MICROFINANCE MATTERS

by ALYOU ALEM TEBEJE

Bachelor of Art, Metropolitan State University of Minnesota, 2003
Master of Business Administration, Argosy University, 2005

A Paper Submitted to Prof. Nelson Updaw (PhD) of Saint Mary’s University of Minnesota in Partial Fulfillment nof the Requirements for the Degree DOCTOR OF EDUCATION

Saint Mary’s University of Minnesota
MINNEAPOLIS, MINNESOTA
Copyright © 2005
Alyou Alem Tebeje

Abstract

My paper is in the area of microfinance as a promising instrument to alleviate poverty, and how microfinance institutions services strengthen business and improve the economic conditions of micro-entrepreneurs and their households. The objective of the study is to show how microfinance committed to the poverty outreach of providing small loans to poor people. The aim of the paper is to look for ways in which the program of the microfinance to enhance the living standard of the poor. It demonstrates exactly how and why access to microfinance savings and credit would help to address poverty with development reaching the poor, building sustainable microfinance institutions, and investment in productive activities, thus improving food security in a sustainable way. Main implications of the paper point to means of balancing for the profitable deployment of microfinance interventions to make favorable impacts. It also, urge an integrated strategy of economic development through its credit and savings makes it possible to affirm that the many microfinance institutions positive results and the international donors to take up the challenge of reaching the poorest.

 

CHAPTER 1

Microfinance Matters

Introduction

This paper reviews experience from recent microfinance literature and poverty reduction in their mission. In the past decade microfinance has been recognized as an effective development intervention. Microfinance project is designed under the overall framework of the priority economic development program (Fernando, 2004). Microfinance has been defined as the means by which poor people convert small sums of money into large lump sums (Rutherford, 2003). Combined with other investments  (public works, employment counseling, and retraining) the project is aimed at assisting people in making the transition away from unemployment and dependence on humanitarian assistance to active employment and income generation (Meyer, 2002). In developing countries the economic conditions have been getting worse over recent decades, but in the last 20 years microfinance emerged as an effective method of designing and delivering financial services to meet poor people’s needs, especially in the area of credit (Robinson, 2001).

Microfinance programs are among the most important interventions in developing country efforts to reduce poverty (Forje, 1998). Microfinance is becoming an ever important tool of poor countries development will provide great opportunities as well as important challenges to microfinance institutions as an industry that is still maturing. Credit programs for small productive units initially farmers and later urban entrepreneurs, have received foreign aid to promote their growth and facilitate their access to the formal financial system. In order to address an overall effectiveness of microfinance operations, the results obtained at the household level can then be related to the poverty level of the operational area. Microfinance program improves access to capital so that they can finance a small number of projects and in the long run alleviate poverty more effectively.

Objectives:

The aim of the study is to understand how different types of micro finance services affect individual clients, their businesses and households. Provide information on impact and reaction to services of direct use to the microfinance institutions (MFIs) themselves. In terms of output the objective was to provide a number of in-depth case studies, which will form a platform for further analysis, expansion and follow up over time. The study examines the trend in profit, savings and wealth of poor households experiencing persistent negative shocks under different operating formats of microfinance schemes. Payments of small periodic installments appear not to be a good method of collecting loans from the poor experiencing persistent negative shocks. Groups formed with diverse occupations and with kind and close friends are likely to fare better when some individuals in the group experience negative shocks. Microfinance main objective is to reduce poverty by financing the poor, in other words to address the needs of the poor, microfinance schemes have to be more flexible.

Research Problem Description

This paper deals with the provision of financial services on a sustainable basis to access to financial services becoming a key feature of the global development. The research study proposes to perform rigorous empirical analysis of the impact of microfinance on poverty alleviation.  Microfinance seeks to reduce poverty by increasing the access of poor people to savings and credit, and microfinance intersects for development reaching the poor; building sustainable microfinance institutions. The research studies have already shown that community based microfinance programs empowers the poor, especially the women from the perspective of gender focus in order to have an effective impact in terms of gender poverty and empowerment.

Research Focus

The objective of the paper is to evaluate and examine all aspects that may in one way or another negatively affect microfinance institutions, and will focus on poverty outreach, but the main focus sustainable finance for the poor. Microfinance operation focuses on poverty alleviation strategy with fully financial self-sufficient. Microfinance is a powerful instrument; small loans are for economic development of poor people. The focus is targeting the poor to provide a financial and socio-economic benefit for job creation, poverty reduction, and empowerment. Small loans lead to financial self-reliance, but also to wider social impact and increased self-esteem of the borrower.

The Research Questions:

This study is based on the hypothesis that the microfinance stimulates socio-economic development at various levels depending on its design and environment in developing country. The hypothesis will be tested whether participation in the microfinance program has a positive effect on various outcome measures. In addition to the overall impacts of participation in the microfinance program, we examine whether there are any special impact for poorer borrowers. The main research questions to be answered are:

  1. Does microfinance lead to a reduction in poverty: Is it sufficient to move poor families out of a situation of poverty deprivation and vulnerability?
  2. What effect does microfinance have on other systems or sources of finance – both formal (local banks) and informal (moneylenders, traders)?
  3. Who is being served by microfinance: Does microfinance develops innovative lending methodologies to reach poor clients with micro-loans?
  4. What the current performance of microfinance is in terms of outreach the poor?

The questions are analyzed for all the institutions of the sample, by type of institutions i.e. lending technology, legal status, and by geographic location i.e. rural or urban, continent. The paper deals with the problem surrounding the micro-financing and loan repayment decisions, because the primary clients of microfinance are poor and low-income people. They may be artisans, farmers, women, and other marginalized groups and individuals.

The study also evaluates the objective of the research to evaluate the barriers to access to the financial services, some clients left out. The best strategy for reaching poor people with savings services, the kinds of financial institutions / services appeal to them.  What is the role of term deposits? The numbers minimum balances and transaction sizes, average deposit sizes, successful savings operations (cost reduction, systems, product features/pricing, indicators, delivery channels, etc). It would be important to look at those institutions that are at the forefront of the industry and compare strategies.

Research Justification:

It is important to address important aspects of material development of microfinance, especially for the poorest and most vulnerable. Microfinance needs to operate in ways that address subjectivity as an obstacle to development. It is important to understand that how one delivers development activity is as important as what is delivered.  Some forms of microfinance, for example, may be better at addressing subjectivity issues than others. The justification methodology of development microfinance is always sensitive to the kinds of relationships around money between poor individuals and microfinance, and within households and communities.

