WOLAITA SODO UNIVERSITY

DEPARTMENT OF AGRICLTURAL ECONOMICCS

THE OUTREACH AND FINANCIAL PEROPRMANCE OF MICROFINACE INSTITUTIONS IN CAST OF DEBRE

MARKOS CITY

BSC. RESEARCH PROPOSAL

SUBMITTED TO DEPARTMENT OF AGRICULTURA ECONOMICS IN PARTIAL FULFILLMENT OF RESEARCH

METHOD

BY

LAWAY ADUGNAW IDNo.AGR/R/115/11

ADVISOR; ALEMAYEHU (Msc)

MARCH 2020

WOLAITA SODO,ETHIOPIA
 ACKNOWLEDGEMENT
First of all and foremost I would like to thanks and give priority to my God that allows me to reach this
stage from nothing and help me to do this research paper. Secondly I would like to extend my special
thanks to my family that has a good wishes and hopes for me and help me in all aspects of learning
process. My advisor Alemayehu(MSc.) has also special thanks from me.
 Table of contents

Contents page

Acknowledgement..........................................................................................................................................i
List of Abrivation..........................................................................................................................................ii
List of Tables................................................................................................................................................iii
1.INTRODUCTION.....................................................................................................................................1
1.1. Back ground of the study...............................................................................................................1
1.2. Statement of Problem.....................................................................................................................2
1.3.Objectives of the study.........................................................................................................................3
1.3.1 General Objective ……………………………………………………………………………….3
1.3.2Specific objectives.......................................................................................................................3
1.4 Research question..........................................................................................................................3
1.5. Significance of the study................................................................................................................3
1.6. Scope of the study..........................................................................................................................3
1.7. Limitation of the study...................................................................................................................4
2.REVIEW OF RELATED LITERATURE..............................................................................................5
2.1. Concepts of microfinance institution.............................................................................................5
2.2. Measures of performance of microfinance institution...................................................................6
2.3. Measuring outreach to the poor.....................................................................................................7
2.3.1. Breadth of Outreach.............................................................................................................8
2.3.2. Depth of the outreach...........................................................................................................8
 2.4. Financial sustainability..................................................................................................................9
2.4.1. Subsidy and Sustainability...................................................................................................9
2.4.2. MFIs Capital Structure.......................................................................................................10
2.4.3. Efficiency...........................................................................................................................10
2.5.The relationship between outreach and financial sustainability........................................................11
2.6.Empirical literature review................................................................................................................11
2.6.1. Ethiopian Scenario.............................................................................................................12
3.RESEARCH METHODOLOGY.........................................................................................................14
3.1. Description of the study area.......................................................................................................14
3.2. Research design...........................................................................................................................14
3.3. Sampling technique and sample size...........................................................................................14
3.4. Source of Data and Data Collection Method...............................................................................15
3.5. Method of data analysis...............................................................................................................15
REFERENCES...........................................................................................................................................28
APPENDIX.................................................................................................................................................30
LIST OF ABBRIVIATION AND ACCRONYM

ADB Asian Development Bank

AEMFI Association of Ethiopian Micro Finance Institutions

FSS Financial Self Sustainability

GDP Gross Domestic Product

GNI Gross National Income

MENA Middle East and North Africa

MFI Micro Finance Institution

MSME Micro, Small and Medium Enterprise

NGO Non-Governmental Organization

OSS Operational Self Sustainability

ROA Return On asset

ROE Return on Equity

ROI Return on Investment

USD United State Dollar

ACSI...... ...... ........ AmharaCredit and Saving Institution

 1. INTRODUCTION

1.1. Back ground of the study

Microfinance institutions (MFIs) in sub-Saharan Africa include a broad range of diverse and
geographically dispersed institutions that offer financial services to low-income clients especially in
developing (least developed) countries. African MFIs appear to serve the broad financial needs of their
clients. Ethiopia is one of the least developed sub Saharan countries. The per capita income of the
country, though it showed improvement in recent years, is only USD 380 as at end of 2013. This is very
little money to cover daily meal, let alone health, education and other emergency expenses, which make
the poor venerable to unforeseen illness expenses and others. There is also high level of unemployment
even with the skilled labor force. For instance, according to 2004 World Development Indicators, out of
the total unemployment of the active labor force 26.9, 61.3 and 8.3 percent have complete primary,
secondary, and tertiary education, respectively. And, this unemployed population is increasing from time
to time as the population of the country is increasing (befekadu, 2007).

