ASSESSMENT OF CREDIT PROVISION MECHANISM INCASE OFCOMMERIAL

BANK OF ETHIOPIA(CBE) AT GONDAR MAIN BRACH

THIS RESEARCH PROPOSAL SUBMITED TO DEPARTMENT OF

BANKING AND FINANCE FOR PARTIAL FULFILMENT BACHLOR
ART DEGREE (B.A) IN BANKING AND FINANCE

PREPARED BY: SAMIRAWIT

ADVISOR: YOSEPH WORKU (MSc)

JIMMA UNVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF BANKING AND FINANCE

JANUARY 2019

JIMMA, ETHIOPIA

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 ABSTRACT

The study will focus on assessment credit provision in commercial bank of Ethiopia incase of Gondar
main branch.The objective of this study will focus on assessment of credit provision in commercial bank
of Ethiopia

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 Article I. List of Abbreviations
CAF: credit application form

CCR: commercial credit report

CBE: commercial bank of Ethiopia

C&I: commercial and industrial

DST: domestic trade service

OD: overdraft loan

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 Article II. Table of Contents

Article III. Contents page

List of Abbreviations…………………………………………………… ……………………....i
CHAPTER ONE
1. INTRODUCTION………………………………………………………………………...……1
1.1. Background of the study……………………………………………………………………...1
1.2 Statement of the problem……………………………………………………………..……….3
1.3 Objective of the study………………………………………………………………..…….….3
1.3.1 General objective of the study…….………………………………………………..3
1.3.2 Specific objective of the study……………………………………………………...3
1.4 Significance of the study………………………………….…………………………………...4
1.5 Scope of the study……………………………………………………………………………..4
1.6 Organization of the study ……………………………………………………………………..5
CHAPTER TWO
2. REVIEW OF RELATEDLITRATURE…………………………………………………….6
2.1 Introduction…………………………………………………………………………...…….…6
2.2 Steps in lending process……………………………………………………………………….7
2.3 Loanorigination process……………………………………………………………….……..8
2.4 Types of loans…………………………………………………………………………………9
2.4.1 Depending on purpose…………………………………………………………………....…9
2.4.2 Depending on loan being made………………………………………………………….....10
2.4.2.1 Initial loan………...………………………………………………………….10
2.4.2.2 Assumed loan………..……………………………………………………….10
2.4.2.3 Subsequent loan……………………………………………………………....10
2.5 Credit analysis……………………………………………………………………………......10
2.5.1 Stages of credit analysis………………………………………………………………....10
2.5.2 5C of credit analysis ………………………………………………………………….……11
2.6 A accounting information and credit worthiness’ analysis……………………………….....13

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2.7 Loan disbursement ………………………………………………………………………....13
2.8 Recovery of loan disbursed ………………………………………………………………..14
2.9 Credit evaluation process………………………………………………………………….....15
CHAPTER THREE
RESEARCH DESIGN ANDMETHODOLOGY……………………………………………16
3.1 RESEARCH DESIGN……………………………………………………………....……….16
3.2 The study Area ……………………………………………………………………………….
3.3 Target population……………………………………………………………………………16
3.4 Method of sampling……………………………………………………………………….....16
3.5 Sample size………………………………………………………………………...……..….17
3.6 Data collection tools …………….......………………………………………………………17
3.7. Data Collection Procedure ………………………………………………………………….
3.8 Method of data analysis…………………………………………………………….………..17
HAPTER FOUR………………………………………………………………18
4 TIME AND BUDGET SCHEDULE…………………………………………………………19
4.1 Time Plan…………………………………………………………………………………….20
4.2 Budget schedule…………………………………………………………………………21
Reference…………………………………………………………………………….22
Appendix……………………………………………………………………………23

Article IV.

Article V.

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 Article VI. CHAPTER ONE

Article VII. Introduction

Section VII.1 1.1. Back ground of the Study
The history of bank in Ethiopia was related to the establishment of Abyssinia bank in 1905 under
the cooperation of Ethiopian government and national bank of Egypt. State bank of Ethiopia
was established by proclamation issued in august 1942.It was operated both central and
commercial banking function until 1963.Commercial bank of Ethiopia was established 1943 as
state owned bank to undertake commercial banking activity . From its establishment up to
now commercial bank of Ethiopia play a great role in economic development and progress of
Ethiopia .It was the first bank in Ethiopia to introduce services like automatic tailored
machine , Western union, Money transfer to customer. Currently commercial bank of Ethiopia
has about three million account holders and more than 22,000 talented and committed
employees. Commercial bank of Ethiopia Gondar Main Branch is located in Amhara Region
in Gondar town .It was established in 1947e.c.Since its establishment the bank provide current
account ,saving account, credit service for both business and other customer , money transfer,
trade service which facilitate international trade. The provision of credit service is one type of
service the bank gives forits customer. By having this in mind the researcher give greater
emphasis on credit provision mechanism of this bank.

