THE IMPACT OF MICRO FINANCE INSTITUTIONS ON THE WELFARE OF HOUSEHOLDS (CASE STUDY: MASAKA MUNICIPALITY)

NANSHEMEZA CAROLINE BAM-2007-03-PT-023

A RESEARCH REPORT SUBMITTED TO THE FACULTY OF BUSINESS ADMINISTRATION AND MANAGEMENT IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF THE DEGREE OF BACHELOR OF BUSINESS ADMINISTRATION AND MANAGEMENT OF UGANDA MARTYRS UNIVERSITY

JUNE 2010

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APPROVAL

The research under the title The impact of Micro finance on the welfare of households was administered and presented for examinations with my approval as a university supervisor

Supervisor: Signature:

Mr. Kikawa Richard Cliff .

Date:

DEDICATION. The piece of work is dedicated to my dear parents Mr. Yonathan Kashaija and Mrs. Esther Kashaija, my beloved sister Hon. Grace Ikiriza Kashaija and Mr. Ikiriza Moses with out forgetting their children Portia, Noble, Phillip and Olga Ikiriza .You are my rays of hope and without your financial, guiding hands, moral assistance , I would be lost. To my beloved sisters and brothers, Jolly, Peace, Jonathan, Peter, Flavia, Mary, Phoebe and lastly my lovely son Kamuntu Naboth .I thank all of you for your support and through the darkest of tunnels you were my light .Thank you for your tireless support. Without forgetting my supervisor Mr. Kikawa Cliff Richard and all my friends who in one-way or other encouraged me in life. My sincere love to you all. Thank you very much.

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DECLARATION

I declare that this an original piece of work compiled in research I personally carried out and has never been submitted in wholly or in parts in whats over form to any university or institution of higher learning within or outside Uganda for the a ward of any degree or diploma.

Throughout the work, I have acknowledged all the sources used in its compilation.

STUDENT Name .

Signature Date

Supervisor

Mr. Kikawa Richard Cliff Signature ...

Date

..

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ACKNOWLEDGEMENT.

Firstly, I greatly thank and praise the almighty for all the strength and wisdom come from him. Without him, I would have not done anything.

I wish to express my sincere appreciation to various people who made it possible for me to conduct this study. Iam indebted to the entire staff of Business Administration and Management of Uganda Martyrs University for the knowledge and guidance extended to me doing this course.

In special way, I wish to extend my sincere thanks to my sister Hon.Grace.Ikiriza.Kashaija for the patience, care during the period of my studies from secondary level up to university level. Equally, I thank you so much for your enormous contributions to the payment of tuition as well as sponsoring this research study.

I wish to express my sincere gratitude to my supervisor Mr. Kikawa cliff Richard for his well thought out advice, energy, credit, diligence and persistence, which are all highly appreciated. And I also acknowledge all lecturers efforts right from my first year up to my finishing, their efforts shall be blessed and I am so very grateful.

My parents and family, a great inspiration in my life and in the coming up with this project contributed and sacrificed a lot for me. All the support they rendered in different ways, together with their love and care, I am so grateful and shall forever be.

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I also appreciate every single member of Uganda Martyrs University who supported me and inspired my hard work. My dear friends especially Mugarura Herbertr, Luyiga Vivienne, Bernadette, Betty, Lydia, catty, Mable, zabel, Serwadda, Baine, Faith, Susan, Paul, Pius and to all those with whose support in different ways helped me come up a winner.

Iam indebted to recognize the contribution of FINCA and PRIDE micro finance institution officers and their clients and many others who assisted me in gathering information that contributed to the success of this study. Mostly, Ronnie kabogosa and Denis Kafuruma who helped me to get in touch with other members of the organizations. My good Lord blesses you.

Finally, I wish to extend my vote of thanks to my dear mother and Father whose caring hand have to greater extent made me what Iam. And to all those whose words of encouragement and advice strengthened me thought my university study. Be blessed.

TABLE OF CONTENTS.

Approval ...........................................................................................................................ii Dedication........................................................................................................................iii Declaration.......................................................................................................................iv Acknowledgements .........................................................................................................v Table of contents..............................................................................................................vi Abbreviations..................................................................................................................vii List of Tables........ List of Figures / illustrations . List of Appendices.. Definition of terns and concepts

CHAPTER ONE..............................................................................................................1 1.1 Introduction.................................................................................................................1 1.2 Statement of the problem ............................................................................................2 1.3 Purpose of the study....................................................................................................3 1.4 Specific Objectives .....................................................................................................3 1.5 Research Questions......................................................................................................3 1.6 Scope of study.............................................................................................................3 1.7 Justification..................................................................................................................3 1. Significance of the study . 1.9 Conceptual Framework..

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CHAPTER TWO.............................................................................................................5 2.0 Literature Review........................................................................................................5 2.1 Introduction ................................................................................................................5 2.2 Theoretical Framework ...............................................................................................5 2.2.1 Definitions of Micro Finance............................................................................5 2.2.2 The elements of Micro Finance ........................................................................6 2.2.3 Characteristics of Micro Finance Institutions ...................................................6 2.2.4 The impact of Micro Finance in the development of the household.................6 2.2.4.1 Micro Finance and welfare ............................................................................7 2.2.5 Donor intervention in Micro Finance ...............................................................7 2.2.6 Developments in the Micro Finance sector ......................................................8 2.2.7 Credit access and management .......................................................................10 CHAPTER THREE.......................................................................................................12 3.0 Research Methodology .............................................................................................12 3.1 Introduction ..............................................................................................................12 3.2 Research design.........................................................................................................12 3.3 The study population ................................................................................................12 3.4 Area of the study .......................................................................................................12 3.5 Sample size and selection..........................................................................................12 3.6 Sampling techniques .................................................................................................13 3.7 Method of data collection..........................................................................................13 3.8 Procedure of data collection .....................................................................................13 3.9 Data management and analysis................................................................................. 13 CHAPTER FOUR........................................................................................................14

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4.0 Data presentation and analysis...................................................................................14 4.1 Introduction ..............................................................................................................14 4.2 Background information of the respondents ............................................................14 4.2.1 Gender participation in the study.....................................................................14 4.3 Role of Microfinance loans in the welfare of households.........................................17 4.4 The role of mobilization of saving in the welfare of households..............................19 4.5 The impact of client training of Micro Finance Institutions to the welare of Households...............................................................................................................21 CHAPTER FIVE...........................................................................................................22 5.0 Summary of conclusions and recommendations.......................................................22 5.1 Introduction ..............................................................................................................22 5.2 Summary of conclusions ..........................................................................................22 5.3 Recommendations ....................................................................................................23 5.4 Suggestion for further research .................................................................................23 Bibliography...................................................................................................................24 Appendix ........................................................................................................................25

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LIST OF ABREVIATIONS

MFI: MDI: NGOs: UNHS: WCCN: UMU: FINCA: ROSCAS: UNDP: SAPs: PAP: PEAP: IMF:

Micro Finance institution Micro-Deposit institution Non Governmental Organizations Uganda National Household Survey Wisconsin coordinating council on Nicaragua Uganda Micro Finance Union Foundation for International Community Assistance Rotating Savings and Credit Associations United Nations Development Programs Structural Adjustment programs Poverty Alleviation ProjectPRIDE Poverty Eradication Action Plan International Monetary Fund.

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LIST OF FIGURES AND CHARTS

Figure 1: Shows the gender participation in the study.

Figure 2:

Shows the age distribution of the respondents of staff and client respondents

both FINCA and PRIDE Micro Finance MFLS.

Figure 3: Shows the number and percentage of clients who have accessed loans in both FINCA and PRIDE Micro Finance Institution.

Figure 4:

Shows the rate of clients who open savings accounts per day.

Chart1:

Shows the gender participation in the study.

Chart 2;

Shows the age distribution of the participants.

Chart:3

Show gender participation

Chart4:

Showing the rate in percentage of lientele who open savings accounts

per day in FINCA and PRIDE micro finance institutions.

LIST OF APPENDICES

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1 2 3

Bibliography Customers Questionnaires Employee Questionnaires

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ABSTRACT

The study of the impact of Micro finance on the welfare of households was conducted in Masaka Municipality.

The researcher used the Qualitative and Quantities methods in explaining the impact of Micro Finance institutions on the welfare of households. The instructions that were used to gather information include: Questionnaires for the employees of Micro finance institutions in Masaka Municipality and the staff of Micro finance in Masaka Municipality.

The following were the main objectives of the study: (1) to investigate the role played Micro finance loans on the welfare of households (2) to establish whether mobilization of saving through Micro finance plays a vital in Poverty alleviation of the households. (3) To find out whether the training of the clients before acquisition of loans has an impact on the savings.

The study concluded that Micro finance institutions play a role of mobilization of saving in poverty alleviation. Savings are raised for various activities such as payment of school fees, getting capital for the businesses which can be added with the loans so as to start the business however the study found out that some of the saving is used in the paying back of the loans got from Microfinance. The study also found out that Microfinance institutions are involved in training of the clients especially in account accessing business opportunities, loan management and business.

Therefore, the study recommends that Microfinance institutions should remove the regulation of collateral as a requirement of accessing loans, if the role of Micro finance Institutions is to

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improve the welfare of households of the poor. The majority of the rural poor do not have any collateral hence they cannot access loans in there institutions and yet they want to improve their welfare.

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DEFINITION OF TERMS AND CONCEPTS

Microfinance: is the supply of loans, savings, and other basic financial services to the poor people.

Microfinance institution :( MFI) is organization that provide Microfinance services, ranging from small non- profit organization to large commercial banks.