Today, across the world, 1.3 billion people live on less than one dollar a day; 3 billion live on under two dollars a day; 1.3 billion have no access to clean water; 3 billion have no access to sanitation, 2 billion have no access to electricity (Schreiner, M. (2003). According to UNICEF, 30,000 children die each day due to poverty, and nearly a billion people entered the 21st century unable to read a book or sign their names (UNICEF). Many poor lack access to financial services, credit, and savings facilities. According to the World Bank, about two billion people around the world live in extreme poverty (Schreiner, M. (2003).

The problem studied here is that poor people often lack access to education lead to exclusion from financing institutions and health services; also suffer from food insecurity and social exclusion. Lack of financial services is highly reflected in developing countries, finance is an important component of development. One vision of microfinance is to expand access to financial services among the working class and the poor. Microfinance could be helpful to the poor as an effective development strategy for reaching the needy in the new million developments. Addressing the financial needs of the poor and helping them advance to financial self-sufficiency is a major focus of microfinance.

Microfinance is important to address the economic growth translates into overall improvements in the economic and social well being of people in developing countries. It is important to understand the role of smaller microfinance banks providers for a more expanded outreach, providers act as retailers of funds to the poor. Microfinance network has enjoyed useful interactions with a range of stakeholders in the financial sector community. A small number of institutions, however, have demonstrated that it is possible to provide sustainable financial services to very poor households. The justification is that microfinance helps to strengthen poor communities ability to recognize and act on socio-political power relations in a constructive way, the less privileged also can stake their claim to success their economic growth.

Significance of the research     

Microfinance is very effective vehicle of poverty alleviation. This initiative shows the world that microfinance is an opportunity for both social and commercial investors to produce powerful returns for their clients. Microfinance empowers the entrepreneurial spirit that exists in impoverished communities throughout the world. The microfinance program recognizes the contributions that micro entrepreneurs make to the economic sustainability of families and communities around the world.

Definition of Terms

For the purpose of this study the following definitions are used.

Grameen Bank:  is nonprofit organization that uses microfinance and innovative technology to fight global poverty and bring opportunities to the world’s poorest people.

Loan: A secured loan is ‘guaranteed’ by some sort of collateral, usually your home, which will be at risk if you fail to make repayments. You can use it for just about any reason.

Microfinance is a general term describing the practice of extending small (“micro”) loans and other financial services, such as savings accounts and insurance, to poor borrowers for income generating self-employment projects.

Microfinance institution (MFI) is an organization that provides financial services targeted to the poor (Otero & Rhyne, 1994).

Micro-credit is a small amount of money loaned to a client by an bank or other institution (Schreiner, 2003).

Micro-savings are deposit services that allow one to store small amounts of money for future use.

Micro-insurance is a system by which people, businesses and other organizations make a payment to share risk (Otero & Rhyne, 1994).

Quality of Life: Refers to the norms of society which encompass the desires, needs, experiences, and aspirations of an individual and is used to make empirical statements concerning the different aspects of one’s life at one given period of time in the community (McVilly & Rawlinson, 1988).

Unemployed: The individual is not employed in the work force and has been out of work for 1 year or more. May or may not be seeking employment or unable to work due to mental or physical disabilities.

CHAPTER 2

Review of the Literature

The review of literature is relevant to examine the nature and social impact of microfinance for poverty reduction strategy. It was organized to present an overview of the microfinance; study the effectiveness, causes, and motives of this problem. The research evidence and analysis of the previously conducted studies with reference to the quality of life that the poor people encounter in the real world;  exhibit assessment protocols used in previous studies;  summarize results relative to research conducted to date.

Micro financing was first developed by Muhammed Yunus, a U.S educated professor of economics during 1974 famine in his homeland of Bangladesh, one of the poorest countries in the world (Schreiner, 2003). Yunus founded the Grameen Bank to make small loans to poor Bangladeshis. It is an effective policy to fight poverty based on the idea of giving poor people access to financial services (Rutherford, 2003). The financial service is not for poor people in general but for poor people who are considered to be economically active, in other words, those who carry out activities which generates revenues which in turn allow them to cover their needs and those of their families, even if these revenues are low and precarious.

Microfinance offers to help them get started by giving them access to financial services from which they are generally excluded. Including savings and credit facilities, insurances and fund transfer and in ways those are suited to their economic and management skills (Paxton, Graham, & Thraen, 2000). Microfinance provides financial services for low income and poor customers through innovative organizations and systems with the goal of poverty alleviation. Access to affordable credit and helping them start up savings has huge potential to help address poverty. Poverty always remained as a problem. Microfinance becomes one of the last hopes to fight against poverty, because it provides the poorest with the means to become independent.

Microfinance key to poverty alleviation

The usual definitions of poverty are based on lack of money, the condition of having insufficient resources or income. In its most extreme form, poverty is the lack of basic human needs. There are a number of governments and government sponsored Poverty Alleviation Initiatives. Microfinance has been one of the best instruments in the global fight against poverty. Beyond financial support, microfinance enables the poorest to have aspirations to be able to generate revenue by their own efforts.

The objective of microfinance is the improvement of quality of life for poor people. Just like everyone else, poor people need a wide range of financial services that are convenient, flexible, and reasonably priced. The program designed to improve the quality of microfinance services and their impact on poverty through strengthening the development of impact assessment systems (Schreiner, 2003). Microfinance has become recognized as a valuable tool for increasing the livelihoods and reducing the vulnerability of the poor. It has been quite successful in many countries, the utilization of credit for adequate income and employment generation is a cause of concern for most of the stakeholders.

Increased earning and savings provide poor people with some cushion from the day-to-day struggle of earning a living (Paxton, 2002). The goal provides the means to achieve the other goals. Access to financial services enables the poor to fight the various dimensions of poverty and make improvements to their lives. Whether they save or borrow, evidence shows that when poor people have access to financial services, they choose to invest their loans, additional earnings, or savings in a wide range of activities and assets that benefit not only themselves but also their households.

Microfinance is often associated with small business development. In recent years, the development community came to view microfinance as an increasingly important tool for poverty alleviation and economic empowerment. Most of the world’s poor lack access to basic financial services that would help them manage their assets and generate income. In most developing countries, poor people are the majority of the population, yet they are the least likely to be served by banks. Micro-financing efforts around the world shows that poor people with little education are reliable borrowers who invest wisely and are willing to save if given the chance. When poor people have access to financial services, they can earn more, and build their assets.

The experience also shows that women are usually the best borrowers, since they are better at repaying their loans and they invest more that men do in the needs of their family and children. Poor people need a variety of financial services, not just loans. Microfinance is a powerful tool to fight poverty. Microfinance means building financial systems that serve the poor. It can pay for itself, and must do so if it is to reach very large numbers of poor people, it is about building permanent local financial institutions, and micro-financing is not always the answer for complete social, political and economical development.