Credit facility should be arranged to meet the Requirement of borrower (Coyle, 2002). There are
different types of loan facilities designed to meet different customer requirement and their
circumstances. Important factor in deciding what types of facility might be most appropriate are:
What is the loan facility for, why does the borrower want money? How does the borrower expect
to repay the loan (Coyle, 2002).Lending to business, government and individuals is one of the
most important service banks and their competitor provide and it has own risk, however the main
reason that financial firms issued a characteristics of incorporation by state and national
Government is to make loan to customers . Banks and financial lenders are expected to support
their local communities with adequate supply of credit for all legitimate business and customer
financial needs and price that credit reasonably in line with comparatively determined market
interest rate. Commercial banks and their competitors are provide credit to land development

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process, for planting & harvesting crops, for insurance companies, for financial companies and
other small business in local areas ( Rose and ,Hudgins, 2008).

Safety and security – the banker should insure that borrower has ability and will repay advances
as per agreement closely allied to this point is that before granting credit and should consider
margin of safety offered by security concerned and possibility of fluctuation. If it is unsecured
loan advances its repayment depends on credit worthiness of borrower as such a cardinal
principle which is the banker should consider in case of unsecured advances are character,
capacity, capital or Reliability, responsibility, resource (3C’s&3R’s)(shekhar,2005).
Vision
To become a world class commercial bank by the year 2025.
Mission
We are committed to best realizing stake holder need through on hand financial information
globally and supporting national development priorities, by deploying highly motivated skills
and disciplined employees as well as state of art technology .We strongly believe that using the
public confidence is the basis of our success.
Section VII.2 1.2. Statement of the problem
Credit provision is the most important and necessary for achieving individual, group, and
organization performance. It is very important in day today business activity to improve
sustainability and timely advancement in a country. Provision of adequate and timely credit to
customer is the requirement of credit delivery system .So identifying various factor that lead to
poor performance of the bank are important. The following problems may arise in most banks
these are poor selection risks among borrowing customers(Risk assessment ), incomplete credit
files , large proportion of loan beyond borrowers capacity (Rose and Hudgins,2008). Due to this
commercial bank of Ethiopia Gondar Main Branch may have difficulties in achieving its
objectives related to adequate and timely credit provision. So the study was attempted to assess
credit provision mechanism in commercial bank of Ethiopia Gondar Main Branch. On the above
points the study tried to answer the following basic Research question.

1. What are policies and procedures to select applicant customer?

2. What are factor that considered by the bank to grant different kind of loan?
3. What are supervision and follow-up procedure of the bank after give credit?

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 Section VII.3 1.3. Objective of the study

(a) 1.3.1. General objective of the study

The General objective of the study is to assess credit provision mechanism of commercial bank
of Ethiopia at Gondar Main Branch
(b) 1.3.2. Specific objective
To assess policies and procedure for selection of applicant customer.
To identify factor that are considered to grant credit.
To assess the bank supervision and follow- up after grant its credit for customer.
Section VII.4 1.4. Significance of the study
The provision of credit is organized as essential elements in reducing and eliminating poverty,
and improves individual wellbeing, group and organization performance in a country. Therefore
the studies have the following importance to bank and outside bodies. The study is supposed
create good understanding about credit provision mechanisms of the bank for researcher and
other bodies. The researcher will develop knowledge about credit provision system. It will have
an advantage for other researcher by locating hint to work more. Finally the study will forward
some essential Recommendation in the area of credit provision mechanism that will benefit the
bank.
Section VII.5 1.5. Scope of the study
Commercial banks of Ethiopia have many branches. However due to cost and budget constraint
the study delimit to commercial bank of Ethiopia Gondar main branch. The study was focused on
the assessment of credit provision mechanisms specifically commercial bank of Ethiopia Gondar
main branch. The study was used both primary and secondary data. Necessary information had
collected from the response of credit customers of Commercial Bank of Ethiopia Gondar Main
Branch as well as credit manager of the bank (with structured interview) through systematic
sampling.
Section VII.6 1.7. Organization of the study
This research organized three chapters. The first chapter includes background of the study,
statement of problem, back ground of the organization, objective of the study, significance of the
study, scope of the study and limitations of the study. The second part includes literature review,
where the research intends to review research makes on this area, written documents and bank
procedures. The third chapter involves research methodology and research design, target