It is also the experience in the country that the poor households are the main participants in some kind of
informal sector ranging from small petty trading to medium scale enterprises (befikadu, 2007). And due
to the fact that this sector uses intensive labor force and as well since it is the livelihood of most of the
poor, developing this sector argued to be a weapon to resolve the problem of unemployment and poverty
of a household (befekadu, 2007).
Several studies noted different causes for poverty in a country. Some argued that the cause of poverty in
developing economies among other things is that the poor does not have access to credit for the purpose
of working capital as well as investment for its small business (befekadu, 2007). To this end many
developing economies have developed and have been providing credit to the poor through microfinance
schemes. The experience of several Asian, African as well as Latin American countries could be a typical
example for this. In Ethiopia, several micro finance institutions (MFIs) have establishedand have been
operating towards resolving the credit access problem of the poor particularly to those participates in the
petty business.

Micro financing is the provision of financial services to the poor households as a means of assisting in
poverty alleviation programs among the communities. The primary objective of Microfinance institutions
is the outreach to the poor by providing financial services in a sustainable base. Microfinance projects
were originally entirely donor funded with limited budgets, limited time period, limited economic activity
and limited geographical location
(letenah, 2009). While the going concern of microfinance projects was limited, the poverty levels and
financing needs among the communities was unlimited. There were growing needs for financial services
among the poor communities especially from those who were financially constrained and vulnerable but
have feasible and promising investment ideas (Morduch, 2005; Morduch& Haley, 2002) cited by
(letenah, (2009). Microfinance institutions arose as a way to ensure the continuous provision of
microfinance services to the poor beyond the donor budgets and the time limit of microfinance projects.
The new hope brought by the rise of Microfinance institutions among the poor communities as a
continuous source of finance did not last longer.

1.2. Statement of Problem

In East Africa, microfinance sector has undergone a tremendous transformation since the implementations
of the financial sector reforms which started in 1990’s. The industry has experienced a fast growth in
terms of the number of firms, geographical area covered, and the number of customers served (Fabian and
zhang, 2013). The importance of microfinance sector in the region has increased recently due to a number
of reasons. First is due to the recognition of the sector by governments as the powerful means for poverty
alleviation and economic development. Second, more than half of the populations in individual countries
live in rural areas, which are not yet reached by banking sectors making Microfinance sector as the only
reliable source of financing. Lastly, the lending methodologies and approaches used by Microfinance
institutions in the region have made them more favored source of finance among the low income
household in both rural and urban areas (Fabian, zhang, 2013).
Most argued that MFIs could not sustain for long without the back funding of donors, federal
government, regional government or others (befikadu, 2007). So, the question is do they really not sustain
if the support is gone? To this end, assessment of MFIs performance particularly answering if they are
financially sustainable would be significant. Little is known about the extent to which Microfinance
institutions in the region balance between financial performance and social performance in terms of
outreach to the poor(Fabian, zhang, 2013). This study seeks to provide evidences on outreach and
financial performance of microfinance institutions operating in Ethiopia in Amhara saving and credit
Institution share company which are found inDessie city.
 1.3. Objectives of the study
1.3.1. General objectives
The general and overall objective of this study is to analyze the outreach and financial performance of
microfinance institutions in case of Debre Markos city.

1.3.2. Specific objectives

Specifically this paper is attempted to:
 To analyze the MFIs outreach to the poor Deber Markos city,
 To examine the financial sustainability MFIs in Debre Markos city
 To analyze the related methods of performance measurement of micro finance institution .
1.4. Research question

Based on the above problem the following research question are addressed

 What are the outreaches to the poor of micro finance institution in Debre Markos city?
 What is the financial sustainability level of microfinance institution in Debre Markos city?
 What are the related methods of measurement of performance of microfinance institution?

