Chapter I

THE PROBLEM AND ITS SETTINGS

Introduction

Microfinance Institutions is one of the fast growing set of financial

driven initiatives aimed at alleviating poverty, aid economic growth and

support future growth through financial inclusion. Over the last two

decades, microfinance has become the "darling child" of development,

providing a new means to poverty alleviation through partnership with

the poor. Microfinance lending, savings and financial services, provide

the poor with an effective way to move out of poverty, build income,

create wealth and asset their mortgage risks (Arora, 2006; Harris, 2002).

Micro Finance Institutions (MFIs) assist small businesses, the poor

and households who have no access to more formalized financial

institutions in accessing funds (capital) for their businesses.

Microfinance Institutions (MFIs) is not a new concept.

Microfinance businesses aim to extend microloans and other

services to borrowers who typically lack collateral, steady employment

and a certifiable credit history (Bureau et. al. 2012). But many

microfinance businesses now function as independent banks and this

make their effects diffuse and heterogeneous (Karlan & Zinman 2009).

Market vendors in Kidapawan City are operating small businesses.

But some of them access to credit facilities who have lack of information
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of credit knowledge, weak contract enforcement mechanism and weak

access for business expansion and capital investment.

It is in this context that the present study was conceptualized. The

researchers were motivated to find out the impact of microfinance institutions

on the business operation of market vendors in Kidapawan City.

Statement of the Problem

The purpose of the study aimed to determine the impact of

microfinance institutions on the business operation of market vendors.

Specifically, the study sought to answer the following questions:

1. What is the socio-demographic profile of the respondents in terms

of:

1.1 Age;

1.2 Sex Category;

1.3 Civil Status; and

1.4 Highest Educational Attainment?

2. What is the business profile of the respondents in terms of:

2.1 Type of Business;

2.2 Number of years in operation;

2.3 Start-up capital; and

2.4 Sources of loan?

3. What is the extent of microfinance institutions’ contribution to the

business operation of the respondents in terms of:

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3.1 Profitability; and

3.2 Productivity?

4. Is there a significant difference on the extent of microfinance

institutions’ contribution on business operation when analyzed

according to the business profile?

5. What are the expectations of the respondents in terms of their

business?

6. What are the challenges encountered by the respondents?

7. What is the overall perception of the respondents of the

respondents in terms of:

7.1 Success Factors; and

7.2 Failure Factors?

Hypothesis

Ho1: There is no significant difference on the extent of microfinance

institutions’ contribution on business operation when analyzed according

to the business profile.

Theoretical Framework

Microfinance has evolved as a potential solution to informational

imperfections and market failures, in which formal lenders are

unsuccessful in serving poor borrowers. Microfinance successes force

economists to rethink about how poor households save and build assets,

and how institutions can overcome market failures (Morduch & Aghion,
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2015). Although micro-credit financing is considered as one of the most

powerful tools for combating poverty, the sector still faces several serious

problems (Anan, 2002). Despite high repayment rates, the cost of

operating micro-credit financial institutions is much higher than their

traditional commercial counterparts. These institutions usually charge

excessively high interest rates to cover the high administrative costs of

the micro-loans they offer to the poor people. This reality creates a

tension between sustainability of the micro-credit sector and the

outreach. It also makes it a challenge to regulate micro-finance

institutions.

Significance of the Study

This study was undertaken with the hope that the findings would

prove useful to the school and administration, teachers, students and to

the other researchers.

Market vendors. This study will help to identify the importance of

microfinance institutions to market vendors.

Microfinance Institutions. This study will help to identify the

importance of informal lenders or microfinance institutions to the

development of market vendors.

Department of Trade and Industry (DTI). This study will help

DTI to be aware of market vendors’ situations and needs in Kidapawan

City and perhaps, think of program interventions for them.

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Other researchers. This study will help them in acquiring new

information and ideas that would help them in the learning process.

Scope and Limitation of the Study

The respondents of the study were 112 market vendors of different

business sectors in Kidapawan City, Mega Market. This study was

conducted during the month of August, 2016.

Definition of Terms

To have a better understanding of the study, the following terms

were defined:

Business Operation – refers to profit generated from regular business

operations.

Market Vendor – refers to a person that makes goods and services

available to consumers.

Microfinance Institutions – refers to a small scale-of a broad range of

financial services such as deposits, loans, payment services, Money

transfers and insurance, to poor and low income households and their

enterprises.

Productivity – refers to the key source of economic growth and

competitiveness and, as such, is basic statistical information for many

international comparisons and country performance assessments.

Profitability - refers to measure a company's performance. This simply

implies the capacity to make a profit.