Collateral Security: repay a loan.

is extra security provided by a borrower to back up his or her intention to

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CHATER ONE

INTRODUCTION 1.1Introduction In this chapter the researcher has given the background of the study she used to carry out the research and the statement of the problem to which the research is supposed to solve .The researcher has continued by giving the variable and specified objectives. More so the researcher has written the questions that helped her carry out the study, scope of the study that is the content and geographic coverage and time period, justification which is the reason for the study, the different variables.

1.2 Background Poverty alleviation was a key challenge to the government of Uganda. Many households scattered throughout the country had inadequate access to the basic services such as health, safe water, electricity, communication and financial services. C. Musoke and S. Candia reported in the New vision newspaper, dated October 9 th, 2009, page 2 that; The number of people living below the poverty line stood at 55% by the time Museveni took power, it went down to 31% in 2005 but has since gone up again to 37%.

Easy access to micro finance institutions was pointed out as one way the poor can take advantage of economic opportunities so as to develop through savings and acquiring loans. J. D. Ssentamu (2004, pg 304) defines micro finance as; the provision of credit to the people who were unable to obtain loans from commercial banks because their only security was the fact that they had a regular source of income.

G. Bammock et al (1998, pg 86) defines credit as; Consisting of loans and overdrafts to the clients of a bank and M. P. Todaro (2000, pg 497) defines a loan as; the transfer of funds from one entity to the other which must be repaid with interest over a prescribed period of time. Further more he defined development as; the process of improving the quality of all human lives.

Micro finance, that was small scale credit and savings services for the poor people who were widely acclaimed as a means of reducing poverty and promoting economic and social development. Hence the study was examining the role of micro finance in the development of the household.

R. Marcus (1999, pg 15) explained that; Micro finance was nothing new; communities worldwide had developed their own financial systems, which enabled people to manage shortfalls of cash and provide lump sums for particular occasions and safe places to save. For example Rotational credit and saving associations where group members pay a certain sum into a Common pot every week and a different member takes the money every week was common throughout the world.

During the 1970s and 1980s, the micro -enterprise movement led to the emergence of non governmental organizations (NGOs) that provided small loans for the poor. In the 1990s, a number of these institutions transformed themselves into formal financial institutions in order to access and on-lend client savings, thus enhancing their outreach. Specialized microfinance institutions have proven that the poor are bankable. Today, formal institutions are rapidly absorbing the lessons learned about how to do small-transaction banking. Many of the newer players in microfinance, such as commercial banks, have large existing

branch networks, vast distribution outlets like automatic teller machines, and the ability to make significant investments in technology that could bring financial services closer to poor clients. Increasingly, links among different types of service providers are emerging to offer considerable scope for extending access.

Microfinance institutions currently operate in over 100 countries, serving more than 75 million clients. To see the latest statistics on the microfinance industry and access in-depth data on microfinance institutions around the world, (market mix).

Lack of formal sector credit is one of the constraints facing the poor to enable them take advantage of economic opportunities to increase their level of output; hence make out poverty. This concern for the poor has been responsible for the design of various financial sector policies with conflicting prescriptions. In the case of Uganda, the issue of importance of improving access to the poor was identified as a key development strategy right from 1960s. The formal banks that were inherited from colonial government were judged to be serving the trade sector and neglecting the agricultural sector which was the back borne of the Ugandas economy employing over 80% of the population especially in rural sector (Okurut et al, 2004). The motivated the government to set up state owned Banks ( former Uganda Commercial Bank ltd) whose mandate include agricultural credit and controlled interest rates which were administratively fixed by the Central Bank (MUWanga, 2000)

A number of stakeholder such as UNDP, USAID, UE, have been working to develop the microfinance sector either through provision of technical support and capacity building or through provision of funds for on lending to the clients who fill these institutions.

The co- operative movements which emerged in Uganda in 1950s also geared to provide financial services to agricultural rural sector to boost their productivity. However, these cooperatives were engulfed with mismanagement and eventually led for their collapse in the 1990s. The controlled interest rate policy and credit allocation policy were later dubbed as financial sector. The financial sector reforms which were implemented on the 1990s were intended to redress these problems. (Mckinnon, 1973)

The financial sector reforms included liberalization of interest rates, removal of all forms of credit allocation, the privatizations of state owned banks, design appropriate banking laws (financial institutions statute, 1993), strengthening the independency and capacity of Bank of Uganda (The Bank of Uganda act, 1993) .microfinance institutions came in to fill the gap created by of banks. These institutions with mission statements targeting the poor households provided inputs .In addition to these services the government also runs some credit schemes like Entandikwa and Youth entrepreneurship scheme (YES) .However, the Medium Term Competitive strategy for private section (2000) under scored the need for the government to divert itself from direct credit delivery and leave it for private sector. The government would play the role of policy formulation and provision of enabling environment for private sector deliver micro-credit to the poor in a sustainable way. It was for this reason why the poverty Eradication Actions plan (PEAP) identified Microfinance sector as the engine of growth for the poor where can access both production and consumption credit (MFPED, 2001. This means that micro finances were not a new phenomenon but had always existed.

Due to the financial sector reforms stipulated in the financial institutions statute of 1993,which led to the liberalization and restructuring of Uganda commercial bank which was offering financial services to the poor through the rural farmers schemes, a financial services gap was created especially in the rural areas. This led to the emerging of micro finance institutions in the mid 1990s so as to fill this gap. This included among others, pride micro finance, finca micro finance and centenary rural development bank.

Currently some of these micro finances operated in line with the financial institutions (MDI) act, 2003, which allowed them to operate as deposit taking institutions. From the Bank of Uganda annual report (2008, pg14), it showed that these micro finances had had a robust increase in their activities, their assets reflected a 29.1% growth from 8.5% in 2006/2007, the liabilities expanded by 47.6% in 2007/2008 compared to the 19.3% in 2006/2007, the savings increased by 38.2% and the stock of out standing loans and advances grew by 19.9%. This reflects an increase in households who accessed the services of these micro finance institutions.

The motivation of the carry out this study stems from the fact that since the emergency of micro finance institutions I have witnessed how they operate and to a large extend understand the services they offer to the clients .However, despite of numerous praises made by the sponsors and agitations about their performance in the fiend of informal sector business and improving the well fare of households, the researcher finds their arguments and observations cosmetic as far as the situation on the ground portray. Although microfinance is looked as important catalyst for poverty reduction, it is not a magic bullet as testimonies show that majority of people who has been borrowing from MFIS have been pushed into object poverty than non borrowers. Therefore, basing on the above background, the researcher was compelled to investigate the impact of micro

finance to welfare of households. Findings from this as earlier mentioned are drawn from researchers experiences and researched information from the community and other incontrovertible evidence documented in published books, journals, policy documents etc.

Since the 1950s , various government in India have experienced with a large number of grant and subsidized financial programmes , implemented through banking institutions , have not been fully successful in meeting their social and economic objectives.

According, to a 1995 World Bank estimate, in most developing countries the formal financial system reaches only the top 25% of the economically active population. The 75% have no access to services apart from money lenders.

In India too the formal financial institutions have not been able to reach the poor house holds , and particularly women , in the unorganized sector. Structural rigidities and overheads lead to high cost of making small loans .Organizational philosophy has not been oriented towards recognizing the poor as credit work.

1.3 Statement of the problem V.B. Ssebukyu (2005, pg 8) asserted that; Micro finance programs are meant to contribute to poverty reduction, increased welfare and in some cases empowerment through mainly offering credit facilities, however this was yet to be justified, firstly these borrowers often go without essentials in order to repay and to keep their access to credit. Secondly, the focus on small farmers had led to a requirement of land as collateral; this had served to exclude sharecroppers, people in regions with communal land tenure systems as well as the landless people and the urban poor. In addition, Small farmers find it difficult to gain access to the credit needed to

improve farm production techniques, to expand their holdings and at the same time cope with adversities. This was because of the role given to land as a guarantee, and the high cost that small loans entail for credit institutions. Hence it is imperative that the researcher investigates the role of micro finance institutions in the welfare of the households.

1.4 Purpose of the study The purpose of the study was to investigate the impact of micro finance institutions on the welfare of the households.

1.5 Specific Objectives To investigate the role-played by micro finance loans on the welfare of the households. To establish whether mobilization of savings plays a vital role in poverty alleviation To find out the impact of training on the welfare of the households.

1.6 Research questions 1. What is the role-played by micro finance loans on the welfare of the households? 2. Does mobilization of savings play a vital role in alleviating poverty among the household? 3. What impact does training of clients play on the welfare of households?

1.7 Scope of the study The study was limited to the clients of Pride micro finance (MDI) limited, Finance Trust, Masaka and Butonde microfinance limited located in masaka municipality. It was concerned with assessing the impact of micro finance institutions in the development of the household.

1.8 Justification The researcher intended to establish the impact of Micro finance institutions on the welfare of households.

1.9 Significance of the study. In Uganda, micro finance is an important part of a broad based strategy. The key objective is to improve access of the poor to financial services. So the finding of this study was of paramount importance to; The Managers of financial institutions in widening the market by penetrating the rural areas. Policy makers in order to formulate a proper borrowing culture and loan schemes that can benefit the rural areas where there was a large population. The Planners for developing a strategy for poverty eradication. The scholars, university students and academicians were used to the findings for academic purposes especially for further research.

1.10 Conceptual Framework.

Independent variable: Micro finance Loans Savings Training

Dependent variable: Welfare Increased incomes Increased consumption levels Education Health

Intervening variables Mismanagement of funds Political atmosphere Culture Beliefs

1.8.1 Validity of the conceptual framework Micro finance institutions offered programs such as credit facilities, mobilization of savings and training in financial management. These programs were meant to alleviate poverty by increasing incomes of clients, expanding enterprises of clients and increasing the levels of consumption of food, medical services and education; however these programs can fail if the funds acquired were mismanaged, if there was a political, cultural or religious intervention.