1.5 Significance of the study

The result obtained from this paper can be used in many ways. It helps the policy maker in order to
understand the problem of microfinance institutions occurred in terms of sustainability, efficiency,
performance out reach of the micro finance institution and design the possible solution. Secondly the
result help the companies them so that they understand their limitation in terms of sustainability,
efficiency, outreach performance and solve the problem by expanding their service to poor and extend
their outreach. The result also helps the community by giving some awareness to the society about the
importance of microfinance institution in alleviating poverty and encouraging them to become
beneficiate from microfinance institutions. And finally the result obtained from this paper is become
available document for some organizations and student who want to conduct further study on the
area.
1.6. Scope of the study

The study will carried out in Debre Markos city on the Amhara credit and saving and Institution. The
study was includes the financial sustainability, outreach, and performance of microfinance institution .The
study still includes some measures of performance of micro finance institution.
1.7Limitation of the study

There will some limitation while conducting this study. Some of them were lack of time and lack of
budget. It is very difficult to get information easily because respondents were not available at a time. Lack
of the experience is another limitation while conducting this study.
 2. REVIEW OF RELATED LITERATURE
2.1 Concepts of microfinance institution
The definition of Microfinance institutions proposed by some authors and organizations are seemingly
different from one another. However the essence of the definition is usually the same in which
microfinance refer to the provision of financial services primarily savings and credit to the poor and low
income households that don’t have access to commercial banks (letenah, 2009). Legerwood (1999 p. 1)
cited by letenah (2009) defines it as the provision of financial services (generally saving and credit) to
low income clients. Robinson (2001 p. 9) defines it as small scale financial services primarily credit and
saving provided to people who farm or fish or herd who operate small enterprises or microenterprises
where goods are produced, recycled, repaired or sold; who provide services; who work for wage and
commission; who gain income from renting out small amount of land, vehicles, draft animals, or
machinery tools; and other individual and groups at the local level of developing countries both rural and
urban area. Similarly, the Asian Development Bank (ADB) defines microfinance as 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 and their micro-enterprises (ADB, 2000).

In practice, in addition to financial intermediation, some microfinance institutions provide social

intermediation services such as group formation, development of self-confidence, and training in financial
literacy and management capabilities among members of a group intended to benefit low-income women
and men. This means that the skills and confidence of low-income people have to be developed in
addition to giving them access to credit provision. Therefore, the microfinance approach is not a
minimalist approach offering only financial intermediation but an integrated approach offering both
financial intermediation and the other services mentioned above.

The development of microfinance institutions in Ethiopia is a recent phenomenon. The proclamation,

which provides for the establishment of microfinance institutions, was issued in July 1996. Since then,
various microfinance institutions have legally been registered and started delivering microfinance
services. In particular, the Licensing and Supervision of Microfinance Institution Proclamation of the
government encouraged the spread of Microfinance Institutions (MFIs) in both rural and urban areas as it
authorized them among other things, to legally accept deposits from the general public (hence diversify
sources of funds), to draw and accept drafts, and to manage funds for the micro financing business (Ebisa,
Getachew and Fikadu, 2013).
 2.1. Measures of performance of microfinance institution

Performance of an institution shall be measured from the objectives of the organization angel.
Microfinance’s goal is to eradicate poverty. In the early days when MFI started they were financed by
donor funds that have a poverty eradication goal. Hence the performance of the
MFI was measured on how much MFI reach to the poor (outreach) and impact (how far the live of those
who get financial services are changing as compared to those who don’t get these services). But as the
MF industry grows in size, the need for increased financing coupled with unpredictability of donor funds
trigger the issue of building a sustainable MFIs that stand on their own leg i.e. MFIs shall start covering
their own cost of operation from their program revenues. Sustainability is loosely defined as the ability of
a MFI to cover its operating and other costs from generated revenue and provide for profit. It is an
indicator which shows how the MFI can run independent (free) of subsidies. This change in emphasis has
created a different perspective on the analysis of performance of the MFIs. Today many key plays in the
industry use sustainability as one core criteria to evaluate the performance of MFIs besides the outreach
and impact measures described earlier (letenah, 2009)

According to letenah (2009), the performance of MFI is measured in many parameters.

