ASSESSMENT OF CREDIT MANAGEMENT IN MICRO FINANCE

INSTITUTION: THE CASE OF HARARI MICRO FINANCE INSTITUTION

(S/C)

A RESEARCH PROPOSAL SUBMITED TO DEPARTMENT OF ACCOUNTING AND

FINANCE IN PARTIAL FULFILLMENT OF THE REQUIRMENTS FOR BA DEGREE IN
ACCOUNTING AND FINANCE

BY: Jemal Umer Mohammed

ID No 076/08

ADVISOR: SHEBASHI

RIFT VALLEY UNIVERSITY

HARAR CAMPUS
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF ACCOUNTING AND FINANCE

June, 2018
 Harar, Ethiopia
TABLE OF CONTENTS
CHAPTER ONE1
1. INTRODUCTION 1
1.1 Background of the study 1
1.2 Statement of the problem 2
1.4. Objective of the study 3
1.4.1. General objective 3
1.4.2. Specific objectives 3
1.5. Significance of the study 4
1.6. Scope and Limitation of the study 4
1.7. Organization of Study 4
CHAPTER TWO5
2. LITERATURE REVIEW5
2.1 Concept of Microfinance5
2.2 Micro finance as Anti- Poverty strategy 6
2.3 Mechanism of the Credit Risk Management in Microfinance6
2.3.1 Incentive Mechanism of Group lending7
2.3.2 Dynamic Incentives7
2.3.3 The Emergency Fund 8
2.3.4 Regular Repayment Schedule9
2.3.5 The provision of nonfinancial services9
2.4 Risk Assessment Approaches: Theoretical Aspects11
2.5 Credit Risk Assessment Approaches in individual lending12
CHAPTER THREE14
3. RESEARCH METHODOLOGY14
3.1 The research Design 14
3.2 Data type and Source of data 14
3.3 Sample techniques and sample size 14
3.4 Method of data collection 14
3.5 Method of data analysis 14
4. Work Plan 15
5. Financial Planning 16
References
 CHAPTER ONE

1. INTRODUCTION

1.1 Background of the study

According to Hulme, (1991) microfinance institution was first started in 1980, by professor
Mohammed Yenus in Bangladesh. He led the way with pilot group lending scheme for the people
who did not own land, finally this become Grameen Bank which later became a model for many
countries in the world. Coming to the Ethiopia context the government appreciate and support
micro finance institution. According to proclamation number 40/1996 of the federal government
of Ethiopia, microfinance business means an activity, that extending credit, in cash or in kind to
peasant (Abinet, 2007).
Micro finance is recognized as an effective tool to fight poverty by providing financial services
to those who do not have access to or are neglected by the commercial banks and financial
institutions finances service provided by micro finances institution, generally include saving and
credit. According to an estimate, currently 67.6 million people around the world have access to
micro finance (www.Aemfi-Ethiopia.org).
To undertake proper mobilization of funds, financial institution practices credit management
activities. Credit management involves many activities ranging from credit investigation to
contract with borrowers, appraisal review and follow- up, documentation nursing, recovery and
write offs, having two main functions: Those are credit sanction (Provisions) and credit follow
up functions which are valuable in managing credit it risks, improves return from credit and
making proper credit decision of the institution(Yaregal, 2007).
Microfinance Banks offer small amounts of loans mostly to business people who cannot afford
collaterals to get loans from the main commercial banks. Despite recent growth in the
Microfinance sector, the sector is faced with challenges of loan repayment defaults by clients.
Individual groups have tried using groups’ equity for collaterals which is expected to ensure the
revolving of money for the benefits of other individual members of the group. However, loan
delinquency has continued to pose serious challenges to most Microfinance Banks. This is a very
serious threat to the banks sustainability as credit risk affects the profitability and the general
performance of any financial institution. This paper therefore will address steps which when
adopted by microfinance banks could reduce the default rate to the acceptable level.

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Nodaway there are growing number of micro finance institutions in Ethiopia working both in
rural and urban areas so this study will be conducted on one selected credit and saving micro
finance institution in Burayu town. Therefore, this study will examine the issue of credit
management in microfinance institutions in the case of Harari micro finance institution in Harar .