1.8.2 Anticipated Limitations: The following were the limitations of the study. Unwillingness of the respondents to answer the questionnaire The researcher was limited by time and money. Limited knowledge of the respondents about the operations of micro finance institutions in spite of the trainings.

CHAPTER TWO LITERATURE REVIEW 2.1 Introduction This chapter was to examine some of the various authors work on the impact of micro finance institutions in the development of the household.

Mark Schreiner (2001) Micro Finance is an attempt to improve access to small deposits and to small loans for poor households left unattended by banks. Micro finance had emerged as growing industry to provide financial services to very poor people to help them engage in productive activities or grow their tiny business. The poor who cannot run a small business because they lack capital may also benefit from Micro finance organization.

The poor, especially poor women are the prime reasons for Micro Finance in many countries. In many countries, Micro finance provides a window of opportunities for the poor to access a borrowing and saving facility .In other countries these facilities also provide organizational help, training, safety nets, empowerment, and Financial and other help during crises. Micro finance clients are typically self employed often household based entrepreneurs. In rural areas they are engaged in small incomes generating activities such as food processing and pretty trade. In urban areas, Micro finance activities are more diverse and include shopkeepers, service providers, artisans and street vendors.

Micro finance clients are poor and vulnerable non- poor who have a relatively stable source of income .Access to conventional formal financial institutions, for many reasons, is directly related

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to income; the poorer you are the less likely that you have access. Therefore individuals in this excluded category are the clients of Micro finance

Micro-credit is an extension of small loans to the unemployed, to the poor entrepreneur and other living in poverty who are not bankable. These individuals lack collateral security and steady employment and verifiable credit history, therefore cannot meet even the most minimum qualifications to gain nesses to traditional credit. Micro- credit is part of Micro finance which is provision of financial services to the very poor. Apart from loans it includes savings, Micro insurance and other financial innovations .Micro- credit is a financial innovation which originated in developing countries where it has successfully enabled extremely impoverished people mostly women to engage in self employment projects that allow them generate on income and in many cases begin to build wealth and exit poverty.

Due to success of micro- credit, many in the traditional banking industry have begun to realize that the micro credit borrowers should more correctly be categorized as pre bankable, thus Micro credit is increasingly gaining credibility in the mainstream finance industry and many traditional large finance organizations are contemplating Micro- credit projects as source of future growth.

Women have become the focus of any Micro credit institutions and agencies world wide. The reasoning behinds this is the observation that loans to women tend to more often benefit the family than loans to men do.

It has also been observed that giving woman the control and responsibility of small loans of small loans raises their social economic status, which is seen as a positive change to many of

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their current relationships of the gender and class. However there is a going debate about whether Micro- credit loans have the power to truly change established political and economical relationships.

Poverty Eradication Action Plan (PEAP) stresses that to reduce rural urban income gap emphasizes among other things strategic improvement of access to credit by the poor through financial sector .Credit is considered to be an essential in put to increase agriculture productivity mainly land and labour .It believed that credit boosts income level increases employment at household level and thereby alleviates poverty.

Andgna and Hiedmen, (2000) argues that credit enables people to over come their liquidity constraints and under take some investments especially in improved farm technology and inputs thereby leading to increased agricultural production. Like wise Binswanger and Khandkar, (1995) maintains that credit helps poor people to smooth out their consumption patterns during the loan periods of the year. Therefore, credit maintain the products i.e. capacity of the poor urban households (Heidhues, 1995).Navagas et al,( 2000) says that professed goal of microcredit is to improve the welfare of the poor as a result of better access to small loans .similarly, Diagne and Zeller( 2001) argues that lack of adequate access to credit for the poor may have negative consequences for various house hold level outcome including technology adoption , agricultural productivity , food security, nutrition , Health and overall welfare. Access to credit therefore affect welfare outcomes by alleviating the capital constraints on agricultural house holds, hence enabling poor households with little or no savings to acquire agricultural inputs .In addition, access to credit increases the poor households risk bearing ability improves their risk copying strategies and enables consumption smoothing overtime .Thus Micro finance is argued to improve the welfare of the poor.

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Rayne and Otero (1992) argues that financial with sustainable MFIs with high out reach programs have a greater likelihood of having o positive impact on poverty alleviation because they guarantee sustainable access to credit by the poor .However, (1997) on the other hand argued that commonly touted indicators of success of Micro finance programmes says nothing about the impact of micro enterprise operations and only tantamount to micro finance evangelism. While studying on three countries Kenya , Malawi ,and Ghana, Buckley (1997) concluded that there was little evidence to suggest any significant and sustained impact of Micro finance on beneficiaries in terms of Micro Entrepreneurs graduating to higher or more sophisticated operations , increased income flows or level of employment .The main argument that was adduced was that sufficient unless there was an accompanying change in the

undertakings themselves ( i.e. changes in techniques and or technology).

Zeller and Sharma (1998) argue that Micro finance can help establish or expand family enterprises, potentially making the difference between grinding poverty and economically secure life. However, Burger (1989) observed that Micro finance tends to stabilize rather than increase income and tends to preserve rather than create jobs.

Experience shows that Micro finance can help the poor income, building viable business and reduce their vulnerability to external shocks. It can be a powerful instrument for selfempowerment by enabling the poor, especially women to become economic agents of change.

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2.2 Theoretical framework This chapter was to analyze the definitions of micro finance, the elements of micro finance institutions, the characteristics of micro finance institutions, Credit access and management, financial products of the poor, the structure of Micro finance, Government intervention in Micro finance sector, Donor intervention in Micro finance, Developments in Micro Finance sector, Impact of Micro finance and Micro-credit and the impact of micro finance institutions in the development of the household.

2.2.1 Definitions of micro finance A.Hannig and E.K Mugwanya (2000, pg 1) define micro finance as; the provision of financial services to poorer people and holds enormous potential to support their economic activities and thus contribute to the alleviation of poverty.

J.D.Sentamu (2004, pg 308) defines micro finance as; The provision of credit to the people who are unable to obtain loans or credit from commercial banks because their only security is the fact that they have a regular source of income. In the same line R.Marcus et al (1999, pg 9) define micro finance as; Small credit and savings services for the poorer people, it is widely acclaimed as a means of reducing poverty and promoting economic and social development. A microfinance institution (MFI) is an organization that provides financial services to the poor. This very broad definition includes a wide range of providers that vary in their legal structure, mission, and methodology. However, all share the common characteristic of providing financial services to clients who are poorer and more vulnerable than traditional bank clients.

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Microfinance refers to a variety of financial services that target low-income clients, particularly women. Since the clients of microfinance institutions (MFIs) have lower incomes and often have limited access to other financial services, microfinance products tend to be for smaller monetary amounts than traditional financial services. These services include loans, savings, insurance, and remittances. Micro loans are given for a variety of purposes, frequently for micro enterprise development. The diversity of products and services offered reflects the fact that the financial needs of individuals, households, and enterprises can change significantly over time, especially for those who live in poverty. Because of these varied needs, and because of the industrys focus on the poor, microfinance institutions often use non-traditional methodologies, such as group lending or other forms of collateral not employed by the formal financial sector.

All the above authors concur that micro finance is the provision of financial services in from of credit to the people so as to alleviate poverty. However J.T.Loubiere (2004, pg 36) asserts that; Micro finance is a line of business with certain risk.

This could be due to the fact that it is difficult to recover the funds borrowed by the clients especially if they did not perform what they were expected to do.

2.2.2 Benefits of micro finance. The very poor are unusually susceptible to income shocks. Death, illness, natural disaster, or other catastrophes can have devastating effects on households existing at or just above a subsistence level. With no asset base on which to draw in the crisis, they may be forced to severely reduce their level of consumption, which can be dangerous if it means forgoing basic

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healthcare and nutrition. Additionally, they may sell off important, income producing assets, exacerbating their economic difficulties well into the future. Financial services that allow poor people to save in times of prosperity and borrow or collect insurance when necessary allow them to maintain a consistent level of consumption without selling off income-producing assets. Microfinance can also provide an opportunity for expanding or pursuing new business opportunities that allow poor people to increase or diversify the sources of their income. It has also been argued by advocates that microfinance can also promote the development of a traditional financial sector. Most obviously, by alleviating poverty, microfinance can deepen the market for more traditional financial services. In addition, MFIs and their clients can lobby for the creation of clearinghouses for information on borrowers' credit histories, easing of interest rate controls, greater foreign ownership of financial institutions, and opening local capital markets beyond a country's political elite, among other reforms. Such improvements could strengthen the financial sector as a whole, creating a feedback loop that could serve to lift even more families out of poverty. Microfinance can also generate important non-economic benefits. For instance, many microfinance programs are aimed specifically at women. It has been suggested that access to financial services enhances women's power and influence in the household. Their ability to make decisions over certain purchases and their new status as important household earners has been linked not only to increased bargaining power, but also to a decreased incidence of domestic violence. (Lower incidences of abuse could also be the result of third party scrutiny from loan officers and, in the case of group lending, fellow borrowers.) Furthermore, the opportunity to

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pursue business opportunities may make women more likely to use contraceptives and lower fertility rates. In addition, many MFIs couple their loan programs with educational efforts. For example, loan officers may provide information on contraceptive use or disease prevention or domestic economics as well as methods of controlling saving and spending habits and various aspects of small business management. 2.2.3 Challenges Micro finance institutions face in lending to the poor households.