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 Article VIII. CHAPTER TWO

Article IX. REVIEW OF RELATED LITERATURE

Section IX.1 2.1. Introduction
Loan is the amount of money provided by the bank to the firm or individual investor in acredit
basis to as is repaid in the future ,the interest charged for the use that the money plus the
principal amount. It is the largest source of income for banks unlike security, most bank loan
involves personal relationship banker and borrower (Rosier and miller, 1993) The division of
department reasonable for making recommendation on the fate of most loan applications is the
credit department (Rose and Hudgins, 2008).Loan has three terms which can be classified as
short term, loan agreed to be repaid within one year, medium term loan agreed to be repaid in
one to five years, and loan term loan along agree repaid one to fifteen years. There are different
types of loans including real estate loan residential and non residential mortgages and others real
estate loans, business loans (commercial and industrial loans) and consumer loans (Roger and
miller, 1993).

From bank point of view, loans are less liquid than other assets. unlike securities a loan cannot
be cashed in before it comes due, so the loan has higher default risk than other assets do in
compensation for their lower liquidity and higher risk loan yield the highest rate of return among
bank assets when economic activities strengthen, the ratio of bank loan to total bank asset
increase and bank profile rises (Roger & miller, 1993).

Loan is an amount of money advanced to a borrower, to be repaid at latter date usually

within interest legally A loan is contract between a buyer (borrower) and the seller
(lender), in force able under uniform commercial code in most states the terms and
conditions for Repayment of aloe, including the finance charge, or interest rate, are
specified a loan may be payable on demand (demand loan), in equal monthly Installment
(wiki Answers. Com).
Section IX.2 2.2. Steps in lending process
1. Find prospective loan customer
Most loans to individuals’ arise from direct requests from a customer who approaches a member
of the lenders staff and asks to fill out a loan application. Business loan requests, on the other

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hand, often arise from contract of the loan officers and sales representative makes as they solicit
new account from firms operating in the lenders market area. Increasing the lending Game is
becomes sales position sometimes loan officer will call on the same company for months before
the customer. Finally agree to give the lending institution try by filling out loan application. most
loan department personnel fill out customers contract report when they visit a prospective
customers place of business .This report is updated after each subsequent visit, giving the next
loan officer crucial information about prospective client before any other personal contract is
made (Rose and Hodgin, 2000).
2. Evaluating a prospective customer character & sincerity purpose
Ones a customer request loan, an interview with loan officer usually follows; giving the
customer the opportunity to explain his /her credit needs. That interview is particularly important
because it provides opportunities for the loan officers to assess customers’ character and
sincerity purpose. If a customer lacks sincerity in acknowledging the need to adhere to the terms
of loan this must be recorded as a strong factor weighting against approval of loan request.(Ibid)
3. Making sit visit and evaluating a prospective customer Record
If a business as a mortgage loan is applied for loan officer often makes a sit visit to asses’
customers’ location and conditions of property and ask clarifying questions. The loan officers
may contact other creditors who have provisory loaned money to those customers to see what
their experience has been. Did the customer fully adhere to previous loan agreement and where
require, keep satisfactorily deposit balance? A previous payment record often ravels much about
the customers’ character, sincerity of purpose and sense of responsibility in making use of credit
extended by lender (Ibid).
4. Valuation of prospective customers’ financial conditions
All is favorable to this point, the customer is asked to submit several crucial document the lender
needs in order to fully evaluate loan request including complete financial statements in case a
corporation board of director`s resolution authorizing the negotiation of loan with lender .
5. Assessing possible loan collateral & sinning loan agreement
If loan committee approves customers request the loan officer or the credit committee will
usually check on the property or other assets to be pledged as collateral to insure the bank has
immediate access to collateral or can a quire title to property involved If the loan agreement is
defaulted.