1.2 Statement of the problem

Microfinance in Ethiopia has been established in Accordance with the proclamation issued by the
national bank of Ethiopia in 1996. Microfinance is one of the financial institutions that provides
loans to clients to help them engage in productive activities and to raise their small business.
Most of microfinance institutions approve loans for productive purpose, because income
increment is positively indicator to which all development activities are addressed (Daniel,
2010).
Credit management is the most important activities in micro finance institutions. An attending
credit management policies and procedures make it sound at the time of managing credit risk and
credit decisions. Mulat (2003) argues that if you not follow the credit management policies and
procedures one cannot think of managing credit risk and at the same time credit decision will
become arbitrary subject to individual discrimination and judgment.
The group base lending method is not effective in achieving the microfinance objective, because
due to default payment is made by the group members. In addition the beneficiaries who use this
method also face a problem in the repayment of loan, the rest who pay regularly were enforced to
pay the default amount (Meaza, 2010).
Believing that credit management is very important for all type and size of finance institutions,
the management system the organization can follow could be different from one another.
Therefore, it is difficult to generalize credit management system in one finance institution for the
other. This makes the researchers to be motivated to conduct the research on the selected topic of
specified study area.
Therefore, the researchers motivated to conduct the study on the topic of credit management
practice in Harari micro finance institution of Harar . In the study the researchers will try to
address the following basic questions.
1. What are the activities practiced in regarding credit management?
2. What method the institutions use to follow-up the loan?

2
 3. What policies and procedures the institution follows?
4. What are the monitoring mechanisms to collect back credit in the institution?

1.3 Objective of the study

1.3.1 General objective

The main objective of the study is to assess the credit management practices in Harari
microfinance institutions of Harar .

1.3.2 Specific objectives

The specific objectives of the study are:
 To assess the practices that the organization have in relation to credit management.
 To assess the effectiveness of polices and procedure the institution follows in providing
loans.
 To assess the methods the institution uses to follow-up loan.
 To identify the monitoring mechanism used by the institutions to collect credit.

1.4 Significance of the study

After this research is conducted, it is expected to come up with direction to improve the credit
management system of institutions. Therefore, the researchers will expect that the result of the
research will have the following main significance.
 Helps enhance the competitive position of the selected micro finance institution by finding
ways that improve the credit management system of the institutions.
 Helps to pave the way for the clients of the institutions, also for the institutions.
 Helps in providing additional knowledge to credit managers in designing new credit
management and for planning and controlling procedures in credit activities and it
 Helps the clients of the institution by informing necessity of paying credit according to
agreements, in preventing unnecessary payments.
 Finally, the study will helps for further researchers as reference who wants to conduct study
on related area.

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1.5 Scope and Limitation of the study

Because of no sufficient time and no enough budgets to conduct study on wide area the study
will be delimited to one selected micro finance institution in Harar city geographically. From
topic perspective the study will be delimited to credit management practices of a selected
institution only.

1.6 Organization of Study

This research will contain five chapters. The first chapter will present an introduction to the
study which has different parts. The second chapter will contain literature review on credit
management. The third chapter contains methodology which will be followed when the study
will be conducted. The fourth chapter presents data analysis and interpretation. Finally, the last
chapter will have recommendation and conclusion parts.

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 CHAPTER TWO

2 LITERATURE REVIEW
2.1 Concept of Microfinance

Oluyomno (2007) defines Microfinance Banks as a globally accepted means of reaching