Commercial Banks:

Commercial banks are proactive strategic value added; profit creation and the large majority of commercial banking intuitions had little positive experience of banking with the poor (Schreiner, 2003). Most governments in developing counties also provide initiative to promoted greater participation from commercial banks in the development of microfinance is tax exemptions given to the charitable foundations of commercial banks. Commercial banks, government institutions acknowledged the weakness of the existing credit system. The creation of some kind a credit council reforms the major strategies to address the commercial banks interest. The credit council will to reach the needs of poverty groups but also promoted interest for banks to explore alternative means of delivering credit to the poor.

Microfinance system designed to promote and sustainable economic growth to create employment and livelihood opportunities and building the capacity of poor people to help them. Recently, large commercial banks have started to explore the possibility of full commercial financing of microfinance operations without the benefit of a tax shelter. A few large banks have also taken the initiative to acquire small banks and are showing interest in using NGOs as partners in extending credit to low-income groups.

Now commercial banks in developing countries have begun to see microfinance not only as a valuable public relations tool but a profitable venture and are beginning to examine the microfinance market (Harper & Singh, 2005). His study examined some of the factors that influenced the entry of commercial banks into microfinance and the ways in which these banks had integrated microfinance into their operations. Based on his research, the key success factors for commercial bank involvement in microfinance is to create a small specialized bank or a separate microfinance unit within a large commercial bank. For example Citi-Group has been one of the leader funder of microfinance programs for close to 40 years with its affiliates around the world (Citigroup). There has been a growing demand for information on successful approaches to project design and implementation. Microfinance is relatively effective financing method in the fight against poverty. The effective availability of microfinance could be the largest instrument of poverty alleviation.

Today some 1.2 billion people suffer from chronic poverty, trying to subsist on less than $365 per year, which works out to only $7 a week (Daley-Harris, 2002). Simultaneously, the poorest 20 percent of the world’s population saw decreases in their meager share, from 2.3 percent of all wealth as it dissipated to a mere 1.4 percent (Brown, 2000). It is necessary expanding microfinance beyond credit, into a wider variety of financial products to meet the diverse needs of poor borrowers as a serious part of the financial sector and as a business concern, not an act of charity.

Microfinance has proven itself a powerful instrument against poverty around the world. It empowers the poor, especially poor women, bringing economic success to once impoverished families. Access to microfinance can be an effective way of helping marginalized millions poor people to improve their lives. The poor constitute the vast majority of the population in most developing countries, but an overwhelming number of the poor continue to lack access to basic financial services. Access to sustainable financial services enables the poor to increase incomes, build assets, and reduce their vulnerability to external shocks. Microfinance allows poor households to move from everyday survival to planning for the future, investing in better nutrition, improved living conditions, and children’s health and education.

Microfinance organization/institutions play an important role in the economic development of poor communities. Microfinance institutions considered that organizational aspects were more important than the operational nuts and bolts. The majority of these microfinance organizations are donor funded. Microfinance organizations increase their efficiency, thereby lowering their overhead costs, and helping them to achieve sustainability. Most microfinance organizations are selecting appropriate information technology to increase efficiency and improve institutional management. The microfinance organization has achieved a degree of success in their projects as small businesses as they expand.

The Microfinance project is designed to allow people who did not have access to credit the chance to borrow a small amount of money under the overall framework. It is just a small loan can help a family work its way out of poverty. Many people possess a strong entrepreneurial spirit, but have been overlooked by the formal banking sector because they lack collateral (Meyer, 2002). Microfinance is a financial system that offers access to credit and other financial services to poor people in many developing countries, as donors and international organisms designed to support the microfinance industry.

The organizational structure of microfinance is intended to encourage, promote and lend support to the activities of regional and international partners. Microfinance agencies work with rural and urban low-income communities in developing countries. Many diverse types of microfinance bodies are now described as being Non-Governmental Organizations (NGOs). The private and voluntary organizations which support micro and small enterprise programs in the developing world are needed. A sustainable banking system improves the ability of donors, governments, and practitioners to design and implement policies and programs to build sustainable financing institutions that are effective in reaching the poor.

NGOs are the major provider of microfinance. Microfinance has a social purpose, but despite the social content, it is really a commercial entity. Microfinance, first started in the 1970s, it has grown to become an industry of its own with thousands microfinance institutions worldwide (Amin & Ropa, 2003). There is a rise in the numbers of organizations providing services to micro-entrepreneurs. Particularly from the mid-1990s, there has been an expansion in microfinance services for micro enterprises from commercial banks (Forje, 1998), especially from non-banking organizations.

Microfinance started to become more rigorous with the arrival of international NGOs. NGOs, who are microfinance specialists with programs worldwide, launched microfinance programs. The numbers of microfinance institutions in the developing countries have steadily increased making it one of the more active participants in the process of economic development with international NGOs, multilateral and bilateral donor agencies to further the access of microfinance for the poor (Wright, 2000).

All the key policy decisions related to the local Initiatives project were made after consultations with all stakeholders (governments, microfinance institutions, banks, donors, and so forth), which resulted in better understanding of the principles of microfinance (Fernando, 2004). Microfinance institutions are given an opportunity to work in an environment that was supportive despite the initial skepticism of government officials about the concept of micro credit and loans disbursed by NGO (Fernando, 2004). The disagreements will slow down the government approval process. Bureaucratic obstacles in combination with design issues meant that the program did not disburse any loans for the first three years (Coleman, 2004).

Microfinance institutions include NGOs, credit unions, non bank financial intermediaries, and even a few commercial banks. A microfinance institution forms alliances with other NGOs, for profit, or governmental organizations, multilateral donor organizations, or implementing partners in the non-profit and private sectors. Many microfinance institutions are local, community based and community run organizations that may be supported by larger foundations and development NGOs or banks (Meyer, 2002).  Most NGOs’ identifies partners to create new opportunities to achieve mission driven results. The individual country governments do influence the microfinance community in a particular field, by establishing microfinance that promotes promote and strengthen the microfinance institutions.

Demand-Supply Assessment:

In economics the demand for goods and services distinguish between wants and needs. The most interesting issues in microfinance are the demand for microfinance services. The question is whether the user in microfinance sector, understanding current usage properly requires info on both demand and supply aspects.  On demand side, how many clients is willingness to pay, it depends on household wellbeing and productivity and on the supply side; it depends on the cost conditions and other barriers to access finance. Most microfinance practices, however, has tended to focus almost exclusively on the question of supply, because commercial banks don’t provide microfinance services to poor consumers (Gonzalez-Vega, 1998a). It is assumed that banks don’t want to provide to the poor for some reason. The microfinance solution is to push the supply side harder. The main barriers to small enterprise and the commercial banks are reluctant to provide it because of risk.