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6. Monitoring compliance with loan agreement & other customer needs
The new agreement must be monitored continuously to insure that the terms of the loan are being
followed and that all required payment of principal and interest are being made are compromised
For larger commercial credits the loan officers will visit the customers business periodically to
check the firm progress and see what other service the customer may need usually officer or
other staff member enters information about new loan customer un a computer file known as
customer profile.(Rose, etal 2008).
Section IX.3 2.3. Loan origination process
1. Application processing
Whenan applicant fills out application form and submit it to a field office the loan originator
must determine whether the application is complete and asks follow up equations needed to
understand the applications situation is enough detail to assess the household’s property status.
(Www. Rank. Funjou ko. Teeriaho/interest. Pdf.com )
2. Borrowers eligibility
Once the application has been selected for processing, the loan originator must make a formal
determination of application eligibility, this involves verifying the household’s income, checking
credit history of all parties to note and reviewing all other eligibility requirements.
(www.ranko.funjouko.teeriaho/interest.pdf.com).
3. Property requirement
Once a house hold has located a home or decided on design of dwelling to be constructed, there
must be provide key information to allow the loan originator to determine whether property is
modest and the agencies’ under writing guide lines. (www.Ranko.Funjouk/interest.pdf.com).
2.4 Types of Loans
(a) 2.4.1 Depend on Purpose
The bank makes variety of loan to wide variety of customers for different purpose. Loan also
may be divided in seven broad categories.
1. Real estate loans: are secured by real property and building and other structure and
include short-term loan for construction and land development and long term wide
variety of customers for different purposes, farm land, apartment, and commercial
structure.

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 2. Financial institution loan: includes credit to banks insurance companies, finance
companies and other financial institutions.
3. Agricultural loans: are extended to farmers and ranchers to assists in planting and
harvesting crops and supporting the feeding and care of livestock.
4. Commercial and industrial loans: are granted to business to cover purchasing
inventories, paying taxes and meeting pay rolls relative to other financial intermediaries
‘banks has cooperative advantage in making business loan. Banks consider business loan
to high priority items. Because of large portion all demand deposits in bank are highly
held by business, banker feel stronger need to accommodate reasonable loan requests
account and maintain a reputation as a reliable source of funds. Many banks extend a lone
of credit then business firm to obtain frequent short-term of loan.
5. Loan to individual or customers: include credit finance the purchase automobiles,
homes, appliance and other retail good to repair and modernize home and to cover the
cost of medical care and other personal expense and are either extended directly to
individuals or indirectly retail dealers.
6. Miscellaneous loans: include all loans not listed above, including securities loans.
7. Lease financing receivables: where the leader buys equipment or vehicle and loses them
to its customers.
Of the loan categories showed, the largest in dollar volume in real estate loans. The next largest
category is commercial and industrial (C&I) loans representing about one fifth of the total
followed by loans to individuals and families accounting for about one sixth of all loans federally
insured bank made (Rose And Hudgins, 2008).
The banker has to carefully examine the purpose for which the advance has been applied for. In
case the advance is intended that cash flows arising from productive activities will result in
prompt repayment. Of course, the banker has to be careful to monitor the exact purposes for
which advance is actually utilized. There is always the possibility that the advance, once granted,
may be diverted for purposes other than that indicated by the borrower at the time of application.
Thus there should be proper provision for effective post credit.
(b) 2.4.2. Based on loan being made
Depending upon the type of loan being made loan includes:
 Initial loans

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  Assumed loans
 Subsequent loans and Non loan
2.4.2.1. Initial loans: are made when neither the application nor the seller has in existing agency
loan.
2.4.2.2. Assumed loan: the terms and conditions of the assumption depend upon the eligibility of
the new purchaser.
(i) 2.4.2.3. Subsequent loans
Subsequent loans can be issued as part of the original purchase of a property in combination with
an assumption or during the term of an agency loan to an existing borrower pay of repair or
improvements to the properly.
Section IX.4 2.5.Credit analysis
(a) 2.5.1. Stages of credit analysis
Credit analysis can be defined as the process of determining the current credit worthiness of loan
applicant and for casting financial and accounting analysis of the current and future activity and
financial situation of the loan applicant in the specific economic environment and expected
changes in the forthcoming periods (Daniel F 2008).

The credit inspector can work out a correct stand during the decision making process about the
credit applied for on the basis of comprehensive credit analysis. The information gathered during
credit analysis. The information gathered during credit analysis. The information gathered during
credit analysis is of great significance to accurate structuring of credit, which would contribute to
lowering the credit risks (Daniel F. 2008) .The stages the credit analyses are as follows:
Collecting and analyzing information about company applying for loan and formulating indicates
about its financial situation, Collect and analyze information about credit events, Assessing the
credit risks, Checking reliability of information , provided by company applying for a loan ,
Preparing analysis of credit risks, Taking decision, Setting the credit term (Daniel F. 2008). The
credit inspector can work out a correct stand during the decision making process about the credit
applied.