businesses and persons that are either not served at all or that are inadequately served by the
normal commercial banks.
Karlan and Goldberg (2007) put it that microfinance is the provision of small-scale financial
services to people who lack access to traditional banking services. “Microfinance is often defined
as financial services for poor and low-income clients offered by different types of service
providers. In practice, the term is often used more narrowly to refer to loans and other services
from providers that identify themselves as microfinance institutions. More broadly, microfinance
refers to a movement that envisions a world in which low-income households have permanent
access to a range of high quality and affordable financial services offered by a range of retail
providers to finance income-producing activities, build assets, stabilize consumption, and protect
against risks. These services include savings, credit, insurance, remittances, and payments, and
others.” (www.microfinancegateway.org)
Crabb and Keller (2011) see microfinance as providing financial services to individuals
traditionally excluded from the banking system, especially women.
Consequently Lafourcade et al. (2005) put it that Microfinance is “the supply of loans, savings,
money transfers, insurance, and other financial services to low-income people” Similarly; Udeaja
and Ibe (2006) defined a micro finance institution as one that focuses on providing financial
services to the low income/poor persons in the community.
Technically, micro finance is a business in which the person conducting the business holds
himself out as accepting deposits on a day to day basis and any other activity of the business
which is financed, wholly or to a material extent, by lending or extending credit for the account
and at the risk of the person accepting the deposit, including the provision of short term loans to
small or micro enterprises or low income households and characterized by the use of collateral
substitutes (GoK, 2006). According to Munene and Guyo (2013), it is the way of supplying loans
and small credits to finance small projects to help the poor have an income through forming their
own small scale business to earn their daily bread and better their living . Microfinance is a source

5
of financial services for entrepreneurs and small businesses lacking access to banking and related
services. The two main mechanisms for the delivery

2.2 Micro finance as Anti- Poverty strategy

The recent definition of poverty by the roared bank extended the conceptual dimension beyond
the conventionally held idea of permanent income (consumption of lack of income) assets, sense
of noiselessness and strategies not only need to create income earning opportunities, but also
must empowerment of the poor in the sphere of state social in situations, and security against
variety of shockers. Micro finance is believed to be one important entry point to addressing many
of them. But services are limited in some urban areas, neglecting the majority of the poor. In
Ethiopia, for example, the development bank the commercial bank of Ethiopians, having their
branches in urban and semi urban, provide virtually no access to the rural population AISD,
private banks, through growing in number don’t engage themselves in this raids (Daniel, 2010).

2.3 Mechanism of the Credit Risk Management in Microfinance

The failures of formal banks in rural sector especially the bad repayment rates of agricultural
state banks that had provided subsidized loans to rural farmers have given rise to the innovative
lending institutions that are Microfinance institutions. This type of organization has become an
increasingly popular means that can alleviate poverty by making small, uncollateralized loans to
poor customers. Moreover, what attracted attention to MFIs were its remarkably high repayment
rates.
Microfinance institutions implement multiple mechanisms that overcome the screening and
enforcement problems, which reduce the default risk and improve repayment rates. According to
Armendariz and Morduch (2005) and Giné et al. (2010), microfinance has become a
revolutionary way to reduce poverty due to the fact that this type of organization and the way
that it operates are better designed to face information problems.
In order to explain the success of microfinance in providing credit to the poor, a large number of
theoretical works uses the principal/agent theory to demonstrate that microfinance contracts
lending to joint-liable groups solve the problems of asymmetric information in the credit market.
They permit the lender to bypass adverse selection and moral hazard and hence help to maintain
high repayment rates. Kono and Takahashi (2010) describe the existing literature and theoretical
models on innovative factors underlying the high repayment rates in microcredit programs. They

6
present simple models to argue that different elements of microcredit, such as group lending
solve the problems of asymmetric information in the credit market. However, a large part of MFI
does not offer group but just individual loans. Many practitioners of group lending are now
turning steadily toward individual lending.3 This give rise to a very important question: when
MFIs is not associated with joint liability lending mechanism and offer just individual loans, how
MFIs manage their credit risk. In their interesting theoretical analysis, Armendariz and Morduch
(2000) have highlighted several important mechanisms that allow MFI to generate high
repayment rates from poor borrowers without requiring collateral and without using group
lending contracts. These mechanisms include the use of non-refinancing threats, regular
repayment schedules, collateral substitutes, and the provision of nonfinancial services.
2.3.1 Incentive Mechanism of Group lending
One of the major mechanisms that most MFIs employ is group lending. Group lending refers
specifically to arrangements by individuals without collateral who get together and form groups
with the aim of obtaining loans from a lender. According to Kono and Takahashi (2010), in the
typical group lending scheme: (a) each member is jointly liable for each other's loan, (b) if any
members do not repay, all the members are punished (often in the form of denial of future credit
access), and (c) prospective borrowers are required to form groups by themselves. Group lending
model has attracted an enormous amount of public and academic attention mainly after the
success of group lending program in Grameen Bank.
Many economic works on microfinance focus on the incentives induced by joint liability in
group lending contracts and nearly all authors have proven that group lending enforces joint
liability mechanisms, involves borrowers in sharing information and then reduces asymmetric
information (Besley and Coate, 1995; Ghatak, 1999; Kono and Takahashi, 2010; Stiglitz, 1990;
Van Tassel, 1999). Zeller (1998) uses information on 168 credit groups in Madagascar and shows
that the group effectively generates insurance, transfer screening and monitoring costs from the
bank to borrowers, providing an effective way for MFIs to overcome adverse selection, moral
hazard, and enforcement problems, which leads to a better repayment performance.
2.3.2 Dynamic Incentives
Lenders may use dynamics incentive as an important incentive mechanism (Besley, 1995; Kono
and Takahashi, 2010; Morduch, 1999). Although group lending mechanism manages credit risk