Microfinance approaches are characterized by low transaction cost and high repayments. Banking with the poor seems possible through the conventional weaker section lending by banks, self-help group (SHG) bank linkage program, and lending by banks and financial institutions to microfinance institutions for on-lending to ground level groups or individuals. There is no doubt that conventional banking products are too expensive, and that micro-enterprises need credit facilities but can’t get them in the market.  In microfinance market shows that need is not the same thing as demand.

Market failure happens when individuals pursuing private profit or utility maximization create outcomes that are bad for society as a whole (Rutherford, 2003). In the case of microfinance, it seems clear that there is little or no profit to be made in providing services to the very poor; otherwise, banks would be doing it.  It is needed the investment in developing countries a pro-poor microfinance institutions are important.

The only institutions that do so are a handful of NGOs, which have been established with infusions of donor money, which paid for the time and cost to develop the expertise necessary to give effect to the latent demand for microfinance services by the very poor.  In considering the demand for and supply of microfinance services, we should try to understand both the desire for them and the conditions under which this desire translates into people actually trying to access them (Rutherford, 2003). The best option is to supply microfinance services to the very poor through specialist non-bank retail intermediaries. Microfinance intermediaries are suitable to give effect to the demand for microfinance services amongst the very poor. Microfinance is the supply of loans, savings, and other basic financial services to the poor. People living in poverty also needs diverse range of financial instruments to run their businesses, build assets, stabilize consumption, and shield themselves against risks. Financial services needed by the poor include working capital loans, consumer credit, and savings, pensions and money transfer services.

Micro-financing Assessments

The effective availability of microfinance could be the largest instrument of poverty alleviation. The financing project was provided based on the performance of each partner microfinance institution against mutually agreed upon performance standards related to institutional and financial performance. Furthermore, project financing was tailored as if, microfinance institutions were borrowing from commercial sources (with cost of capital of 3-5 percent per annum), and the reporting requirements were established similar to those of other financial institutions (Matin & Hulme, 2003). This approach provided incentives to microfinance institutions to strengthen their institutional and financial performance to meet the standards and develop appropriate internal policies and procedures that have helped them maintain impressively high quality portfolios.

Microfinance must expand beyond credit into a wider range of financial products to meet the diverse needs of poor borrowers including savings, insurance, money transfer, remittances (Robinson, 2001). Most microfinance institutions originally provided financing to selected NGOs’, and those selected microfinance institution must be designed with the same business considerations as any other microfinance institutions. The selected microfinance institutions collapse, because of NGOs often causes a loan default crisis a few months after start up and plans should be put in place early to prevent it happening.

Financing Assessment:

This assessment tool is designed to assess the microfinance financing the poor in developing countries include the participatory poverty assessment carried out by the World Bank in collaboration with the government and non Government bodies (Pitt & Khandker, 1998). Microfinance services contribute to development by adding value: benefits to society should exceed costs. Most of the costs and benefits are borne by the providers and users of the services, but there may also be important side effects, or what economists call externalities, on other people and society at large. These are referred to below as wider impact. The day-to-day business of microfinance is primarily concerned with direct impacts. Here the key equation is whether costs of provision are less than the benefits to clients. If they are then business is possible, with benefits shared between provider and user according to the price that is struck between them. (Schreiner, 2003) The scope for business can be enhanced by lowering the cost of provision of the services, as well as by developing new products that better serve the needs of clients. They are mostly privately owned, limited companies and offer professional skills and expertise in a specific domain of microfinance.

Microfinance aims at providing access to financial services vital to the poorest. Microfinance offering financial support for investment projects in the small business domain (Mosley, 2001). Microfinance used to be the domain of donors and experimental credit projects but it has evolved into an industry. Almost exclusively the domain of donors and experimental credit projects, institutional microfinance has evolved during the last decade into an industry with prospects for financial viability, offering a broader range of services and significant opportunities for expansion (Schreiner, 2003). This strategy will help us to be more effective and consistent in meeting the diverse requirements of this industry. But microfinance institutions can attract deposits and provide products and services to the poor at competitive prices.

 

Risk Assessment

Microfinance institutions have increasingly relied on the design of viable financial institutions. Microfinance is too risky loans will not produce sufficient returns to justify investment. Identifying the key risks in microfinance business is necessary. Credit is a fragile financial instrument that offers purchasing power to take advantage of opportunities that already exist (Gonzalez-Vega, 1997).  Lack of protection for lenders and restrictions on foreign banks are negative perceptions for microfinance development in developing countries.

Microfinance institutions increasingly accept loans from foreign investors; they are faced more and more with the issue of how to handle foreign exchange risk (Schreiner, 2003). Microfinance funds have dealt with currency risk by avoiding lending to microfinance institutions that have large dollar-based borrowing and large local currency loan portfolios, especially in countries with volatile currencies. The risks of currency depreciation currency crises in Mexico and Southeast Asia, dollar-based assets in microfinance were devaluations in the late 1990s (Fernando, 2004). Indeed, the costs of reducing currency risk can be high, and in many cases few alternatives are available. Microfinance institutions are the most widespread way to deal with currency risk has been to simply charge high enough interest rates and fees to offset any potential risk from currency devaluation.

The majority of microfinance institutions are donor funded, which is an obstacle to their scalability and sustainability. More than 7,000 microfinance institutions worldwide, less than 100 can claim financial self-sufficiency (Robinson, 2001). After analyzing many microfinance institutions data, there was a relationship between the poverty level of those who participated in micro loans for a year or more, and those who had just begun (Forje, 1998). Those who participated in micro loans on average earned more money per day.

There is a relationship between the economic status of those who participated in micro-loans, and those who had never participated in such loans, and also between those who had discontinued participating in microfinance. The vision of many governmental and nongovernmental organizations is to fight against mass poverty, food insecurity, many other problems and the creation of strategies and programs that will enhance family, create viable microfinance programs (Meyer, 2002). The low income clients, competitive strategy, capacity to mobilize funds that fit the organization’s strategy.

Microfinance programs, when done well, microfinance can become a powerful tool to promote potential of the individual, but the force of unity reflected in the concept of community. A microfinance achievement is very significant financial self-sufficiency, integration into the existing financial system. Indeed, success in such efforts still requires that the people themselves be motivated, that they have the will to work through conflicts, to evaluate and seek solutions for their own problems, and that they build and sustain a sense of community. Poor people have proven their acumen for investment and repayment of credit, for accumulation of savings, and in their primary use of earnings to provide food, medical care, better housing, and education for their children.

Microfinance is an important tool in combating poverty by providing the poor within a community with critical financial services which they generally cannot access. Microfinance grants are clearly not a main funding strategy for most of the organizations. They may be the main strategy for a brief period, but if successful, the organizations will need additional, larger sources of funds within a short time. Microfinance should adjust the funding through innovations of rapid expansion of outreach to all low-income through sustainable financial institutions. The microfinance project should provide further assistance through business training and mentoring services to micro-enterprises. What is more important than simply helping/providing credit to half the world’s severely poor to increase their income?

