addis ababa university
TRANSCRIPT
ADDIS ABABA UNIVERSITY
SCHOOL OF GRADUATE STUDIES
REGIONAL AND LOCAL DEVELOPMENT STUDIES
IMPACT OF MICROFINANCE IN ADDIS ABABA:
THE CASE OF GASHA MICROFINANCE
INSTITUTION
SAMUEL MOCHONA
February, 2006
ADDIS ABABA UNIVERSITY
SCHOOL OF GRADUATE STUDIES
REGIONAL AND LOCAL DEVELOPMENT STUDIES
IMPACT OF MICROFINANCE IN ADDIS ABABA: THE CASE
OF GASHA MICROFINANCE INSTITUTION
A THESIS PRESENTED TO THE SCHOOL OF GRADUATE STUDIES, ADDIS ABABA UNIVERSITY
IN PARTIAL FULFILMENT OF REQUIREMENTS FOR THE DEGREE OF
MASTER'S OF ARTS IN REGIONAL AND LOCAL DEVELOPMENT
STUDIES (RLDS)
Adviser: Beyene Tadesse (PhD)
SAMUEL MOCHONA
February, 2006
Addis Ababa University
School of Graduate Studies
Regional and Local Development Studies
Impact of Microfinance in Addis Ababa: The Case of Gasha Microfinance Institution
by
Samuel Mochona Approved by Board of Examiners Signature
---------------------------------------- --------------------------------
Chairman, Graduate School
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Advisor
---------------------------------------- --------------------------------
External Examiner
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Internal Examiner
Declaration
I, the undersigned, declare that this thesis is my original work, has not been presented for a
degree in any other university and that all sources of material used for the thesis have been
duly acknowledged.
Name-------------------------------------------
Signature--------------------------------------
Place: Addis Ababa University
Date of submission: February, 2006
The thesis has been submitted for examination with my approval as a university advisor.
-----------------------------------------
-----------------------------------------
February, 2006
ACKNOWLEDGEMENTS
I am grateful to my advisor Dr. Beyene Tadesse without whose support and guidance this
thesis would not have come in its present form.
I would like to express my heart felt thanks to the staff of Gasha Microfinance Institution for
providing me with all necessary documents and information.
My special gratitude also goes to Ato Gebre Egziabher Hadera who provided me with
invaluable support while writing the thesis.
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TABLE OF CONTENTS
Acknowledgements --------------------------------------------------I
Table of Contents ---------------------------------------------------------------------------------II
List of Tables -------------------------------------------------------------------------------------VI
List of annexes ------------------------------------------------------------------------------------VII
Explanatory Notes -----------------------------------------------------VII
Acronyms ---------------------------------------------------------------VIII
Abstract ----------------------------------------------------------------IX
CHAPTER ONE: INTRODUCTION ------------------------------1
1.1. Background of the Study --------------------------------------------------------------------1
1.2. Statement of the Problem -------------------------------------------------------------------4
1.3. Research Questions ----------------------------------------------------------------------------6
1.4. Objectives of the Study ----------------------------------------------------------------------7
1.5. Significance of the Study -------------------------------------------------------------------8
1.6. Limitations of the Study ---------------------------------------------------------------------9
1.7. Organization of the Study ------------------------------------------------------------------9
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CHAPTER TWO: REVIEW OF RELATED LITERATURE --------
------------------11
2.1. Microfinance and Poverty Reduction -----------------------------------------------------11
2.2. Microfinance and Poor Women ---------------------------------------------------------13
2.3. Ourteach -------------------------------------------------------------------------------------15
2.4. Sustainability ---------------------------------------------------------------------------------17
2.4.1. Microfinance Commercialization --------------------------------------------------18
2.4.2. The Debate on Subsidy -------------------------------------------------------------20
2.5. Risk Management in Microfinane --------------------------------------------------------22
2.6. Loan Repayment and Impact --------------------------------------------------------------23
2.7. Development of Microfinance in Ethiopia -----------------------------------------------25
2.8. Empirical Microfinance Impact Studies on Ethiopia ------------------------------------27
CHAPTER THREE: METHODOLOGY -------------------------------
-------------------31
3.1. Theoretical Approaches --------------------------------------------------------------------31
3.2. Data Types and Sources ---------------------------------------------------------------------31
3.3. Sampling Method and Sample Size ------------------------------------------------------32
3.4. Hypothesis and Variables -----------------------------------------------------------------33
3.4.1. Outreach --------------------------------------------------------------------------------33
3.4.2. Poverty Reduction --------------------------------------------------------------------34
3.4.3. Building Capacity to Manage Risks ------------------------------------------------34
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3.4.4. Women’s Empowerment -------------------------------------------------------------34
3.4.5. Financial Sustainability and Serving the Poorest ---------------------------------35
3.5. Analysis ---------------------------------------------------------------------------------------35
CHAPTER FOUR: RESULTS AND DISCUSSION ----------------
---------------------37
4.1. Outrach ---------------------------------------------------------------------------------------37
4.1.1. Group Formation and the Poorest of the Poor --------------------------------------39
4.1.2. Access to Formal Sector Finance and Outreach -----------------------------------40
4.1.3. Employment of Clients --------------------------------------------------------------40
4.1.4. Gender of Clients ----------------------------------------------------------------------41
4.2. Microfinance and Poverty Reduction ------------------------------------------------------42
4.2.1. Income and Savings --------------------------------------------------------------------42
4.2.1.1. Income ---------------------------------------------------------------------------43
4.2.1.2. Savings --------------------------------------------------------------------------44
4.2.2. Asset Formation ------------------------------------------------------------------------46
4.2.3. Expenditure -----------------------------------------------------------------------------49
4.2.3.1. Business Input Cost -----------------------------------------------------------49
4.2.3.2. Consumption Expenditure --------------------------------------------------50
4.2.4. Improvements in Occupation -------------------------------------------------------51
4.2.5. Reduced Dependency on Expensive Financial Services --------------------------52
4.2.6. Improvements in Nutritional Intake ------------------------------------------------53
4.2.7. Ability to Send Children to School ---------------------------------------------------55
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4.2.8. Access to Health Facilities ------------------------------------------------------------56
4.3. Capacity to Manage Risks -------------------------------------------------------------------58
4.4. Financial Sustainability and Serving the Poorest of the Poor ---------------------------60
4.4.1. Loan Repayment Rates ----------------------------------------------------------------60
4.4.2. Financial sustainability of Gasha MFI ---------------------------------------------61
4.4.3. Outreach to the Poorest and Loan Repayment -------------------------------------63
4.5. Women’s Empowerment -----------------------------------------------------------------64
4.5.1. Decision-making Role ---------------------------------------------------------------65
4.5.2. Business Skills -------------------------------------------------------------------------68
4.5.3. Self-esteem ------------------------------------------------------------------------------68
4.5.4. Sending Children to School -----------------------------------------------------------69
4.5.5. Women and Compliance to regulations --------------------------------------------69
CHAPTER FIVE: SUMMARY, CONCLUSIONS AND
RECOMMENDATIONS
5.1. Summary and Conclusions -----------------------------------------------------------------71
5.2. Recommendations -------------------------------------------------------------------------75
References ----------------------------------------------------------------
-----------------------77
Annexes -------------------------------------------------------------------------------------------83
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List of Tables
Page
Table 1: Microfinance outreach of Gasha MFI-------------------------------------------------38
Table 2: Microfinance Outreach of some MFIs (June 2003) ---------------------------------39
Table 3: Urban Female Clients of Gasha Microfinance Institution -------------------------41
Table 4: Independent Samples T Test Result for Weekly Income --------------------------44
Table 5: Average Annual Savings of Clients ---------------------------------------------------45
Table 6: Independent Samples T Test Result for Monthly Savings -------------------------45
Table 7: Independent Samples T Test Result for Expenditure on Key Assets -------------48
Table 8: Independent Samples T Test Result for Business Input Cost ---------------------50
Table 9: Independent samples T Test Result for Consumption Expenditure --------------51
Table 10: Clients’ Responses on Improvements in Occupation after Taking Loans ------52
Table 11: Chi-Square Test Result for Nutritional Intake -------------------------------------54
Table 12: Chi-Square Test Result for Children’s Education ---------------------------------56
Table 13: Chi-Square Test Result for Access to Health Service -----------------------------57
Table 14: Some Performance Indicators of Gasha Microfinance
Institution --------------61
Table 15: Chi-Square Test Result for Decision-making in Household ---------------------66
Table 16: Chi-Square Test Result for Decision about Loan Taking ------------------------66
Table 17: Chi-Square Test Result for Women’s Role in Community ----------------------67
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List of Annexes Annex 1 Questionnaire --------------------------------------------------------------------------83 Annex 2 Summary of focus group discussion -----------------------------------------------91 Annex 3 Summary of interview with Gasha MFI staff ------------------------------------93 Annex 4 Balance Sheet of Gasha MFI -------------------------------------------------------95 Annex 5 Income Statement of Gasha MFI --------------------------------------------------96 Annex 6 Guidelines for an interview with ex-clients of Gasha MFI---------------------97
Explanatory Notes
Ambasha: type of bread baked from dough of flour leavened by yeast
Areke: home-made distilled alcoholic drink
Birr: Ethiopian currency equivalent to 100 cents
Gulit: a small open-air road side market
Injera: a type of light bread baked of leavened flour of an Ethiopian cereal called teff
Kebele: the lowest administrative level of government in Ethiopia
Kitta: a type of bread of baked dough that is not leavened
Sindedo:a household utensil made of strong grass
Tella: a type of home-made beer
Woreda: the second lowest level of government administrative structure
viii
Acronyms
NGO Non-governmental Organization
MFI Microfinance Institution
IDA International Development Association
SNNPS South Nations, Nationalities and People’s State
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ABSTRACT
Microfinance is provision of small amounts of institutional loans to low income
people who could not access loans from formal sector finance. Major objective
of extending the loans is to alleviate poverty by creating jobs and incomes.
While reducing poverty, microfinance services are supposed to build asset bases
of their clients to manage and cope up with risks. Microfinance programmes are
also expected to empower women clients by improving their decision-making
roles and self-esteem, among others. However, whether microfinance
programmes are bringing about desired changes is debatable. In addition, some
argue that microfinance has been pushing the low income people further into
poverty. Although non-governmental organizations began delivering
mirofinance services in Ethiopia to rehabilitate people affected by recurrent
droughts and poverty, government commercialized it with proclamation. Pro
Pride was one of such non-governmental organizations that evolved into Gasha
Microfinance Institution following the promulgation of the proclamation. Gasha
Microfinance Institution is providing financial services through its four
branches in Addis Ababa and one branch in Debrezeit giving special emphasis
to women. Attempts were made in this study to assess impact of programmes of
the institution in terms of outreach, poverty reduction, managing risks, and
women's empowerment. For the study, the following hypotheses were
constructed: Gasha Microfinance Institutions extends financial services to the
poorest; microfinance services of Gasha MFI lead to reduction in poverty;
financial services of Gasha MFI improve clients’ capacity to manage and cope
up with risks; and participation of women in microfinance programmes
empowers them.
Quantitative and qualitative data were collected from the institution and the
clients for the study. Semi-structured interview, focus group discussion and case
study were used as tools to gather data from frequent, new and former clients. A
sample size of 80 (40 experienced and 40 pipeline clients) was selected for the
survey. Interview was also conducted with 30 former clients and 20 clients were
participated in two focus group discussions. T test, chi-square test, and
qualitative data summarizing method for microfinance impact assessment with
quantitative evidence were used to draw conclusions from the data.
Accordingly, the institution is extending loans to 'productive poor' which have
been selected by different criteria. Although the livelihood of clients of the
institution like selling dung for fuel indicate that they are nearly the poorest, the
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selection criteria and group formation have been excluding the extremely
poorest of the poor from receiving microfinance services. Qualitative data show
improvements in the livelihoods of clients, their savings, forming assets,
improvements in nutritional intake, reduced dependency on expensive financial
services, and to a very limited extent in capacity to manage risks and women’s
empowerment. The quasi experimental control group hypothesis testing methods
indicated that there are statistically significant differences in income, business
and consumption expenditures between clients and non-clients. However,
differences observed in monthly savings, asset building, nutritional intake,
women’s empowerment, ability to send children to school, and access to health
facilities between participants and non-participants were not statistically
significant.
1
CHAPTER ONE
INTRODUCTION
1.1. Background of the Study
Poverty is generally perceived as individuals’ or households’ lack of resources to meet their
needs for a healthy living or when their resources are so limited than other community
members to exclude them from a traditionally acceptable way of life. Such poor people,
according to World Development Report 2000/2001, often lack adequate food, shelter,
education and health besides facing extreme vulnerability to economic problems and natural
disasters. In addition to the very limited assets, inaccessible markets and scarce jobs that lock
them in material deprivation, poor people “are often exposed to ill treatment by institutions of
the state and society, and are powerless to influence key decisions affecting their lives”
(World Development Report, 2000/2001). Moreover, they lack the freedom of choice and
action to shape their lives; control over resources; and make decisions, as their freedom is
severely curtailed by their voicelessness and powerlessness in relation to institutions such as
state and market (World Bank, 2002).
Explaining this kind of extreme deprivation in Ethiopia, Development and Poverty Profile of
Ethiopia (2002), which was compiled based on data gathered in 1999/2000, pointed out that
44.2 percent of Ethiopia’s population was absolutely poor (unable to meet basic needs), of
which 37% was urban and 45% rural. According to the Sustainable Development and Poverty
Reduction Program (2002) of Ethiopia, poverty is observed in the country in terms of low
level of consumption, household characteristics like large family size, vulnerability to shocks,
poor health and low level of education, among others.
2
Women and men, living in such kinds of deprivations, need a wide range of assets such as
land, housing, livestock and savings, and capabilities in order to lead healthy lives; withstand
shocks; and expand their horizon of choices. This can be done by increasing their well-being,
security, and self-confidence as well as by mitigating the extreme physical and financial
limitations, which constrain their capacity and exacerbate their vulnerability (World Bank
2002).
With the view to improving the lives of the poor and mitigating the extreme conditions of
deprivation in which the poor households live, various poverty reduction strategies such as
promoting opportunities to the poor, empowering them and reducing their vulnerability have
been taken at international, national, regional and local levels. In connection with poverty
reduction, the World Development Report 2000/2001 suggested the creation of opportunities
for the poor such as jobs, credit, roads, markets for their produce, schools, water facilities,
health and sanitation; empowerment of the poor that is implementing action responsive to the
needs of poor people to facilitate the political, social and institutional interactions of the poor;
and enhancing security by reducing their vulnerability to economic shocks, natural disasters,
ill health, disability, and personal violence.