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 (b) 2.5.2. 5C’s of credit analysis

(c) The bank should undertake detailed study of the following aspects. Satisfactory for loan
to be a good one form the lender point of view.
1. Character: the loan officer must be convinced the customer has a well defined purpose
for requiting credit and serious attention to repay it the officer is not sure why the
customer is requesting loan, this purpose must be clarified to lenders satisfaction . The
loan officer must determine if the purpose is consistent with the lending institution`s loan
policy.
With a good purpose However the loan officer must determine that the borrower has a
responsible attitude towards using borrowed fund is truth full in answering question and
will make every effort to Repay what is owed Responsibility, truth fullness, serious
purpose and serious intention to repay all movies make what loan officer calls character.
2. Capacity: The loan office must be sure the customer has authority to request loan and the
legal standing to sign a binding loan agreement this customer characteristic is known is
the capacity to borrow money, for example, in most areas a minor (e.g. under age 15 or
21) cannot legally be held responsible for a credit agreement . Thus the lender would
have great difficulty collecting on such loan similarly the loan officer must be sure that
the representative from a corporation asking for credit has proper authority from
company’s board of director to negotiate loan and sign accredit agreement binding the
company to negotiate loan and sign accredit agreement binding the company . This can
be determined by obtaining director authorizing the company to borrow money.
3. Collateral:In assessing the collateral aspect of loan request, the loan officer must ask
does the borrower posses adequate new worth or own enough quality assets to provide
adequate support for loan. The loan officer is particularly sensitive to such features as the
age, condition. And degree of specialization of borrower assets. Technology plays an
important role here three as well. If borrower assets technologically obsolete, they will
have limit value as collaterals because of difficulty of finding a buyer for those assets
should the borrowers in come flatter.
4. Conditions: the loan officer and credit analyst must be aware of recent trades in the
borrower’s line of work or industry and haw changing economic condition might affect
the loan. A loan can be look very good on payer, only to have is value recorded by

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 declining sales income in recession or by high interstate occasioned by inflation. To asses
industry and economic condition most lender maintain file of information news paper
clippings,magazines, articles and research report on the industries represented by their
major borrowing customers.
5. Control: The last factor in assessing borrowers’ credit worthiness status is control. This
factors centers on such questions as whether changes in law and regulation could
adversely the borrower and whether loan request meet the lenders and the regulatory
Authorities’ standards for the loan quality (Gup and kolari, 2005)
Banks term provide financial assistance to meet both the term and long term credit needs of
business and industry short term credit is granted in the form of loans. Cash credit overdraft,
bills disc out and purchase to meet the working capital requirement such credits is usually
meant for a period up to one year long term credit and medium term credit is granted
primarily in the form of term loan to meet fixed needs of business. Such credit is usually for
a period exceed one year. The banker decides permissible limit of credit to be granted and
form in which the same is to be provided. The security, e.g. pledge of hypothecation of
Goods, fixed assets, guarantees etc to be obtained is also provided.

Banks provides credit to both priority sector and non – priority sectors priority sectors
include agriculture, small scale industries, small traders artisans transport and other section of
society Non priority sector includes industries, domestic trade export & import trade, since
nationalization of major commercial banks, there has been greater emphasis on priority
sector . banks also provide medium term loan and long term loan popularly known as term
loan such as loan are guaranteed for setting up of new enterprises management of credit
consist of the following major areas: Framing of rules and regulation for granting credit,
Appraisal of credit proposal, Procedure for sanctioning & disbursing of credit,
Documentation, Follow-up and supervision end use of credit, Recovery of loan and advance
(Gup and kolari, 2005).
Section IX.5 2.6. Accounting information and credit worthiness analysis
Accounting information has the highest relatives hare in total value of this information.
However, is not sufficient. It is necessary to point out range of the needed and sufficient
accounting information for needs of credit analysis. The minim as required number of accounting
reports, presented by the loan applicant is as follows: Accounting balance sheet, Profit and loss

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account, Statements of liability on pervious credit and their serving, Statement of changes in
equity, Statement of cash flow, Audit report on the company’s financial position. To these
accounting documents we can add comparative report on a number of balancing position of loan
applicant. It is recommended that this combative report shows the respective balancing passion
in absolute and value terms. Along these lines a comparative report on the position from the
profit and loss account will be use full, as well as detailed analysis of financial situation of credit
applicant and the tendencies in the development over the last accounting periods (Daniela, 2008).
Section IX.6 2.7.Loan Disbursement