Microfinance has proven to be an effective and efficient mechanism in poverty reduction the world over. Yet, it remains still unclear if microfinance institutions really are able to reach the poorest of the poor. While the specific objective and mission of the institution should be kept in mind. Analysis on evidence on the effectiveness of microfinance institutions in reaching the poorest segments of the population is needed in order to justify the investment of public funds. Reaching the poorest poor remains a major challenge, but microfinance is a remarkable opportunity to highlight as an important instrument for economic and social development.

The achievement in microfinance is the developing countries have been impressive. However, a number of major problems remain. Investing in people is perhaps the single most important factor in economic growth. Microfinance institutions for short-term loans, and it also makes good business and economic sense for microfinance institutions to retain clients with a proven record of good repayment by responding to their growing credit requirements until they become attractive to banks.

Microfinance institutions themselves are reluctant to move to small enterprise finance arguing that it diverts their focus on poverty alleviation. The strategy thus has to be revisited to address the financing gap. Microfinance institutions should recognize that retaining a good client base contributes to their financial viability, thereby allowing them to provide sustainable services. The experience of microfinance programs points to strong evidence that the access to financial services play an important role in the economic development of poor communities. Microfinance is a key policy strategy for poverty alleviation. Access to credit enables households to accumulate wealth and assets, which allow them to better economic and social security. The big accomplishment in microfinance, microfinance does put food on the table which is no small accomplishment.

The emphasis is on building sustainable microfinance institutions that can increase both scale and outreach to the poor through a range of reliable financial services (including savings, payment transfers and insurance, as well as credit) with decreasing dependence on external donor funding, as microfinance has become recognized as a valuable tool for increasing the livelihoods and reducing the vulnerability of the poor. Despite this progress in the industry, many challenges remain the largest share of total production in developing countries and involved a high percentage of the population. I sincerely believe that microfinance can and will help the poor. I believe that microfinance differs from other efforts to reduce poverty. If we would help just one other person improves, to have a better life, and then the world would be a much better place.

Summary

Microfinance programs and institutions are increasingly important in development strategies. The main considerations are poverty reduction among the poorest, increased well-being and community development. The focus is on small savings and loan provision for consumption and production, group formation, etc.  Generally, resource-poor groups do not have the ability to create substantial savings a priory to ensure their basic needs are met. MF loans in kind or cash can be used to finance short-term investments, and encourage people to save in kind or cash. Experiences gathered by micro-credit schemes in many countries give evidence of successful models such as village group model. In village group model savings and credit are linked. Although loan conditions vary between individual schemes it can be said that success depends on the availability of demand-driven credit and savings products in combination with suitable planning and implementation services. Microfinance is a cost-effective means of contributing to development and poverty alleviation. Any investment is used more than one time in microfinance; however, it also takes considerable effort in terms of human resources, financial planning and the shaping of a supportive infrastructure. In order to bring microfinance institutions to higher scale that they can play a role as an integrated part of the financial sector. Once microfinance institutions have matured, profits can actually be high, enabling them to expand and increase outreach to the poor through internally generated funds.

CHAPTER 3

Methodology

Description of the Research Design

Microfinance methodologies, specifically examining the impact on the type of client attracted, the incentives created, and the consequence to both the institution and the client. The participants were randomly selected to the program. The research will describe whether relationships exist among variables. The researcher will design a microfinance product that genuinely responds to the preferences of low-income clients. The researcher will conduct quantitative and qualitative research microfinance impacts on poor and low income people in developing countries. The impacts on poor people life, it examines the education, health, food, and other basic social services.

Methodology

An effective microfinance methodology is designed to reduce the costs of microfinance. Removing the barriers of microfinance methodology is necessary for future financial satiability (Wodon, 1998). Cutting costs and increasing staff productivity have significant development on the microfinance lending methodology. To become sustainable microfinance institutions may change their methodology to increase scale and improve efficiency.

The methodology is developing the habit of savings through small amounts money. The poor people are willing to save more and are indeed saving in a number of ways. The microfinance industry methodologies are required to be become more responsive to the demands of the customers. It is well established that the impact of access to micro-financial services cannot readily be understood by examining either the client or the business in isolation. Rather clients are a part of a wider household and the business may be one of a number of income generating activities in which the household is engaged. The impact of access to financial services must be understood in terms of the effect on the wider household and livelihoods. Microfinance obviously operates at the household level.

Microfinance supports mainly informal activities that often have a low return and low market demand. It may therefore be hypothesized that the aggregate poverty impact of microfinance is modest or even nonexistent. Microfinance program is critical effectiveness for contributes to overall poverty reduction. If true, the poverty impact of microfinance observed at the participant level represents either income redistribution or short-run income generation from the microfinance intervention. This article examines the effects of microfinance on poverty reduction at both the participant.

The study on which this report is based includes theoretical considerations the financial systems model and practical field experience for analyzing the commercialization of microfinance. The main findings and recommendations presented here are the product of extensive consultation through individual and group meetings with a wide variety of microfinance stakeholders, including microfinance clients, microfinance institutions government officials, state-owned commercial banks, private banks, cooperatives, NGOs microfinance institutions, and funding agencies.

However the micro level of the economy is linked with subsidy the loans to make the credit more affordable to the poor. Microfinance institutions the main goal is to provide small amounts of credit to the poor, in order to generate self-employment in income earning activities. When the microfinance institutions loan officers use a credit scorecard to evaluate new applications, prospective borrowers without business experience would be given a lower score, making them less likely to qualify for a loan from the institution.

The main target group is poor women entrepreneurs (Pitt & Khandker, 1998), and the core methodology is a credit only approach with forced savings tied to the loan. Credit is given out in groups where the group guarantee becomes the loan collateral and groups are trained and required to sit for weekly meetings. Yet, the core credit led methodology is what keeps extreme poor out of the traditional microfinance portfolio.

 

Credit Methodology

Two broad methodologies have been regularly used in microfinance: individual loans and group lending (solidarity groups). The credit methodology have been effective of each participant guarantees the repayment of every other member’ portion, which creates social pressures within lending groups. Lending groups typically assume joint liability for loan repayment, which can create an incentive to exclude the very poor, who are seen by other group members as poorer credit risks. This vision, however, contradicts the generally accepted assumption that lending groups reach poorer subjects of credit who do not have enough collaterals to apply for an individual loan.