Microfinance programmes have been introduced as one of these actions to alleviate poverty,
empower low-income people and reduce their vulnerability to risks. According to Aguilar
(1999), microfinance services have been believed to alleviate poverty by creating jobs and
increasing incomes as they link the poor into productive economic activities. In many cases,
basic business skill training accompanies the provision of microloans to improve the capacity
of the poor to use funds (Webster and Fidler 1996). According to the 1999/2000 Annual
3
Report on the Ethiopian Economy Vol. I, to bring about stability and improvement in the lives
of people negatively affected by recurrent droughts in Ethiopia, non-governmental
organizations (NGOs) were providing saving and credit services aimed at creation of
employment and generating income.
Pro Pride is one of such NGOs, which led to the formation of the Gasha Microfinance
Institution following the promulgation of proclamation No. 40/1996 on licensing and
supervision of microfinance institutions. According to Gasha Microfinance Share Company
Progress Report (1997-2000), Pro Pride was established in 1995 to empower disadvantaged
individuals, families and communities in urban settings and alleviate poverty by helping them
actualize their potential. The belief of the organization stated in the report was that every
human being is equal by nature and is capable of sustaining him/herself. The NGO, in
collaboration with community representatives and local government officials, identified
Woreda-5, usually known as Merkato, in Addis Ababa, which it said to be poverty stricken, to
introduce its poverty mitigation interventions. Challenged by complexity of poverty and its
limited resource capacity, Pro Pride started its intervention with a savings and credit
programme called the livelihood promotion.
For the credit and saving programme, Pro Pride decided to organize 300 individuals from
kebeles: 05, 15, 16, 20 and 21 of the woreda. All the kebeles were selected for being
residential areas, except 05 that was selected for its commercial sex workers. Members were
selected on the bases of being identified by the members of the community as poor and
without any assistance; capable of getting engaged in productive economic activity; willing to
take loan and repay on time; socially, accepted as credit worthy; and being female household
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head preferably. Eventually, a special committee formed to organize the group, selected 411
individual (401 females and 10 males). Pro Pride organized a total of 3,630 clients; disbursed
3,917,753 birr loan; mobilized 686, 579 birr savings; and collected 2,108, 857 birr on loan
repayment until the microfinance institutions licensing proclamation and different directives
of the National Bank of Ethiopia prohibit involvement in microfinance without obtaining
license from the bank.
Convinced in the importance of streaming savings and credit in a microfinance modality, Pro
Pride applied to establish a microfinance institution called Gasha in 1997 and was licensed in
1998 with 200,000 birr paid up and 800,000 birr subscribed capital, and 756 shareholders as
owners.
1.2. Statement of the Problem
Microfinance services have been provided since the 1970s to alleviate poverty by creating
jobs and increasing income. This has been done on the basis of the assumption that by
integrating the poor into productive economic activities, development would be promoted
automatically through microfinance (Aguilar, 1999). In recent years, however, policy makers,
donors and practitioners have been in increasing doubt whether the desired results have been
achieved (Aguilar 1999, Hulme 2000, Wright 1999). The doubts called for impact assessment
studies, and as a result, a number of such research have been conducted in Asia, Latin
America and Africa where the majority of the society are poor and microfinance programmes
are being carried out. The objectives of most of these studies were to assess the impacts of
having access to microfinance services on incomes and their sources, standards of living,
better health and children’s education as well as better self-image and decision making power
5
as a direct result of the loans. These studies, however, reported mixed results like little
positive change in alleviating poverty (Dunn and Arbuckle, 2001); accumulation of increased
working capital by the poor, increased investment in fixed assets, self-employment, and more
incomes (Wright, 1999); and increased debt liability (Hulme, 2000, Rahman, 1999).
Microfinance impact assessment studies have been undertaken at different levels such as
individual, household, institutional and community levels. For instance, the conventional
evaluation of performance of microfinance institutions (MFIs) with emphasis on financial
sustainability and outreach give overriding emphasis to financial criteria. This conventional
wisdom states that clients will automatically follow if the services of microfinance institutions
are available, and high rates of repayment and repeated borrowing can be taken as proxies of
client satisfaction and are indicators of positive valued service (Cohen and Sebstad, 1999).
This approach suggests that financial performance indicators are sufficient to show whether or
not the MFIs are doing a good job, arguing that if clients are willing to pay for service, it can,
then, be assumed that they are happy to pay for the services because they are doing them
good. This point of view states that market is the indicator of the impact.
However, this approach fails to answer the key questions of microfinance impact such as
whom these programmes reach and how they make positive difference to the lives of clients.
Because financial performance of an MFI does not measure changes occurred in the lives of
clients. Indebted clients may repay loans even when their businesses fail and much hardship
results. Thus, it is critical for microfinance impact assessment practitioners to be sensitive to
the impact of the programmes on the clients rather than financial sustainability of the
providing institution.
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Therefore, the starting point of this study was about whether the programmes of Gasha
Microfinance Institution are making positive changes on clients. This is further explained in
the following research questions.
1.3. Research Questions
This study attempts to answer the following key research questions:
1. Which groups among the poor does Gasha Microfinance Institution reach? Are the poorest
left out?
2. Do microfinance services of Gasha result in poverty reduction at household level?
3. Do financial services of Gasha Microfinance Institution improve clients’ capacity to
manage and control risks, and build up their asset base to protect against and cope with
such unfortunate events?
4. Does women’s role as clients of microfinance programmes translate into empowerment
for them?
1.4. Objectives of the Study
Microfinance programmes are expected to alleviate poverty by creating income and jobs, and
consequently promote development through provision of small amount of credit and saving to
low-income people. Participants of the microfinance programs are expected to invest the loans
in productive activities that generate income to exit them from poverty; expand their
businesses; and improve the quality of their lives. As a result, the clients of microfinance
programs are supposed to have higher and more stable income, increased household
expenditures for basic needs, employment opportunities, improved nutritional intake and
7
better children's education than they did prior to their participation. Familiarity with financial
institutions; gaining of confidence; saving for emergency use; building up of collateral for
loans; having access to market; and increased women empowerment, and better health
services, including contraceptive use, are also anticipated from microfinance programmes.
Gasha Microfinance Institution, until the end of 2004, was providing microfinance services to
about 6,990 urban clients through its four branches in Addis Ababa with the general objective
of alleviating poverty and specific objectives of providing financial services to micro and
small enterprise at a cost recovery and sustainable bases; promoting the culture of saving
among lower segments of the society; facilitating access of the poor to various saving and
credit services; providing demand driven business skill training; developing self-esteem
among clients; and encouraging women to be involved in micro enterprises through
membership in Gasha as shareholders, board members, client groups leaders and staff.
In this respect, the general objective of the study is to determine whether Gasha Microfinance
Institution is meeting its objective, which is alleviating poverty at individual level. Specific
objectives of the study include:
1. To examine the impact of microfinance services of Gasha MFI on poverty of its
clients;
2. To examine if microfinance services have positive impacts on women’s
empowerment; and
3. To recommend some improvement measures in the area of microfinance.
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1.5 Significance of the Study
Microfinance service providers, microfinance promoters, and development policy makers
could use the findings of this study to improve microfinance products and services as well as
to justify investment in the sector.
1.6 Limitations of the Study
In microfinance impact assessment data should be collected at more than one point in a time
in order to compare changes in important variables between two or more points in a time
through a longitudinal research design. The data used in this study, however, were gathered in
one point at a time because the research was limited to one year due to academic calendar.
Therefore, a retrospective research design that alternatively allows the use of recall data was
employed.
Of the more than 10,734 clients and dropouts of Gasha Microfinance Institution, a sample size of only 80 was used in this study. This was done due to two major reasons. First, very limited time to gather and analyze the data as well as shortage of financial resource forced the researcher to limit himself to small sample size. Second, the qualitative data needed for the study requires in-depth interview and longer time combined with the very limited experience of the researcher in analyzing them necessitated small sample size.
In addition, quantitative information concerning expenses of clients on child education, health service, and labour could not be gathered due to recall problems on the part of informants.
1.7. Organization of the Study
The paper is organized in five chapters. General introduction is given the first chapter. The relevant literature in the field is discussed in the second chapter. In chapter three research design and methodology are presented. Following this, chapter four contains results and discussion. Finally, summary, conclusions and recommendations are presented in the fifth chapter.
9
CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.1. Microfinance and Poverty Reduction
10
Microfinance is provision of small amount of institutional credit and saving to jointly liable
low-income people, who are unable to obtain loans from formal sector banks for lack of
collateral (Rahman 1999, Morduch 2000). The Grameen Bank in Bangladesh (Wright
1999:39) first began it in 1976. Formal sector banks do not lend to the poor, as it is difficult
for them to identify the truly reliable borrowers, monitor their behavior and to make them
accountable when it needs (Morduch 2000:622-23). It is with the view to overcoming this
phenomenon that the microfinance movement emerged by substituting material collateral with
social collateral, organized social pressure from group members among the poor to make each
member of the group responsible to and for the collective to enhance social solidarity
(Rahman 1999:7, Morduch 2000:622-23).
According to Aguilar 1999, the aim of integrating the poor into the economic circuit through
microfinance programmes is to alleviate poverty by creating income and jobs, and
consequently promote development. To that end, participants of microfinance programmes
are expected to invest the micro-loans in productive activities (Rahman1999:75) that generate
enough income enabling the low-income households to exit from poverty; expand their
businesses; and improve the quality of their lives (Morduch 2000:620).
In this regard, Webster and Fidler (1996:23 ) stated that clients of microfinance programs
have higher and more stable income, increased household expenditures for basic needs,
employment opportunities, nutritional intake and better children's education than they did
prior to their participation . Aguilar (1999) said that the poor undoubtedly benefit from
microfinance services in growing levels of health care and education expenditures, better
income, and better quality of nutrition, asset holdings, and weights of preschool children.
11
They also become familiar with financial institutions; gain confidence; save for emergency
use and build up collateral for loans; have access to market; and increased women
empowerment and contraceptive use, among others.
Gulli and Berger (1999:17) summarized the assistance of microfinance programmes to poor
households in to four major areas:
1. Investment in productive assets for income generation;
2. Facilitating the household's livelihood activities;
3. Protection against income shocks and reduced vulnerability; and
4. Qualitative factors such as empowerment and building of social capital.
To put poverty-reduction intervention of microfinance programmes in a nutshell, they reach
the poor in need of credit, and the poor pull themselves out of poverty through income
generating activities and empowerment (Gulli and Berger 1999:17).
Empirically, however, not all microfinance programmes have led to reduction in poverty. In
this regard, Rahman (1999:68) said that "…there are still many borrowers who become
vulnerable and trapped by the system; they are unable to succeed." According to Hulme
(2000:26), calling micro-credit 'microdebt' help us be more realistic as it increases borrower
debt-liability, and anxiety and tension among household members (Rahman 1999). Moreover,
Hulme (2000:26) wrote, "outside Bangladesh the microfinance industry has not even
scratched the surface of poverty." On top of that, Hulme (2000) and Rahman (1999) reported
that the poor are very frightened about getting in to debt, and female clients of microfinance
service of the Grameen Bank committed suicide when they faced problems with repaying
12
loans. Possessions of debtors (pots and pans, roofing irons) were seized, while the poor have
been arrested by police and even threatened with physical violence (Hulme 2000:27).
2.2. Microfinance and Poor Women
Since the mid-1980's, microfinance programmes started preferring women to men to address
poverty (Rahman 1999, Wright 1999) as poor women are disadvantaged in their access to
education, skills, capital and improving ability to succeed in business activities (Webster and
Fidler 1996). This is done on the bases of the following poverty reducing assumptions of
microfinance (Gulli and Berger 1997:17-8), which give overriding emphasis to the poor in
general and poor women in particular.
1. Microentrepreneurs- especially women- are poor;
2. Microentrepreneurs are severely constrained by inadequate access to credit for
income generating activities;
3. Microfinance institutions aim at poverty reduction;
4. Microfinance institutions do reach poor people; and
5. Microfinance has a positive impact on poor people's income and empowerment.
Webster and Fidler (1996:24) explained the strong emphasis placed on gender issues by
microfinance institutions and donors as recognizing "the constraints that limit the access of
the poor to financial services are particularly harsh for women." Microfinance institutions'
rationale for targeting women over men, according to Rahman (1999:69), is based on the
assumption of their greater contribution for the household welfare.
13
…women's priority is to invest their earnings in their children, followed by their spending on their
household necessities. Therefore, lending to women and increasing their earnings
bring more qualitative benefits to family welfare than the earnings of men. In
addition, lending to women is perceived an effective way to assist the poor women
in attaining their socio-economic empowerment in the larger society (Rahman
1999:69).
In connection with microfinance institutions' focus on women, McCormick and Munguti
(2003:57) noted that credit services bring about economic benefits such as higher business
incomes and better empowerment, greater self-confidence, increased role in household
decision-making and better social capital. In Webster and Fidler (1996:23)'s words, "they
(women involved in microfinance) feel less marginalized, have higher aspirations for their
children's education and future, use more reliable sources of drinking water, and are more
likely to use latrines and contraceptives."
On the other hand, microfinance institutions prefer women to men not only because they have
been marginalized in socio-economic relations, but also they tend to be excellent clients,
which Rahman (1999:69) called 'the hidden transcript'. According to Rahman (1999:69-70),
Grameen Bank targeted at women strategically for recovering of loans because of women's
positional vulnerability such as shyness, being passive and submissive in some societies as
well as they are more reliable and more disciplined. In addition, women in many programmes
have been proved for repaying their loans at higher rates than men (Webster and Fidler
1996:24). As it was stated in Rahman (1999:24), lending to women gives microfinance
institutions an unwritten guarantee of getting back their money.
2.3. Outreach
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It is generally thought that the clients of microfinance institutions (MFIs) are the poor.
