AKSUM UNIVERSITY

COLLEGE OF BUSSINES AND ECONOMICS

DEPARTMENT OF MANAGEMENT

A research proposal on the assessment of credit Management

system in case of Abyssinia Bank Aksum branch.

Submitted to the Department of Management in partial fulfillment

of the Requirement for the awards of BA degree in Management

Prepared by: Temesgen Tsega

Advisor Name: MR Mulu

Aksum, Ethiopia

January 2009E.C

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 Table of content

Content page

1. Introduction...........................................................................................................................1

1.1. Back ground of the study..........................................................................................................1

1.2 Statement of the problem.......................................................................................................... 2

1.3 Research question..................................................................................................................... 2

1.4 objective of the study................................................................................................................ 3

1.4.1 General objective................................................................................................................. 3

1.4.2 Specific objective..................................................................................................................3

1.5 significance of the study......................................................................... .................................3

1.6 scope of the study.......................................................................................... ...........................3

1.7 research methodology………………………………………………………......................….3

1.7.1 Research approach and type................................................................... ...............................

1.7.2 research design………………………………………………………………

1.7.3 Size of population..........................................................................................

1.7.4 Sample size ………………………………………………………………………..

1.7.5Source of data collection............................................................................................

1.7.6Method of data analysis...........................................................................................

1.7 limitation f the study.................................................................................................4

1.8 organization of the study........................................................................................4

2. Literature review……..........................................................4
2.1 introductions......................................................................................................4

2.2 local governments.......................................................................................4

2.2.1 Definition of local government............................................................5

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 2.2.2 Characteristics of local government....................................................6

2.2.3 Structure of local government.............................................................6

2.2.4. Role of local government.....................................................................7

2.2.4.1 Political role......................................................................................7

2.2.4.2 Socio economic role..........................................................................7

2.2 5 power and function of local government................................................8

2.2.6 Key challenges of local government.....................................................9

2.2.7 Local government and public service delivery......................................9

2.2.8 Public service delivery...........................................................................10.

2.2.9 Partnership of local government service delivery...................................10

2.3. Local governments in developing country....................................................10

2.4. Local government institutions in Ethiopia....................................................10

2.5 .definition of municipality...............................................................................11

2.5.1 The role of municipality.............................................................................11

2.6.Public health in Ethiopia...................................................................................11.

2.6.1 Health sector strategy.................................................................................12

2.6.2 Major component of health sector strategy.................................................12

2.6.3 Health service coverage...............................................................................12

2.6.4 Health status indicator..................................................................................13

2.6.5Health service quality.....................................................................................13

2.6.6 Health service utilization...............................................................................13

2.6.7 Health and related policy................................................................................13

2.6.8 Health system financing.................................................................................14

2.6.9 Re organization of health service....................................................................14

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 2.6.10 description of the area of the study.............................................................. 15

Table of contents

Contents
Table of contents..........................................................................................................................................i

1.1. Back ground of the study.............................................................................................................1

1.2. Statement of the problem.............................................................................................................2

1.3. Research question........................................................................................................................3

1.4. Objective of the study..................................................................................................................3

1.4.1. General objective.................................................................................................................3

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 1.4.2. Specific objective.................................................................................................................3

1.5. Significance of the study..............................................................................................................3

1.6. Scope of the study........................................................................................................................4

1.7. Back ground of the bank..............................................................................................................4

1.8. Limitations of the study...............................................................................................................5

1.9. Organization of the paper............................................................................................................5

3.1. Research design................................................................................................................................6

3.2. Source of data collection..................................................................................................................6

3.3. Method of data collection.................................................................................................................6

3.4. Population and sampling design.......................................................................................................6

3.5. Sample size.......................................................................................................................................6

3.6. Data analysis and interpretation........................................................................................................7

2. Literature review.................................................................................................................................8

2.1. Definition of credit management.................................................................................................8

2.2. Classification of loans (Types of banks loans).............................................................................9

2.3. Types of extending credit management.......................................................................................9

2.4. Characteristics of saving and credit...........................................................................................10

2.4.1. The role of credit in our economy......................................................................................11

2.4.2. Why use credit?.................................................................................................................11

2.4.3. Aspects of credit policy administration..............................................................................12

2.5. Credit standards.........................................................................................................................12

2.5.1. Credit Terms......................................................................................................................12

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 2.6. Collection policy........................................................................................................................13

2.7. Steps in credit Evaluation management system.........................................................................14

2.8. Time and Budget schedule.........................................................................................................16

The time schedule......................................................................................................................................16

The Budget cost Schedule.........................................................................................................................17

Reference...................................................................................................................................................18

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1.1. Back ground of the study
Banks are financial institution that are deposits and lend the deposited money to
those who were it. They mobilize the idea capital of the national and make it
available for productive purpose. The bank lends money in different forms.