Ultimately, microfinance is designed as tools to reach impoverish households that are not otherwise served by more traditional financial institutions. There are several reasons why it is difficult to lend money to the poor. Hidden information The primary problem with lending to the poor, and the main obstacle that microfinance is designed to overcome, is banks' lack of information about the inherent riskiness of potential clients. The transaction costs of evaluating individual borrowers are very high relative to the size of the loans likely to be made to poor borrowers. This means that to cover the expense of screening individual borrowers banks would be forced to charge correspondingly high interest rates to their clients. Moreover, it is doubtful whether screening will provide accurate information given that potential borrowers have incentives to misrepresent their credit history and the risks of their respective projects. Without accurate information, banks will still charge high rates to cover the frequent incidence of default among the risky borrowers that will inevitably join their client base. Either way, interest rates will be high enough to drive borrowers

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with safe but relatively low returns out of the market. This problem is referred to as adverse selection. Governments sometimes respond to this problem by imposing restrictions on interest rates charged by financial institutions in the form of usury laws or interest rate caps. With rates constrained, it would become impossible to provide banking services to the poor without significant and costly subsidies. Moral hazard Even borrowers whose projects are not inherently risky may refuse either to use their loans productively or, if they do use the loans productively, to repay their loans if their lenders have no means of enforcing their obligations. This problem of moral hazard may arise because, for instance, local judges are biased in favor of debtors or police forces are stretched too thin to provide assistance. This problem can be exacerbated by competition among lenders, as in the absence of competition a lender can encourage repayment by refusing to provide future credit. Absence of credit history In societies with developed credit markets, problems stemming from inadequate information and moral hazard are mitigated by the fact that lenders routinely investigate borrowers' credit histories. . A record of a borrower's repayment history provides lenders with valuable information about the likelihood of future repayment. In addition, the ability to tarnish a borrower's credit history and thereby limit the borrower's access to future credit provides lenders with leverage that they can use to induce repayment.

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Lack of collateral Another response to problems of hidden information is to require that borrowers provide collateral, meaning an asset that the lender can easily seize and, perhaps, sell in the event of default. This allows banks to charge low interest rates even in the face of poor information about the borrower's prospects. But many of the impoverished borrowers that microfinance seeks to reach lack assets that can effectively serve as collateral. When they do have assets, they have are often illiquid. Livestock, for example, is not only subject to destruction, but can be very difficult to convert on the market for a traditional bank inexperienced in selling it. Furthermore, among these sorts of clients the only assets they have may be critical to their means of subsistence and legal or ethical restrictions may prevent banks from foreclosing upon them.

2.2.4

Features of micro credit.

MFIs employ several innovative contractual devices, including group lending, progressive lending, short-term contracts, and targeting of women, in efforts to overcome the obstacles that have traditionally discouraged lending to the poor. Group lending Perhaps the most important of the microfinance innovations, and certainly the one for which it has received the most recognition, is lending to solidarity groups. Though many MFIs have departed from it, the original Grameen model required that loans not be made to individuals or singular families, but instead to a solidarity group of five women. As each group member was required to vouch for the creditworthiness of the others, these women were all likely ultimately; microfinance is designed as tools to reach impoverish households that are not otherwise served 19

by more traditional financial institutions. There are several reasons why it is difficult to lend money to the poor. Arise because, for instance, local judges are biased in favor of debtors or police forces are stretched too thin to provide assistance. This problem can be exacerbated by competition among lenders, as in the absence of competition a lender can encourage repayment by refusing to provide future credit. In societies with developed credit markets, problems stemming from inadequate information and moral hazard are mitigated by the fact that lenders routinely investigate borrowers' credit histories. . A record of a borrower's repayment history provides lenders with valuable information about the likelihood of future repayment. In addition, the ability to tarnish a borrower's credit history and thereby limit the borrower's access to future credit provides lenders with leverage that they can use to induce repayment Schedule. Most importantly, if one member of the group defaulted on their payments, no other member of the group could apply for another loan until the default was cured. Group lending provides several benefits to both lenders and borrowers:

When the members of the group are self-selected from the same village, their knowledge of one another's habits and awareness of each member's propensity for risk will largely obviate extensive screening by the lender. Safe borrowers will select one another for membership and the MFI can avoid a highly costly and inaccurate interview process. Additionally, risky borrowers will be forced to select one another. As they will have to pay more often for their frequently defaulting peers, they will indirectly pay a higher effective interest rate. The risk for such borrowers is thus shifted from the MFI to the

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borrowers themselves. As a result, a lower nominal interest rate can be charged to all parties and a much wider segment of society can gain access to credit.

The group members can also monitor one another much more effectively than the lender, and group lending gives them an economic incentive to do so. This monitoring can take two forms, the first being ex ante observation to ensure that group members are putting their money towards appropriate uses. Ex post, members will also ensure that returns from a loan-funded project are going towards repayment. They can report to the MFI on members who are withholding payments despite an ability to pay.

Group members can help lenders overcome limitations of formal mechanisms for enforcing obligations. Members are able to exert pressure on each other, be it social, cultural, or even religious, that traditional institutions are unable to bring to bear. Also, under the Grameen model, a solidarity group of 5 women was a part of a larger village group, allowing for community leaders to pressure defaulting borrowers into repayment.

It is important to note though that borrowers only have incentives to screen and monitor their fellow group members if they expect to repay their own loan and obtain additional funding in the future. To the extent they plan to default, these incentives are no longer in place. Furthermore, if the group's losses are expected to outweigh the borrower's return on their own investment, the borrower has to no reason to attempt to cover those losses. She will lose all of her own profits, but as the loan will not be paid in full, she will see none of the gains that come with timely repayment, namely an increased loan amount in the next cycle. Additionally, borrowers may not be able to effectively evaluate either the inherent riskiness of their partners or the riskiness of each others' projects.

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Progressive lending Some MFIs adopt the policy that once a debt is repaid in a timely fashion the group will be eligible not only for a new loan, but for a larger loan as well. This structure creates opportunity costs for non-repayment, as a borrower stands to lose substantial future credit if they chose to default. A loan-ladder, helping the institution to gather information about their potential clients. As loan sizes increase, the average costs of servicing those loans decrease, making the MFI itself more profitable. Although there is still opportunity for a borrower to strategically default, waiting until loan sizes have grown substantially larger before failing to make payments, the reputation constraints discussed above operate to reduce the frequency of this problem. Short-term contracts Finally, in yet another substitute for an MFI's lack of information about its clients, most microfinance loans have very short repayment periods, with cycles lasting as little as a week. As each payment is made directly to an officer of the MFI, these frequent meetings assist in monitoring investments and keeping track of repayment. Keeping the loan size small also limits the MFIs exposure in the event of borrower default or economic shock to a particular group or village. It is also important to observe that many microfinance clients report that they find it easier to repay their loans on shorter schedules. Targeting women Empirical evidence has demonstrated that women are more effective targets for microfinance than men, despite the fact that men are typically the targets of formal sector commercial institutions in developing countries. Women are not only more likely to repay their loans, they are also more likely to spend loan proceeds on their families basic needs, education, and health

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care, leading to a greater impact on household welfare. It has been suggested that women provide better targets for microfinance for a variety of reasons: They are typically less mobile than their husbands. As a result, the monitoring cost for bank managers is lower. Because they are less mobile, they are also more susceptible to the peer pressure that is critical to securing repayment in group lending contracts. Finally, as women have been traditionally relegated to small industry, they have a comparative advantage in the very businesses to which microfinance is targeted. While microfinance could thus, arguably, be seen to further entrench women in their traditional roles, as a counterargument these women have few opportunities outside of the home. Microfinance allows them to take the fullest advantage of chances that are available to them, limited as they may be.

2.2.5

Micro- credit and micro finance

While the terms micro -credit and microfinance are often used interchangeably, microfinance in fact encompasses a broad range of activities outside of lending. Many MFIs have expanded beyond micro -credit to offer services such as savings devices, insurance, and in some instances, sales and marketing assistance specially tailored to meet the needs of the very poor. Savings and deposit taking

There are a number of reasons why poor people find it difficult to save. Some people may lack a structured disciplined method of saving. Others may have difficulty controlling the consumption habits of other members of their household. This problem is particularly acute for women, who often have no control over household spending. Moreover, for those who are interested in saving, the only mechanisms available may be investments in illiquid assets that

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deprive them of the ability to take advantage of new investment opportunities or respond to sudden setbacks. In addition, those assets may themselves be risky investments. For example, investments in livestock are susceptible to the risks of disease and drought. Meanwhile, more liquid assets such as cash and jewelry are susceptible to the risk of theft. A number of MFIs require that borrowers contribute a small portion of their earnings to a savings vehicle, often in small amounts on a frequent basis. These savings will often be unavailable to the borrower for a predetermined period and are designed to help microfinance clients develop effective savings habits. Alternatively, an MFI may allow its clients to make voluntary deposits. These deposits are intended to be safer and more liquid than alternative savings instruments. It is important to recognize that these kinds of savings plans also serve the interests of MFIs by allowing them to accumulate capital and, because the deposits can be seized in the event of default, collateralize the debt obligations of their borrowers. Micro -insurance

Offering insurance services to poor people presents many of the same challenges as offering them credit. The difficulty of assessing the risk associated with individual clients makes insurers vulnerable to adverse selection, with the most most risky clients seeking insurance. Meanwhile, the difficulty of preventing clients from engaging in risky activities after they have been insured raises the problem of moral hazard. In many developing countries informal mutual assistance schemes serve as a form of insurance. It is also possible to conceive of group lending as a form of insurance. A few micro -lenders have insured their clients as part of a loan package. Life insurance, perhaps because it presents