7
only in group loans, the mechanism of dynamics incentive or progressive lending, as named by
Armendariz and Morduch (2005), can manage credit risk both in group and individual loans.
Dynamics incentives mechanism boils down to the threat not to refinance a borrower who
defaults on her debt obligations. This incentive has a large effect on microfinance borrowers’
behaviour because they have considerable needs for future loans to develop their business.
Morduch (1999) notes that the repeated nature of the interactions and the credible threat to cut
off any future lending when loans are not repaid can be exploited to overcome information
problems.
Indeed, this mechanism allows lenders to build a long-term relationship with borrowers over
time, to generate reputation mechanisms and screen out the worst prospects before expanding
loan scale.
2.3.3 The Emergency Fund
The emergency fund serves as insurance against loan default, death or disability (Morduch,
1999). The borrowers are also required to pay an additional five percent of the loan that is taken
out as a ‘group tax”. These contributions are usually deducted from the members’ loans or form
part of weekly contributions in addition to loan amortization and thus are forced savings. These
forced savings can be withdrawn upon leaving, but only after the banks have taken out what they
are owed. Babu and Singh (2007) note that the lender may accept the borrower's degree
certificate, driver's license, marriage certificate and such other documents as collateral substitutes
in individual lending. Bank Rakyat Indonesia, a leading name in microfinance, uses this
technique effectively. In Russia, household items may be considered as collateral if they have
sufficient personal value for borrowers (Armendariz and Morduch, 2000; Churchill, 1999;
Zeitinger, 1996).
In rural areas of Albania, lender may accept tangible assets such as stocks as collateral
substitutes. In addition, MFI providing individual microcredit may require guarantor agreeing to
guarantee the borrower's loan. However, it must be noted that the essential role of a guarantor is
to be a decisive factors for granting the credit and not a secondary repayment source.4 Indeed,
presence of a guarantor primarily acts as an ex ante signal that can reduce adverse selection
problem inasmuch as the request for guarantors requires costly efforts for the potential borrower
to find one or more guarantors and hence bad borrowers will be discouraged.5 Moreover,
presence of a guarantor is also an ex post sanction mechanism. Indeed, in case of default of

