help in identifying
the causal relationship between OCSSCO's operations and these socio-economic
outcomes.
Econometric models can also be used to forecast the potential impact of OCSSCO's
future activities on socio-economic development. By analyzing historical data and using
econometric techniques, researchers will be able to estimate the potential effects of
OCSSCO's credit and saving services on the overall economic well-being of the region.

3.7 Variable Definitions,Measurement and Working hypothesis

In the context of assessing the role of Oromia Credit and Saving Share Company
(OCSSCO) toward socio-economic development, the dependent and independent
variables can be defined as follows:

3.7.1 Dependent Variable

The dependent variable is the main factor that is being studied or measured. In this case,
it could be a socioeconomic indicator such as:
1. Employment levels
2. Income levels
3. Poverty reduction
4. Access to financial services
5. Economic growth
These variables are dependent on the activities and operations of OCSSCO and are
influenced by the services it provides.

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3.7.2 Explanatory Variable

The independent variables are the factors that are hypothesized to influence or cause
changes in the dependent variable. In the context of OCSSCO's role in socioeconomic
development, the independent variables may include:
1. Outreach and scale of OCSSCO's credit and saving services
2. Interest rates and lending policies
3. Access to financial education and training
4. Regulatory environment and government policies
5. Socioeconomic characteristics of the region (e.g., population, education levels,
infrastructure)

These independent variables are considered to have an impact on the dependent

variables, and their relationships with the dependent variables can be analyzed using
econometric techniques to assess the role of OCSSCO in socioeconomic development.
By studying the relationships between these dependent and independent variables,
econometric analysis can provide insights into the contribution of OCSSCO to
socioeconomic development and help in understanding the factors that drive economic
progress in the region.

13
References
Muhammad Yunus in 1976 in Jobra's village in Bangladesh. It has currently been an
effective instrument for poverty reduction.
(Alemu KT 2008)Microfinance has been widely accepted as a viable policy option for
poverty reduction by the donor community, international organizations, governments and
nongovernmental organizations.
Addisu A (2016) The Impact of Saving and Credit Program on Socioeconomic Condition
of Women in Mida Woremo District, North Shewa Ethiopia: The Case of Addis-Alem
Saving and Credit Union Mark Dissertation Project Research (Mrdp-001). Indira Gandhi
National Open University.
Asmelash H (2003) The Impact of Microfinance in Ethiopia: the case of DCSI in Ganta
Afeshum Woreda of Eastern Tigray. MA. Thesis, JHIA, Ethiopia.

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Birhanu G (2016) The Role of Microfinance Institutions in Reduction of Unemployment.
Unpublished MA Thesis, Wollega University.
Cheliya District Agricultural Office (2017) Annual report. Cheliya, Ethiopia.
causal studies. Rev Econ Stat, 84: 151-161.
Feleke B (2011) Impact of microfinance services on household income: The Case of
Digaf Micro Financing Company. Ethiopia.
Fitsum, Holden (2005) The Impact of Credit on Changes in Welfare of Rural
Households: Empirical Evidence from Northern Ethiopia. Norway.
Gebrehiwot Agaba. Oct, 2002 Ethiopian Journal of economics. vol. 2 Ethiopia.
George O (2009) Is micro-finance achieving its goal among smallholder farmers in
Africa. Int Conf Agric Econ, pp: 16-22.
Melese M (2013) Impacts of Microfinance Institution on the Living Condition of Rural
OCSSCO (Oromia Credit and Saving Share Company) (2017) Annual performance
Report. Gedo, Ethiopia.
Pitamber, S. (2003) Factors Impeding the poverty reduction Capacity of micro- credit:
Some Field Observation from Malawi and Ethiopia. Economic Research paper No. 47.
(January 2003), Abidjan, Cote d’Ivoire: African Development Bank
programs. The World Bank Research Observer 20: 29-55.
Sebstad, J. (2003) short study on Microfinance -Ethiopia. Background Document,
Country Strategy 2003-2007 (February, 2003), SIDA 2003
Tesfaye. (1998). The role of micro Financing in poverty alleviation a case study Addis
Ababa
Wolday Amha, (2008). A decade of micro finance development in Ethiopia. Growth,
performance, impact and prospect occasional paper No. occasional paper No. 21.

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