However, studies indicate that very few MFIs reach the poorest of the poor, and that many
MFIs have a high percentage of non-poor clients (Gulli and Berger 1999:22). Regarding the
scale of outreach (the number of people reached with microfinance service) and depth of
outreach (the extent to which clients are poor and underserved), Webster and Fidler (1999:32)
said that only few microfinance institutions have achieved impressive results. According to
Rahman (1999:67), the largest micro-lending institution with 1,046 rural branches operating
in 34,913 villages of Bangladesh, is providing microfinance service to 2.02 million people, 94
percent of them women. Another bigger microfinance institution in Indonesia provides
financial services to 2 million micro-borrowers and 12 million savers (Webster and Fidler
1996:32). Most successful microfiance institutions reach the poor with loans that average
$200 to $500, and some others reach the poorest with loans from $100 to $40, said Webster
and Fidler (1996), and added that reaching the underserved means providing the service to the
rural people and women.
However, according to Hickson 2001, microfinance institutions have begun to doubt that their
programmes are reaching or benefiting the very poor despite their fame in being committed
for the poor. In reaching the poor with microfinance services, Hickson (2001:57) noted that
very poor households are either excluded from entering microfinance programmes, or drop
out of these programmes at early stage.
Explaining why microfinance institutions could rarely manage to serve the extremely poor,
Hickson (2001:60) stated that there is an inherent problem with giving credit as an investment
tool to the very poor households, which generally rely on wage labour and usually lack the
15
experience and confidence to become successful entrepreneurs independently. In the view of
addressing the problem, micro-lenders in Bangladesh developed technical and business
mechanisms for skill training for the very poor, and in some cases established their own
marketing channels particularly for their businesses (Hickson 2001:60). For instance,
Grameen Bank officials identify the most vulnerable like landless due to riverbank erosion,
refugee in some else's home, make their livelihoods from begging, abandoned, widowed and
divorced women; and provide some training to enhance their skills to use credit; and give
marketing assistance to their products (Hickson 2001:59.)
2.4. Sustainability
Sustainability in microfinance programmes is ensuring permanence (Navajas et. al 2000: 35).
It can also be defined as covering all the recurrent costs of operation (Dunford 2000: 43).
According to Webster and Fidler (1996: 33), financial sustainability refers to the ability to
generate sufficient revenues that cover total costs of service delivery, including operational
and financial costs (the cost of the funds). This is explained by Copestake et. al (2002) as
getting costs of provision less than the benefits (net of transaction costs) to clients , and then
business is possible , with benefits shared between provider and user according to the price
that is struck between them .
Webster and Fidler (1996: 34) pointed out three factors that determine an MFI's ability to earn
sufficient revenues to cover operational and financial costs. These include the loan repayment
rate, the scale of lending and the interest rates charged on loans. They further explained how
the factors affect sustainability, as repayment rates of less than 95 percent are not acceptable;
16
it is difficult for an MFI lending to small number of borrowers to earn sufficient revenue to
cover full cost even when high interest rates are charged, and interest rates should be based on
the cost of loan delivery, not on rates of commercial banks.
Concerning sustainability, Duford (2000) classifies MFIs as focusing on business profitability
and social objective-serving the poor. Objectives of MFIs aiming at profitability are assumed
by their financial services and institutional objectives. As serving the poor is not their
objective, they can easily manage to recover costs. The objective of social service providers,
giving loans at or below market rates to the poor who need special considerations, on the
other hand, is not sustainable institution building.
For microfinance programmes purely aiming at poverty alleviation, full cost recovery is
hardly possible. Morduch (2000:618) noted that almost all microfinance programmes with
explicit social objectives that target the poorest borrowers generate revenues sufficient to
cover not more than 70% of their costs. Gulli and Berger (1999:23) stated, "…the more MFIs
aim for financial sustainability, the less will be their impact on poverty reduction." As noted
by Wright and Dondo (2001:60), for many of the advocates of 'target the poorest' it is this
move towards an emphasis on sustainability and commercial funding that resulted in ' mission
drift', and as a result, the MFIs are focusing increasingly on the non-poor as their preferred
clients.
2.4.1 Microfinance Commercialization
In connection with financial sustainability, microfinance prorammes have been inclining more
to profit making. Woller (2002:12) said that the microfinance industry is now in the middle of
17
transition from its roots as a social movement dominated by development concerns to a
commercial industry driven by competitive market share and profits. Commercialization here
can be taken as the MFIs adoption of commercial approaches such as introduction of cost
saving mechanisms; gathering, disseminating and using market intelligence; the introduction
and market testing of new products and services to microfinance programmes in response to
market forces (Woller 2002:13).
Profit making in microfinance assumes that households require access to credit, but not cheap
credit (Morduch 2000:620), and its principal win-win claims include:
1. Raising costs of financial services does not diminish demand;
2. Financially sustainable programmes, due to their scale, can make the greatest dent in
poverty;
3. Financial sustainability will give programmes access to commercial financial markets;
4. Financially sustainable programmes are superior weapons for fighting poverty;
5. Subsidized programmes are inefficient and thus bound to fail;
6. Subsidized credit most often ends up in the hands of non-poor;
7. Successful microfinance programmes must be non-government programmes; and
8. Subsidized credit undermines saving mobilization.
According to Woller (2002:14), commercialization of microfinance programmes promises
lower prices, new products and services, greater number and variety of market offerings,
improved product and service quality, and technological innovations that go hand in hand
with competition and organizations' response to it and other market forces. It would also
increase outreach as well as enforce accounting and performance standards to the
programmes. On the other hand, it has a danger of drifting the defined mission of poverty
18
alleviation in pursuit of higher financial returns (Guller 2002:15). As a result, when profit
making becomes an objective, it will bypass certain segments of the microfinance market and
result in the marginalization of the poor by de-linking the microfinance from poverty
alleviation, which is its ultimate goal (Woller 2002:12-4). Morduch (2000:620-1), who was
bitterly criticizing high interest rates and profits by equating it as arguing 'money lenders
charge high interest rates, microfinance programmes can do too', said that the low-income
poor households cannot afford the 120% annual interest rate Las Vegas money lenders charge
or 300% per year of that of the gambling town of Biloxi, Mississippi. He also said that each of
the win-win propositions of the profit oriented high interest rate microfinance argument are
not fully acceptable and have not fully been translated into action.
2.4.2 The Debate on Subsidy
Initially, microfinance programmes were mainly run by public and NGO funds for they were
thought to have mandate to serve the poor (Navajas et. at 2000:334). Gradually, however,
failures in subsidized programmes combined with the movement for sustainability emerged as
criticisms. One of the sharper criticisms of subsidized credits, according to Morduch
(2000:623), is that they cannot survive over time as funding will dry up and they fail before
reaching significant numbers. The second criticism is that subsidized microfinance
programmes are inefficient because funding hinders them from efficient institutional
performance expected from self-sustained profitable MFI (Morduch 2000:624). The third
argument against subsidy, which is based on the experince of credit programmes during the
1970s when politically powerful groups, usually not poor, managed to grab the money, is that
subsidized credit most often ends up in the hands of non-poor households (Morduch
2000:624). Another argument against subsidy as stated by Morduch (2000:625) claims that
19
mobilizing saving is not likely to make sense for subsidized credit programmes as they may
assume the poor households are too poor to save.
Inspite of the arguments, however, as it has been notoriously difficult to serve the poorest of
the poor and become financially sustainable at the same time, said (Dunford 2000), the reality
is that subsidy is available in most of microfinance programmes. In this regard, Wright and
Dondo (2001:60) noted that for programmes targeting the poorest the move towards
sustainability and commercial funding are resulting in mission drift and the MFIs are focusing
increasingly on the non-poor as their preferred clients. Dunford (2000:44) argued that if
"sustainable" means "totally subsidy-free", some microfinance programmes will never be
sustainable, and "a really good, sustainable social enterprise is not highly dependent on
subsidy but also not necessarily subsidy free."
Furthermore, Morduch (2000:620-5) argued that the claims against subsidy are false
generalizations, as donors and governments are committed to poverty alleviation as their top
priority they should fund the programmes over the long term; subsidized credit programmes
can be efficient; it is possible to harness the subsidized credit directly to the poorest; and a
saving programme may be an essential feature of both subsidized and financially sustainable
programmes. Since "there has never been a general presumption that most effective poverty
alleviation programs can be-or should be self financing," it is not clear that why the starting
point for microfinance programmes is pulling away funding.
Therefore, Dunford (2000:44) contends that instead of longing for totally subsidy-free
programmes, it would be more advantageous if one seizes all opportunities offered whether
20
subsidy or sustainability, and value (subsidizing) can keep on doing that for a very long time.
Moreover, Wright and Dondo (2001:59) suggested that MFI programmes should include the
non-poor on the grounds that this more profitable business can cross-subsidize outreach to the
poorest.
2.5. Risk Management in Microfinance
Historically, microfinance institutions have mainly focused on extending credit and saving
(McCord 2001:26), and in some cases on basic business skill training (Webster and Fidler
1996:26). On the other hand, the MFIs, until recently, have given little attention to the risks
arising from illness, death in the household, crop failure, theft of key assets, dramatic price
fluctuations, dowry payment and other shocks (Wright 1999:40) that can lead the target of
microfinance programmes, the poor, further into poverty (Brown 2001:11)
Donors and MFIs have recently begun developing mechanism, such as micro insurance
schemes, to protect their clients against such risks (Brown 2001:11), and to mitigate
unfortunate events that are comparatively expensive for the poor (McCord 2001:26). In this
respect, micro insurance scheme refers to financial service that uses risk pooling to give
compensation to the low-income individuals or groups that are adversely affected by a
specific risk or event, by collecting large groups, or pools, of individuals and groups to share
the resulting losses so that persons harmed by the risk can benefit from the contributions of
those who are not affected. Regarding risks, Roth (2001:39) noted that a typical poor
household in Africa spends many times its average monthly income on funerals, which is
exacerbating the poverty. As stated by Navajas et. al (2000:334), rural lenders, in particular,
21
should deal with more seasonality, poor information, greater risks, less smooth cash flows and
similar conditions.
Although the reality of such unfortunate events call for the management of risks (Wright
1999:40), most MFIs are not suitably equipped to provide micro insurance (Brown 2001:11).
In this regard, McCord (2001:26) noted that MFIs can develop less expensive micro insurance
products that could play crucial role in mitigating risks. Brown (2001:11) suggested that MFIs
can develop partnership with existing micro insurers to provide the benefits of insurance to
their clients, without taking the insurance risk or if they insist on developing their own
insurance products, they should consider both ensuring provision of good values to their
clients and increasing their prospects for financial sustainability.
2.6. Loan Repayment and Impact
Microfinance institutions give loans to individual members of the group for investment in
productive activities; generate income; and repay loans with interests, among others. For
instance, according to Rahman (1999:75), the Grameen Bank expects from its clients to start
their repayment on the second week to the loan receiving by using part of the profit earned
from the investment. In many cases the repayments should cover the total costs, if not profit
making. In connection with repayment of installments, Webster and Fidler (1994:34) noted
that "...there is now strong consensus that repayment rates of less than 95 percent are not
acceptable." Webster and Fidler (1996:35) said microfinance institutions have been
succeeding in cost recovery and brining about positive impact on their clients even at interest
rates more than 70 percent. While arguing for the existence of positive relations between
financial sustainability and positive impact on clients, Beth (2001:4) said, "no test for impact
22
comes close to institutional sustainability" as an indicator it makes microfinance meet market
test; and if the institution is profitable, it is proof of positive impact.
On the other hand, Simanowitz (2001:11) critically questioned the existence of positive
relations between loan repayment and positive impact by describing what was observed in
Kenya when drought devastated poor women, amidst famine, were repaying loans by selling
chicken when a particular region was experiencing its third consecutive crop failure as a result
of drought; while the community was reaching crisis situation; livestock were dying; and
people were leaving the area. In addition, studies on Grameen Bank also reported mixed
results. For example, Wright (1999:43) reported that direct effect of the bank has been
observed on the accumulation of capital by the poor; working capital of members' enterprises
increased by an average of three times within 27 months; investment in fixed assets increased
by 2.5 times; and members had incomes about 43 percent higher than the target group in the
control village, while Hulme (2000:27) and Rahman (1999:68) were pointing out worsening
conditions of clients with repayment problems as their possessions like pots were seized; the
debtors were arrested; and even some women committed suicide due to excessive pressure
exerted by bank workers and peer group members on borrowers for timely repayment, rather
than working for borrower empowerment as originally envisaged. To cope up with the
problem many borrowers maintain their regular repayment schedules through a process of
loan recycling (paying off previous loans by acquiring new loans from members of other
groups), which considerably increases borrower debt-liability (Hulme 2000, Rahman 1999).
2.7. Development of Microfinance in Ethiopia
23
The culture of credit and saving in semi-formal way emerged in Ethiopia during 1960s with
credit and saving cooperatives (1999/2000 Annual Report on the Ethiopian Economy Vol. I.),
though people in the country have had long history of borrowing money and assets to carry
out economic activities, build assets, and manage unfortunate events. In their relief works,
many NGOs have also included saving and credit aimed at creating employment and
generating income with the view to improving the lives of people affected by recurrent
droughts in the country during the past two decades. Government institutions like commercial
and development banks have also been providing credit to rural households for purchase of
agricultural inputs and tools. More formal microfinancing step, according to the 1999/2000
Annual Report on the Ethiopian Economy Vol. I., however, was taken in 1990 when an urban
microfinancing scheme was initiated at national level with credit agreement signed between
Ethiopian government and International Development Association (IDA). The credit scheme
implemented since 1994 in 59 towns of Amhara, Tigray, Oromia and SNNPR has dispersed,
up to the end of 1997, a total of 17.3 million birr, 20 percent contributed by the Ethiopian
government and 80 percent covered by IDA, among more than 34,000 beneficiaries of which
65 percent were women. The reported recovery rate for 1996/97 of the successful scheme that
provided evidence for success of group based lending and specialized MFIs was 92 percent.
The legal foundation for the microfinance industry was laid in the country with the issuance
of Proclamation No.40/1996 on licensing and supervision of microfinancing institutions in
1996. MFIs established in accordance with the proclamation can provide a loan amount of not
more than five thousand birr on the basis of group guarantee and to borrowers who have
joined a membership arrangement as well as lend on limited scale to non-members on the
basis of physical or other collateral (Directive No. MFI/17/2002 of National Bank of
24
Ethiopia). The minimum annual interest rate on saving is 3% while interest rate charged on
loans extended by microfinance institutions is determined by the respective boards of the
MFIs (Directive No.MFI/13/2002 of National Bank of Ethiopia).