8
payment, the cosigner who may lose his reputation to the same extent as the borrower can put
pressure on the borrower to meet its obligations. The guarantor can even apply direct sanctions
by revealing his or her bad conduct to neighbours or, more generally, to members of the
community he or she belongs to.
2.3.4 Regular Repayment Schedule
Even though economic theory suggests that a more flexible repayment schedule would benefit
clients and potentially increase their repayment capacity, microfinance practitioners believe that
the discipline imposed by regular repayment maintains high repayment rates in the absence of
collateral. Although that this feature is less usual than the previous mechanisms, it helps MFI to
maintain high repayment rates (Armendariz and Morduch, 2000; Morduch, 1999). In the MFI,
the repayment starts almost immediately after disbursement and then occurs on a weekly or
monthly basis.
Morduch (1999) points out the different advantages of regular repayment schedules. He argues
that it:
• Screens out undisciplined borrowers at an early stage
• Gives early warning to loan officers and peer group members about potential future problems.
• Permits the banks to get hold of cash flows before they are consumed or otherwise diverted
• Requires that the borrowers have an additional income source on which to rely since the
repayment process begins before investments bear fruit. This permits a positive selection of
clients for the lender and for diversified households (Armendariz and Morduch, 2000).
Field and Pande (2008) note that regular payment schedule provide clients a credible
commitment device, which enables them to form the habit of saving regularly. They note also
that frequent meetings with a loan officer may improve client trust in loan officers and their
willingness to stay on track with repayments.
However, this early regular repayment schedules may exclude potential borrowers who have a
single source of income from the market. These borrowers are mostly present in areas focused
sharply on highly seasonal occupations like agricultural cultivation. The income generation of
agriculture areas is unstable and regular repayment schedules are difficult to respect.
2.3.5 The provision of nonfinancial services
MFIs usually use nonfinancial services also named Business Development Services (BDS).
Some microfinance programs are also referred to ‘credit plus’ as they provide services such as

9
health services or adult literacy or training that go beyond financial services. The main objective
of these services is to develop client’s managerial and technical skills, improve and update their
knowledge in production technology. Edgcomb and Barton (1998) note that the provision of
nonfinancial services as a complement to credit and saving services not only develops the
economic ability of the borrower to repay but also makes the relationship with the MFI more
valuable to him. Many authors (Godquin, 2004; McKernan, 2002) found that the provision of
nonfinancial services was positively correlated with repayment performance and may be an
important component of the success of microcredit programs. It must be noted that this main
feature of the microfinance methodology have been little documented up to now.
As we have noted above, a large part of MFIs does not offer group but just individual loans.
Individual micro-lending targets small entrepreneurs who are not likely to have documentation
(such as a firm’s balance sheet as well as detailed business records) to indicate their risk level.
According to Viganò (1993), the difficulty and the high cost of collecting relevant information on
entrepreneurs is the major problem concerning loan analysis in MFI. This give rise to a very
important question: How can MFI give collateral-free loans and manage adverse selection in the
absence of joint liability lending mechanism? To prevent adverse selection, the creditors must
screen the borrower. In theory, it is has been shown that interest rates is not a screening
mechanism. Indeed, the raise of interest rates improves the adverse selection problem in the way
that higher interest rates attract debtors with poor economic viability and suppress debtors with
financially viable projects (Stiglitz and Weiss, 1981). The argument of Stiglitz and Weiss (1981)
was as follows: it is only the borrowers having risky projects accept borrowing money to such
high levels of interest rate because their projects have low probability of being successful and
therefore, the loans will not be repaid. Stiglitz and Weiss (1981) argue that, in equilibrium, the
Credit
2.4 Risk Assessment Approaches: Theoretical Aspects
Credit risk evaluation is the process through which a bank assesses the creditworthiness of
prospective loan that exposes the financial institutions to credit risk. The credit analysis
ultimately results in an estimation of the likelihood of customer default. Outside microfinance, to
optimize the credit decision, there exist three main approaches to estimate borrower’s probability
of default: Structural approach or reduced form models, statistical approach and expert-
judgement approach.

10
Structural approach is based on modeling the underlying dynamics of interest rates and firm
characteristics that can lead to a default event. These financial dynamics, generally described by
stochastic processes evaluate the default probability. This approach is used in portfolio credit risk
models. However, it needs the use of complex mathematical and stochastic techniques that can
be hardly modeled. In addition, a clear disadvantage of this approach is their limited applicability
to public firms because it requires specific information, e.g. borrower’s stock prices, which are
not available for all borrowers. Hence, MFI and banks offering consumer loans cannot benefit
from this approach.
The second approach is the empirical or the statistical approach. Credit scoring models are used
by some banks in their internal rating system. The principle 3 of Basel Committee
(February, 2006) declares, ‘A bank’s policies should appropriately address validation of any
internal credit risk assessment models’. ‘Models may be used in various aspects of the credit risk
assessment process including credit scoring, estimating or measuring credit risk at both the
individual transaction and overall portfolio levels, portfolio administration, stress testing loans or
portfolios and capital allocation’. In this approach, credit scoring models link borrower
characteristics, such as financial and non-financial variables to repayment performance on
previous loans in order to estimate the borrower default. Hence, the relationship of default and
information about the borrower is learned from historical data. The major advantage of credit
scoring models is that they can be developed for all types of credit, from consumer credit to
commercial loans. However, one of the credit scoring disadvantages is that there is no common
consensus or rigorous theory on which variables should be included in scoring model. The choice
of the explanatory variables will depend largely on data availability.
The third approach is the expert-judgment approach or subjective-judgment approach. In this
approach, creditworthiness was estimated purely by credit experts based on their judgment and
their intentions. The decision of granting credit is based on adoption of certain rules or principles
of lending carefully build by skilled loan officers themselves. For example, under the 5C's of
credit evaluation criteria, evaluation is based on character, capacity, and condition, capital and
collateral. These principles are drawn from the experience of loan officers, but should be used
generally and not rigidly as laws of lending (Kwan et al., 1986).