An analysis of many microfinance institutions carried out indicated that the group lenders in many countries reached the poorest better than individual lenders (Navajas & etal, 2000). Besides, lending groups are mainly associated with microfinance programs aimed at women, and as it have been argued above; women are considered to be relatively poorer.  Usually, microfinance institutions do not engage in only one credit methodology, they rather use both. Then, in order to assess the impact of credit methodology on loan size, a percentage of individual loans in the portfolio is used, being the prediction: the larger this percentage, the lower the depth of outreach and the larger the loan size.

Scoring Methodology

Scoring methodology systems also can be a foundation for advanced capabilities, such as pricing loans based on individual client risks and more accurately provisioning against loan losses. Scoring develops a scorecard that loan officers use by inputting client data to create scores that predict several types of client behavior (Pitt & Khandker, 1998). Scoring enables loan officers to prioritize their efforts on clients most likely to respond to the microfinance institutions marketing effort and collections scoring (Matin & Hulme, 2003). It improves the efficiency of loan evaluations, recovery of arrears, and customer retention, offers a basis for variable pricing by including individual client risk in lending decision-making.

The mechanics of microfinance are indeed fascinating. There are three levels of operation: the borrowers who take loans and invest them in their own micro-businesses, the loan delivery and recovery system, and the institution that manages that delivery system. Attribution of impact depends on understanding, from the client perspective, how each loan or use of a savings facility has impacted on aspects of their livelihoods. This research is essentially exploratory and is indicative of how various financial services can impact on measuring depth of outreach and profiling poverty, and strategies to deepen the outreach.

Microfinance method is giving poor people access to financial services in the form of credit. Microfinance is, to begin with, finance on a very small scale. The most well known microfinance institution is micro-loans delivered through a range of group based and individual methodologies. Through loans for income-generation or micro-institutions, microfinance enables the poor to increase, or at least stabilize, household income. This kind of methodology of microfinance the program is necessary to expand the horizontal and vertical outreach of microfinance institutions and programs (Parker, 2000).

The microfinance programs contribute for development of a more formal way serving poor women and men. Access to affordable credit and helping them start up savings has huge potential to help address poverty. The poor people need the same types of financial services as everyone else. Microfinance addresses the need financial services in the form of credit through a variety of financial services. Credit is available from informal commercial and noncommercial money lenders but usually at a very high cost to borrowers. Savings services are available through a variety of informal relationships like savings clubs, rotating savings and credit associations.

Description of the Population  

Microfinance is targeting poor and vulnerable population groups and working to stimulate local economy. Microfinance clients are low-income persons that do not have access to formal financial institutions. Microfinance clients are typically self-employed, often household-based entrepreneurs. In rural areas, they are usually small farmers and others who are engaged in small income-generating activities such as food processing and petty trade. In urban areas, microfinance activities are more diverse and include shopkeepers, service providers, artisans, street vendors, etc. Microfinance clients are poor and vulnerable non-poor who have a relatively stable source of income.

The aim of microfinance is achieving sustainable reductions in poverty. Microfinance practices reflect the diversity of landscape and population density in developing countries. It is one of the most cost-effective methods to create jobs. Microfinance is working in the way intended to bring sustained relief from poverty. Microfinance institutions received grant support for their start-up fixed and operating costs for the first three years of operations (Daley-Harris, 2002). Building financially sustainable institutions is the only way to reach the poor.

According to Robinson (2001) sustainability is the ability of a microfinance provider to cover all of its costs. It allows the continued operation of the microfinance provider and the ongoing provision of financial services to the poor. Achieving financial sustainability means reducing transaction costs, offering better products and services that meet client needs, and finding new ways to reach the poor neglected from financial institutions. As Wright (2000) indicated; today, all microfinance institutions cover their own operating costs from their own operating income and are not dependent on injections of outside funding to continue running. The clients of microfinance are generally low-income people.  Among them may be female heads of households, pensioners, artisans or small farmers.

Description of Sample

Microfinance institutions that have become financially self-sustainable tend to be larger and relatively more efficient. The experience suggests that, by becoming larger, some microfinance institutions have been able to lower their operating expenses relative to the size of their loan portfolios. For instance, in a sample of 200 Microfinance institutions striving for financial self-sufficiency in 2006, those achieving the objective (roughly half of the sample) were more than two times larger than the average, but operated a similar number of offices. Arguably, the increase in size facilitates a reduction in operating and personnel expenses per dollar lent, which increases profitability. In addition, self-sustainable microfinance institutions tend to reach a larger number of borrowers and rely more heavily on deposits and other commercial sources of funding. In other aspects, financially self-sustainable microfinance institutions are similar to the industry average, including with respect to loan quality, average yields on gross loans, and capitalization ratios.

Data collection

The primary and secondary data were used for the purpose of this research. Secondary sources included books, journals, NGOs documentation, and World Bank and United Nations literature and government information. Primary data was obtained using a qualitative research approach. The main methods employed were focus groups discussions and semi-structured interviews. the researchers interviewed staff of Microfinance Institutions, NGOs, clients, non-clients, ex-clients and local moneylenders. A Qualitative data collection offers reliable open information to further facilitate data verification. All data will be collected under the same conditions and in the same location with the survey read to each participant by the principle researcher. Demographic or personal information obtained for the survey will be pulled from files from microfinance participants’ registration.

The characteristics of the data gatherers/researchers will be different and unrelated to the variables being collected.  Procedures will be standardized with a time line established and training provided to placement specialists. The data collector involved in data entry with individuals will be unaware of the hypotheses and unable to identify the participant characteristics of the individuals or groups.

Instrument Development

The instrument is development assist credit agencies consider investing on micro-credit projects in developing countries. This research explores the conditions under which micro credit is an appropriate rural development intervention. The surveys will be implemented following an established time line. Copies of the instruments will be clean and information obtained through the telephone interview will be documented on each survey. Instrumentation decay will be managed by having the researcher follow the same process for completing each survey form. Data processes will be developed prior to entering data. Processes will include deleting the participant if gaps or information was left out prior to entering data. Data will be entered into a data base having a graduate assistant/researcher schedule data collection at specific periods of time throughout the project with up 20 participants’ data being entered at that time.

Existing instrumentation will be proposed for this study, utilizing existing survey instruments for validity. Microfinance is a powerful instrument against poverty. Access to sustainable financial services enables the poor to increase incomes, build assets, and reduce their vulnerability to external shocks. Microfinance allows poor households to move from everyday survival to planning for the future, investing in better nutrition, improved living conditions, and children’s health and education. The use of existing instrumentation according to Frankel and Wallen (1996) will not be justified unless sufficient reliability and validity will be reported. Instrumentation will be attached for the dropout rates, career, quality of life and employment outcomes.