It is the process which comes after loan approval through which to reality of loan is carried out
after verification by the bank if borrowers full fill all requirements. Before disbursing the loan,
credit analysis is important aspects and difficult talk indifferent banks professional employees
should be assigned to make such tasks and the management of banks more than anything should
do in accordance with these Responsible employees’.
Follow up and supervision of borrower is necessary to minimize risk arising from
misappropriation and misuse of borrowed funds. An effective supervision should take care of the
1. End use of fund, first of all the bank should sure that fund lent are used for the purpose of
which they have been lent in case of term loan end use of fund can be insured by disusing
the money directly to supplies of the fixed asset rather than to borrower ensuring proper
end use of capital advances is comparatively difficult.
2. Progress or unit once the borrowing starts production the bank should monitor its sales
and profitability. Inter firm comparison may be made to managerial.
3. Parts ledger accounts care full and consistent what should be kept over barrower account
with the bank?
Security: The banker should ensure the security offered by borrowers is safe and remains
available for repayment of loan. Security may be in fixed asset and Goods should be inspect and
checked every month. Industrial relation and market reports profitability and financial health of
borrower depend on quality of l about relation in his organization similarly market reports about
borrower gives some ideas about his financial position the banker should therefore , keep his
eyes and ears open to get use for choice about borrowers. Effective follow up as well as for
making adequate provision for hand and doubtful debts, the health of advances have to be judge

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well in advance. Once the advance are classified is suitable follow up action can be taken . This
exercise is likely taken to improve the advance portfolio of banks ( Gup and kolar.2005) .
Section IX.7 2.8. Recovery of loan disbursed
1. In order to insure timely of loans and advances banker should take due precautions both at
appraisal stage and after disbursement of loan precaution of appraisal stages:- select borrower
properly, ensure that the projects are visible, make proper assessment of borrowers financial
needs, projects are visible, make proper assessment of borrowers finical needs, fixed are visible ,
make proper assessment of borrowers financial needs, fixed repayment after providing loan
consumption etc. After disbursement of loan the banker should carry out effective follow –up
and supervision.
Section IX.8 2.9.Credit evaluation process
Bankers do not want to make loan to borrowers who cannot repay them. Therefore, prior making
loan banks evaluate the credit risk of prospective borrowers and ability to pay loans. The
traditional method involves financial analysis of balance sheet and income statement. However
the use of credit score for all types of loans (e.g. commercial .consumers, mortgages) has become
following.
increasingly popular while bank credit department usually do their own financial analysis, credit
scores are provided by variety of vender.

Credit scoring is the use of statistical, operational research, and data mining models to determine
credit risk of prospective borrowers. The credit score is an umber calculated by credit bureau or
another credit score that is used in making credit decision and for other purposes.

Guidance states that credit scoring method can be used for controlling credit selection, managing
credit losses, evaluating that existing criteria are sound and consistently applied; improving
profitability. The major advantage of using credit scoring models are that they reduce the cost of
evaluating credit and increase speed, consistency and accuracy of credit decision. Credit scoring
technologies are used to asses risk adjusted profitability of accounts ship for delinquency
intervention, for Fraud detection, and other purpose. This is widely used in making consumer
loans, home mortgage loan and some commercial loans (Gup and k olar, 2005).

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 Article X. CHAPTR THREE

Article XI. RESEARCH DESIGN AND METHODOLOGY

Section XI.1 3.1. Research Design
Research design is the blueprint or plan of the research to answer the research question. The
design is preferred because it is an appropriate choice to answer the research questions. In this
research, descriptive research design involving both quantitative and qualitative techniques to
collect and analyze data necessary for the study will be employed. The reason why the researcher
will be selected quantitative and qualitative method more convenient either of them to gathers
and analyze the data. The quantitative method is important to analyze the close-ended items
whereas the qualitative method is important to analyze the open-ended itemsto answer the
research questions.According to Creswell (1994), a mixed method design seems more
convenient than quantitative or qualitative method alone. These techniques will be chosen
because they can provide information.
3.2. The study Area
The study area of this study is in Gondar at Commercial Bank of Ethiopia.
Section XI.2 3.3. Target population
The target populations of the study are credit customers and credit manager of commercial bank
of Ethiopia in Gondar Main Branch.
Section XI.3 3.4. Method of sampling
Sample selection method is the basic for quality of research .It can select by considering the
nature and scope of the subject matter to study population. Hence the researcher will be used
non-probability sampling. The main reason that the researcher will be used systematic sampling
method.
Section XI.4 3.5. Sample size
From the target population of 1000 credit customers, the researcher will be selected60 customers
as sample size by using systematic sampling why because most of credit customers are request
credit for similar purpose.
3.6. Data Collection Tools
Two different instruments such as questionnaire and interview will be employed to collect data
from credit customers and credit manager at CBE.

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The first part of the questionnaire included items which are based on customers’ personal
background. The second part of the questionnaire includes5 items which are related to loan
requested by customer. The third part of questionnaire consists of 1item which is focused on
satisfaction of customers. Thus, customers arealso required to indicate the Yes or No. The fourth
part of the questionnaire consists of 1item which is used to investigate getting loan request.
Therefore, respondents will be asked to Yes or No.The fifth part of the questionnaire has 1 items
pertaining to consultancy service. The sixth part of the questionnaire consists 1 items which are
based on repayment loan.