11
2.5 Credit Risk Assessment Approaches in individual lending
Evidence regarding the better credit risk assessment approaches in individual lending in MFI is
divergent and the literature highlights two main approaches: Judgmental and Statistical
forecasting methods. According to Agier and Szafarz (2012), adverse selection is the main
problem faced by the lending industry including microcredit institutions and in order to tackle
this problem, bankers typically combine two mechanisms: subjective-judgment approach and
statistical approach.
In the subjective judgment approach, the decision of granting credit is based on adoption of
certain rules or principles of lending carefully build by skilled loan officers. The loan officers in
MFI are trained to collect and make judgments about information on entrepreneur’s personality,
analyze the risk of potential borrowers and decide to approve or to reject the applicant. This
would typically involve a face-to-face meeting with each applicant where the loan officer -
intentionally or unintentionally - forms judgments about its creditworthiness after interviewing
him. Furthermore, loan officers should consider information about business’ project and business
conditions such as forecasts about market, economic growth, and additional macro-economic
factors. Those indications are essential in order to get a feeling about the management's ability to
handle changes in the environment.
In the literature, different authors argue that subjective approach appears to be very suitable for
MFI as it can mitigate opacity problems and be beneficial where little data exists (Bunn and
Wright, 1991). Armendáriz and Morduch (2000) argue that the success of individual-based
programs is linked to particular methods of gathering information. Loan officers must do a good
job of collecting a host of information at the screening stage. For example, the Russian
microlending program relies heavily on credit officers visits to applicants' businesses rather than
just on business documents (Zeitinger, 1996). Cornée (2009) demonstrates the relevance of using
loan officer’s subjective judgment in order to predict future default of microenterprise and
concludes that relationship lending technology is the most adequate for MFI because it makes
extensive use of qualitative information. According to Schrader (2009), ‘for microfinance in
developing and transition countries, relationship lending is considered the most appropriate
lending technique when lending to young firms and micro and small entrepreneurs’ (p.
2).However, subjective judgment for individual loans has its weaknesses. First, subjective
judgment assessment requires a fair amount of time per applicant and is expensive for the lender.

12
According to Babu and Singh (2007), evaluating the loan proposal and defining the terms for
each particular client is costly to the MFI resulting in reduced profitability. Second, as written
within the credit scoring literature (Hand, 1998; Lewis, 1992), judgmental approach lacks of
quantification of credit risk. Moreover, borrowers’ characteristics are analysed in this approach
sequentially rather than in combination thereby ignoring their correlation. Finally and more
importantly, loan officer, like other people may seriously have cognitive bias in processing
information that affect his judgments and beliefs, so that he may be a victim of behavioural bias
and appear irrational. Balthazar (2006) notes, ‘studies of behavioral finance usually show that
credit analysts are good at identifying what the main strengths and weaknesses of a borrower are,
but integrating all the information into the final rating is not always done in a consistent way’.
Recently, in order to reach a greater number of applicants more efficiently, several MFIs judge
repayment risk by the use of statistical tool used extensively in bank to monitor their credit
portfolio. This tool is the credit scoring models. Credit scoring models represent a methodology
accepted by the Basel Committee for Banking Supervision and the U.S. and European financial
systems in the construction of an internal rating system. This method presents an innovation for
microcredit but is not at all new to others credit.