They can be either secured or un secured, cash credits, loan and advances and
discounting bill of exchange, by accepting deposits and lending money the banks
not only act as inter me diary between the depositors and borrowing business men
but they also create additional purchasing poser. There are creation of credit is an
important function of commercial banks (Gomez, 2008).

A credits a medium of limited acceptance, credit acts as a medium of exchange by

facilitating the passage of goods or service from seller to buyer just like money,
credit is a familiar social invention that we use freely. As a result it essential for
individual customer retailer’s service business operation. Whole sealers,
manufactures, financial executives and government officials to have a clear
understanding of what credit is what it does what it cannot do to help meet this
challenges it is necessary to examine the current role of credit. Look at the changes
in the radios types of credit plan and the factors that encourage in habit growth
identify the social and economical service by credit and how these good can best
be reached by industry and government. (Roberty H.1960).

The primary operation or function of banks is to accept deposits from its clients
supply units and granting credit to the difficulties. The major sources of income is
income generate from granting credits from various individuals and companies,
they more bank gives credit the higher will be its profits, and higher will be the
difficult risk which may lead to the bank liquidity. (Gomez, 2008).

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 The main purpose of the study will be to assess the credit management system of
Abyssinia bank which helps the bank to identify the weakness and strength for
decision making purpose of the book, executives.

1.2. Statement of the problem

The main aim of credit society or credit management it should be remember is to
encourage thirty by offering a simple for motivate investment. in urban centers
workers may be persuaded to make regular deposit at the credit union on pay day
where the members are an employed in the same office or factory such as saving
may be made in the form of an automatic deduction from the pay charges of those
who can be persuaded to enroll in the credit union plan among rural workers and
famers where incomes sportier, regular deposits are less and easily arranged and
must be encouraged by other means such as member education programs but such
society have another important function which is to make loans to their members
primarily in order to provide them with the capital needed to run their own
members primarily in order to provide them with the capital needed turn their own
farms, works hops or fishing loans (ILO,1998).

Abyssinia Bank is it is one of credit institution generate much of its income from
the loan it grant to various economic unit. The un collectible risk associated. This
risk caused by the absence of sound credit policy, lack of effective credits system,
supervision and evaluation and failure to use effective collection instrument, and
poor following and collection effort, the interpretation of the statement financial
or operational customer selection and in approval of loan the risk associated with
bad debts, delayed management action and decision, an increase in the amount of
or rears and available repayment rate having these problem, the institution is un
able to collect its receivable that was not collected. (Credit manual of Abyssinia
credit institution (2003) Mega printing Enterprise/

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 The banks make continuous assessment on its credit management system and
improve the way management. it will be inevitability its credit customer proudly.
The research is interested in identifying the possible reasons. for in effectiveness
credit management system of the bank. Aksum branch.

1.3. Research question

- How the bank mange the credit after granting?

- What looks like the credit management system of the branch?

- What are the factors that affect the credit management system?

- What mechanisms was take by the branch to reduce non performing loans?

1.4. Objective of the study

1.4.1. General objective

The overall objectives of the study to assess the credit management system
of Abyssinia bank Aksum branch.

1.4.2. Specific objective

 To identify the factor affecting credit managements system of the
branch.

 To assess the credit policies and procedures followed by the bank

 To assess the mechanism taken by the branch to reduce non performing

loans.

 To assess the credit management system of the branch.

1.5. Significance of the study

After conducting this study have the following benefit contribute to Abyssinia
bank to identify its weakness and strength of credit management system for
decision making. To maintain healthy loans and to decrees risk arising out of their
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 default. The study was several references for other researchers who studies in this
area and also partial fulfillment of BA degree in one of the most significance.

1.6. Scope of the study

This study was focuses on the following areas. The study was deals with only on
Abyssinia bank Aksum branch.

The researchers cover the recent two years (2008-2099E.C).

Secondary source as a reference because of lack of both primary and secondary

sources of data from the past.

1.7. Back ground of the bank

Abyssinia bank is one of Ethiopian bank. the bank was established on the
agreement operation in 1923. Share holders of the bank of Ethiopia were the
emperor and the political elitism of the time. The bank was authorized to combine
the function of central banking and commercial banking. It has also 200 branches
in Ethiopia. Aksum branch is one of in Tigray Aksum town.

Aksum is found from its capital city of Addis Ababa in distance of 1024km.
Abyssinia bank Aksum branch started April, 9,2005E.C. Today the bank has 18
employer and around 3000 customers.

The bank gives did rent services like customer deposit its account, loan account,
international banks service, foreign exchange service, local and international
money transfer.

The new vision, mission, and values of Bank of Abyssinia

vision.

To be the bank of choice for customers, employees and share holders

mission.

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 To provide customer focused financial services through competent motivated
employees and modern technology in order to maximize value to all stake holders.