The seventh partwhich has 3items asks customers to obtain customers loans approved in the
year. Regarding customer, after gathering the sample respondents, the researcher will be
distributed the questionnaire and read them through the cover page of the questionnaire with the
respondents and explained the objective of the study.

Here, generally, Likert scale is the most widely will be used Yes or No answer in survey research
because when responding to a Likert questionnaire item, respondents specify their level of Yes
or No answer.
“The questionnaire was adapted from the scholar Schmitt (1997).

(i) 3.6.2. Interview

Another instrument that the researcher will be employed to gather data is interview. The
researcher will be used interview to get relevant information from the credit customers and credit
manager. Roger (1997) clearly emphasizes the importance of interview as it is the most flexible
means of obtaining information. The researcher used both structured and unstructured interview.
Structured interview consists of a series of pre-determined questions. All interviewees will be
answered in the same order. The questions can be closed-ended and open-ended
questions.Therefore, the intervieweesare interviewed with both structured. Ten items of
interview questions will be prepared for five interviewees. The procedure of interviewing will be
held through note taking while the interviewee is explaining his/ her ideas.
(b) 3.6.3. Documents
The researcher will be used different sources of data tools like credit manual and annual report of
the bank.
3.7. Data Collection Procedure
19
To conduct the study, after preparing the adapted questionnaire, the researcher will be contacted
the bank director and explains the purpose of the study before conducting it. Next, he will be
requested the permission for conducting the research at the school. After the permission is
offered, the researcher will be given pilot study for 30 non-sample students in order to check the
instruments are strong enough to generate the kind of data the study wants.

To see the validity of the questionnaire, the researcher will be employed expertise comments.
Therefore, the questionnaire will be given to the experienced person for their professional
judgments. And then they will suggest the researcher on some item to modify. Eventually, the
questionnaire will be distributed for the participants. When collecting data, first, the data will be
collected from students using questionnaire. Next, the interview willbe conducted. Finally, the
data will be collected from respondents.
3.8. Methods of Data Analysis
After the completion of the data collection through questionnaire and interview, the information
will be gathered edited, classified and tabulated. Next, the data analysis will be carried out
through the quantitative and qualitative method.The data is obtained from questionnaire will be
organized into tabulated subcategories. Each subcategories is tabulated under each rating and
frequency scales. Thus, the data that are gathered through close-ended questions are analyzed
quantitatively using percentage while the data will be collected through open-ended questions are
analyzed qualitatively. The qualitative data will be analyzed in a narrative form. Finally, the data
that are gathered from credit customer through questionnaire and interview are analyzed,
interpreted, discussed and reported accordingly.Based on the findings of the research, conclusion
and recommendations will be given.

20
 CHAPTER FOUR

TIME AND BUDGET SCHEDULE

Research time table is a table which the researcher will follows while doing research. Its detail is
presented in table in the following tabular form.

4.1Time plan
In order to manage the overall research process, it will need time plan. The table given below shows that
the time that will be taken from topic selection to final presentation.

NO Activities Oct Nov Dec Jan Feb Mar Apr May June

1 Title selection Xx
2 Preparation of xx
research proposal

3 Recommendation xx
of comments to1st
draft of the
proposal

4 Preparation of xx
final proposal

5 Collection of xx
proposal

6 Data collection xx

7 Data analysis Xx xx

8 Submission of 1st xx
draft research
report comment

9 Typing final report xx

10 Submission of final XX xx
report

11 presentation XX xx

4.2 Budget Schedule

21
In order to undertake the research process, it is necessary to prepare
cost/economic/financial budget. The table given below shows the cost that is
expected will be incurred in the research process.

Item description Quantity Unit cost in birr Total cost in birr

Transport 500km 400 900
Paper 120 0.50 60
Pen 4 40 40
Flash 1 200 200
Writer 25 page 2.0 50
Print 22 page 1.50 330
Miscellaneous 200
CD Copy 1CD 25 25
Contingence 200
Total project cost 2005

22
 Article XII. References
Coyle, Brain. (2002). Bank Finance , Financial WorldPpublishing , Uk.

Daniela F.(2008). Analysis of Credit Worthiness of Bank Loan Application Bulgaria

Gup, E Benton and kolari W, James. (2005). Commercial Banking (3 rd edition printed)and
Boundary Replica Pressput …Ltd India

Rose, Speter and Hudgins,C. Sylvia.(92008). Bank on Management and Financial Service (7 th
edition) MCGROW –HILL companies inc.

