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1
A Study on Loan Recovery Performance of Rural
Saving and Credit Cooperatives in Layi Gaint
Woreda, South Gonder Zone, Amhara Regional
State, Ethiopia
By
Dejen Debeb Asmare
2
Germany was the first country in the field of credit.
Herr F.W. Raffeisen (1818-1888) and Herr Franz Schulze (1809-
1883)
The history of SACCOs in Ethiopia began during the Regime of
Emperor Haile Selasie .
BACKGRAUND OF THE STUDY
Statement of the Problem
Access to financial services to the poor facilitates economic growth
In this regard SACCs help those who have no access to the
financial services of formal financial institutions
They can contribute a lot to reduce the negative impact of local
money lenders in areas they operate in.
But there are problems which hinder the cooperatives to achieve
their objectives.
The requirement that has to be provided for receiving a loan.
The interest rate that the cooperatives charge.
3
Conti…
The cost of funds can sometimes exceed the interest earned on
loans and investments, resulting in a loss to the sector.
This in turn discourages members’ motive to deposit as well as to
borrow.
The cooperatives’ ability and, in practice, its failure
to initiate projects for increasing revenues, both via the use of
accumulated savings and by acting as a channel for transferring
outside sources of finance to its members, and again recover all
of the loans on due date with interest.
Therefore, the study is intended to assess loan recovery
performance of RUSACCOs
4
Objectives of the Study
General objective
The general objective of the study is to assess loan recovery performance of
primary rural saving and credit cooperatives in Layi gaint woreda
Specific objectives
To assess loan operation of primary rural saving and credit cooperatives.
To assess recovery performance of the cooperatives.
To investigate factors that affect loan recovery performance of the
cooperatives.
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Significance of the study
It would be helpful to
RUSACCOs in the study area and similar cooperatives found in
other areas
To cooperative promoters
Bench mark for undertaking further research
Scope:
It only assessed loan recovery performance of selected SACCOs
Limitations:
Time and budget constraint
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1.6 Scope and limitation of the study
RESEARCH METHODOLOGY
3.1 Description of the Study Area
3.2.1. Selection of the study area
LayiGaint Woreda was selected purposely
Because of the availability of the required data
No study conducted so far in the area
3.2.2. The sampling design
There are 30 registered primary saving and credit cooperatives and
one saving and credit cooperative union in the woreda .
This study is about rural saving and credit cooperatives
Four sample SACCOs
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Sample Selection of the Study
The sample size of the study or the number of member
respondents was determined by using Kothari (2004) sampling
design formula:
n = z2 p q N
e2 (N-1) +z2 p q
Where:
n= sample size
N=total population (564)
Z=95%confidence interval under normal curve (1.96)
e= acceptable error term (0.05) and
P and q are estimates of the proportion of population to be
sampled (P=0.10 and q= 0.90)
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Source of data and Methods of data Collection
Both qualitative and quantitative data were used.
The data were collected from both primary and secondary
sources.
Interview schedule was translated in to the local
language, Amharic.
Secondary data, mainly concerning amount of loan
disbursed and recovered
9
10
Method of data analysis
Analysis by using Descriptive Statistics:
Mean, percentage, frequency and standard deviation
Analysis using Multiple Linear Regressions (MLR)
It was used to analyze factors that affect loan recovery performance
of the cooperatives by using statistical soft ware called SPSS version
16.0
4. RESULTS AND DISCUSSION
Loan Disbursement and recovery of sample cooperatives
• In rural areas, financial institutions including banks were not accessible due to high operating costs to administer their operation.
• Due to this fact, rural people had no access to save money in financial institutions.
• Moreover, they had no opportunity to get credit when they need.
• In order to overcome this problem, rural people have an opportunity in their hands that is establishing user owned financial institution known as RUSACCO.
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Conti…• RUSACCOs have extended credit for their members for production
purposes such, as purchasing of agricultural inputs.
• Moreover, they extend credit for petty trade and social purposes such as medical care and school fee.
Between the year 2002 and 2011, sample cooperatives extended a total of Birr 2,560,563.20 for their members for production, petty trade and social purposes.
Out of the total loan extended for members, Birr 1,569,696 (75.46%) was for production, Birr 444,551(21.37%) for petty trade and Birr 65,893(3.17%) was for social purpose.
• Based on the information explored from key informant interview, sample RUSACCOs provide credit to some members without collateral.
• This discrimination makes some members to withdraw from membership and facilitates loan default.
• The loan that was given without guaranty was funded by world bank and CPR Gaint project.
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4.5. Result of MLR4.5.1. Extent of factors that affect loan recovery performance
Model summary of loan recovery
Model Sum of Squares Df
1 Regression 2.013E7 16
Residual 1.118E7 95
Total 3.131E7 111
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The MLR result indicated that the correlation between independent
variables as factors affecting loan recovery performance were strong
with the value of R=0.802.
More over, these variables explained 56.5% of the change in
RUSACCOs loan recovery performance
The model of the study regarding loan recovery is:
Y =1571.845+ 0.150 FS+ 0.201 LIR+0.234 CCM+ 0.582 MOD+
0.137 SAVING+ 0.123 lLOANS+ 0.174 LASIZE
Result of MLR for loan recovery performance
Model
Unstandardized Coefficients
Standardized
Coefficients
SigB Std. Error Beta
1 (Constant) 1571.845 283.660
Family size40.980 19.131 .150
.035**
2 Lending interest
rate213.242 91.492 .201
.022**
Coordination of
committee277.034 94.566 .234
.004**
Mode of delivery3273.989 416.580 .582
.000***
Loan size166.219 93.954 .123
.080*
Land size of the
respondent171.416 68.444 .174
.014**
Saving76.765 41.648 .137
.068*
Note: *, ** ,*** Significant at 1% , 5% and 10% probability level
respectively14
Conclusion and Recommendation
Conclusion
But both the FGDS and kII results revealed that the loan committee of the sample
cooperatives was not strictly monitoring the loan utilization of the borrower as per
the loan policy of the cooperatives.
Sample cooperatives did not have a loan provision plan
Between the year 2002 and 2011, those cooperatives extended a total of Birr
2,560,563.20 for their members for production, petty trade and social purposes.
The cooperatives did not collect all loans on due date.
The MLR result shows that family size, mode of delivery, lending interest rate,
coordination of committee, loan size, land size and saving are variables that had a
significant influence on the loan recovery performance of RUSACCOs
15
Recommendations
Due to lack of strict adherence to the loan policy of the cooperatives,
there were defaults
Therefore, RUSACCOs and other responsible bodies should have totake strict measures.
The collateral type to get loan in all RUSACCOs is dependant only onthe saving amount of the borrower they have to develop additionalcollateral system.
There are members who took credit and are guarantor for someother members.
Therefore members should get extension service form concernedbodies.
16
Self-financing of RUSACCOs from mobilized savings is
compulsory for their healthy operation.
However, the demand for loans cannot be solved from their internal
source only.
Therefore, an external credit is required to meet the loan demand
and development needs.
Loans should be supervised regularly for increased out come and
proper utilization of resources.
17
Thank you!!!
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