In line with the proclamation and different directives, 26 MFIs have been licensed until this
paper was compiled. According to Haftu (2004:57-8), the level of outreach achieved by the
MFIs until 2003 in terms of borrowers reached 720,980 with outstanding loan 510,066,701
birr in the hands of clients while the number of savers was hitting 801,858 with outstanding
317,579,539 birr. Worku (2000:126) noted that the overall objective the MFIs in Ethiopia is
poverty reduction by increasing the productive potential of the poor people, particularly poor
women headed households and improving household food security. However, the 20 MFIs
registered under the National Bank of Ethiopia until 2001 met less than 9 percent of the
demand for microfinance service (Wolday 2002, GTZ 2002).
Concerning loan distribution and repayment, Worku (2000:130) reported that loan sizes
provided by Ethiopian MFIs are modest, averaging about 50 birr to 5,000 birr to each client to
start using within 7 days and begin monthly repayments. According to Wolday (2002:9), all
MFIs in Ethiopia deliver limited and the same types of loan products to clients copying from
each other, and their methodologies and products are "supply-driven instead of being demand-
driven." Haftu (2004:60) wrote MFIs in Ethiopia are trying to move towards considering and
applying new approaches in group sizes and other procedures instead of following Grameen
methodology.
25
Gasha Microfinance Institution, one of the MFIs in the country, was licensed in 1998 under
the National Bank of Ethiopia. By the end of 2004, the institution had 10,734 clients served
by four branches in Addis Ababa and one branch in Debrezeit (Gasha 2004).
2.8. Empirical Microfinance Impact Studies on Ethiopia
Microfinance has become a growing sector in Ethiopia. This is partly because of the demand
created by the abject poverty in the country and encouraging policy atmosphere for the
microfinance services as part of poverty reduction strategy. Accordingly, there have been a
growing number of microfinance impact studies being conducted by academic institutions,
microfinance associations, government agencies, and funding organizations and donors. As a
result, it seems difficult to get all the impact studies undertaken by the host of actors and
partners. However, some of the studies to which the researcher granted access have been
reviewed here.
For instance, Wolday (2003: 42-3) concludes that the microfinance industry in Ethiopia
showed remarkable growth in terms of outreach. He states that the “MFIs have been
successful in addressing the financial needs of the rural poor.” Good repayment rates,
mobilization of significant amount of savings from the poor, and promotion of food security
among the poor were reported by the study.
Doocy et.al (2005) in their research on programmes of Wisdom Microfinance Institution in
southern parts of Ethiopia suggested that microfinance programmes have important impact on
nutritional status and well-being of female clients and their families. The paper noted that
26
clients were significantly less likely to be food aid recipients than non-clients. It also reported
success in reducing vulnerability to prolonged drought and food insecurity.
The paper by Fitsum and Holden (2005) indicated that the impact of participation in
microfinance resulted in positive changes in per capita consumption expenditure but not
statistically significant. The impact on off-farm income and children’s education was
statistically significant positive change. However, livestock holding is negatively correlated
with participation in the microfinance.
In his study undertaken in Amhara Regional State, Getaneh (2004) said that even though
microfinance programmes are expected to positively affect household economic portfolio,
income, coping mechanisms against risks, empowerment of the poor, food security, and
business profitability, “the available evidence suggests little progress in this regard.”
The findings of Mayoux (1998) shown that links between microfinance and women’s
empowerment are positive but limited by design, cost effectiveness in eliminating poverty,
and a misplaced diversion of resources. The paper stated many women did not control loan
use. Microfinance programmes in some cases create domestic tension between spouses, and
many women focused on personal rather than social objectives. In connection with women’s
empowerment, Padma and Getachew (2005) reported positive impact of microfinance.
Tsehay and Mengistu (2002) reported more positive impact of microfinance on poor women
in Ethiopia. They concluded that participation resulted in significant increase in household
income. Women were said to be able to provide for the basic needs of their families; had
27
control over resources; owned assets; able to cope up with risks; save more for future use; and
increased empowerment, among other things.
According to Meehan (2000), services of Dedbit Credit and Saving Institution had a
significant impact on increasing agricultural production, increasing trading activities,
increasing income, food supply, child education, clothing and other basic necessities. The
study concludes that the credit provision had a positive impact on alleviating poverty.
Asmelash (2003) said though not statistically significant, clients had higher income than non-
clients. He also reported more diversified income sources, building of key assets, improved
child education, increased access to health facilities and nutritional intake, and improved risk
management capacity.
Most (if not all) empirical microfinance impact assessment studies on Ethiopia reported
positive changes in the lives of the clients. However, some of the changes observed were not
significant.
In summary, microfinance has been carried out to alleviate poverty by connecting the poor
into productive economic circuit. This objective was expected to be attained by creating jobs,
increasing income, diversifying income sources, availing better access to health and
education, empowerment, and protecting against risks, among others. Practice, however,
revealed that the outcomes of microfinance have been both the anticipated positive changes
and in some cases unexpected negative results. These outcomes include generating sufficient
income to exit the low-income people from poverty and powerlessness; achieving slight
28
economic objectives in reducing poverty; and pushing the participants further into poverty.
Such mixed research findings cause prevailing doubt concerning positive impact of
microfinance that also became the beginning of this study.
CHAPTER THREE
METHODOLOGY
3.1. Theoretical Approaches
Microfinance impact assessment is comparing changes in important variables between two or
more points in time. This can be accomplished through a longitudinal research design by
collecting data at more than one point in time or a retrospective design, which is comparing
present with a previous point(s) in time in order to assess changes by using recall data. Due to
time and other resources shortage, the retrospective research design, which employs recall
data, was selected for the data gathering.
Besides, a quasi-experimental design that employs control group was used to rule out other
possible reasons for the changes by establishing plausible association between participation in
the microfinance programme and changes experienced. This was done with the assumption
that changes occurred to the control group that has not received programme services, but is
similar to programme participants on key factors such as gender and location, are changes that
would have occurred among the clients irrespective of programme participation. In other
words, differences in changes in the target group and changes in the control group reveal
changes that resulted from programme participation.
3.2. Data Types and Sources
29
Quantitative and qualitative data on loan disbursement and loan repayment were collected
from all branches and central office of the Gasha MFI. Data, quantitative and qualitative, were
gathered from target (experimental) group that includes clients that have been receiving
microfinance services for at least two years as well as control group, which comprises new
(pipeline) clients. Focus group discussions were also held with clients. In addition, case study
was undertaken to get in-depth qualitative data from ex-clients concerning their dropping out
of the microfinance programmes. Interview was held with staff of the MFI to get information
on issues such as client selection criteria and compliance of clients. Secondary data sources
such as annual and monthly reports, brochures, publications and records of Gasha
Microfinance Institution, Association of Ethiopian Microfinance Institutions, and National
Bank of Ethiopia were also used besides the primary sources.
3.3. Sampling Method and Sample Size
A stratified two stage cross sectional sampling method was employed for the study. At first stage the two oldest branches (Merkato and Gojjam Berenda) were identified for sample taking, and at the second stage both frequent clients (target group) and pipeline clients (control group) were selected.
Sample size was determined based on the Central Limit Theorem (Chandan 1998) that states regardless of the shape of the distribution of the population, the distribution of the sample means approaches the normal probability distribution as the sample size increases, and for this purpose the sample size of 30 or larger are considered adequate. Thus, a sample size of 80, frequent and pipeline clients, 40 from each of Merkato and Kolfe-Gojjam Berenda, the two oldest branches, was taken. The sample includes 35 female frequent clients (4 single, 19 married, 2 divorced and 10 widows), and 35 new female clients (3 single, 21 married, 4 divorced and 8 widows) as well as 5 males from each group. In addition, 30 dropouts were selected for case study and 20 clients participated in two focus group discussions.
3.4. Hypotheses and Variables
Microfinance impact assessment is identifying that the programme led to observed or stated
changes. To assess the changes, different indicators or variables can be used based on the
30
objective of the study and resources (human, financial and time) available. In this respect, the
four key research questions have been evolved into the following hypotheses, which were
further analyzed into different variables to be changed to assumptions to test.
1. Gasha Microfinance Institutions extends financial services to the poorest;
2. Microfinance services of Gasha MFI lead to reduction in poverty;
3. Financial services of Gasha MFI improve clients’ capacity to manage and cope up
with risks; and
4. Participation of women in microfinance programmes empowers them.
Attempts were made to test these assumptions in terms of the following indicators.
3.4.1. Outreach
Microfinance is supposed to be effective strategy to extend financial services to the poor and
other disadvantaged groups not reached by formal sector banks. Generally, outreach,
according to Webster and Fidler (1996:21), is evaluated in terms of scale (the number of
people reached) and depth of outreach (the extent to which clients are poor and/or under-
served by financial institutions.) The outreach of Gasha Microfinance Institution would be
studied considering the number of people receiving microfinance services, types of jobs in
which clients were engaged as livelihood, and their prior access to formal sector finance.
3.4.2. Poverty Reduction
Asset formation (including savings), incomes, expenditure, reduced dependency on financial
services from money lenders, increased ability to send children to school and access to health
facilities were used as indicators of reduction in poverty.
31
3.4.3. Building Capacity to Manage Risks
Microfinance programes are also expected to play protective role by enabling the vulnerable
groups such as the poor and female-headed households to cope up with risks. Whether
capacities of the clients have been improved to withstand misfortunes or not were studied to
assess the relation between microfinance and risk management. Attention was given to coping
mechanisms of the clients who faced risks and ex-clients’ reasons for dropping out of
programme participation.
3.4.4. Women’s Empowerment
Microfinance programmes are assumed to contribute to empowerment of women. To assess
this, decision-making role in household and community, ability to send children to school,
self-esteem, and business skill of female clients were studied.
3.4.5. Financial Sustainability and Serving the Poorest
Microfinance providers always claim to serve the poor. However, it becomes a challenge to
many microfinance providers to strike balance between providing financial services to the
poorest and becoming financially sustainable at the same time. In this respect, financial
sustainability of Gasha MFI, its outreach to the poorest, and loan repayment trends of the
poorest clients were studied.
3.5. Analysis
A statistical summary of field data was used to examine the impact of microfinance
programmes of Gasha Microfinance Institution. The method for analyzing the data included
test for statistically significant differences in the mean values between the target group and
32
control group. To test statistical significance of the differences in the mean values of the two
categories (experimental and control groups) t-test was used, and for comparing categorical
data chi-square test was employed. For the hypothesis testing, 95% confidence level (0.05
level of significance) was established.
In addition, a qualitative data analysis method with the support of quantitative data evidence
when available and necessary was used simultaneously. In carrying out the qualitative data
analysis, the mass of information was reduced and organized meaningfully by selecting and
focusing on research questions giving attention to patterns and common themes on specific
issue; deviations from the patterns, and the factors that might explain the deviations; and/or
interesting stories that help illuminate the research questions.
Finally, conclusions were drawn by stepping back to consider the meaning of the information
and its implications in relation to the key research questions.
33
CHAPTER FOUR
RESULTS AND DISCUSSION
In this section an attempt has been made to discuss how services of Gasha Microfinance Institution (MFI) have changed the lives of its clients. Data gathered through semi-structured interview, focus group discussion, and open ended case study questions with clients of the MFI, ex-clients and the MFI staff as well as collected from reports, records and brochures of the microfinance institution concerning the services and clients were mainly used for the analysis.
4.1. Outreach
Gasha Microfinance Institution is extending loans to group of people what it calls “productive
or active poor.” According to the MFI staff, to identify the productive poor, the institution is
using criteria such as getting engaged in micro-businesses (willing to get engaged in
productive activity), having permanent address, good health to carry out economic activity,
good social acceptance, productive age range (18-64), and preferably female household head
or member of female-headed household. However, the ‘active poor’ are given loans only if
their business proposals are assessed ‘feasible’ by the microfinance staff after the prospective
34
client filled a form that is supposed to be business project proposal. Accordingly, until the end
of 2004, Gasha Microfinance Institution extended microfinance services to 10,734 people, of
whom 6,990 are clients in Addis Ababa.
Table 1: Microfinance Outreach of Gasha MFI
Sourc
e:
Loan
disbur
semen
t
records of Gasha MFI (1999-2004)
The outreach of Gasha MFI might be considered low in relation with about 90 percent unmet
microfinance need in the country (Microfinance Development Review, Vol.III No. 2, 2004,
Editors Note) while some 26 MFIs are engaged in the business. However, as indicated in
Table 1, its outreach in terms of clients and loan disbursement shows increasing trend. When
compared with other microfinance institutions, outreach of Gasha MFI is neither the highest
nor the lowest. For instance, at the end of 2003, Gasha exceeded MFIs like Meklit,
Metemamen, Shashemen Edir, Eshet, Wassasa (though younger MFIs) in its outreach in terms
of loan size and number of clients while other such as Dedebit Credit and Saving Institution,
Amhara Credit and Saving Institution were far above Gasha in both as shown in Table 2.
YEAR
Outreach 1999 2000 2001 2002 2003 2004
No. of service outlet kebeles
38
40
52
82
112
118
No. of groups 467 877 1642 1480 2255 1858
Total group members
2802 5262 6569 6868 8469 10734
No. of women
2102 3947 4927 4824 5157 5553
Loans disbursed in birr (‘000)
1,443.2
2,590.5
3,529.0
3,870.9
5,265.5
8,548.7
35
Table 2: Microfinance Outreach of some MFIs (June 2003)
MFI Savers Borrowers Outstanding Loan in Birr (‘000)
Amhara 397,254 267,534 187,996.0
Dedebit 184,000 238,904 9,329.6
Metemamen 0 1132 275.7
Wassasa 3458 3458 2,484.5
Eshet 5399 5033 2,821.4
Shashemene Edir 2083 2083 1,300.0
Meklit 2904 2904 1,960.1
Source: Haftu (2004) Microfinance Development Review
4.1.1. Group Formation and the Poorest of the Poor
Gasha MFI is providing loans to the clients after they are voluntarily organized in a group of
4 to 6 members where all group members are accountable if any member fails to repay the
loan. The collective accountability, in turn, forced the clients to choose somebody whom they
think more reliable, have some assets and engaged in profitable business to form the group
with, and hence, escape the responsibility. In this regard, the clients interviewed were asked if
they accepted somebody without assets or business in their groups as a member. All the
interviewees (40 clients or target group members) unanimously reacted that they did not
accept such people as group members. They reject people without assets or businesses of
36
group membership lest they should fail to repay loans and make them accountable. This
shows that the poorest of the poor are being excluded from getting the microfinance services.