Ethical Issues

The basic ethical issues around microfinance are a fair allocation with limited resources. The poor are at greater risk, because less access to resources. The challenge of expanding access to microfinance to growing numbers of low-income borrowers and lack of resources to poor are underserved.  And the political constraint arguments are the market value and revenue argument, and the monitoring role of the government. According to Parker (2000) microfinance has multiple concerns: humanitarian, as corruption undermines and distorts development and leads to increasing levels of human rights abuse; democratic, as corruption undermines democracies and in particular the achievements of many are developing countries. Corruption undermines a society’s integrity; and practical, as corruption distorts the operations of markets and deprives ordinary people of the benefits (Pitt & Khandker, 1998).

In addition, the issue of joint vs. individual liability raise question about the practice of microfinance institutions. Joint liability is only one aspect of group lending, designed to improve repayment, better screening and selection of new borrowers.  Most microfinance institutions are already operating in a purely peer-to-peer environment. Peer-to-peer loan system, allowing peers to better enforces the loan contract policies about the use of their networks. However, it may also increase drop-outs by putting excessive pressure on clients, generating conflict or harming social capital. However, the lesson for peer-to-peer designers is that without accountability in a network, it is difficult to enforce rules of social responsibility (Wright, G. (2000).

Validity

 

Validity studies for evidence of content and construct validity will be reported. Content validity will begin with definition of the domain of interest. As the construct microfinance poverty reeducation refers to beliefs of capacity with respect to a specific domain of behavior, adequate specifications of the domain will be the precondition for content validity (Betz 197). Validity studies for evidence of content and construct validity will be reported. Content validity will begin with definition of the domain of interest.

The validity of microfinance method depends on how meaningful the planned target setting. The target may presupposes substantial prior information about the extent and nature of poverty and what microfinance can do best, but most often, target setting is relatively arbitrary; for example if we move 100,000 people across the poverty line the next five years, the target may be successfully fulfilled or unfulfilled. This can be a reflection of the project’s performance, but also of the significance of the target; in the absence of supplementary analysis.

While this kind of checklist is often used for assessing the validity of quantitative evaluations (Baker, 2000). However, other writers believe it is possible to establish uniform criteria for assessing qualitative evaluations. The subjective judgments by individuals involved in or affected by the project target group individuals may have the project to be seen as a success. Creating a financial system capable of lending to micro-institutions and low income households is an integral part of the World Bank’s strategy for developing the indigenous private sector and alleviating poverty (Schreiner, 2003). Microfinance institutions consist of agents and organizations that engage in relatively small financial transactions using specialized, character based methodologies to serve low income households, micro enterprises, small farmers, and others who lack access to the banking system. Through microfinance, high degree of reliability and validity can be achieved (Meyer, 2002).

Correlation research is studies conducted to provide information about the validity and reliability of tests (Harper & Singh, 2005). Correlation study we referred to is a test-retest reliability study and the second is an equivalent forms reliability study. The research will describe whether relationships exist among variables. Microfinance donors want to ensure a social return on their investment. In the case of microfinance, donors must judge whether providing the poor with access to financial services yields a sufficient social return compared to alternative poverty alleviation efforts.

The length of time that an individual has been a client of an institution has a positive correlation with impact. Sustainable institutions ensure ongoing impact by providing permanent access to services. The instruments utilized will include microfinance success rates and quality of life the participants with specific reporting of the key aspects comprised in success outcomes. After collecting the data, it will be analyzed for patterns. The data will be reported with correlational coefficients using the Pearson r and Spearman Rho for reporting statistically significant findings.

Reliability

Reliable and cost effective poverty targeting is being achieved in practice, and has been perationalized into the day-to-day operations of many microfinance institutions (Robinson, 2001). The method may be open to manipulation by participants or staff, the data is highly sensitive to this, and it would be very difficult for this manipulation not to create high levels of inconsistency. The relevance and validity as indicators; reliability and practicability microfinance are already more advanced in application than many past international years. Many years observance should be viewed as part of a continuing process to formulate effective approaches to sustainable microfinance. People who maintain that microfinance empowers poor people and raises their standards of living are being asked to prove it. Microfinance participants of microfinance are repaying their loans, managing household incomes, building assets and enterprises and contributing to the economy.

Ethical Issues

The basic ethical issues around microfinance are a fair allocation with limited resources. The poor are at greater risk, because less access to resources. The challenge of expanding access to microfinance to growing numbers of low-income borrowers and lack of resources to poor are underserved.  And the political constraint arguments are the market value and revenue argument, and the monitoring role of the government. According to Parker (2000) microfinance has multiple concerns: humanitarian, as corruption undermines and distorts development and leads to increasing levels of human rights abuse; democratic, as corruption undermines democracies and in particular the achievements of many are developing countries. Corruption undermines a society’s integrity; and practical, as corruption distorts the operations of markets and deprives ordinary people of the benefits (Pitt & Khandker, 1998).

In addition, the issue of joint vs. individual liability raise question about the practice of microfinance institutions. Joint liability is only one aspect of group lending, designed to improve repayment, better screening and selection of new borrowers.  Most microfinance institutions are already operating in a purely peer-to-peer environment. Peer-to-peer loan system, allowing peers to better enforces the loan contract policies about the use of their networks. However, it may also increase drop-outs by putting excessive pressure on clients, generating conflict or harming social capital. However, the lesson for peer-to-peer designers is that without accountability in a network, it is difficult to enforce rules of social responsibility (Wright, G. (2000).

Biases

Bias refers to the problem of attributing causation to a program with voluntary selection (Ghatak, 2000). Bias may occur in microfinance because of difficulties in finding a location at which the control group’s economic, physical and social environment matches that of the treatment group (Pitt & Khandker, 1998). Biases that are most evident to occur are socio-economic, linguistic, gender, tribal, and religious. The potential biases of microfinance should be addressed. Biases in microfinance exist or could potentially exist, including, capital requirements, loan loss provisioning, usury laws, documentation, and restrictions on the operations of financial entities. There’s still a long way to go in improving microfinance institutions around the world comparing older active borrowers to new borrowers will then introduce potential biases.

As Wright (2000) pointed out microfinance offer small-size loans, short loan duration, weekly payments and dependence on mutual guarantees promote the inclusion of the poorest poor or serve as a self-selection bias. The following are the main biases in micro-lending: entry requirements and limits on the activities of financial institutions, loan documentation, provisioning and capital adequacy requirements, downstream evaluation, location biases, interest ceiling. Most of these policy biases against microfinance identified the following bank regulatory areas (Jansson, 1997).

The most direct way to address the potential biases is to collect data on control groups, i.e., households that don’t now have access to microfinance. The big question is how do households with access to microfinance differ over time from those who don’t.  (Coleman, (2004) also uses the same survey data but reconsiders the estimation strategy to control for self-selection. He argues that the village bank methodology, which relies on self-selection by loan size and monitoring by frequent meetings, may not reach the poorest (Pitt & Khandker, 1998). As many wealthy households tend to be on village bank committees, the failure to control for this leads to systematic biases.