This includes:
 Portfolio Quality indicators: Portfolio quality ratios provide information on the percentage of
non-earning assets, which in turn decrease the revenue and liquidity position of MFIs. Some of
the measures used include the repayment rates, arrears rate, Portfolio at risk, delinquent
borrowers, loan loss reserve ratio, and loan loss ratio.
 Productivity and efficiency ratios: Productivity and efficiency ratios provide information about
the rate at which the MFI generate revenue to cover their expense. Productivity refers to the
volume of business that is generated (output) for a given resource or asset (input). Common
measures of productivity include the number of active loans per credit officer, and average
portfolio outstanding per credit officer. On the other hand efficiency refers to the cost per unit of
output. Common efficiency ratios includes operating cost ratio, salaries and benefits to average
portfolio outstanding, average credit officer salary as a multiple of per capita GDP, cost per unit
of currency lent, and cost per loan made.
 Financial viability indicators: Financial viability refers to the ability of the MFI to cover its
costs with earned revenue. A financially viable MFI will not rely on donor funding to subsidize
its operation. Common indicators here include financial spread, Operational Self Sustainability
(OSS), Financial Self Sustainability (FSS) and Subsidy dependence index.
  Profitability indicators: These indicators measure the MFI net income in relation to the
structure of its balance sheet. Common measures include Return on Equity, Return on Assets,
and Return on Business.
 Leverage and capital adequacy ratios: Leverage refers to the extent to which a MFI borrows
money relative to its amount of equity. In other words, it answers the question of how many
additional dollars can be mobilized from commercial sources for every dollar worth of funds
owned by the MFI. The most widely used measure of leverage is the debt equity ratio. Capital
adequacy refers to the amount of capital a MFI have relative to its assets. Capital adequacy
means there is a sufficient level of capital required to absorb potential losses while providing
financial sustainability. The measure used for capital adequacy is the ratio of capital to risk
weighted assets.
 Scale and depth of outreach indicators. These are non-financial indicators of performance.
Scale of outreach indicate the scale of the MFI activities as measured by the number of clients
served with different type of instruments such as saving and credit. Depth of outreach measures
the type of clients served and their poverty level, per capita, the percentage of women borrowers
and percentage of rural clients

2.2. Measuring outreach to the poor

Outreach at glance means the number of clients served. But, befikadu (2007) noted that outreach is
multidimensional concept. In order to measure outreach we need to look in to different dimensions.

"The first is simply the number of persons now served that were previously denied access to formal
financial services. Usually these persons will be the poor because they cannot provide the collateral
required for accessing formal loans, are perceived as being too risky to serve, and impose high transaction
costs on financial institutions because of the small size of their financial activities and transactions.
Women often face greater problems than men in accessing financial services so number of women served
is often measured as another criterion.... Although difficult to measure, depth of poverty is a concern
because the poorest of the poor face the greatest access problem. Some measure of depth of outreach is
needed to evaluate how well MFIs reach the very poor. Finally, the variety of financial services provided
is the criterion because it has been shown that the poor demand and their welfare will be improved if
efficient and secure savings, insurance, remittance transfer and other services are provided in addition to
the loans that are the predominant concern of policy makers"(befikadu,2007).
Similarly befikadu (2007) indicated that there are some aspects of measuring outreach. Among those
aspects some of them are listed and discussed below as the following.