4.1.2. Access to Formal Sector Finance and Outreach
All the clients who participated in this study (40 clients) responded that they did not/do not
have access to formal sector banks. They also informed that they never accessed loans from
other microfinance institutions or any institutional body. Thus, it seems that Gasha MFI is
providing microfinance services to those who have not been served.
4.1.3. Employment of Clients
The types of activities at which the clients engage as livelihood may indicate their living
conditions. The clients were asked what their livelihoods were before they join loan
programme of Gasha Microfinance Institution to compare with their condition after
participation (see section 4.2.4). The responses include no jobs (2), embroidery (making
decorations on clothes manually) (1), renting a room with mat to low income passengers (1),
selling tella (home-made local beer) (6), selling injera (type of Ethiopian bread) in gulit
(small open-air road side market) (7), selling spice in guilt(5), selling tea in residential
home(1), making nappy (diaper) from remains of used clothes and selling to low income
households (2), selling grain in guilt(2), selling used household utensils (3), selling sindedo
(household utensils made of a strong grass) (2), running very small shops (2), selling food at
streets (2), selling dung for fuel (2), and selling malt at guilt (2).
4.1.4. Gender of Clients
37
Client records of Gasha Microfinance Institution indicate that 65.58 percent of clients in
urban branches, which are operating in Addis Ababa, were women (4,584 females of the
6,990 total urban clients). The share of women in some urban branches like Markato goes to
74.61 percent (see Table 3).
Table 3: Urban Female Clients of Gasha Microfinance Institution (2004)
Branch No. Clients No. Female Clients % of female clients
Merkato 1816 1355 74.61
Entotto 2137 1335 62.47
Kolfe-Gojjam Berenda 1858 1137 61.19
Yeka 1179 757 64.20
Source: Gasha Microfinance Institution Clients Record
To sum up the outreach, Gasha Microfinance Institution was delivering microfinance services
to 10,734 people living in 118 kebeles by the end of 2004. While giving the services, the
institution was selecting its ‘active poor’ clients who have been engaged or willing to engage
in micro-businesses, at good health conditions, have good social acceptance, and come up
with feasible business plan, among others. Although the MFI has set these criteria, it has not
been directly selecting its clients. It has been verifying only after they came to get the services
being organized in groups of about 4 to 6 members. During group formation, however, the
clients exclude those whom they think without assets and incomes (the poorest) for fear that
they may not repay loans and make them accountable. The clients, before joining the
microfinance programmes, did not have access to formal sector finance. Their livelihoods
such as selling tella, dung for fuel, food at streets, and making diapers from old clothes and
38
selling them to the poor people show that the clients were engaged in businesses with very
small returns. Concerning their gender, more than 65 percent of the clients in addis Ababa
were women. It is possible to understand from these that Gasha MFI is providing
microfinance services to almost the poorest. However, the real poorest of the poor who could
not deserve the institution’s ‘active poor’ status have been still marginalized by the selection
criteria and excluded by clients while forming loan groups for failure to win social acceptance
and trust.
4.2. Microfinance and Poverty Reduction
To examine whether participation in microfinance programmes resulted in reduction in
poverty, income and savings, expenditure, asset formation, diversification (improvement) in
livelihoods, reduced dependency on financial services from money lenders, improvements in
nutrition intake, increased ability to send children to school, and improved access to health
facilities were used as indicators.
4.2.1. Income and Savings
One of the major objectives of microfinance programmes is enabling the poor to generate enough income to exit them from poverty by investing in productive activities. Saving profits for emergency use besides future investment; and improving the quality of the lives of the beneficiaries are also objectives expected to be achieved by the provision of the credit and saving services.
4.2.1.1. Income
Microfinance programmes are mainly expected to reduce poverty by increasing incomes of
the poor households. Those households participating in microfinance programmes are
assumed to generate more income than non-participating families in similar conditions. In this
study, average weekly incomes of target group (40 clients that had been receiving
microfinance services at least for two years) and control group (40 newly joining or pipeline
39
clients), which were similar in location, livelihoods, and gender, were compared. To test the
assumption, the following two hypotheses were constructed.
Null hypothesis (H₀): There is no significant difference between the income of target group
(the frequent clients) and control group (pipeline clients.)
Alternative hypothesis (H₁): The income of frequent clients is significantly more than that of
the pipeline clients.
Here 95% confidence level (0.05 level of significance) was established to accept or reject the null hypothesis.
If we look at the descriptive statistics for the target and control groups in Table 4, the mean income of target group is more than the income of the control group. However, to ensure whether this difference is a matter of chance element or it is statistically significant, we
should look at the results of independent samples t test based on the decision rule: Reject H₀ if the significance value is less than alpha and do not reject it if it is greater than alpha.
Table 4: Independent Samples T Test Result for Weekly Income
Mean of Target Group
Mean of Control Group
Std. Deviation of Target G.
Std. Deviation of Control G.
Mean Difference
Sig. (2-tailed)
374.88
234.13
265.78
166.95
140.75
0.006
As indicated in Table 4, the mean difference in weekly income between the target group and
the control group is 140.75 birr. To test if the mean difference is statistically significant (to
decide if we should reject the null hypothesis or not), we compare the significance value to
alpha, which is usually 0.05. As the decision rule is reject H₀ if the significance value is less
than alpha and do not reject it if it is greater than alpha, and 0.006 is less than 0.05, we reject
the null hypothesis. Therefore, we can say that there is a significant difference between the
40
income of target and control groups, i.e. participation in the microfinance programme has
brought about increase in incomes of the clients.
4.2.1.2. Savings
Savings are critical indicators of improvement in the lives of beneficiaries of microfinance programmes. Households with increased savings have better economic and investment capacities in addition to increased ability to withstand risks. One of the objectives of Gasha Microfinance Institution, in this respect, is increasing saving capacities of the poor households it is serving. To assess achievement of this objective, savings of the clients were collected and presented in Table 5.
Table 5: Average Annual Savings of Clients
Year
Item
1999
2000
2001
2002
2003
2004
Average Saving in birr per Client 137 141 180 186 249 292
Source: Gasha MFI Records of Clients’ Saving Records (1999-2004)
As indicated in Table 5, clients’ savings show increasing trend. To test if the savings of the clients could directly be associated with participation in microfinance, similar hypothesis testing procedure was undertaken.
H₀: There is no significant difference in saving capacities between target and control groups.
H₁: Target group has significantly more saving capacity than the control group.
Table 6: Independent Samples T Test Result for Monthly Savings
Mean of Target Group
Mean of Control Group
Std. Deviation of Target G.
Std. Deviation of Control G.
Mean Difference
Sig. (2-tailed)
39.75
30.40
22.89
19.31
9.35
0.052
41
As Table 6 indicates, mean monthly saving of the target group 39.75 birr is more than that of
the control group (30.40 birr). Whether the mean difference (9.35) is statistically significant,
independent samples t test result is more appropriate. The t test shows that the significance
value for the savings is .052, which is little more than alpha (.05). Therefore, though the
monthly savings of target group are more than that of the control group, it can not be
considered as statistically significant. Thus, it could be said that participation in the
programme not yet resulted in significantly increased capacity to save for future use.
On the other hand, 17 of the 30 ex-clients included in the study informed that they dropped
out of the microfinance programe because they already saved much more than 2,000 birr,
which most members of loan groups agree to be the highest amount of money that a member
can receive in loan. Their opinion is that it is now possible for them to carry out a type of
business that can be undertaken with the very small loans Gasha is extending through the
group with their own money. They said if the group members agree on their receiving of loans
more than 2,000 birr or the institution arranged another way for individual loans that exceed
2,000 birr, they would have continued as clients. This indicates that some clients have saved
money that is enough to run their business.
4.2.2. Asset Formation
Asset formation, including building up of collateral for future loans, is among the key
indicators of microfinance impact. In other words, mcirofinance positively contributes to asset
building. To test this claim in the context of Gasha Microfinance Institution, qualitative and
quantitative data were gathered.
42
Information gathered through qualitative method shows that participation in the microfinance
programme resulted in positive impact. Clients participated in the focus group discussion
were asked what changes have occurred to their lives after 1st, 2nd, 3rd etc loans. One of the
responses of the clients was that they have built the asset with which they are making a living.
For instance, a female focus group discussion participant said she was making areke (a local
alcoholic drink) with borrowed pots and filtering utensils. But after first loan, she owned her
own such utensils. Others also spoke of purchasing better food and drinks making and serving
utensils. It was also learnt from the group discussion that after repaying loans, the clients have
goods in their small shops, which are sources of much confidence and sense of self-
sufficiency though they did not have money in cash.
To study if these changes are direct results of programme participation, independent samples t
test was carried out by constructing the following null and alternate hypotheses.
H₀: There is no significant difference in asset building between clients of microfinance and
non-clients.
H₁: There is significant difference in asset building between clients and non-clients of
microfinance.
To carry out independent samples t test, in this regard, 80 interviewees in two groups (40
frequent clients and 40 new clients) were asked whether they have built key assets during the
last two years. As indicated in Table 7, 12 of the 40 frequent clients (target group) and 7 of
the equal number of new clients (control group) reported owning assets such as tables and
chairs, radio/tape player, TV/deck, refrigerator, sofa, bed/mattress, and others like buying
electricity, pipe water and telephone services.
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When we see the descriptive statistics for the two groups in Table 7, the mean cost of key assets owned by the target group, 3643.08 birr is higher than that of the control group (2128.57 birr).
To reject or accept the null hypothesis by considering whether this difference is accidental (chance element) or statistically significant enough, t test was undertaken by SPSS at 95% confidence level.
Table 7: Independent Samples T Test Result for Two-year Expenditure on Key Assets
Mean of Target Group
Mean of Control Group
Std. Deviation of Target G.
Std. Deviation of Control G.
Mean Difference
Sig. (2-tailed)
3643.08
2128.57
4380.10
1361.33
1514.51
0.391
As indicated in independent samples t test result in Table 7, the significance value is 0.391,
which is greater than alpha (.05). As the decision rule here is reject H₀ if the significance
value is less than alpha and do not reject if it is greater than alpha, we can not reject the null
hypothesis. Therefore, it is possible to conclude that major asset building capacity has not
been resulted from participation in the microfinance programme.
The insignificance in achievements in terms of asset building might be related to the business
types of the clients. During the focus group discussion, clients were asked why they aren’t
showing significant changes or moving to bigger businesses. They said they are old women,
some are widows. It is very difficult to them to think of bigger businesses in which they have
never engaged. Most of them who are not educated said they don't know how to manage
bigger businesses and spoke of fear of taking bigger risk. Some of them also complained
against small loan size.
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4.2.3. Expenditure
As expenditure is a good proxy of a household’s living standard, an attempt was made to
collect expenditure on the interviewees’ monthly business labour cost, weekly business input
expenditure, monthly consumption cost, annual child education cost, and annual medical
service expenditure. However, due to recall related problems, data could not be gathered
except on weekly business input cost and monthly consumption expenditure.
4.2.3.1. Business Input Cost
Participation in microfinance programmes is supposed to stimulate business transactions of
the micro entrepreneurs, which could be observed in increased income and expenditure. To
examine the assumption that participation in microfinance improves households’ economic
capacities and, hence, increases business expenditure, independent samples t test was carried
out in the following way.
H₀: Mean weekly business input expenditure of target and control groups are not significantly
different.
H₁: Mean weekly business input expenditure of target group is significantly higher than that
of control.
Table 8: Independent Samples T Test Result for Weekly Business Input Cost
Mean of Target Group
Mean of Control Group
Std. Deviation of Target G.
Std. Deviation of Control G.
Mean Difference
Sig. (2-tailed)
45
245.70 149.45 185.88 96.94 96.25 0.005
As it was indicated in Table 8, when we see the descriptive statistics for the two groups, we
can see that the mean weekly business input cost of the target group (245.70 birr) is higher
than that of the control group (149.45 birr). This means that the business input cost of people
who receive the microfinance services, on average, is higher than that of who do not access
the service. To test the mean difference is statistically significant it is important to look at the
independent samples t test result. As the result indicates the significance value (.005) is much
lower than alpha (.05). Thus, the null hypothesis could not be accepted. Therefore, we accept
the claim that is accepted when the null hypothesis is rejected, i.e. the alternative hypothesis,
which states that mean weekly business input expenditure of target group is significantly
higher than that of the control group. This shows that microfinance programme is improving
economic role and status the clients.
4.2.3.2. Consumption Expenditure
Consumption is directly linked with the living conditions of households. And expenditure on
consumption, including nutrition intake, could be a good representative of the condition. In
this regard, to assess the impact of microfinance on consumption, monthly expenditures of
both groups were compared as follows.
H₀: Monthly consumption expenditures of both groups are not significantly different.
H₁: Monthly consumption expenditures of both groups are significantly different.
Table 9: Independent samples T Test Result for Monthly Consumption Expenditure
Mean of Target
Mean of Control
Std. Deviation of
Std. Deviation of
Mean Difference
Sig. (2-tailed)
46
Group Group Target G. Control G.
328.00
254.48
158.46
158.79
73.53
0.041
As Table 9 shows, mean monthly consumption expenditure of target group (328 birr) is
higher than the mean monthly consumption expenditure of the control group (254.48 birr).
This indicates that clients’ consumption expenditure is more than non-clients. To test whether
this difference is statistically significant, we should pay attention to independent samples t
test. Here we reject the null hypothesis because the significance value (.041) is less than alpha
(.05), and we can say that there is significant difference in consumption expenditure between
the target group (frequent clients) and the control group (new clients). Therefore, we can
conclude that microfinance is contributing significantly to the improvement of consumption
of the clients.
4.2.4. Improvements in Occupation
Improvements in the livelihoods (employment) of clients such as diversification or getting
engaged in the business with better return could be accepted as indicators of positive
microfinance impact. The clients were asked if there have been improvements in their
livelihoods since they began receiving loans. Their responses have been summarized in the
Table 10.
Table 10: Clients’ Responses on Improvements in Occupation after Taking Loans
Response Frequency Percent
Improved 33 82.5%
Not improved 7 17.5%
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Source: Data collected through interview
As presented in the above table, 33 of the 40 clients responded that their occupations were
improved after participating in the microfinance programmes. Improvements reported by the
clients from the two urban branches include increase in the amount of goods/services supplied
by them (8); establishing small shops instead of selling goods at streets and/or gulits (6);
beginning of businesses of those previously without jobs (2); diversification of business such
as selling food in addition to the local drinks (8); selling food instead of selling injera alone
(7); and establishing micro-businesses for children (2).