13
 CHAPTER THREE

3 RESEARCH METHODOLOGY

3.1 The research Design

The study will be conduct on the assessment of credit management on microfinance institutions
in case one selected micro finance. It will use both qualitative and quantitative research
approaches in order to achieve the research objective. More over the researchers will employ
survey technique specifically interview and questionnaire. To analyze the collected data the
researchers will employ descriptive statistical tool.

3.2 Data type and Source of data

In order to get sufficient and relevant information for the study the researchers will use both
primary and secondary data. The primary data will be collected from primary sources and
secondary data will be collected from books, manuals and reports.

3.3 Method of data collection

Primary data will be collected using structural interview from credit managers and questioners
will be administered to collect primary data from employees. In the questioners, the researchers
will use both close- end and open- end questions.

3.4 Sample techniques and sample size

The researchers will use non random sampling particularly judgmental sampling method in order
to incorporate only those have sufficient data and can provides genuine information about the
issues under investigation.

3.5 Method of data analysis

The collected data will be analyzed by using descriptive analysis method. Accordingly,
percentage and frequency distribution will be utilized to analyze the collected data from the
sample respondent.

14
Work bread down The 1st Month The The 3rd The 4th
second Month Month
Month

Searching for the researchable area and

submitting the title.
Draft and final preparation of research
proposal
Communicating organization

Development of data collection

instrument
Review of related literature

Developing questionnaire and

preparation of information for
experimental design
Distributing questionnaire, conducting
experimental design and other
activities
Data collection, presentation, analysis
interpretation, conclusion and
recommendation
Computer writing and compiling

Final submission research paper

4 Work Plan

5 Financial Planning

15
 Items description Unit Unit Unit cost Total cost
measurement required
STATIONARY Br. Br.
 Paper Pack 3 pack 120 br. 360
 Pen Unit 12 units 5 60
 Flash Unit 2 units 20 40
 Note book Unit 4 units 35 140
 Computer Per page 120 pages 1br. 120
writing
 Printing and Per page 240 pages 00 180
copy
 Highlight marker Unit 1 unit 10br 10
SUB TOTAL 842br.
Other Activity
 Transportation Trip 50 trips 20br. 1000br.
 Telephone Air time 10 cards 100br. 1000br.
 Internet and mail Minute 2000miutes 0.25br 500br.
SUB TOTAL 2,500.br
TOTAL SUM 3,332.br
Contingency 15% 499.8br.
FINAL TOTAL 3,831.8r.

References
Agier, I., Szafarz, A. (2012). Subjectivity in Credit Allocation to Micro-Entrepreneurs: Evidence

16
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Armendariz de Aghion, B., Morduch, J. (2005). The Economics of Microfinance. MIT Press,
Cambridge.
Babu, S., Singh, A. (2007). The need for individual lending in mature MFIs. Eye on
Microfinance, 4, 1-7.
Balthazar, L., (2006). From Basel 1 to Basel 3. New York, Palgrave McMillan. Basel Committee
on Banking Supervision (2006). Sound Credit Risk Assessment and Valuation for Loans.
European Economic Association, 6, 501–509.
Fishelson-Holstine, H. (2005). The Role of Credit Scoring in Increasing Homeownership for
Underserved Populations. In Retsinas, N., Belsky, E.S. (Eds.), Building Assets, Building
Credit: Creating Wealth In Low-Income Communities, Washington, The JCHS
Brookings.
Ghatak, M. (1999). Group lending, local information and peer selection. Journal of Development
Economics, 60(1), 27-50.
Giné, X., Jakiela, P., Karlan, D., Morduch, J. (2010). Microfinance Games. American Economic
Journal: Applied Economics, 2(3), 60-95
Godquin, M. (2004). Microfinance Repayment Performance in Bangladesh : How to Improve the
Allocation of Loans by MFIs. World Development, 32(11), 1909-1926.
Hand, D.J. (1998). Reject inference in credit operations. In Mays, E. (Eds.), Credit Risk
Modeling: Design and Application, New York, Glenlake Pub. Co.
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