Sample selection

Microfinance institutions will, like any other financial institutions, be impacted by regulatory changes in all these areas and inappropriate policies will have detrimental effects on their ability to reach and serve their clients. As Ghatak (2000) indicate that sample selection bias may produced by an accidental bias in the sampling technique, as against deliberate or unconscious manipulation (credit recipient) group in all respects save that of not being a credit recipient.

There are two many obstacles surrounding microfinance, but the two largest existing obstacles are the lack of a revenue stream and finding the management necessary to guide such a project to successful completion. The first statement is true. Microfinance institutions alone cannot do all that it takes to eradicate poverty: we all know how high the demand is for financial services to the poor, and in developing countries. Microfinance alone does not improve roads, housing, water supply, education and health services, when properly harnessed and supported, it has made these and other sustainable contributions to the community. Perhaps the greatest contribution of microfinance is that it empowers people, providing them with confidence, self-esteem, and financial means to play a larger role in their development.

Attitude of the Subjects

A letter will be sent to each participant sharing the intent of the study, introducing the researcher and identifying the partnership. The letter will be an attempt by the researcher to refresh the individual’s memory with regards to their involvement in the microfinance institutions success on behalf their clients. Samples will be retained and fully utilized for research studies. The researcher will not attempt to identify participant.

Research Validity

Procedures

 Procedures will be standardized with a time line established and training provided to placement specialists. The graduate assistant involved in data entry with individuals will be unaware of the hypotheses and unable to identify the participant characteristics of the individuals or groups. Realizing the potential that will possibly exist that the individuals who  will be randomly identified may not be living at the addresses or have the same telephone number as when they will received services, over sampling will be utilized. A total of 20 microfinance participants will be added.

Content validity of the instrument

Alternatively, a panel of experts will take the responsibility of examining the test. Preferably, industry and scholar experts will be chosen for the assignment of examining.

The instrument itself, the way how the assessment will be administered, and lastly in the inferences made from the results of the test, these constitute the three forms of bias occurrence, notably. A review panel can comprise by individual experts from every different religious affiliation, a bilingual, scientist, economist, business people an anthropologist, and among many, however biases that are most evident to occur are socio-economic, linguistic, gender, tribal, and religious, however, a neutral outside professional scholar will be considered in the administration of the instrument. Evidently, this examiner or monitor has to be one who is familiar with issues that are related to education. A room which provides a degree of familiarity, and comfort to the participants is where the test will be conducted.

The participants will be permitted to pick a place or space of their own preference. It will be made certain that the room temperature is appropriate and conducive for the participants. Nevertheless, it is of paramount significance to point out that unpredictable factors that might possibly interfere with the examinees concentration, mood, and performance will therefore be uncontrollable, e. g. rain, excessively high or low temperatures. As far as the test format is concerned, participants would be familiar with it. The appropriate and necessary essential examination materials will be in place during the exam so that the students will be able to function with them.

Data Analysis

The data upon entry into SPSS data base will be organized by variables. The data will be summarized and reported with correlation coefficients Pearson r and Spearman reporting statically significant findings.

Reasons for Selecting item type

 

The individual achievement constitutes the assessment. It will be basically oriented on process and product. When participants prepare, plan, and demonstrate a vast range of knowledge and skills. In addition, participants will utilize all the domains and the observer attentively can take notice of the theoretical as well as physical practical skills besides to the entrepreneur skills of the individual. Ideally, although microfinance practice activities compel for collective work, however when an individual seeks for

Loan, the loan amount is offered based on the individual’s achievements, knowledge, qualities, and performance.

History

The researcher will alert to any influences that will occur during the study that would affect the outcome of the study. The researcher will keep a log and entered dates and observations throughout the study that potentially could threaten the research study.

Implementation

 Each process in the study will possess a guide developed for implementation on time lines established and personnel involved in conducting the study. The researcher will observe the different processes being used and documented observations.

Subjects Maturation

As time will pass between the services and this study the strategy assured each subject included in the pool will be employed for at 80 days.

Mortality

Realizing the potential that will possibly exist that the individuals who will be randomly identified may not be living at the addresses or have the same telephone number as when they will receive services, over sampling will be utilized of a total of 20 microfinance participants

Regression

Utilizing multiple forms of information and data will be the approach used to decrease regression. Information from the case file on demographics, perceptions from the individual success, and quality of life and self-reported data about their accomplishment will be the highest degree for analysis in the study.

Testing

The characteristics of the data gatherers/researchers will include different groups from different ethnic and social backgrounds. All data will be collected under the same conditions and in the different location with the survey read to each participant by the principle researcher. The data tested whether participation in the microfinance program for very poor borrowers has a more positive effect on various outcome measures than it does for average borrowers. Demographic or personal information obtained for the survey will be pulled from membership files.

Confidentiality

Participants will be verbally informed that the information shared in writing (letter to the individual) of how confidentiality and anonymity of individual subjects will maintain during the study. Informed names will not be on the survey. The number will be the tracking devise as the data will be analyzed. Within the training confidentially and protecting anonymity of each participant in the study will be reviewed and written process shared for the study. Written consent is normally required, unless otherwise justified. If written consent will not be obtained, you must still provide a copy of the script that will be used to obtain verbal consent from the subjects. There should be a signature line for the subject and one for the researcher.  Witness signatures are not required in most circumstances.

Professional Standards

All processes and procedures of the study will be outlined prior to beginning the study. The researcher will be aware of the potential ethical violations of the integrity and moral obligations in conducting research and will follow and abide by the established schedules, and will adhere to the established process. A log will be kept of observations throughout the process of potential threats; it will be reviewed prior to writing the research findings to determine impact of the threats observed.

Software for Data Analysis

Finally, a software product line approach is proposed for the creation of new plan. The data upon entry into SPSS data base will be organized by variables. The data will be summarized and reported with correlation coefficients Pearson r and Spearman reporting statically significant findings. Also, the Excel or Access programs will be used to analyze the total financial enterprise application that supports microfinance services.

Analysis typically consisted of coding and entering raw data into Excel or Access and producing broad, descriptive statistics on total counts, frequencies, averages, and medians. And analysis of data using the MIX (Microfinance Information exchange) software will be helpful for data analysis for microfinance organizations, and regulators, which will compare members or selected microfinance institutions to peer groups, as well as provide direct feedback to microfinance institutions on their comparative performance. And, SIMCO PLUS will offer to analyze the loan portfolio, accounting, savings with teller functions, and Financial Customer Relationship Management

 

 

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