On the other hand, those clients reported no change or deterioration in their businesses noted
the causes of the problem as facing health problem; spending the money on funeral of
household and other disasters.
4.2.5. Reduced Dependency on Expensive Financial Services
One of the anticipated benefits of microfinance programmes is their clients reduced
dependency on financial services from moneylenders. In this regard, the clients were asked
questions concerning their dependence on financial services from moneylenders. A significant
number of interviewees, 18 of the 40 clients, reported that they were taking loans from
moneylenders prior to their participation in the loan programme of Gasha. They stated that
they were repaying loans at annual interest rate of 100 percent. Their reasons for depending
on such expensive financial services were purchasing business inputs; coping up with risks
such as death of household member, marriage ceremonies, theft of key assets and other
48
disasters. Their responses show that none of them were taking loans from moneylenders since
their participation in the microfinance programme.
4.2.6. Improvements in Nutritional Intake
One key indicator of the impact of microfinance on poverty is improving nutrition intake of
the participating households. To test this assumption in the context of Gasha MFI, the
following null and alternative hypotheses were constructed and chi-square test was carried
out.
H₀: There is no significant difference in nutrition intake between the two groups.
H₁: There is significant difference in nutrition intake between the two groups.
Both the target and control groups were asked what the trend of their nutrition intakes seems
during the last two years. As indicated in Table 11, 9 of the 40 interviewees (22.5%) of each
group responded their household nutrition intake has improved during the last two years. On
the other hand, 31 or 77.5% of the target group and 28 or 70% of the control group reated it
stayed the same while 3 or 7.5% of the control reporting worsening of the nutrition trend.
To test if these differences in nutrition intake are statistically significant, chi-square test was
carried out through SPSS and its result was summarized in Table 11.
The chi square test result (Table 11) leads us to accept the null hypothesis that there is no
significant difference in nutritional intake between the two groups. Therefore, here it could be
said that services of Gasha Microfinance Institution has resulted in improved nutritional
intake, but statistically significant change has not been achieved.
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Table 11: Chi-Square Test Result for Nutritional Intake
Target Control Nutritional Intake in Last two years Count % Count %
Sig. (2-sided)
Improved 9 22.5 9 22.5
Stayed the Same 31 77.5 28 70
Worsened 0 0 3 7.5
0.207
However, the responses of those clients who reported improvement in their nutrition intake
since their participation in the microfinance programme said that the new jobs created by the
loan, expansion of their businesses, and additional incomes from those activities caused the
improvement in the nutrition intake. The clients were asked to mention the types of
improvements or give examples. The answers of the nine clients are having sufficient to eat,
having variety of food to eat, taking animal and dairy products. They also said their
participation in the loan program enabled them to eat injera (better Ethiopian bread) instead
of Kitta (poor quality bread); make better injera at home instead of buying poor injera from
gulit; have enough food in home instead of the previous scarcity; take different types of foods
rather than eating the same type every day; and choosing what to eat instead of eating
whatever is available.
During the focus group discussion, participants were invited to express their views of positive
changes caused by the participation in the microfinance programme. One of their responses
was having enough grain (food) to feed their households. They said their real problem before
receiving loans was finding something to feed children enough. Almost all of the participants
of the discussion were speaking of finding the problem mitigated by the loans. In addition, the
client reported having enough resources to serve food and drinks to neighbors during
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celebrations of holidays and commemoration of death of household member, which they said
were previously causing humiliations to them.
4.2.7. Ability to Send Children to School
As increased ability of clients to send children to school and increase in their expenditure on
education were used as indicators of reduction in poverty, the interviewees were asked what
their annual child education expenditures have been before and after microfinance programme
participation. As the interviewees do not have culture of recording their incomes and
expenditures, they could not give the required information on annual education expenditure.
However, the interviewees were asked another question on children’s education that if they
think their children’s education has been improved during the last two years in relation to the
following null and alternate hypotheses.
H₀: There is no significant difference in improvement of child education between the two
groups.
H₁: There is significant difference in child education between the two groups.
Table 12: Chi-Square Test Result for Children’s Education
Target Control Children’s Ed. in Last Two Years Count % Count %
Sig. (2-sided)
Improved 6 15 11 27.5
Stayed the Same 15 37.5 14 35
Worsened 2 5 3 7.5
Don’t Know 17 42.5 14 35
0.514
Six of the target (15%) and 11 of control group (27.5%) responded improvement in child
education; 2 of the target (5%) and 3 of the control group (7.5%) reported worsening trend;
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while 15 of the target (37.5%) and 12 of the control group (30%) reacting stayed the same;
and 17 of the target (42.5%) and 14 of the control group (35%) answering don’t know. The
result of chi-square test for these counts (Table 12) leads us to accept the null hypothesis that
there is no significant difference in improvement of child education between the two groups.
This leads us to conclude that programme participation has not resulted in improvement in
children’s education.
4.2.8. Access to Health Facilities
To assess whether clients’ access to health services have been improved as a result of
microfinance programme participation, both the new and experienced clients included in the
study were asked at which one of the government, private or traditional health institutions
they get medical services when the face health problems. The following hypotheses were
formulated to test the assumption.
H₀: There is no significant difference in access to health service between frequent clients and
new clients.
H₁: Frequent clients have significantly better access to health service than the new.
As in Table 13 indicates, 22.5% of the target group and 7.5% of the control group get health
service in private health institutions while 70% of the target group and 90% of the control
group are getting the service in public health institution. The chi-square test result shows that
the difference in access to health service between the two groups is not significant, and we
accept the null hypothesis because we do not have sufficient evidence to reject it. Therefore, it
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is possible to say that microfinance programmes of Gasha have not brought about the
expected improvement in the access of clients to health facilities.
Table 13: Chi-Square Test Result for Access to Health Service
Target Control Household Member Gets Health Service Count % Count %
Sig. (2-sided)
Private Health Institutions 9 22.5 3 7.5 Public Health Institutions 28 70 36 90
Others 3 7.5 1 2.5
0.082
In general, the information gathered from the clients shows that participation of the people in
microfinance programmes resulted in reduction in poverty. The clients’ income improved.
They have built assets and saved money; their business inputs and consumption expenditures
increased; their livelihoods improved; their dependency on expensive financial services from
moneylenders decreased; their nutrition intake improved; and their access to health services
has improved.
However, the quasi-experimental comparison between target and control groups to establish
plausible association between participation in the microfinance programme and changes
experienced, with the assumption changes in the target group minus changes in the control
group reveal changes resulted from programme participation, only partially attributes the
changes to participating in the microfinance programme as significant.
In this respect, the independent samples t test shows that there is statistically significant
difference in income, business inputs expenditure, and consumption expenditure between the
target and the control groups. However, it indicated that there is no significance difference in
monthly savings and asset building between the two groups. On the other hand, the chi-square
53
test result shows that there are no significant differences in improvement in household
nutrition intake, ability to send children to school, and access to health facility between the
two groups.
4.3. Capacity to Manage Risks
Alongside poverty reduction, microfinance programmes are also supposed to build capacities
of clients to cope up with unfortunate events or they arrange risk pooling mechanisms to
compensate the low-income clients who may be adversely affected by risks. Clients were
asked if they faced major risks and how they could manage, and 30 of the 40 target group
interviewees reported facing risks during the last two years. Risks faced by the clients include
severe health problem (7), fall in price of goods that were purchased with higher prices (1),
death in the household (3) matrimonial ceremony (2), and theft of key assets (17). Twenty of
the 30 interviewees who faced major unfortunate events and informed continuing as clients of
the MFI, said that they continued repaying loans and running their businesses by making use
of savings in cash and/or assets. However, 10 of them (33.3%) said that they had been
repaying the loans and carried on their businesses by taking other loans from relatives or
friends.
Moreover, a significant number of the ex-clients included in the study, 13 of the 30 (43.3%), reported that they dropped out of the microfinance programme because they could not manage to continue as client by regularly repaying loans and carrying out their businesses after facing risks. The problems that adversely affected their economic capacities include repaying loans by selling assets; funeral expenses following consecutive deaths of household members; being left without resources after paying all they have for medical services; and being denied by business partners after transferring goods.
They reported that their economic conditions after encountering risks have been worse than that of their status before joining the microfinance programmes as they repaid loans by selling
54
key assets that they owned even before the loans. They were of the opinion that if somebody shared their burdens they would have been in better condition.
In short, the microfinance programmes have enabled some clients to control and manage risks they faced by making use of previous savings in cash and assets. However, some clients reported that they could not withstand the problems they faced with their own economic capacities. Therefore, they took additional loans, which may create vicious circle of debt burden, from relatives and neighbors to repay loans from the microfinance institution and to continue in the business. This calls up on the microfinance programme for an important missing component to build up capacities of the poor: establishing micro insurance scheme.
4.4. Financial Sustainability and Serving the Poorest of the Poor
Providing microfinance services to the poorest on permanent basis has been thought to be difficult because it might be impossible to generate sufficient revenues to cover all costs from the poorest clients. Therefore, it has been said that an MFI should either focus on the better poor or be subsidized. To assess this assumption, loan repayment trends, financial sustainability of Gasha Microfinance Institution, and outreach to the poorest were studied.
4.4.1. Loan Repayment Rate
One of the major factors needed to generate sufficient revenue to cover costs is loan
repayment rate (in addition to scale of lending and interest rate). In this regard, according to
Webster and Fidler (1996:34), “there is now strong consensus that repayment rates of less
than 95 percent are not acceptable.”
Table 14: Some Performance Indicators of Gasha Microfinance Institution Year
Items
1999 2000 2001 2002 2003
Repayment rate 78% 92% 90% 92% 94%
Financial self-sufficiency ratio 31% 79% 51% 54% 46%
Donations and grants ratio 40% 41% 42% 50% 41%
Source: Gasha MFI Annual Performance Indicators (1999-2003)
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As presented in Table 14, loan repayment rate of Gasha Microfinance Institution, the ratio of
the amount of loan collected during the year to the amount of loan expected during the year,
(from 1999 to 2003) has been less than the expected rate for financial self-sufficiency, though
it eventually approaches the needed level. The loan repayment of Gasha MFI (78% in 1999,
92% in 2000, 90% in 2001, 92% in 2002, and 94% in 2003) shows increasing trend (See
annexes 4 and 5 for detailed information).
4.4.2. Financial Sustainability of Gasha MFI
Financial sustainability is generating sufficient revenue to cover all operational and financial
costs. This depends on many factors such as rate of administrative cost, average number of
clients per credit officer, interest rate. For instance, to provide efficient microfinance service,
administrative costs should not exceed 10-30 percent, and average ratios of clients to loan
officers should be more than 200 (Webster and Fidler 1996). Financial sustainability of Gasha
Microfinance Institution was estimated by using its financial self-sufficiency ratio. The
institution’s financial self-sufficiency ratio here is the ratio of financial income to all costs of
the institution (Detailed data are presented in annexes 4 and 5)
.
As indicated in Table 14, Gasha Microfinance Institution has been generating not much more
than half of the revenue needed to cover full costs of service delivery. A lot of factors could
be accountable for the low level of financial sustainability. For example, nearly 50 percent
administrative cost (see Annex 5), which should have been less than 30 percent might cause
low level of efficiency.
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An interview was also conducted with the staff of the institution concerning the low financial
self-sufficiency. According to the staff’s response, low efficiency of the staff members in
carrying out tasks, lack of appropriate information system, lack of skill to disburse loans and
make necessary follow ups, market problem, and increasing trend of death and high
prevalence of diseases among staff members and clients in addition to providing the service to
poor people were accountable for the low level of financial sustainability. High operation
costs due to small amount of loans (500 birr to 2000 birr in many cases), and small interest
rate on loans (13 percent) could also cause low financial self-sufficiency.
While the MFI was generating revenues in the above way, it could only survive with
donations and grants (Table 14). Donations and grants ratio here is the ratio of operating
donations and grants to the average performing assets (See annexes 4 and 5 for detailed data).
As shown in Table 14, external bodies have covered 40 percent to 50 percent of the
institution’s costs and the institution has been heavily subsidized. When this is compared to
four MFIs, which, according to Haftu (2004:58), achieved financial self-sufficiency (Amhara
Credit and Saving Institution (143%), Dedebit Credit and Saving Institution (100%), Eshet
(131%), and Wassasa (170%), it may be considered as significantly low. If the institution
continues that way and the donations terminate, it may collapse because subsidized
programmes cannot survive overtime as funding may dry up.
4.4.3. Outreach to the Poorest and Loan Repayment
To study whether the clients of Gasha Microfinance Institution are the poorest of the poor, its
clients’ selection criteria were identified. The criteria include involvement in micro-
businesses (willingness to get engaged), with permanent address, good health to carry out
57
productive economic activity, good social acceptance, productive age range (18-64),
preferably female household head or a member of such household, and able to come up with
feasible business project proposal.
However, not only the institution selects the clients. As loans are given to people organized in
collectively responsible groups, clients decide who their group members should be. In this
regard, all the clients interviewed responded that they chose people whom they think to be
more reliable to repay loans, with assets, and jobs. They informed excluding those whom they
thought without assets, jobs, income sources or not socially acceptable.
Employments of the clients were also used as proxies of their poverty. Few of the clients
(three of the 40 interviewees) did not have jobs before joining the microfinance programmes
while most of them were engaged in the following activities, which are generally acceptable
as very small businesses in which poor people engage. These are selling tella (local
homemade beer), selling injera (type of bread) in gulit (small open-air roadside market),
making diaper from old clothes and selling to the poorest households, and selling sindedo
(household utensils made of grass).
To put in a nutshell, although repayment rates were more than 90 percent, Gasha
Microfinance Institution has not been generating sufficient revenue to cover all costs. This
might have been caused by high operation costs due to provision of small amounts of loans
(in most cases not more than 2000 birr per person per year) and low interest rate on loans.
Therefore, almost half of the costs of the MFI have been covered by donations and grants.
This has been happening while the extremely poorest of the poor were still being excluded
58
from getting microfinance services due to the ‘active poor’ selection criteria of the MFI and
clients unwillingness to include the poorest of the poor in loan group fearing the
accountability.