Values.

Putting customer first, being honest and accountable, committed to excellence

working a stand, caring for our community.

1.8. Limitations of the study

Therefore, some factors that hinder to properly conducting this research.

- Lack of access data

- Shortage of time

- Lack of support (money, moral and the community)

- Lack of experience

1.9. Organization of the paper

This paper would be organized in to five chapters. the first chapter deal with the
major content of the study which include back ground of the study, statement of
the problems, basic research question, objective of the study, significance of the
study, scope of the study, limitation of the study and organization of the paper the
second chapter would deal with review of related literature the third chapter would
deal with methodology of the research methods used to collect data and analysis
will deal in chapter three analysis of questionnaire was deal in fourth chapter and
conclusion and possible recommendation were include in chapter five.

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3.1. Research design
For the purpose of this study the researcher designing terms of time cover age in 2009E.C the
researcher will be used descriptive type of study because it describes the nature and existing
solution regarding the study was conduct and quantities method use in the research design
because of the research design like researcher was use tabulation, percentage and in the form of
the assessment of credit management system in case of Abyssinia bank Aksum branch. The
researcher was used cross sectional time because the study will be finished in one year.

In this study primary data was taken as sources of data.

3.2. Source of data collection

To accomplish this study both primary and secondary data sources was used employee primary
data is more important data connection tools used in this study questionnaires both open and
closed ended but also interview structure and unstructured as a necessary.

3.3. Method of data collection

The primary data was collected through questionnaires distributed to employee and credit
customer of Abyssinia bank Aksum branch.

3.4. Population and sampling design

Since There are 1 employees in the bank. therefore the researcher was used causes to obtain data
from employees. hence it will be patter information obtain data from all employees but the
customer form the bank 3000 population the researcher is going to use random sampling
techniques.

3.5. Sample size

The researcher will take sample size 96 from the while population by suing the formula.

- To determine the sample size the researcher will use the following formula provided
by Yemane (1967).

N
= E=10 %
1+N ( e )2

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 3000
1+3000 ( 0. 1 )2
3000
n=
1+30
3000
n= =96
31

3.6. Data analysis and interpretation

The data for this particular study analyze by suing descriptive and statistically tools like
percentage table. After completion of analysis and interpretation of data summary of the finding
and recommendation were made.

2. Literature review
2.1. Definition of credit management
The word credit has been defined in many ways and by many writers. But many of the
proposed definitions are simply descriptions of credit it self ie,.

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Credit is the provision of money or goods and services in respect of which payment or
repayment will be made at a later data. this later payment is the most important element;
and a distinction should therefore, be drawn between the provision of credit and other
forms of providing service, and assistance to small formers through agricultural advisory
services, subsides or the making available of seeds or fertilizer at no cost (Dooren, 1986).

Credit is a contractual agreement in which a borrower receives some thing of value now
and agrees to repay the lender at some later date. when a consumer purchases some thing
using credit card, they are buying on credit (receiving the item at that time. and playing
back the credit card company month by month). Any time when an individual finances
some thing with a loan (such as an automobiles or houses), they are suing credit in that
situations we (web finance Inco, 2013).

According to sun dram (2007), credit can define as credit is a crucial input helping the
rural poor in raising their incomes. As most farmers are small, they tend to borrow
substantial finance from different sources to improve their agricultural output.

The word credit has been driven from Latin word of credit called credo which minas I
believe or I trust which signifies a trust or confidence in some body in economics it is
interpreted to mean, in the some sense trusting in the solvency of a person or making a
payment to a person to receive it back after some time or lending of money and enjoy the
confidence of the other with this back ground of the term (Van dooren, 1982).

Proff coledefine credit as a purchasing power not derived from income but created by
financial institution either as an off set to idle income held by depositories in the bank or
as net addition to the total amount or purchasing power. Poff.Gide (2002). Define credit
as an exchange which is complete after the expiry of a certain period of time. Kindly
credit means the power which one person ahs to introduce on other to put economic
goods at this disposal for a time on promise or future payment. credit is thus an attribute
or power of the borrower. profit Thomas the term credit is now applied to that belief in
man probability and which will permits of his being entrusted with some things of value
belonging to another weather that something consists of money, goods and service or
even credit itself as and when one money encrust the use of his good name and reputation

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 on the basis of above definition. It can be said that credit is an exchange function in
which saver and creditor give somebody or money to the debtor with abele if that after
some time she or he will return it. In other work trust is credit. (Chandra, 2001).