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the least moral hazard, has been the most successful, but property, health, and weather insurance have also been offered. 2.2.6 Regulatory issues of micro finance institutions Interest rates Microfinance institutions may often be forced to charge higher interest rates than their traditional counterparts. Rates are generally higher because an MFI faces greater costs. Traveling to clients, meeting with them, and making and keeping track of larger numbers of small loans all serve to create costs well beyond those faced by a typical bank in a highly evolved credit market. As a result, capping interest rates or strictly enforcing usury laws can cripple an MFI by preventing it from charging sustainable rates. MFIs can operate under such laws if they remain un enforced or if there is an implicit exception for their operations, but this kind of informal non-enforcement is both awkward to defend from a rule-of-law perspective and subject to potential corruption. Protection of depositors. Once an institution begins taking the savings of its clients as opposed to providing credit from other sources, regulatory issues arise. If an MFI is being run as a for-profit institution then its owners have an incentive to take great risks with their depositors' money. Without any of their own assets invested in the institution, rather than investing prudently they could rationally be expected to seek the largest return possible. Such management will be likely lead to a high incidence of MFI failure that will not only undermine the economic progression of microfinance clients, but could also serve to discredit the entire industry. Circumstances may therefore require the regulation of deposit-taking MFIs. Yet creating an effective regulatory regime with an eye

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toward the goals of microfinance presents significant challenges in itself. These issues are discussed further below. An MFI also faces the same problems with taking small deposits as a traditional bank. Its transactions costs will be high and earning profits on small deposits will be difficult. It should be noted, though, that many MFI clients are not seeking returns on their deposits, but instead merely require a safe place to keep their money. As they grow more sophisticated, though, they may ultimately demand interest on their savings. Fortunately, an MFI can charge much higher interest rates. 2.2.7 Women and microfinance Poor women in particular benefit from micro finance services. Women's status, both in their homes and in their communities, is elevated when they are responsible for managing loans and savings. The ability to generate and control their own income can further empower poor women. Research shows that credit extended to women has a significant impact on their families' quality of life, especially their children. In most countries world wide like Bangladesh women have to default on loans far loans often than men. 2.2 .8 the elements of micro finance There are several different kinds of micro finance programs, reflecting different analyses of the causes of poverty and the most effective means of addressing it, some concentrate solely on credit delivery, others stress the importance of mobilizing savings, some purely facilitate saving and borrowing, however in all these programs training is an important complement to financial services.

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In all cases, emphasis needs to be on developing the products that help low-income entrepreneurs and households build income and assets. Savings, business loans, insurance, and remittances for microfinance are all valued. MFIs will need to reinforce their knowledge of and connection with low income clients to provide excellent service to this client segment. MFIs will need to become regulated or to build alliances to be able to offer savings products. Banks need to resist the temptation to fall into consumer and transaction finance and most cooperatives and savings institutions will need to build more solid management and create stronger lending products. Technology applications, combined with solid risk assessment methods, will be key in reducing transaction costs and expanding outreach to underserved rural and urban clients country microfinance strategies will constitute the core. 2.2.9 Characteristics of micro finance institutions J.D.Sentamu (2004, pg 308) out lines the characteristics of micro finance institutions as; Offering credit with high interest rates That the demand of their loans exceeds supply. The transactions are largely manually done And that they operate at a low cost

Nevertheless J.T.Loubiere et al, asserts that the desired characteristics of the micro finance market should include; Safety and soundness of the system Competition, to create efficiency and service quality Growth of coverage to reach more people Expansion and innovation in product offerings especially saving services Independence of the industry from pubic subsidies and

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Fair treatment of borrowers

There are other characteristics of the Micro finance institutions. Formal providers are sometimes defined as those that are subject not only to general laws but also to specific banking regulation and supervision (development banks, savings and postal banks, commercial banks, and non-bank financial intermediaries). Formal providers may also be any registered legal organizations offering any kind of financial services. Semiformal providers are registered entities subject to general and commercial laws but are not usually under bank regulation and supervision (financial NGOs, credit unions and cooperatives). Informal providers are non-registered groups such as rotating savings and credit associations (ROSCAs) and self-help groups.

Ownership structures: MFIs can be government-owned, like the rural credit cooperatives in China; member-owned, like the credit unions in West Africa; socially minded shareholders, like many transformed NGOs in Latin America; and profit-maximizing shareholders, like the microfinance banks in Eastern Europe. The types of services offered are limited by what is allowed by the legal structure of the provider: nonregulated institutions are not generally allowed to provide savings or insurance.

2.2.10 The impact of micro finance in the development of the household The micro finance institutions can clearly help to reduce poverty and vulnerability through taking small loans and are used in farming and small enterprises. This economic security can also reduce the dependence and marginalization of people below the poverty line. However taking a 28

loan is inherently risky and it is undeniable that unlucky or unwise borrowers may be impoverished if an investment fails Micro finance clearly contributes to improvements in childrens welfare through increased incomes and thus improved nutrition, housing, health, and school attendance. However there has been a decline in the quality of childcare whereby women have to leave young children with inexperienced house girls. Micro finance can empower women irrespective of empowerment, many women value access to credit and savings. F.Womakuyus report of Oliver Nakyeni entitled mushrooms saving women in Mukono in the new vision; Wednesday October 14th 2009 mentions that; when I ask my husband for money for household items, he abuses me at times he beats me and tells me to also get a job to support myself. She explains. In 2007 Nakyeni joined women of vision group; the group empowers women economically by teaching them entrepreneur skills and helps them to access loans to start a business. However when investments fail womens assets have to be sold so as to recover the money Micro finances offer flexible savings services where they can save unrestricted and often very small amounts at convenient intervals and which they can access rapidly. However many programs still restrict participants access to their savings.

2.2.11 Micro finance and welfare. The governments development strategies include easy access to financial credit by the people so that they can generate incomes through various enterprises. M.P.Todaro (2000, pg 487) mentions that the three equally important aspects of development include; Raising peoples living levels that is their incomes and consumption levels of food, medical services, education, through relevant economic growth processes.

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Creating conditions conducive to the growth of peoples self esteem through the establishment of social, political economic systems and institutions, which promote human dignity and respect.

Increasing peoples freedom to choose by enlarging the range of their choice variables for example increasing varieties of consumer goods and services.

2.2.12 Donor intervention in micro finance. Donor intervention in micro finance has been largely in areas of capacity, technical support and provision of funds for on lending so as to build strong and sustainable MFIS. The portfolio and financial performance were some of the bench markings that the donors developed a condition to quality for any form of support. The strong message that these conditional ties sent to MIFS was that they must aim to becoming financial sustainability so as to serve their clients on continues.

Basis. This was clearly demonstrated in the USAID projects for MFLSsector (namely PRESTO, SPEED and the SIFFICE programmer funded by the European Union).

2.2.13 Developments in micro finance sector. Many MFLS in Uganda started as NGOS with missions and objectives for poverty eradiation, social development and economic empowerment of poor communities. The policy framework of micro finance sector was designed with the overriding goal that micro finance must be run as a business and guaranteeing the safety of public deposits. For this reason, the critical issues that were covered in policy included sustainability and outreach, capital adequacy requirements, liquidity requirements ownership and governance. The MDI act (20030) was subsequently enacted by parliament and promulgated into law in May 2003. 30

2.2.14 Impact of Micro Finance and Micro- Credit.

Evidence provide by Coleman (1999) suggests that the village Bank credit did not any significant impact on physical asset accumulation production and expenditure on education. Coleman (1999) concluded that women ended up in various circle of poverty and debt as they used the money from village bank for consumption and were forced to borrow from money lenders at high interests rates to repay in village bank loans so as to quality for more loans .However the same study shows that there was significant positive impact for women who had access to bigger cheap loans from the village bank ( by virtue of being village bank committee members), which they also relevant at higher interest rates. The main conclusion from this study was that credit is not an effective tool for helping the poor to enhance their economic condition and that the poor are poor because of other factors (such as lack of access to markets price shocks inequitable land distribution) but not lack of access to credit .This was a similar view expressed by Adams and Von Piscke (1992).

Mosley and Halme (1998) in their study of 13 MFLS in seven developing countries reported that household incomes tended to increase at a decreasing rate as the debtors incomes and asset position improved .On Micro finance, results by Diagne and Zeller (2001) show that micro finance did not have any significant effect on house hold income. Some studies have reported that that micro-credit has a negative impact on women empowerment ( Goetz and Goupta, 1994; Ackerley, 1995; Montgomery et al ;1996).Goetz and Gupta (1994) using managerial control index as an indicator of empowerment reported that the majority of women (especially married women ) did not have control over loans . while it was the women who were targeted by credit progromme, the men took over the management of loans hence negating the development

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objective of lending to women .The primary responsibility of repaying the loans however rested on the women who borrowed the money such that in case where the men failed or refused to pay the women were forced to draw on their personal savings or sell household assets for loan repayment .This is an unfortunate scenario of having responsibility without control, which in most cases degenerates to domestic violence against women .Evidence by Montgomery et al (1996) indicate that for the first time female borrowers from Micro- credit programs only 90% had sole authority over funded projects. While 87% reported that that the projects were managed as a family partnership. Whereas for the male, first time loanees 33% had sole authority over funded projects while 5% were managed as family partnership .Interpreting family partnership ,as disguised family male dominance the conclusion was that access to credit did little to empower women.

Other studies on the other hand report that Micro credit has had a positive empowerment impact on the women (Rahman 1986; pitt and Khandker, 1995; Kabeer, 2001) .The positive impact of Micro credit on women empowerment was because joint decision making was interpreted as a positive impact ( Rahman , 1986 pit and khandkar 1995) using additional empowerment indicators ( such as productive assets ,ownership, political awareness)

Despite these developments, opportunities which credit would offer to poor house holds, formal banks hardly lend to the rural poor people engaged in agriculture because they lack collateral security they could offer for loans. Further because of small size loans formal banks are a verse to lending to the small borrowers because of high transactions costs. Another factor why formal banks are reluctant to lend people employed in agriculture is the high uncertainty of their incomes, which is dependent on whether and sheer luck (World Bank, 1989, Adugna and Hiedhues, 2000).As a result of these factors , poor households rely almost exclusively on

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informal credit markets ( Nissanke , 1994; Soyibo, 1994 ; Hyuha et al; 1993) .The information financial sector include friends or relatives; money lenders; rating savings and credit associations (ROSCA); cooperative savings and credit societies or union ; community based organizations (CBOs); non government organizations (NGOs).