4.5. Women’s Empowerment
Microfinance programmes are supposed to empower women through increased role of decision-making in the household and community, improved business skills, better incomes, greater self-confidence, and better social acceptance, among others. Women who are participating in the microfinance programmes are also assumed to feel less marginalized, and have higher aspirations for their children’s education.
4.5.1. Decision-Making Role
Microfinance is assumed to positively increase women’s decision-making role within the
household, business and community. The women’s involvement in the microfinance funded
new businesses and expansions in the existing ones are expected to open opportunities for
them to gain new experience, which in turn would enable them to contribute something
constructive to the benefits of their families or the communities. In this regard, to test if there
is significant difference in women’s decision-making role within household between
participants and non-participants, these hypotheses were formulated:
H₀: There is no significant difference in women’s decision-making role within household
between frequent clients and new clients.
H₁: Frequent women clients play significantly increased decision-making role within the
household than new women clients.
59
Data gathered from 40 frequent and 40 new clients are summarized in SPSS output (Table
17).
Table 15: Chi-Square Test Result for Decision-making in Household
Target Control Decision-making in Household Count % Count %
Sig. (2-sided)
Mostly Husband 1 2.5 1 2.5
Husband and Wife 5 12.5 12 30
Wife Only 29 72.5 18 45
Others 5 12.5 9 22.5
0.193
The result in Table 15 shows that 12.5% (5 of the 40) of the frequent and 30% (12 of 40) new clients responded that wife and husband make decisions while 72.5% (29 of 40) of the frequent clients and 45% (18 of 40) of the new clients were reporting wives alone make decision within the household. However, the chi-square test shows that the difference between the two groups is not significant enough to draw conclusion about the two populations. Therefore, we can conclude that programme participation did not contribute significantly to improvement of women’s decision-making role in the household.
Table 16: Chi-Square Test Result for Decision about Loan Taking
Target Control Decision about Loan Taking Count % Count %
Sig. (2-sided)
Husband and Wife 4 10 6 15
Mostly Wife 0 0 2 5
Wife Only 31 77.5 23 57.5
Others 5 12.5 9 22.5
0.193
Similarly, as the chi-square test result in Table 16 is indicating, there is no statistically significant difference in women’s decision-making role concerning loan taking between participants and non-participants. This shows that microfinance services of Gasha did not result in increased decision-making role of women concerning their businesses.
Improved living conditions, increased business transactions, training, group meeting and other microfinance related benefits are expected to increase women’s decision-making role and
60
participation at community level. To test this assumption in the context of Gasha Microfinance Institution, the following null and alternative hypotheses were constructed.
H₀: There is no significant difference in women’s decision-making role at community level
between frequent clients and new clients.
H₁: Frequent women clients play significantly increased decision-making role at community
level than new women clients.
As the following chi-square test result in Table 17 shows, there is no enough evidence to
reject the null hypothesis, and we accept the assumption that there is no significant difference in women’s decision-making role at community level between frequent clients and new clients in the context of Gasha microfinance Institution. Therefore, it is possible to conclude that programmes did not result in increased role of women in decision-making at community level.
Table 17: Chi-Square Test Result for Women’s Role in Community
Target Control Role of woman in the Community Count % Count %
Sig. (2-sided)
Participate as Committee Member 3 7.5 0 0
Participate as Community Member 0 0 1 2.5
Attend Meetings when Invited 0 0 1 2.5
Never Participate in Community Dev’t 31 77.5 27 67.5
Others 6 15 11 27.5
0.130
Nevertheless, the responses of the frequent clients indicate that taking loans, repaying them,
business training, group meetings, and undertaking businesses made them resourceful to
generate ideas during discussions concerning family or community issues. Those women who
informed to be household heads (widows or divorced) and making decisions already on the
affairs of their families said their participation in the microfainance programmes further
increased their decision-making roles by broadening their experiences.
4.5.2. Business Skills
Female clients were asked whether their skills and capacities to undertake businesses
independently have been improved after their participation in the microfinance programmes.
61
Of the 40 women clients interviewed, 30 informed that their skills to independently carry out
economic activities have been developed as the loans widened their horizons of business
transactions besides the business training they were given by the microfinance staff. They said
the group meetings and supervision by the microfinance staff have also been enhancing their
business skills. Those women who informed not having jobs before taking loans said that the
microfinance programme introduced them to the business world and productive economic
activities.
4.5.3. Self-esteem
All of the women who asked if their self-esteem has increased since they started taking loans reported improvement in their self-confidence. They explained that increases in their incomes due to the new activities started with the loans and expansion of the already existing businesses helped them feel productive, important and equal with anybody else. During the focus group discussion, a woman spoke of being a widow with five children, said being capable to buy clothes, even used clothes, to her children after taking loans and seeing them happy gives her the very sense of equality within the community she lives. Many of the women participated in the focus group discussion were also saying that having enough food and drinks during holydays and other ceremonies to the extent that even to invite their neighborhood soothed the pains that make them suffer from feeling inferior to others when they could not do so during those occasions. They also said their better economic status has given them better acceptance of the society, and better acceptance by the community in turn is improving their self-esteem.
4.5.4. Sending Children to School
The interview and the focus group discussion indicated that there are no significant changes
in the clients’ spending on education after taking loans as some of their children are not going
to schools at all and if they go they go to government schools where education is free. The
interviewees also reported that microfinance did not contribute much to children’s education
or they do not now if it contributed any thing.
4.5.5. Women and Compliance to Regulations
62
Microfinance institutions' preference of women to men has been controversial. One side of the
argument says that women have become MFIs' focus of attention because women have been
marginalized in the socio-economic relation in many communities. Another side of the issue
argues that microfinance institutions have been preferring women not only because women
are marginalized but also they are good at loan repayments. To study this issue, attempts were
made to identify differences in repayment rates between men and women. However,
repayment rates have been the same for both as they had been results of group efforts rather
than that of individuals due to collective accountability. The staff of Gasha Microfinance
Institution, including management and loan officers, was asked if there are differences in loan
repayment and compliance to other rules between men and women. The response of the staff
is that women had been far more reliable and compliant than men. They said women repay
loans without pressure and they regularly attend group meetings. The management in
particular said that women are more disciplined and trustworthy than men. According to the
staff response, even though the institution's preference of women clients is due to its
humanitarian background, it is recruiting more female staff members because they are more
compliant than males.
In summary, although women have been good clients, microfinance programmes of Gasha
have been empowering them by increasing their business skills; improving their self-esteem;
and increasing their role of decision-making in household and community through improved
access to jobs, training, expanded businesses, supervision and group meetings. However,
when decision-making role played by the client women was compared with that of the
pipeline clients, no significant difference was observed, In addition, no improvements were
reported in ability to send children to school.
63
CHAPTER FIVE
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
Microfinance impact assessment is studying whether programmes are bringing about desired changes in the lives of participants. In this regard, to assess what changes have been caused in the lives of clients of Gasha Microfinance Institution as a result of participation in the microfinance programmes, attempts have been made to study which groups among the poor have been reached by the MFI; whether the microfinance services led to reduction in poverty; if the services built capacity of clients to manage and cope up with risks; whether serving the poorest of the poor and becoming financially self-sufficient at the same time is possible; and if women's participation in the programmes has been empowering them. The results have been summarized and then recommendations have been forwarded.
5.1. Summary and Conclusions
The findings of the study, in relation to the key research questions, are summarized as follows:
1. Gasha Microfinance Institution has been providing microfinance services to the group
of people that it calls 'productive or active poor.' The institution uses being engaged in
micro-businesses or willing to get involved in such activities, with permanent address,
good health to undertake economic activities, having good social acceptance, being in
productive age range (18-64), and preferably being female household head or member
of female headed household as selection criteria. As the loans have been extended to
people voluntarily organized in collectively accountable groups, the clients also
choose whom their group members should be. In the process, clients have not been
willing to accept those whom they think without assets, incomes or not reliable to
repay loans lest they should be responsible for the debt. Although the clients' lack of
access to financial services, their occupations such as selling dung for fuel, and most
being women show that the people participating in the microfinance programme were
64
almost the poorest, the extremely poorest of the poor have been marginalized by the
client selection criteria of the MFI and excluded by self-choosing mechanism of the
clients.
2. Poverty among the clients of Gasha Microfinance Institution after their participation in
the programmes, to some extent, is in declining trend. Even though majority of
interviewees informed not building key assets since receiving microfinance services,
they have been saving money regularly. The clients owned assets with which they
make a living, like local drinks making and selling utensils, instead of the prior
borrowed or shared tools. Businesses of most interviewees were expanded or
improved in some ways. Those clients who were receiving expensive financial
services are no more depending on loans from money lenders. Their nutritional intake
(amount, quality and variety) was improved.
To plausibly associate these changes reported by the clients with the programme participation, comparison was carried out between participants and non-participants. The significant differences in income, expenditure (business input cost and consumption expenditure) show that the changes in these variables were caused by participation in the microfinance programme. On the other hand, the tests show that even though there are differences in monthly savings, asset building, nutritional intake, ability to send children to school, and access to health facilities between the two groups, they are not statistically significant.
3. Most present clients and some ex-clients informed that they faced major risks while
they were carrying out economic activities with the loan they received from Gasha
Microfinance Institution. Some clients managed and controlled risks such as severe
health problems, fall in prices of goods, flood, fire accidents, theft of key assets, and
death of household member by making use of savings in cash and assets. However,
part of the clients could repay loans and continue membership by taking other loans,
65
and a significant number of the ex-clients dropped out of the microfinance
programmes as they could not cope up with the unfortunate events they faced. In
short, although some clients could manage risks with their economic capacities, many
clients have been pushed further into indebtedness or dropping out of the programme
when they encounter major risks as they could not withstand the unfortunate events.
4. Hypotheses testing concerning women’s empowerment show that there is no
significant difference in decision-making in household, business, community as well
as ability to send children to school between the frequent clients and new clients.
However, qualitative data gathered from the clients through focus group discussion
show that their business skills were improved. The clients said that their self-esteem
has been improved as they feel productive, important and equal with any body else
due to undertaking relatively better profitable economic activities. Taking loans,
repaying them, business training, undertaking productive activities, and group
meetings enabled women clients to be resourceful to generate ideas during discussions
concerning household or community issues that in turn increased their role of
decision-making. At the same time, women were found to be good clients in issues
such as loan repayments and regularly attending meetings.
5. Gasha Microfinance Institution is providing financial services to the 'active poor'.
Loan repayment rate of the 'active poor' has been less than 95 percent, which is a
minimum acceptable repayment rate to generate sufficient revenue to cover all costs.
Due to problems such as the low repayment rate and high administrative expense, the
institution has not been earning enough income to cover its costs. As a result, its
financial self sufficiency is around 50 percent. Low efficiency of the institution, lack
66
of appropriate information, market problem, and increasing rates of disease and death
among staff and clients, among others, were mentioned as accountable for the low
financial sustainability. Consequently, almost half of the cost of the institution has
been covered by donations and grants. The MFI could not be financially sustainable
while the extremely poorest of the poor were still excluded from getting microfinance
services by the selection criteria of the institution and clients in group formation.
Therefore, whether it is possible to provide financial services to the poorest and
become financially sustainable at the same time is not conclusive from the context of
Gasha Microfinace Institution, which has not been financially self-sufficient while the
poorest of the poor being left out.
5.2. Recommendations
Based on the findings, the following recommendations were made.
1. The poorest of the poor who have been excluded by the selection criteria of the
institution and group formation of clients could be provided with microfinance
products. Microfinance institutions like Gasha, which have been securing donations in
millions in the name of serving the poor, can arrange mechanisms to improve
technical and business skills of the poorest through training. Instead of considering the
poorest as needing direct assistance in the form of aid, it is possible to enhance their
business skills to use credit and establish market channels for their products until they
do that independently.
2. The progresses observed in poverty reduction can be further enhanced. If various ways
were arranged to extend loans, economic capacities of those clients needing bigger
loans could have been developed. Individual loans could address the problem of the
67
maximum loan size ceiling of 2,000 birr decided by most group members for fear that
they should be accountable. Different microfinance products (loan sizes) matching
varying borrowing powers of clients may meet credit and business needs of diversified
clients.
3. To withstand unfortunate events, limited asset bases of clients that shake when they
face risks could be enhanced if significant results are achieved in reducing poverty.
Training on business may also help clients to minimize transaction related risks. On
the other hand, micro-insurance scheme could be established to enable poor clients to
pool risk or share losses that individuals may not withstand.
4. Empowerment of women reported by clients in terms of business skills, and self-
esteem could also be further extended to decision-making roles, and improving their
capacities to send children to school.
5. Gasha Microfinance Institution should strive to achieve financial self-sufficiency by
increasing repayment rate, by decreasing administrative expenses and strengthening its
overall institutional efficiency. If the MFI could not manage to become financially
self-sufficient, it may not survive overtime as funding could dry up.
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Annex 1
Addis Ababa University
School of Graduate Studies
Regional and Local Development Studies
Questionnaire for the survey on the Impact of Microfinance in Ethiopia: the Case of Gasha
Microfinance Institution in Addis Ababa
Code: -------------
Branch: _______________ Enumerator: ___________ Date: _________
Dear Respondent,
The purpose of this questionnaire is to gather information to write a research paper
on the impact of microfinance. Personal responses of interviewees would be kept
confidential, and there would not be any link between status in the programme and
responses.
Therefore, you are kindly requested to give accurate information as much as possible.
Thank you
Part 1. The Respondent
1.1 Name __________________________
1.2 Age ____________
1.3 Gender ____________
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1.4 Marital status: 1. Single 2. Married 3. Divorced 4. Widowed
1.5 Household size _______________________
1.6 Education level _________________
1.7 Participation in the microfinance programme 1. New (less than six months) 2.
Frequent (more than two years) 3. Other (specify)
___________________________________________________
1.8 Year and month of first loan taking __________________________
Part 2. Access to loan, loan utilization and repayment
2.1 Did you have an access to credit before joining microfinance programmes of
Gash? 1. Yes 2. No
2.2 If your answer for question 2.1 is yes, state the sources of the loan, amount of
the loan and purpose of borrowing
Source Amount of loan Purpose of borrowing
____________ __________ _________________
____________ ___________ __________________
____________ ___________ ___________________
2.3 Have you repaid the loan? 1. Yes 2. No 3. Partially
2.4 If you haven’t repaid the loan, state your reasons for not repaying
___________________________________________________
2.5 How many times have you received loans from Gasha Microfinance
Institutions? _____________________________
Year of borrowing Loan size in birr Amount repaid
First year _________ ____________ _____________
Second year _______ ____________ _____________
Third year ________ ____________ _____________
Fourth year ________ ____________ _____________
Fifth year _________ ____________ _____________
2.6 What guarantee did you give to Gasha Microfinance Institution for giving you
the loan?