Royer Leory and Miler David Van Hose. (1993). Modern Moneg and Banking (3rd edition) New
World mc Grow –Hill companies inc.

Shekar, k c. (2005). Banking Theory and Practice (9th edition), Vikas Publishing Hause Put elfd,
New Delhi.

(www.rank .funjouko.teeriaho/interest.pdf.com).

(www.ANSWERS.com).

23
 Article XIII. APPENDIX-I
JIMMA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF BANKING AND FINANCE

Structured interview for banks credit manager

Dear respondent:

The purpose of this study to, assess the credit provision mechanism on commercial Bank of
Ethiopia in case of Jimma main branch. So you have to know the successfulness of our Research
is based on your response to structured interviews. We hope fully expect that your response is
carful and appropriate. Great full thanks for your response.

General (personal) information

1. Sex male □ Female □

2. Age under 25 □ 25-35 □ 36-50 □ 51-60 □
3. Marital status married □ single □ divorce □ widowed □ separate not divorced □
4. Education status Diploma □ first degree □ master & above □
Specific information
1. What type of loan available in your bank?

2. Is three the mechanism to lend of requested money? Yes □ No □

2.1 If your answer is “yes” please specify the reason ___________________________

24
 ____________________________________________________________________________
______________________________________________________________________________
___________________________________________________________________________
3. Is there the factor take into consideration by the bank before granting loan? Yes □ No
□ If yes what they are?

______________________________________________________________________________
______________________________________________________________________________
_____________________________________________________________________________

4. What kinds of securities are accepted by the bank?

______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________

5. For what types of loan do you providing more money?

Agricultural loan □ manufacturing loan □

Consumption loan □ others please specify □

Domestic trade Disservice loan □

5.1 Why you advance more money for these types of loan? Please pacify

6. Are the number of credit customer increase or decrease?

Yes □ no □

6.1 If your answer is yes please specify the reason.

______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________

7. How can you follow up and supper vise your credit customer?

______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________

8. Is there any problem faced by the bank relating to existing credit provision mechanism?

25
Yes □ No □

8.1 If your answer is yes what are these problems?

______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________

8.2 What measures are taken by the bank to solve this problem?

______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________

9. Who are the stake holders of the problem?

______________________________________________________________________________
______________________________________________________________________________

10. What do you recommend the above problem?

______________________________________________________________________________
______________________________________________________________________________

26
 Article XIV. APPENDEX-II
JIMMA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS DEPARTMENT OF ACCOUNTING AND

FINANCE QUESTIONNAIRES FOR CREDIT CUSTOMER.

Dear respondent

The purpose of this Questionnaire is to collect information from credit customer of commercial
bank of Ethiopia Jimma main branch for research purpose, so believe that there is nothing behind
the study and all your response will be confidential. Hence, you are kindly requested to fill the
questionnaire give below. We are great full and forward our thanks for what you are going to do.

Direction

 No need to write your name

 Kindly request you to answer by marking (x)or writing when ever appropriate.

General (personal) information

1. Sex male □ female □

2. Age und 25-35 □ 36-50 □ 51-60 above 60 □
3. Marital status married □ single □ divorce □ widowed □separated not divorced □
4. Educational status illiterate □ bellow 12 □ diploma □ first degree □ second degree
and above □
Occupation status; business □ professional □ agriculture □ government employee □
Private organization employed □ daily laborer □ other □
Specific information

5. For what purpose do you request loan?

Agriculture □ domestic trade and service loan □

Consumption loan □ Manu featuring loan □

Others □

6.1if other please specify ________________________________________________

7. Do you get enough amount of fund you request from bank?

Yes □ No □ If no why ___________________________

27
8. In General are you satisfied with the overall credit provision mechanism of the bank?

8.1 If your answer is not please specify the reason

______________________________________________________________________________
______________________________________________________________________________

9. Do you get consultancy service from bank as how to invest in profitable area of business?

Yes □ No □

9.1 If no why
___________________________________________________________________

10. Do you repay the loan as per credit period? Yes □ No □

10.1 If your answer is no why

______________________________________________________________________________
______________________________________________________________________________

11. Does the bank continuously follow –up and supervise your activities? Yes □ No □

If your answer is no please specify the reason

______________________________________________________________________________
______________________________________________________________________________
12. Is there any problem on credit provision mechanism of bank?

Yes □ no □ if yes why _____________________________

13. Who are stake holders of the problem?

______________________________________________________________________________
14. What do you recommend for the above problem?
______________________________________________________________________________
______________________________________________________________________

28