2.2.1. Breadth of Outreach

The breadth of outreach refers to the number of poor served by a microfinance institution. Various studies
have used the number of borrowers as a measure of microfinance breadth of outreach. It is generally
assumed that the larger the number of borrowers the better the outreach.
According to bayeh (2012) larger number of borrowers found to be the biggest sustainability factor, on
the contrary, Ganka (2010) on Tanzanian microfinance institutions reports negative and significant
relationship between breadth of outreach and financial sustainability. Ganka concludes on the result that
increased in number of borrower itself does not improve financial sustainability of microfinance
institutions. The reason could be increased inefficiency as a result of increased number of borrowers.
However, Hartarska (2005) reports that number of borrowers had no significant impact on financial
sustainability.
2.2.2. Depth of the outreach
Bayeh (2012) assert that without the poor the supposed MFI is no longer different from a bank. His
argument is that outreach should not be measured by just total number of clients but it should rather be
based on the number of poor clients. Besides, according to Ledgerwood (1999) cited by bayeh (2012) the
number of borrowers or clients as a measure of outreach consider only the total number of clients served
from various products of MFIs without their relative level of poverty. Thus, average loan size has been
used as a proxy measure of depth of outreach using relative level of poverty. Smaller loans indicate
poorer customers. However, he argues that average loan size does not consider the relative number of the
poorest with small loan sizes. Moreover, the majority of microfinance clients may be average poor or non
poor whose loan sizes are relatively large and, therefore, could easily influence the computed average
loan size figure.
According to Woller and Schreiner (2002) the relationship between depth of outreach and financial self-
sustainability is multidimensional. In their study they found that depth of outreach has a positive
relationship with financial self-sustainability. Woller and Schreiners’ finding put evidence against a wide
spread belief that small loans are highly risky and associated with lower financial sustainability.
Moreover, Cull et al., (2007) indicates that institutions that make small loans are not less profitable
compared to those making bigger loans, and the study by Paxton (2003) confirms that there is a negative
correlation between depth of outreach and subsidy dependency index. This exhibits that there is a positive
relationship between profitability and depth of outreach.
 2.3. Financial sustainability
The other indicator of performance of a micro finance institution is its financial sustainability
(befekadu, 2007). Different literatures noted that financial sustainability is one of the areas that
we need to look at to assess the performance of micro finance institutions. Meyer (2002) noted
that the poor needed to have access to financial service on long-term basis rather than just a
onetime financial support. Short-term loan would worsen the welfare of the poor (Navajas et al.,
2000) cited by befekadu (2007). Meyer (2002) also stated that the financial un-sustainability in
the MFI arises due to low repayment rate or un-materialization of funds promised by donors or
governments. According to Meyer (2002), there are two kind of sustainability that we could
observe in assessing MFIs performance: Operational self-sustainability and financial self-
sustainability. Operational self-sustainability is when the operating income is sufficient enough to
cover operational costs like salaries, supplies, loan losses, and other administrative costs. And
financial self-sustainability (which he referred as high standard measure) is when MFIs can also
cover the costs of funds and other forms of subsidies received when they are valued at market
prices. Meyer (2002:4) indicated, "Measuring financial sustainability requires that MFIs maintain
good financial accounts and follow recognized accounting practices that provide full transparency
for income, expenses, loan recovery, and potential losses." There are some determining factors of
the financial sustainability of micro finance institution. Some of them are listed and discussed
below as the following.
2.3.1. Subsidy and Sustainability
Subsidy is a crucial factor in analyzing sustainability of microfinance in general and MFIs in particular.
Majority of microfinance programs in the world are subsidized in different ways; sustainability of the
programs poses a question in the European Journal of Business and Management mind of academics and
researchers. Even front line institution like Grameen Bank of Bangladesh may experience a high
repayment rate, but also depends on subsidies due to higher value towards social sector (bayeh, 2012).