4. Group responsibility
5. Guarantee of salaried individuals
6. Guarantee of individuals having assets like home, car etc
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7. Other (specify) ___________________________________
2.7 Have you and your group been willing to accept people without any assets and
business activities as group members? 1. Yes 2. No
2.8 If your answer for Q. 2.7 is no, state why you have not been willing to accept
people without assets as group numbers
__________________________________________________
2.9 For what purposes did you receive loan from Gasha Microfinance Institution?
Intended purposes Amount of loan
1. ___________________ _________________
2. ___________________ _________________
3. ___________________ _________________
2.10 Did you spend the total amount you borrowed on the purposes intended? 1.
Yes 2. No
2.11 If your answer for the question above is no, state the other purposes on which
you spent the money
___________________________________________________
2.12 How do you see the interest you pay on loans? 1. Too high 2. High 3.
Normal 4. Low
2.13 Was the loan sufficient to carry out your purpose? 1. Yes 2. No
2.14 If your answer is no, what alternative steps did you take to carry on the
business? ____________________________________________
2.15 Has the loan repayment been suitable for you? 1. Yes 2. No
2.16 If no, note why it has not been suitable for you
Reason ___________________________________________
2.17 Would you state the amount of loan you did not pay so far? _________
2.18 Have you ever been faced with problem for not repaying loans?
1. Yes 2. No
2.19 If yes, state the problems _______________________________
2.20 Did you take loans from moneylenders before two years or you began receiving
credit from Gasha Microfinance Institution?
1. Yes 2. No
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2.21 If yes, why you received the loans and with what amount of interest rate you
used to repay loans to moneylenders?
Purpose of loan from moneylenders_________________________
Interest on the loan ______________________________
Part 3. Income, Assets and Expenditure
3.1. What is your source(s) of income? What do you do for living?
____________________________________________
3.2. How much is your mean weekly income? ______________________
3.3. Do you have other source(s) of income different from that is being financed by
the loan? 1. Yes 2. No
3.4. State other income sources
Other source(s) of income______________________________
Amount of mean weekly income__________________________
3.5. Do you have a saving account? 1. Yes 2. No
3.6. If yes, how much is your mean monthly saving? _______________
3.7. What is your source of money for saving?
1. Business financed by the loan
2. Another business different from that is financed by the loan
3. Gift from relatives/friends
4. Other (specify) ________________________________________
3.8. Have you acquired key assets during the last two years? 1. Yes 2. No
3.9. If yes, which of these assets have been owned?
Assets Prices Source of money
1. Chairs/tables/benches ____________ _____________
2. Radio/tape player ____________ _____________
3. TV/Video player ____________ _____________
4. Stove ____________ _____________
5. Refrigerator ____________ _____________
6. Sofa ____________ _____________
7. Bed/mattress ____________ _____________
8. Others (specify) _______________________________________
3.10. Do you use hired labour for your business? 1. Yes 2. No
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3.11. If yes, what is the average cost of labour for your business? _________
3.12. Do you use purchased inputs in your business? 1. Yes 2. No
3.13. If yes, what is the average weekly cost of inputs? _________________
3.14. What is your household’s mean monthly expenditure of consumption (food,
electricity, telephone, water, etc)? _____________________
3.15. State your household’s mean annual expenditure on:
Clothing _________ Medical service _________ Education _______
3.16. Has there been any improvement (change) in your livelihood since your
participation in the microfinance? 1. Yes 2. No
3.17. If yes, what kinds of changes or improvements happened to your livelihood?
Give examples.
______________________________________________________
________________________________________________
Part 4. Nutrition Intake, Health and Education
4.1. What has been the trend in your household’s nutrition intake over the last two
years? 1. Improved 2. Stayed the same 3. Worsened
4.2. If improved, how has it been improved?
1. Consumption of more food (increase in quantity)
2. Consumption of variety of food (vegetables, legumes, pasta etc)
3. Consumption of animal/dairy products (meat, milk, cheese, egg etc)
4. Other (specify) ______________________________________
4.3. If your household’s nutrition intake improved state what caused the
improvement and give examples of the
improvement_____________________________________________
__________________________________________________
4.4 Where do your household members go when they face health problems?
1. Private health institution
2. Public health institution
3. Traditional healers
4. Others (specify) ____________________________________
4.5. If your household members do not go to health institutions, what is the main
reason?
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1. Shortage of money to pay for medical services
2. Preferring traditional healers and herbal medicines to modern health
institutions
3. High costs of medical services
4. Others (specify) ___________________________________
4.6. If your household members go to health institutions, what was the source of
money for the medical services?
1. Business profits
2. Savings
3. Borrowing from relatives/friends
4. Others (specify) ____________________________________
4.7. How many children in your household are at school age? ____________
4.8 How many of the children are presently attending school? _________
4.9. What was the trend in number of children attending school over the last two
years?
1. Increased 2. Decreased 3. Stayed the same
4.10. If increased, what contributed to the rise?
1. Establishment of new schools in the area
2. Improvement of the household’s income
3. Enrolment of those children newly joined school age
4. Others (specify) _______________________________________
4.11. If decreased, what are the reasons?
1. Shortage of Money
2. Need of help in business activity
3. Children’s completion of school
4. Others (specify) ______________________________________
4.12. (Frequent clients only) Did the loan contributed to children’s education? 1. Yes
2. No
4.13. If yes, state how it
contributed______________________________________________
________________________________________________
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Part 5. Women’s Empowerment (Female respondents only)
4.1. Who makes decisions within the household concerning issues such as sending
children to school; buying food or clothes?
1. Husband only 2. Mostly husband 3. Husband and wife 4. Mostly wife 5.
Wife only
5.2. Who decides taking loans?
1. Husband only 2. Mostly husband 3. Husband and wife 4. Mostly wife
5. Wife only
5.3. Who makes decisions on utilization of loans, what inputs to buy; and how to
sell products? 1. Husband only 2. Mostly husband 3. Husband and
wife 4. Mostly wife 5. Wife only
5.4. What do you do when you want to buy something for yourself or the
household?
1. You buy what you need because you have some money of your own
2. You always ask husband for money
3. You sometimes have money and sometimes ask husband
4. Other (specify) _____________________________________
5.5. Which of the following represents your role in the community?
1. You participate in community/kebele development efforts as committee
member
2. You participate in community development as member
3. You only attend meetings when invited
4. You never participate in community development efforts
5. Others (specify) ______________________________________
5.6. (For frequent clients only) Has your participation in the microfinance
improved your decision-making role in the household, business or
community? 1. Yes 2. No
5.7. If yes, state how it
improved____________________________________________
____________________________________________
5.8. Is there any change in your business skills since your participation in the
microfinance? 1. Yes 2. No
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5.9. If yes, state the changes and what caused
them_______________________________________________
____________________________________________
5.10. Do you think that loan taking contributed anything to your self-esteem? 1. Yes
2. No
5.11. If yes, state how it
contributed__________________________________________
____________________________________________
Part 6. Risk Management
6.1 Have you encountered any major risk that adversely affected your business
over the last two years?
1. Yes 1. No
6.2 If yes, what risk (s) have you faced?
1. Illness of household member
2. Death in the household
3. Theft of key assets
4. Dramatic price fluctuation
5. Matrimonial ceremony
6. Other (specify) _______________________
6.3 What damages were caused to your business by the risk?
__________________________________________________
___________________________________________________
6.4 What measures have you taken to solve the problem/how did you cope up with
the risk you faced? ______________
__________________________________________________
6.5 (For frequent clients only) How did the loan you received from Gasha help you
solve the Risk? _____________________________________
Annex 2
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Summary of Focus Group Discussions
1. Client view of positive change/improvement as a result of participation in
microfinance programmes:
The participants said their major problems before their participation in the microfinance
programmes were shortage of food for the household, clothes particularly for children, and
shortage of resources to celebrate holidays and related occasions or commemorate death of
relatives.
They said additional incomes from activities related with the microfinance programmes
enabled them to buy enough grain (food), of what ever kind, to feed the household
sufficiently. The activities began or expanded with the loans mitigated the problem of clothes
for the children. Their pains during holidays and celebrations by the feeling of inferior to
neighbors is almost fading away as they can do what has been done at the occasions, and they
could make drinks and food at their homes as any body else.
2. Changes occurred after 1st, 2
nd, 3
rd etc loans
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They said food is more or less available at home. They were not much worrying about
what to feed children. They have been creating assets with which they were making a
living. For instance, a woman said she was making areke with borrowed pots and filtering
utensils. But after first loan, she owned her own such utensils. The participants who sell
drinks and food said they purchased better food making and serving utensils. After
repaying loans, they have goods in their small shops, which they said are sources much
confidence and sense of self-sufficiency though they didn’t had cash in such times.
3. Why aren’t the clients showing significant changes or moving to bigger
businesses
They said they are old women, some are widows. It is very difficult to think of bigger
businesses. They have never engaged in such businesses. Most of them are not educated. They
said they don't know how to manage bigger businesses. They spoke of fear to take bigger risk.
On the other hand, some of the participants said they wanted to start bigger businesses. But
their group members are not allowing them to receive loans more than 2,000 birr. That why
they are still running very small businesses.
Annex 3 Summary of interview with Gasha Microfinance Institution staff
1. What criteria does Gasha Microfinance Institution use to select its clients?
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Gasha Microfinance Institution provides microfinace services to the active or productive poor.
Active poor are those who have been engaged in micro-businesses or willing to get engaged.
The client must be an Ethiopian with permanent address in the kebele that the MFI is
operating. S/he must be in good health condition; must have good social acceptance; be in
productive age range (18-64); preferably a member of female headed household or female
household head; and should come up with feasible business project.
2. Why Does Gasha Microfinance Institution focus on women as clients?
Gashsa Microfinance Institution gives priority to women as they are disadvantaged in socio-
economic relations. The institution wants to give opportunities to women to realize the
potential.
3. How do you see women clients' repayment rates and their compliance to rules in
comparison with men clients?
Women have been the most obedient clients. We do not exert any additional pressure on
women to repay loans like we do with men. They regularly attend group meetings. They obey
any rule when they are informed about it. That is why the institution is recruiting more female
staff members. They really comply to rules and regulations.
4. Financial self-sufficiency of Gasha Microfinance Institution is low. What are the
reasons?
Financial self-sufficiency of the institution has been low because the efficiency of its staff to
execute activities is low; the institution targeted on poor (miss targeting); lack of appropriate
information; lack of skill to appraise loans and to follow up; and high prevalence of diseases
and increasing trend of death among staff members and clients.
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Annex 4
Balance Sheet of Gasha Microfinance Institution
Assets
F/Y 1998/99 2000 2001 2002 2003
Current assets
Cash 1,685,431,29 3,074,129.08 4,076,816.00 4,368,787.00 3,768,140.45
Loan 685,324,41 1,757,222.33 2,446,939.00 2,596,213.00 2,765,661.82
Loan loss reserve (358,927.00) (453,724.00)
Short-tern investment 2,000,000.00
Interest receivable 1,181.21
Stock 39,314.79
Other short term assets 153,659,32 295,745.68 469,664.00 387,775.00 88,205.19
Net fixed Assets 192,571.01 324,788.61 468,682.00 522,916.00 422,811.45
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Total Assets 2,716,986.03 5,451,885.70 7,421,967.00 7,421,967.00 9,085,314.93
Liabilities
Current liabilities
Savings 386,536.09 748,366.78 1,281,008.00 1,418,743.00 2,110,068.63
Creditors 398,555.56 512,267.25 577,328.00 486,030.00 244,655.74
Long-term loan 1,021,158.78 2,258,754 2,857,516.00 2,765,218.00 4,349,243.71
Total liabilities 1,806,250.43 3,519,387.60 4,715,852.00 4,669,991.00 6,703,968.08
Net assets 910,735.60 1,932,498.10 2,387,322.00 2,751,976.00 2,381,246.85
Capital & reserves
Paid- up capital 200,000.00 200,000.00 213,100.00 217,400.00 217,800.00
Donated capital 1,178,854.09 1,821,905.35 2,488,690.00 2,953,219.00 2,711,299.99
Profit &loss account (468,118.49) (89,407.25) (314,468.00) (418,643.00) (547,753.14)
Total equity 910,735.60 1,932,498.10 2,387,322.00 2,751,976.00 2,381,346.85
Source: Financial Statement of Gasha MFI (1998-2003)
Annex 5
Income Statement of Gasha Microfinance Institution
Income F/Y 1998/99 2000 2001 2002 2003
Interest income from loan 87865.64 357718.04 535629.00 417525.11 541307.55
Interest on saving deposit &investment 143941.89 73842.45
Service charge 20289.19 53143.74 88106.00 144539.00 161765.49
Commission income on trust fund 15875.00 79143.71 17000.00 21165.00 28374.41
Other income 52808.57 141581.43 187453.00 143942.00 43642.24
Total income 176838.40 631586.92 828188.00 871113.00 848932.14
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Expenses
Financial expense:
Interest on debt 6523.17
Interest paid on deposit 21968.42 52333.49 67445 43666 47097.86
Total financial expense 21968.42 52333.49 67445.00 43666.00 53621.03
Salary & benefit expense:
Salary expense 232141.15 344752.62 413915.41 468340.1 506258.32
Benefit expense 41818.11 53941.12 113087.59 229629.9 232458.92
Total salary & benefit expense 273959.26 398693.74 527003 697970 738717.24
Administrative & General expense 331181.14 186408.47 265228.99 307275.28 278914.61
Provision for land loss 0.00 33032.10 205102.98 135530 207890.61
Depreciation expense 17848.14 50526.27 77876.03 105314.72 117541.79
Total administrative & general expense 349029.21 269966.94 548208.00 548120 604347.01
Total expense 644956.89 720994.17 1142656.00 1289756 1396685.30
Loss/profit -468118.49 -89407.25 -314468.00 -418643 -547753.14
Source: Financial Statement of Gasha MFI (1998-2003)
Annex 6
Guidelines for an interview with ex-clients of Gasha MFI
1. Reasons for dropping out of the microfinance programmes
2. If major risks encountered
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3. Possible solutions for the risks
4. Underwhat conditions the client could have continued as client