The most prevalent critique of micro finance in to days international system is that it does not have the ability to reach the poorest regarding of the arguments about what micro finance should do. The United Nations consultative Group to assist the poor (C.GAP) stated that most micro finance clients today fall in hand around the poverty line and the extremely poor are rarely reached by micro finance (CGAP, 2003).

In addition, there is a lack of consensus as to whether reaching the poorest of the poor should be the goal of micro finance institutions. First, it is much more expensive to reach the poorest both or the institutions and clients themselves. The (C Gap) notes that if an individual accesses credit, but does not have financial capability to service that debt access to loan service and interest rates becomes and additional burden. The poorest also request small individual loans with flexible repayment schedules, services that are very expensive for a micro finance institution to provide.

Katy Skaraltors ( 2004) analyzing the effectiveness of Micro finance in Nicaragua, he observed that simple access to financial services couldnt guarantee empowerment or poverty alleviation , especially for women in an economy dominated by male policies .it is estimated that 79% of the worlds population living on less than one US dollar and per day are women ( united Nations, expert group on women and finance, 1995) .However, it is also true that most low income women are economically active in some form; Though their roles and the values of those roles are often undervalued in society , women need and deserve access to information , financial

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services and markets ( UNEGWF, 1995) .Therefore, access to provide low income women with opportunities to increase their incomes and assets ( UNEWF 1995)

The World Bank (2001) reports that societies with high levels of genders inequality experience high level of poverty , slower economic growth , weak system of governance and lower standard of living .Chant, (1997) studying women headed households in Mexico ,Costa Rica and Philippines reports that although men contribute an average of 50- 68 percent of their income of the general funds of the households while it is womens salary that utilized in covering most household expenses .Thus putting working capital into the hands of women may also have positive impact on the health education and quality of life of her entire family .The ownership of working capital is a means of building womens confidence , self respect and capacity to use her voice to shape her life and lives of her family members (United Nationals Expert Group on women and finance 1995)

A study published in January (2003) by FIDEG and WISCONNSIN coordinating council on Nicaragua was a significant step in reporting to the community the social impact that Microcredit has had on nations economy , the rural poor and the female population . The study reported that more than 66% of credit lend in Nicaragua went to womens borrowers ( WCCN,2001 ) .Of these women borrowers nearly 80% of them request a loan in order to start , further develop, or purchase materials for their business or small enterprise ( WCCN,2001). Not only do loans to women increase the stability and variability of their business, they often have a positive effect on their self- esteem, their economic security and their overall quality of life.

In comparison to the study done by FIDEG and WCCN with other studies conducted Azamor,et al, ( 2002) sanders and Deugd (2002) , it is clear that the womans perception of the Micro-

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credit industry in Nicaragua is positive overall. The report that women see access to credit loans as the important element of their business and personal development. Deugd (2002) reports that between 86 and 95 percent of female clients reported that Micro- credit loans had a positive impact on their business operations. With loans, many women reported that they were able to diversity and quality of products they offered and expand sales figures.

In terms of positive impacts of the family levels clients reported a 28-30 percent increase in the standards of living of their children in terms of education, nutrition, and Health ( Deugd, 2002). However, at this point Deugd (2002) reports that there has been very little positive impact perceived in terms of womens decision making abilities within the family. In terms of perceptions on the impact of credit at personal level, many women emphasized their satisfaction with feelings of self sufficiently and independency that were a result of work supported by Micro loans ( Deugd, 2002) .Many women felt a positive impact on their self- esteem and their ability to create and support new activities.

There are conflicting opinions about the ability of Micro finance as development tool to reach poor women and men. The conflicting opinion centre around the relationship between structural adjustments programs (SAPs) are primary engine through which poor peoples lives have been affected by the recent forces of globalization. SAPs were initially instituted by the international monetary fund ( IMF) and the world Bank as a way to aid heavily indebted counties restructure their economies to create growth ( Wiegersman, 1997 ) .The fundamental argument against these programmes from a woman perspective are summed up by Baden (1997; 38) who argued that in order to achieve the goals of growth and economic efficiency intended for their

programs, Womens burden are increased and their labour exploited. Therefore, women seeking credit from Micro finance institutions are not creating business out of personal desire to become

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entrepreneurs , they are forced to work so that they and their families can survive in the vicious economic cycle that has been created by SAPs. Similarly womens groups also feel that structural adjustment policies and forces of globalization have had a negative effect on the living and the working conditions that women face as they become more involved in their local economies.

According to Poster and Salime (2002) postulate that as a result of mandatory decreases in government budget many local economies have been devastated by the elimination of basic social service programs such as education and health care. Thus a woman share of household labour has increased, as she is responsibility for the survival of her family and provides those services that the government no longer offers.

Second, while the poorest do have a demand for financial services perhaps their demand for necessary social services perhaps their demand for necessary social services is more important. It is often the case that the poorest lacks access to food, shelter and sanitation all needs that cannot be fulfilled permanently with short- term loans. It is more likely that micro finance services will benefit these people once their basic needs are taken care of the either the government or international relief agency and development organizations.

Another consequence of structural adjustment programmer and globalizations trends is severely limited labour market for women whether as a result of limited job availability or as a result of gender discrimination a woman access to formal sector jobs in Nicaragua is nearly non-existent. In response to this phenomenon, there has been a rapid increase in female employment in formal sector in Nicaragua.

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Feminist critics of micro finance also argued that poverty alleviation models have over emphasized the importance of private funding and support. According to poster and salime (2002). There has been a shift from development as a responsibility of nation states to development as a responsibility of global community including international markets, financial institutions and private operations and organizations.

The micro finance industry is an example of how development has transformed into a business that prefers private renders to government-sponsored funds. It is consistent with leading model (driving by structural readjustment) that encourages decentralization, self employment and individual entrepreneurship (Mc micheal, 2000) however, critics of this type of model argue that this type neo- liberal economic agenda relies on the strength of individual women to help themselves rather focusing on structural changes in the economy (Kabeer, 1999). Thus it up to the each woman to fight for her own individual rights and to better the livelihood of the family. With this individual focus, critics believe that it is unlikely that micro finance will have the ability to empower the women to improve their status in home, the community and in the national economy.

2.2.15 Credit access and management. Morduch and Barbra, (2001) says that micro finance has been innovative on lending technologies that are more suitable to the poor. While the formal banking system was inclined to using collateral based lending technologh, which was inaccessible to the poor on account of lack of collateral, the micro finance emerged to provide micro- credit to poor households using mainly group lending (joints liability contracts), small progressive loans and targeting especially women.

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According to Okrup , et, al; ( 2004) under the joint liability contracts, members are responsible not only for the repayment of their personal loans but for the loans of other group members in case of default; (1) the joint liability contracts are largely used because they provide screening mechanism for borrowers separating them into different risk types (van Tassel, 1999, Ghatak , 1997) ( 2) Utilize unique penalty mechanism on members who willfully default, there by improving repayment rates ( Beasley and Coate, 1995, conning, 1999;( 3) induce endogenous poor monitoring to resolve the moral hazard problems in borrowers investment choice ( Stiglitz, 1990) ,( 4) Reduce transaction costs for the MFLs ( Conlin, 1999) ( 5) the group guarantee acts as social collateral ( Ghatak, 1999; conning; Navagas , et, al, 2000).

Micro finance enables low-income people access financial and non-financial services. As a discipline micro finance will create financial products and services that repackaged in manner that enable low-income earners who are unable to access formed financial services to access comparatively small loans saving schemes and other services for working capital and income generation. MFIs are targeting only a small proportion of the poor whom they have code-named the economically active poor. The MFIs definition of economically active poor are those that have business and the capacity to reply back the loans from the poverty spectrum, the economically active poor are the richest of the poor.

Evidence provide by Okurut, et al ;( 2004) when studying gender and Micro finance show that the determining factor is profits. In the Micro finance business one of the key factors that influence profitability is the portfolio quality, basically because the higher the loan default the higher will be the write off of bad loans which lowers the profit. Therefore, one of the ways of minimizing the loan default is through careful analysis of repayment capacity of the potential clients. Access to loans is the obligation and willingness to borrow and repay at a price that

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covers the long run cost of an efficient lender ( Schreiner, 2001). Schreiner further asserts that access to loans is thus the nexus of demand based on quality and willingness to repay and supply based on low cost ways to judge risk and to reinforce repayment.

The poor pay more for financial services because the poor pay more to serve. They demand small loans for short terms but they cannot signal and guarantee credit worthiness with constant income from salaried jobs or with physical collateral. Like wise poor savers cost a lot to serve because they hold low balances and make frequent deposits and withdraws (schreiner, 2001). Yaron, et al, (1997) argues that for decades, government and donors worldwide sponsored development banks in attempt to improve access to the rural poor. However, Braver man and Guasch (1987), Voupischke, (1991) report that subsidized loans which ostensibly targeted small farmers led to access demand and thus rationed supply. The rich also often defaulted sure that the government lacked the political muscle to seize their land, bailed out from development banks, drained the public budget and in time led to their down fall (schreiner, 2001) in most countries, the paradigm of supply driven top down, subsidized direct credit was scrapped having done the rural poor more harm that good (Adams et al 1984, Krahmen and Schmidt 1994). What governments could not do b decree, non-government organization have to do with technology. Although most NGOs are inefficient and no NGOs can take deposit, at few have found ways to judge risk of the poor accept their signals of credit worthiness and to monitor and the enforce re payments at price that covers costs (Schmidt and Zeitinger 1996 a and 1996b).

