Dissertation report on microfinance


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Regulating microfinance has become necessary as there is asymmetric information in the market, Hardy et al. However, regulations which focus excessively on achieving financial goals such as maintaining capital adequacy and financial sustainability may shift focus of the MFIs from their primary goal of catering to the poorest. All types of Non- banking financial institutions and the development finance institutions are supervised by the SECP.

The regulatory framework and modifications to it depicts the importance given to the microfinance sector and acknowledges its separate existence in the realm of finance.

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The new paradigm recognized the problem of high transaction costs and risks because of information asymmetries Zeller and Meyer , and the focus became the building of cost-efficient MFIs Robinson The second paradigm was from microfinance to inclusive finance, from supporting discrete MFIs and initiatives to building inclusive financial sectors United Nations and it started to emerge in the mid The framework recognized that the massive number of excluded people would gain access only if financial services for the poor were integrated into all three levels of the financial system: micro, meso, and macro, Helms, as cited in Hamada, Charitonenko and Afwan finds that due to commercialization, MFIs may be able to reach financial sustainability by utilizing market based funds and as profit seeking financial institutions which are a functional part of the financial system.

Many MFIs around the globe have reached the state of financial sustainability by cooperating with banks and business organizations as to cross-sell additional products such as savings, pensions and insurances which generate stable income for MFIs to cover cost, make profit and be able to serve more customers Luong, This has led to an increasing competition and commercialization of the microfinance institutions, Rhyne and Otero as cited in Hermes et al.

This is one of the reasons why large domestic commercial banks in many countries are entering into the microfinance markets Hamada Yet, the increased interest from commercial players has also raised the need for MFIs to become financially sustainable and enhance their efficiency as cited in Hermes et al.

Financial sustainability means that MFIs is covering all transaction costs, including loan losses, financial cost and administrative cost, with a positive return on equity net of any subsidy received , and consequently function without subsides. It is the ability of an MFI to maintain or increase its flows of benefits or service through internally generated income or funds Sharma, The importance of self-sustainability and financial sustainability cannot be overstressed. Studies like Hulme and Mosley ; Conning ; Paxton and Cuevas ; Lapenu and Zeller state that unit transaction costs for small loans are higher for microfinance institutions; and they usually cannot cover the costs of providing credit and other financial facilities to the poor as sizes of loans are small, and infrastructure development costs are high as well, Hermes et al.

Therefore they receive support in the form donations and subsidies by government and international and local aid organizations to cover their losses and to help them move towards a financially sustainable position. Hermes et al. Thus issue is being raised that how MFIs can cover their costs by the income they generate from provision of services and by reducing their costs as much as possible. According to Rhyne and Otero as cited in Hermes et al.

Hermes reports advent of new technology in banking sector; the liberalization of financial markets and the imposition of regulations in the microfinance industry have increased financial sustainability of MFIs.

A PROJECT REPORT ON MICROFINANCE IN INDIA

Nawaz also addresses the implications of subsidization on the cost efficiency and staff productivity of MFIs as measured by cost per borrowers and borrowers per staff respectively. Results of productivity regressions of Hudon and Traca and Nawaz show the inefficiency of subsidized MFIs due to higher costs associated with larger loan sizes. Suggesting that subsidized MFIs are obliged to hire qualified staff and offer better and innovative products to relatively well-off clients which contributes towards higher administrative cost.

One being the new technology introduced in banking sector, which facilitates the use of mobile phones and ATM cards and internet, has also found its way in the microfinance industry and has reduced costs and improved delivery network. The other major development, which can be seen in many developing countries, is the liberalization of financial markets and the imposition of regulations in the microfinance industry.

Both these developments add positively towards the state of financial sustainability of MFIs. The performance appraisal of microfinance institutions and various factors that affect the performance have been the subject of many studies. Researchers all over the world have tried to link microfinance performance with various factors that could impact the efficient operations and long term operations. Vanroose linked microfinance and macro-economic environment for the Latin American region.

Honohan studies various macro-economic variables that may microfinance markets on a global level. A possible explanation for the differences between these studies is that they concentrate on other financial measures. Ahlinet al. Cull et al. Results of productivity regressions of Hudon and Traca and Nawaz show the inefficiency of subsidized MFIs due to higher costs associated with larger loan sizes, suggesting that subsidized MFIs are obliged to hire more qualified individuals and offer better and more innovative products to relatively well-off clients which adds towards higher level of administrative cost.

While measuring the overall performance of a microfinance institution or the industry the concept of efficiency is a good implement at hand. There are other methods as well that can be used for the measurement of performance of Microfinance institutions but among the most famous and emerging approaches is the concept of measuring efficiency by using a set of inputs and outputs and analyzing how the firm managed to use its inputs to get the best possible returns. This technique was used for the first time by Farrell and has since then been extensively used and improved to incorporate other factors that may be considered important in the workings of an institution towards efficient performance.

Haq, Skully, and Pathan cite Farrington who related various variables like administrative expense ratio, number of loans per loan officer and loan officers to total staff, portfolio size, loan size, lending methodology, source of funds and salary structure with efficiency of MFIs. Cost per borrower and Cost per saver is used to determine the same by Lafourcade, Isern, Mwangi and Brown as cited in Haq, Skully, and Pathan, The basic underlying principle behind efficiency is the difference between the actual and the optimum values of various inputs and outputs Fried, Knox Lovell, and Schmidt, The closer an institution is in bringing its actual values to optimal values the efficient it is considered.

This type of efficiency is called technical efficiency and an institution can achieve a higher level of technical efficiency by either enhancing its outputs while utilizing the same amount of inputs, or by decreasing its inputs while keeping its outputs at the same level; the former method is referred to as output maximization technique and the latter as input minimization Koopmans, as cited in Gonzalez Research Methodology Sources of Data: The study is exploratory in nature and is based on both primary and secondary data.