A study by Peter (2007) shows a negative relationship between the financial sustainability of an
institution and the level of subsidies received each quarter. As the level of subsidy income rises, the
respective institution’s financial sustainability falls. Many have argued that subsidies help microfinance
institutions reach the needed operational size. However, as discussed in many previous studies, these
institutions may actually be doing less good as they receive more assistance. Besides, institutions with
more subsidy income have higher level of loans outstanding that is greater scale. This result may reflect
the crowding out effect described above – an increasing amount of grants and other subsidies are being
directed to microfinance institutions that have already achieved a level of operations needed for their own
continued success.
2.4.2. MFIs Capital Structure
The combination of various sources of capital could affect profitability and, therefore, sustainability of
microfinance institutions. The various sources includes loans, savings, deposits and shares (bayeh, 2012).
Several studies have been conducted to explain whether the capital structure determines the sustainability
of microfinance institutions. For instance, Kyereboah (2007) found that highly leveraged microfinance
institutions have higher ability to deal with moral hazards and adverse selection than their counterparts
with lower leverage ratios. Moreover, Ganka (2010) states that although how the capital has been
structured affects the financial sustainability, having different sources of capital do not improve financial
sustainability. Ganka also identified that equity is a relatively cheaper source of financing and, therefore,
improves financial sustainability.

2.4.3Efficiency
The efficiency refers to the ability to produce maximum output at a given level of input, and it is the most
effective way of delivering small loans to the very poor in microfinance context (bayeh, 2012). This
involves cost minimization and income maximization at a given level of operation, and it has an enduring
impact on financial sustainability of microfinance institutions. Thus, efficiency can be measured by its
productivity (for instance, number of borrowers per staff) and cost management (for instance, cost per
borrower) dimensions.
A study by Woller (2000) on financial viability of village banking to reassess the past performance and
future prospects of village banking indicates that the number of borrowers and cost per borrower were
found to be among the variables most highly correlated with financial sustainability. Later Woller and
Schreiner (2002) examined the determinants of financial sustainability and it was found that productivity
was significant determinant of profitability.
Moreover, a recent study by Ganka (2010) on Tanzanian rural microfinance found a negative and strongly
statistically significant relationship between number of borrowers per staff and financial sustainability. He
justified that microfinance staff for rural MFIs are not efficient as a result they fail to manage borrowers
when their number grows causing microfinance institutions’ un-sustainability. However, Christen et al.
(1995) cited by bayeh (2012) found no association between productivity and financial sustainability.
Besides, Ganka (2010) indicated statistically insignificant relationship between cost per borrower and
financial self-sustainability.
 2.4. The relationship between outreach and financial sustainability
There also are some dispute on the link between financial sustainability and outreach to the poor
(befekadu, 2007). According to some (Christen et al. 1995; Otero and Rhyne 1994), cited in befekadu
(2007), outreach and financial sustainability are complimentary this is because as the number of clients
increase MFIs enjoys economies of scale and hence reduce costs which help them to financial sustainable.
On the other hand, Hulme and Mosely (1996) cited by befekadu (2007) argued that there is inverse
relationship between outreach and financial sustainability.
Here the argument is higher outreach means higher transaction cost in order to get information about
creditworthiness of clients and hence make MFI financially unsustainable. Including credit in the
production function can be used to assess impact of MFIs. But, Scholars like Adam (1988) cited by
befekadu (2007) critic that it is wrong because this kind of assessment involves complications; probably it
could be difficult to sort out loan effects from technical assistance. Regarding indicator of financial
sustainability, Khandkeret, al. (1995) cited by befekadu (2007) pointed out that loan repayment
(measured by default rate) could be another indicator for financial sustainability of MFIs; because, low
default rate would help to realize future lending.