Other security requirement for micro finance loans, according to UNHS.1999/2000 suggests that land constituted an important form of security for credit received from informal sector sources. Other included livestock house, coffee sets, tables, radios, future harvest etc. Further, evidence from Unhs1999/2000 suggests that the proportion of urban people accessed credit was higher

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than those of rural people. This according to the survey could be attributed to good infrastructure n a rural area which minimizes transaction costs, the diversified house hold income bases of the urban households as opposed to those in rural sector dependent on agricultural income which is characterized by high variations.

2.3

Objective by Objective.

To investigate the role played by Micro finance loans on the welfare of the households.

2.4 Conclusion. The information in this chapter that has been obtained from literarure by other scholars has brought out basic concepts of Microfinance institutions. All these have been from Microfinance institutions in other countries and non from Uganda Microfinance institutions therefore it is hard to compare since we are at different economic levels. Despite this, there are lessons to learn from this information which are already being used and will continue to be used.

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CHAPTER THREE

RESEARCH METHODOLOGY 3.1 Introduction This chapter was to cover the research design, the study population, the area of study, the sample size and selection, sampling techniques, method of data collection, procedure of data collection, data management and analysis and reliability and validity of the research instruments.

3.2 Research design It was based on a cross sectional research which was concerned with whether there was an association between micro finance and welfare of households, the case study being micro finance institutions of Masaka district.

3.3 The study population. The populations of study were consisted of the staff and clients of micro finance institutions in masaka district. The target populations were comprised of the clients of micro finance institutions masaka district

3.4 Area of study Pride Micro finance (MDI) limited, Finance micro finance and Masaka microfinance limited were located in masaka town, Kampala road, masaka municipality, 125 kms from Kampala city. They offered both savings and credit schemes and it was licensed by the bank of Uganda under the micro finance deposit taking institutions (MDI) Act, 2003.

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3.5 Sample size and selection The target population was consisted of staff and client of microfinance institutions and from which simple random sampling was administered.

3.6 Sampling techniques Simple random sampling was employed to select respondents from the clients this technique was used because all the clients had the same characteristics and hence all had an equal chance of being included into the sample.

3.7 Method of data collection The researcher used the questionnaire method for collecting data. The questionnaire was constructed with closed ended questions using the four-likert scale; at the end of each section the researcher was administered an open-ended question. The components of the questionnaire included the cover letter, the instruction, biographical information, the main body and the gratitude section.

3.8 Procedure of data collection. Upon receiving the introduction letter, the researcher moved to the field. Necessary information was granted upon request and then the questionnaires were administered to the selected respondents and collected on the agreed time.

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3.8 Data management and analysis After collection of the filled up questionnaires, the researcher edited them in order to find out errors, related given answers and the items in their questionnaires. This was to ensure accurate complete and uniform results. Qualitative and quantitative methods were used to analyze the collected data and codes plus abbreviations were used to avoid monotony of work. Using frequency tables, percentage scores and bar graphs to manage and analyze the data were used quantitative methods mostly in analysis of data. The arranged data was then analyzed and interpreted in relation to the findings using spearmans rank correlation coefficient.

3.9 Reliability and Validity. The way the researcher ensured reliability of the data was by;

Pre- testing the Questionnaires with other people to make sure that the data collected would be applicable and of multiple forms.

To ensure Validity the researcher used the criterion validity method where she used is know to be a good indicator.

3.10 Ethical Consideration

The information that was provided was purely for academic purposes and was to benefit Masaka Municipality Microfinance Institution in particular and other organizations in general. The researcher handled the information that was given to her with confidentiality.

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CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS 4.1 INTRODUCTION

This chapter presents, interprets and discuss findings on the following, Gender participation in the study, age distribution of participants. Period spent in the position and education level of the staff, period spent as a client of the institution and medical status of the clientele. The participants response on the role of microfinance loans on the welfare of a household the role of mobilization of savings in poverty alleviation and impact of the micro finance client training to the welfare of the households.

4.2

Background information of the respondents

A total of 50 respondents were selected using simple random sampling technique in both FINCA and PRIDE microfinance MDIS. The researcher was able to give out 50 questionnaires in the study which showed an 80%response rate.

4.2.1 Gender participation in the study. 4.2.1 Figure 1 shows the Gender participation in the study.

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Chart 1 Gender Number Male 13 Female 07 Total 20 Source: Field Research 2010 Staff Percentage (%) 65 35 100 Number 13 07 20 Clientele Percentage 65 35 100

Figure: 1 above shows that 65% of the staff respondents were male and 35% female. It also shows that the 65% of the clientele respondents were male and 35% female. The chart above show that more men than women are more involved in microfinance activities.

Women are more interested in household activities than being engaged in business activities. However more of the time, needs, values and aspirations of women in the society are not taken into consideration, they are not often taken for granted, ignored and misrepresented in microfinance activities due to how education level and lack of collateral.

From the theories looked at in the literature review, few have pointed out gender issues as far as the role of microfinance institutions on the welfare of households is concerned. Most theories give assumptions on needs, values and aspiration of house holds yet people are not the same (New vision 14th October 2009.)

4.22

Age distribution of the participants and their significance in the study.

Table 2 shows the age distribution of the respondents of staff and clients respondents both FINCA and PRIDE Micro finance MDIS. Age (year) Staff Number Percentage (%) 45 Clients Number Percentage (%)

<20 0 0 20-30 15 75 30-40 4 20 >40 1 5 TOTAL 20 100 Source: Field work Researcher 2010

01 18 01 0 20

5 90 5 0 100

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C HART 2S WSTHE AGEDIS HO TRIBUTIONO THE F P ARTIC A IP NTS

100 90 80 70 60 50 40 30 20 10 0
0 0 -2 2 -3 0 0 3 -4 0 0 Ag Group e >0 4

Percenta e of R g espondents

S FF TA C IENTS L

Source. Field work researcher 2010 The age distribution of the staff and clients respondents in FINCA AND PRIDE Microfinance MDIS showed that75% of the staff and 90% of the clients where between 20 and 30 years .This age group is within the age bracket of 15-64 years which is considered to be productive towards contributing to development. The age distribution of the participants helped in finding out the age group which most accesses microfinance products so as to improve the welfare of households and hence development of the communities

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4.3

Role of Microfinance loans in the welfare of house holds.

Figure 3 shows the number and percentage of clients who accessed loans in Both FINCA and PRIDE Microfinance institution. RESPONSE FINCA yes 90% NO 10% Total 100% Source: Researcher 2010. PRIDE 80% 20% 100%

90% of FINCA and 80%of Pride microfinance clients had accessed loans in the finance institution and90%o had accessed loans in FINCA. 70% where Business loans whereas 80% of the clients who accessed loans in pride micro finance 60%where Business loans.

This concerned with the staff respondents who indicated that 90% and 100% of the clientele accessed Business Loans in FINCA and PRIDE Microfinance. This is the definition of Microfinance which states that it is the provision of financial services to poorer people and enormous potential to support their economic activities and thus contribute to the alleviation of poverty (Hannig and Mugwanya, 2000) 48

Figure 3. Showing the percentage of improvement of welfare Bavis the collateral used in accessing loans in Microfinance institutions.
A CHARTS HOW ING GE NDE PART IPAT R IC ION
100 Percentag of Participants(% e ) 90 80 70 60 50 40 30 20 PR IDE F A INC

Improvement in welfare of households.

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Use of collateral in accessing loans

70% and 80% of the client in pride and FINCA Microfinance Institutions respectively agreed that the loans had improved their welfare in house holds and in both cases 70% indicated that they had given collateral to the financial institution and this included land titles (60%) motor bicycles (30%) and house items (10%)

In contrast with the gender participation in figure 1 the staff respondents in both FINCA and PRIDE Micro Finance Institutions indicated that the 80% and 60% of the clientele who accessed loans were female. This indicated that the much sought after type of loan is the business loan and in order to access it one has to give collateral. These business loans of well used can improve the incomes of the house holds and hence the improvement of the welfare of the house holds. And women are believed to manage there business loans effectively that is why they comprise of the highest percentage (80%) of the clientele one of the two financial institutions.

4.4

The role of mobilization of savings in the welfare of house holds.

Figure shows the Number and percentage of staff of Microfinance institutions who hold savings accounts.

Yes

FINCA No 10

Percentage (%) 100% 50

No 10

PRIDE Percentage (%) 100%

No TOTAL 10 100% Source; Field Researcher 2010

10%

100%

100% of the staff of both Microfinance institutions held saving accounts and this indicated that they have the knowledge and meaning of a client to have a saving account.

Figure 4. Showing the rate of clients who open saving accounts per day Rate Very high High Low Very low FINCA Percentage (%) 0 40% 60% 0 100% PRIDE Percentage (%) 0 90% 10% 100%

The PRIDE of a micro finance indicated that the rate of clients who open saving accounts were high (90%) whereas for FINCA Microfinance was low (60%) and high (40%) as shown in the table above.

Figure: 4 showing the rate in percentage of clientele who open saving accounts per day in FINCA and PRIDE Micro finance institutions.

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90 80 70 60 50 40 30 20 10 0

T perc he enta e of c g lientswho open s v Ac ounts a ing c

F A INC PR E ID

L ow

V Low ery

H h ig

V H h ery ig

S ource: Prim D ary ata

Here, 100% of the staff in PRIDE Microfinance and 90% of the staff FINCA Microfinance agreed that savings improve the welfare of the house holds.

They indicated that the rate of funds deposited where greater than 50% (70 responses) in pride Microfinance and below 20% (4o response) and between 20% and 50% (40response) in FINCA Microfinance. This was in line with the clients response in both institutions where they agreed (100%) that they hold savings accounts.