Secondary data was collected from various journals, articles, working papers, NGO reports First, support the ridiculous reason for issue and explain your examples fully. Micro Finance Institutions MFI s are organizations which were originally set up in order to help finance those small scale micro - enterprises and local economic activities which were largely excluded from formal finance and mainstream banking practice.

Micro - finance is the provision of a broad range of financial services such as deposits, loans, payment services, money transfers, and insurance to poor and low - income households. A majority of the microfinance programmes target women with the explicit goal of reducing poverty and empowering them When selecting an ESL degree program, prospective students should check to makes it accredited. Dissertation project report on microfinance research Educational segregation used to be widely viewed due to white racism. Dissertation project report on microfinance research Such students face terrible issues once they start working on the project.

Dissertation Report on Issue and Success Factors in Micro Financing

This was critical as a good level of response rate strengthens the validity of the study. The researcher sought information on demographic features of the respondents such as the age, gender, level of education with the objective of confirming the suitability and idealness of those involved in the study.

The Board member seen as a respondent was female while 26 of the staff members were male and 21 were female.


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Both gender were well represented through those numbers of respondents as no gender completely dominated the other. It was also found out that Hofokam Ltd was undertaking a social objective of having gender balanced work force in which in some cases some positions were being specifically reserved for qualifying ladies. The results indicated that most of the respondents belonged to the age group of years with 33 of them belonging to the classification, 10 staff members belonged to the age group of years, 4 were between years and only 1 was 55 years and above.

This implies that Hofokam Ltd employees are mostly youthful and presents an opportunity for a long term talent development and management which is so crucial in an industry where talent is hard to develop and even more importantly maintain. It was found out that a majority of the staff at Hofokam were reasonably educated as per the ranging from the Certificate level to the post graduate level.

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The board member also had a post graduate qualification and was found to be very informed of the microfinance industry and the institutional affairs as well. This scenario presents Hofokam with a well-grounded and knowledgeable human resource necessary to move the MFI forward. Good human capital is the foundation of all other resources. From the findings, a majority of the respondents were found to be married, 31 were married while 17 were not yet in marriage relationships.

Out of the 47 staff, 30 were married and 17 were not yet married. The board member was married.

Microfinance Research Projects - Institute of Developing

Overall, the married category of the respondents represent Hofokam Limited is a church based institution and all levels of governance encourage holy matrimony, a move that has been well embraced by all the staff and in the process increasing the number of the married. Married people are usually experienced in life matters especially social and economic ones thus the researcher fees a higher percentage of the respondents being married presents deep ground of having diverse ideas and feedback. Each business has specific indicators of performance and microfinance is no exception.

The ability of the MFI to survive into the future, its profitability and market share are all considered as broad dimensions of microfinance performance. Each stakeholder depends on them to make a situation analysis of the MFI as to whether it is on track or not. The table below shows the performance of Hofokam in the eyes of the respondents. From the findings about the performance of Hofokam Limited, even though The respondents also stated that the clientele of the MFI was not huge enough given the potential available.

On operational self-sufficiency, an overwhelming majority of The fact that the operations of the MFI were not efficient, the profitability of the MFI had to be affected negatively. Consequently, the trend of profitability was not healthy and encouraging, a statement supported by This study established the factors affecting the performance of microfinance institutions in Uganda using Hofokam Limited as the case study.

The study generated both qualitative and quantitative data. Qualitative data was obtained from interviews, questionnaires, documentary review on Hofokam Annual Reports, and observation of the state of affairs at the branches. Qualitative data were presented using simple descriptive frequencies and direct quotations followed by inferential statistics which helped to obtain statistics that were used in answering research questions like how does governance mechanisms, funding, and MIS affect the performance of the MFI? To answer the research questions correlation and regression analysis were used.

Findings are presented below according to the research objectives. The findings of this investigation are presented in Table 4. From the findings above in Table 4, Additionally, the board was seen as playing its key role to the MFI by It was noted that most members of the board are not selected based on their competences but rather representatives of the three shareholding Catholic Dioceses of Hoima, Fort Portal and Kasese.

However, the board was found to be supportive to the management team of the institution. It was also agreed that the auditing function of the MFI had more to do to effectively address the potential risks that the institution is exposed to. A majority of the respondents of Results show that the correlation r between governance mechanisms and performance is 0. Therefore, the result can be interpreted that the better the governance mechanisms used in MFIs, the better their performance and the reverse is also true.

The high performance of a MFI as a consequence of effective governance mechanisms can be reflected in profitability, efficiency and portfolio quality of the MFI, holding other factors constant.

Dissertation Report On Microfinance Research

A coefficient of determination r2 was further computed in order to find out the effect of governance mechanisms on MFI performance. The results showed r2 of The regression model result for governance mechanisms on MFI performance in Hofokam was positive and significant. This means that the independent variable dimension of governance mechanisms accounts for The model further shows a standardized coefficient of value of governance mechanisms as being positive. This suggests that holding other factors constant, one unit of improvement in governance mechanisms would result into an improvement in MFI performance by a magnitude of 0.

From the findings above, when issues of governance were asked, A small percentage on the Board was due to the fact that respondents found some of the board members lacking both in professional qualifications and experiences in related fields of banking and microfinance. Actually, respondents attributed the change of fortunes of the MFI from loss making to profit making to the management that was ushered in led by Mr.

Charles Isingoma as the General Manager. Auditing assurance was according to respondents being affected by the inability of the function to do an enterprise wide auditing to cover all departments other than only focusing on credit department alone. A significant number of respondents were excited at the prospect of Hofokam venturing into deposit taking through acquiring a license from Bank of Uganda.

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