2.5. Empirical literature review

Studies conducted by letenah (2009) on the outreach and financial performance of
Microfinance institutions in Africa shows that in terms of breadth of outreach, sub-Saharan
MFI have a higher number of savers than other regions of the world. However, in terms of number of
borrowers, Africa is lagging behind South Asia and East Asia and the Pacific. In terms of depth of
outreach measured by the percentage of women borrowers, sub-Saharan
Africa has 61% women borrowers as compared to 86% in south Asia and 80% in Middle East and North
Africa (MENA) and 76% in East Asia and Pacific. Sub-Saharan Africa MFI has the lowest financial
performance of ROA of 2% as compared to 7.6%-10% of Eastern Europe and Central Asia (letenah,
2009).
One of the well done studies in the global microfinance industry is the study by Cull et al
(2007). in their study they have used data from 124 MFIs from 49 developing countries. They have not
compared the performance of the MFIs with a benchmark but the result of their studies can be
summarized as follow: the average Financial Self Sufficiency (FSS) is found to be 1.035 meaning MFIs
are becoming financially self sufficient, OSS is a bit greater 1.165, whereas Adjusted ROA is negative (-
0.027). The adjusted ROA shows that most MFIs have no positive return on their investment. Depth of
outreach indicators such as average loan size per GNI per capita is 0.676 and percentage of women
borrowers is found to be 64.9%. Lastly they found that Average interest rate around as high as 35% and
GLP to assets of 68.9%. Hartarska in 2004 has studied Microfinance governance in Central and Eastern
European region. She found that the average ROA is 3.038 indicating profitable MFIs in this region, and
OSS of 91.99. They do have an average number of 7268 borrowers.

2.5.1. Ethiopian Scenario

In Ethiopian case Aklilu (2002) cited by befekadu (2007) reviews the importance of micro finance
institutions in developing economies based on countries' experiences. In the review she suggested for
promotion of the existing well developed institution 'iddir" to facilitate growth of formal MFIs.
Borchgrevink and et.al (2005), studies marginalized groups, credit and empowerment for the case of
Dedebit Credit and Saving Institution (DECSI) of Tigray. The study finds that female household heads
are extremely marginalized groups; and also, young households', rural landless households and urban
house-renting households are the other marginalized groups. Trough two-phase assessment, the study
found that the DECSI's program has had a positive impact on the livelihood of and as well enhanced the
social and political position of many clients. Concerning the constraints for economic development, the
study noted poor rainfall, small farm size, and shortage of labor during peak agricultural seasons as the
main constraints. Similarly, the main constraints in non-farm business ventures are low return and lack of
demand. However, credit is not the main constraining factor for expanding economic activity, except that
in urban areas. The study further noted, DECSI's heavy involvement in credit delivery in the region has
more or less satisfied to most of the people with some exceptions in the urban areas.

The quality literatures on the Ethiopian MFIs industry sustainability and outreach are not as such
available (letenah, 2009). However the study by Kereta in 2007 cited by letenah (2009), on which we
have accessed to, is worth mentioning. He studied the industry’s outreach and financial performance
using simple descriptive analysis using graphs and percentage growth rates. The result of his study
showed that in terms of breadth of outreach, MFIs are serving an increasing number of clients in each
year from 2003-2007. The industry’s growth rate in terms of number of clients is 22.9%. In terms of
depth of outreach measured by average loan size Ethiopian MFIs have a loan size which is on average
nearer to the standard $150. So they can be considered pro-poor. However he indicated that the MFIs
reach to the disadvantages particularly to the poor is limited (38.4%). From sustainability angel, the MFIs
are operationally sustainable as measured by ROA and ROE and the industry’s profit performance is
improving overtime.

Ethiopian microfinance has made remarkable progress over the past decade, reaching almost two million
clients in a country of 91.1 million people. Nevertheless, financial services for the low-income
population, poor farmers and MSMEs are still characterized by limited outreach, high transaction costs
for clients, a generally weak institutional base, weak governance and a nominal ownership structure as
well as dependence on government and mother NGOs. (letenah, 2009).