The various reasons they gave for holding savings account included raising money for land acquisition, paying bills, family care, paying school fees and personal development. In PRIDE microfinance the clients indicated that the rate of their savings was high (60%) and low (40%) yet for FINCA microfinance the rate of their savings was high (10%), high (40%) and

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low (50%). Clients in both institutions agreed that their savings improve the welfare of their house holds that is pride Microfinance (80%) and FINCA Microfinance (100%)

This was in line that whose assets that one of the characteristics of microfinance institutions is the expansion and innovation in products offerings especially savings services. Loubiere (2004).

4.5

The impact of client training of microfinance institutions to the welfares of household.

Both staff of the financial institutions agreed that they offer training to clients that is PRIDE Microfinance institutions (100%) and FINCA Micro finance institution (70%)

The training comprised of managing business and administering loans. The staff of pride microfinance institution indicated that they administer the trainings weekly (60%) and monthly (40%) Whereas in FINCA micro finance institutions indicated that they administer the trainings monthly (40%), weekly (20%) and yearly (10%) 100% and 70% of the staff in pride and FINCA microfinance institution respectively agreed that the training improved the welfare of the house holds.

This was in agreement with the response of both FINCA and PRIDE microfinance institution who agreed (80%) that they receive training. 100% of clients in pride microfinance and 80% of FINCA Microfinance agreed that the training had a positive impact on the welfare of the households. They indicate that the trainings

comprised of mostly mobilizing savings, Account accessing loan management business opportunities and Business management.

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CHAPTER FIVE

SUMMARY OF CO NCLUSIONS AND RECOMMENDATIONS. 5.1 Introduction

In this chapter, the researcher made a summary of the conclusions basing on chapter 4, she also made recommendations which were logically generated from conclusions and adequately discussed and explained as to their feasibility applicability. She also made suggestions for further research.

5.2 Summary of conclusions. The researcher made the following conclusions basing on the findings of the study. The micro finance institution play a role of mobilization of savings in poverty alleviation savings are raised for various activities such as payments of school fees, getting capital for the businesses which can be added with the loan so as to start the business however the study found out that some of the savings are used in the paying back of the loans got from microfinance institutions.

54

The study also found out that micro finance institutions are involved in training of the clients especially in accounts accessing business opportunities, loan management and Business Management.

From the presentation and analysis in chapter 4 it is significant to conclude that Microfinance institution contributed to the welfare of households in Masaka District. Due to Micro- credit households where involved in starting business especially in home businesses among others.

In all, the development level of Masaka district has drastically increased in a result of microcredit though there is still a lot to be done especially in the rural areas where these Microfinances are insignificant due to lack of collateral as seen in the problem statement.

5.3

Recommendations

Basing on the findings the researcher recommends that. Microfinance Institutions should remove the regulation of collateral as a requirement of accessing loans if the role of microfinance institution is to improve the welfare of house holds of the poor. The majority of the rural poor especially women do not have any collateral hence they cannot access loans in these institutions and yet they want to improve their welfare.

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The study indicated that most of the respondents who were involved in microfinance institutions activities where between the ages of 20 and 30 years. This means that the management of micro finance institution should concentrate more on the clientele in this age Bracket which constitutes more of the labour force of the Uganda Population.

The government of Uganda through the Bank of Uganda which regulates the activities of Micro finance institution should encourage the institution to concentrate more on women who comprise more of the clientele of microfinance institution and as per the Uganda Housing census of 2000 which indicated that their 3 women for every 1 man. These women are at a centre stage of the empowered economically so as to manage their households.

5.4

Suggestion for further research.

The researcher suggests that further research could include: The impact of the central government in the management of microfinance institution. The role of Microfinance institution in the empowerment of women and youth The impact of micro credit in the fight against HIV/AIDS The impact of Micro finance institution in the enhancement of education levels of the rural poor.

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BIBLIOGRAPHY

Bank of Uganda, (2008). Annual report. Uganda: page 14 Bannock.g, Baxter R.E.& Davise.e, (1998). Dictionary of economics. England: penguin group, 6th edition page 86.

Hanniga & Mugwanya.E.D, 2000. How to regulate and supervise micro finance. Uganda: Bank of Uganda and German Technical Cooperation. Page 1 Loubiere.J.T, Devaney.P.L,Rhyne.E, (2004). Supervising and regulating micro finance in the context of financial sector liberalization. Page 29, 36 Marcus.R, Porter.B, Harper.C. (1999), Moneymatters; understanding microfinance. London: save the children. Page 9, 15 Musoke.C & Candia.S. (2009), Uganda at 47; new vision newspaper, 9 th October. Uganda: New vision publishers, page 2 Ssebukyu.V.B(.2005). Poverty and land reform. Uganda: Page 8 Ssentamu.J.D, (2004). Basic economics for east Africa, concepts, analysis and application. Uganda: fountain publishers. Page 308. Todaro.M.P, 2000. Economics for the developing world. England. Pearson education limited, 3rd edition. Page 487,496 Womakuyus.F, (2009). Report of Oliver Nakyeni entitled mushrooms saving women in Mukono Wednesday October 14th. Uganda: new vision publishers, page 33.

APPENDIX.

QUESTIONNAIRE

TO THE STAFF OF MICRO FINANCE INSTITUTIONS.

Dear Sir/ Madam, In partial fulfillment of the requirement of Bachelors Administration and Management (BBAM) of Uganda Martyrs University Nkozi a student is required to under take research and submit ones findings.

You are kindly requested to assist the researcher to obtain information about impact of households (Case study: MasakaMunicipality).

The information you will provide will be purely for academic purpose and may benefit Masaka Municipality Microfinance Institution in particular and other organizations in general.

The information given shall be treated with confidentiality.

Thank you very much.

1. Name of the institution........................................................................................ Section A; information on the background of the respondent 1. Your Position / Title

ii

.................................................................................................................................... 2. Sex of respondent. a) Male b) female

3. Age of the respondent a) Less than a year b) between 30 and 40 years d) above 40 years

c) Between 20 and 30 years

4. How long have you been holding the position? a) Less than a year b) Between 1 year and 2 years

c) Above 2year 5. Marital status Married 6. Date of birth 7. Residence 8. Number of children 9. Head of household 10. Highest level of education. a) Masters degree b) Bachelors Degree c) Diploma d) others Single

Section B. Information on the role played by micro finance loans on the welfare of households. 1) What are the types of loans products given by the institution?

iii

................................................................................................................................................ 2) What loan products attract the clients of the finance institution? ................................................................................................................................................ ................................................................................................................................................ 3) Most of your clients consist of a) Male b) female c) Both

4) How do you relate the number of clientele received per working institution? a) Very high b) High c) c) low d) very low

5) In your view, have the loan products improved the welfare of the households? a) Yes b) No

6. If yes, give reasons. 7. If No, give reasons.

Section c. information on the role of mobilization of savings in the welfare of households 1) Do you hold a saving account? a) Yes b) No

2) If yes, what is the purpose of your savings? 3) How do you rate the number of clients who open saving account per day? a) Very high b) high c) low d) very low

iv

4) Do you think savings improve the welfare of households? . 5) How do you rate funds deposited on savings account a) Below 20% b) between20-50% c) Above 50%

Section D. Information on the impact of micro finance client training to the welfare of the household 1. Do you offer any training to your clients? a) Yes b) No

2. If yes, give reasons. 3. If No, why dont you offer training to your clients? .. . 4. When do you administer the above training? a) Weekly b) monthly c) Yearly

5. In your view, do these training improve the welfare?

THANK YOU

QUESTIONNAIRE

TO THE CLIENTS OF MICRO FINANCE INSTITUTIONS.

Dear Sir/ Madam,

In partial fulfillment of the requirement of Bachelors Administration and Management (BBAM) of Uganda Martyrs University Nkozi a student is required to under take research and submit ones findings.

You are kindly requested to assist the researcher to obtain information about impact of households (Case study: Masaka District).

The information you will provide will be purely for academic purpose and may benefit Masaka District Microfinance Institution in particular and other organizations in general.

The information given shall be treated with confidentiality.

Thank you very much.

Section A. Information on the Background of Respondents 1. Name of Microfinance Institution. 2. Sex of the respondent.

vi

a) Male 3) Age of respondent a) Less than20 d) Above 40 years

b) Female

b) between 20 and 30 years

c) between 30 and 40 years

4. How long have you been a client to the Finance Institution? a) Less one year 5. Marital status Married 6. Date of birth 7. Residence . 8. Number of children 9. Head of household .. Section B. Information on the role played by micro finance loans on the welfare of households. Single b) between 1 year and 2 years c) Above 2 years

vii

1. Have you ever got a loan before in the finance institution? a) Yes b) No

2. What type of loan did you acquire? a) Business loan c) Asset loan b) Agriculture loan e) Education loan c) Home improvement loan

3. What is the repayment period of the loan you acquired? a) Less than 6 months b) 1 year c) 2 years d) above 2year

4. How long did you take to access the loan? a) 1year d) More than 1 month 5. Did you give any collateral security to the institution? a) Yes b) No b) 1 week c) 1 month

If yes, what type of collateral security? .. In your views, did the loan help you in the welfare of your home and family? .

Section C. Information on the role of mobilization of savings in poverty alleviation.

1. Do you hold a savings account? a) Yes b) No

2. If yes, what is the purpose of your savings?

viii

3. How do you rate your savings?

a) Very high

b) high

c) low

d) very low

4. Do you think savings improve the welfare of households? . 5. How long do you take to access your savings? a) 1 day b) 1 week c) 1 month d) more than one month

Section D. Information on the impact of micro finance client training to the welfare of household. 1. Do you receive any training by the micro finance institution? a) Yes b) No.

2. If yes, what type of training? 3. Has this training impacted the welfare of your household? a) Yes b) No

4. If yes, give reasons.

Thank you so much.

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