No study, to the best of our knowledge, has compared the performance of MFIs with a standard. Even if
they report the result of some performance measures, they don’t compare with a standard. The only thing
they say is across time some indicators are improving or worsening, even without doing statistical test of
significance. This is very silly way of analyzing performance. It is known that across time indicators will
change. So the best way to analyze performance is to compare it with a suitable and dynamic industry
benchmark and comment on the results after doing statistical test of significance. Hence the merit of this
study is to compare the performance of the Ethiopian MFIs with some standard and comment on the
result after statistical manipulation (letenah, 2009).
 3. RESEARCHMETHODOLOGY
3.1. Description of the study area
Debre Markos is a city and zone in north central Ethiopia located in East Gojam zone of Amara
region, it sites at latitude and longitude of 11 08′ E 39O 38′Ewith an elevation between 2470 and 2550
meters above sea level, and with total area of 15.08 km 2 (5.82sqm).The temperature of this area is
averagely 15.20cwith the annual average rain fall of 1145 mm, this indicates as Markos has significant
amount of rain fall.it has a total population 151,174 of whom 72,932 are men and 78242 women,
120,095(79.44%) are urban inhabitants living in the town of Markos, the rest of the population living
at aural kebeles around Markos. The majority the inhabitants were Muslims, with 58.62% reporting
their religion, while 39.92% of the population said they practiced Ethiopian orthodox Christianity and
1.15% were Protestants. The two largest ethnic groups reported in this city were Amara (92.83) and
the Tigrigna (4.49%) all other ethnic groups made up 2.68% of the population (CSA, 2007).

3.2 Type of data

The selected design to conduct this research was both quantitative and qualitative descriptive survey.
Quantitative can be used to get numerical information while that of qualitative is used to get some non-
numerical information. Interview schedule were prepared to collect data from participants. Questions
were framed in a way that is easy to understand for the respondents using simple words or expressions.
Difficult technical terms are avoided.

3.3Sampling technique and sample size

The selected method of sampling technique is the purposive sampling of the non-probabilistic technique
in which the respondents are selected by choice. Markos city is selected purposively, based on the
availability of information about the outreach and financial performance of microfinance institution. This
technique is selected because the study is mainly focused on the institution not on the respondents
andsome individuals that have detail information about the outreach and financial performance of their
companies and give information correctly for me. Some of the beneficiaries of the institution are selected
purposively. In determining the sample size of the respondents, there isnon-statistical consideration. This
means we determine the sample size purposively. From the total population of 290; I will have 30 clients
from the institution.
 3.4Source of Data and Data Collection Method

Both types of data i.e. primary and secondary data are used in conducting this study. Secondary data
obtained from some sources such as the annual financial reports of MFIs, data from books,
journals.Andthe primary data obtained from the sample respondents that are selected through purposive
sampling technique through the questionnaires. Interview is used to get detail information about the
micro finance from the manager of the micro finance institution. To increase the reliability of data,
audited annual reports were used.

3.5 Method of data analysis

The method of data analysis used in the study is descriptive statistics .Descriptive statistics are
important tools to present research results clearly and concisely. They help one to have a clear
picture of micro-finance institutions, the performance of microfinance institutions . By applying
descriptive statistics such as percentages, frequency and charts, one can easily analyze the
outreach and financial performance of micro-finance institution. In this study, descriptive
statistics were computed, and arranged in a way that allows one to quickly comprehend their
meanings.
4. WORKPLAN AND BUDGET BREAKDOWN
4.1 Time Budget
This study has planned to be completed within forum on the in the 2018 starting from mar. This
time will be allocated to different phases of researcher project based on the scale of the research
paper. The following table shows the time require a long with the site of research paper.
No Types of activities Feb. Mar Apr MA Jun Aug SEP
Y e
1 Title identification 
2 Proposal writing 
3 Proposal submission 
4 Proposal defense 3.
5 Developing questionnaires 
6 Data collection 
7 Data presentation, analysis and 
interpretation
8 Report writing
9 Submission of final research
10 Defense

4.2 Cost Budget

This money will be allocated based on different requirement for research to be complete. The following
table illustrates the amount of money and allocation cost budget.
No Description of item Unit Quantity Unit of cost Unit of
in Birr total cost
1 Paper Pack 1 250 250
2 Pen Piece 5 6 30
3 Ruler Piece 1 10 10
4 Flash Piece 1 250 250
5 Cost of editing Page 50 2 100
6 Writing the proposal Page 25 7 175
7 Printing proposal Page 25 2 50
8 Writing, editing and printing Page 50 10 500
senior research
9 Internet service cost Card 80 80
10 Copying research questionnaire Page 306 0.75 229.5
Grand total 1674.5
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