2.2. Classification of loans (Types of banks loans)

In the practice of banking and fiancé, loan is a sum of money borrowed at interest for a
specified period of time. Classifications of loan refers to the process bank use review
their relevant characteristics of the loans. Loans are in terms of the kind if lender or
borrower, security maturity, and repayment. In terms of the kind of leader or borrower
loans are not applicable in Abyssinia credit institution except that of personal loan. This
is not meaning to say that all other classifications are applicable an Abyssinia credit and
saving institution but most of them are applicable either directly or indirectly i,e; in terms
of security a collateral loan and un secured loan in terms of maturity a short term and
loan. definition for the common loan classification are (Marquis, 2005).

2.3. Types of extending credit management

The modern transaction saving and credit constitutes un important role in loan or credit
transaction over wide range of activities. These may be classified on various base;
According to terms; when the credit members the extending on the predetermined
repayment period it is termed as saving and credit. On the basis offer credit may be
classified as call credit it not a routine category of credit but when the credit is sanctioned
froe very short or long period may be either few days or few weeks. Short term loans are
needed for the purpose activities of business and the need of cooperative societies. the
period for such type of loan is not exceeding one year and the other term of loan are
medium and long term of credit to determine by the cooperative by laws (Warren, 1195).

According to objective; the credit for and the debtor mutually decide as for what purpose
credit while be used. On this basis credit may be classified as follows. productive loan
and un productive loan. Productive loan is the credit taken for the purpose of carrying on
production activities with a view non productive loan to augmenting in come. it may be
needed to create some fixed asset in business.

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 According to source according to sources credit may be classified as follows. individual
credit service provide by on individual to another individual is known as individual
credit. This type of credit is normally provided by relatives, friends and money saver and
lender cooperative societies, business credit provided for business purpose that is
financing manufacture and marketing of goods. The goods and service sold out by whole
sever to consumer or retailer is called business credit for example micro and small
enterprise as a group development. Institutional credit is the credit service extended by
saving and credit instruction is known as institutional credit (Saburrai;, 2005).

2.4. Characteristics of saving and credit

In extending saving solving and credit to an individual or to business enterprise there are
some elements of saving and that have prime importance. The following are the
important characterizes of or elements of saving and credit (ILo,1998).

Confidence the essential basis of extending credit confidence the person needs to have
confidence on the debtor.

Confidence: The essential basis of extending credit is confidence the person needs to
have confidence on the debtor.

Capacity: there must be confidence in the borrower capacity to pay. The credit or must
satisfy him with regards to paying capacity and ability of the debtor before extending
credit his reputation for ability based up on creating personal qualities, training and
successful experience given reasonable assurance that we will happy opiates time acquire
them means with which to repay the loan.

Good will: good will of creditors also matters in extending credit if a person has
reputation of repaying his out standing in time he will be able to obtain credit with out
any difficulty.

Security: the saver and leader should property ensure before extending credit as weather
the debtor has proper securities or not the availability of saving and credit to parson
depends property and assets possessed by him. if the borrower issue successfully business
man. he or she are usually in opposition to save and borrow adequate credit (FAO,1998).

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2.4.1. The role of credit in our economy
There is no question that credit can provide as other flow of money through an
economy to ensure that periodic starts and stops are not affected b variations in
the cash flow. this is particularly important to ensure smooth operation in may
companies as well as for individuals. (Adam, 20090.

Credit plays a vital role in business finance. a major portion of the capital,
particular short term capital, credit used with the two senses. one of them that
credit is a loan, a current advance against future repayment. credits also used to
mean the credits statandaring of the borrower. every economy charge rived by
specialization and interdependent in labor and industry be it primitive, capitalist
or communist depends on a for the transfer of un used purchasing power may be
useful (Baneriee. 1964).

2.4.2. Why use credit?

The reasons people borrow are varied and personal loans allow your obtain goods
and services to day such as homes and automobiles, and spread the cost over time
this makes these purchases more affordable than they might other wise be, many
people who have build up their saving use loans instead because they consider
rebuilding their savings more difficult than repaying the loan. may people who
already have because it is more convent and safer than using cash or check. They
just pay the full balance when the bill comes (University Federal credit union,
2005).

2.4.3. Aspects of credit policy administration

There are three important components credit policy variables of each institution
such as: credit standard, credit terms, (terms of Trade) and collection policy.

2.5. Credit standards

Credits standards are the guidelines issued by accompany that are used to determine if a
potential borrowers is credit worthy. credit standards are often created after careful
analysis of post borrower and market conditions, and are designed to limit the risk of

16
 power not marking credit payments or defaulting on loaned money (Web finance in co,
2013).

Credit is manager base their evaluation of risks in extending credit on their assessment of
credit standards the quality of customer can be summarized by the “fives” of credit
character, capacity, conditions, capital and collateral criteria are applicable in the
Abyssinia saving and credit institutions customer to assess risk and control. Thus fives of
credit are discuses as follow.

- Character: is the willingness to pay its obligation.

- Capacity: the general economic circumstance of the firm or indicidual.

- Capital: Reefers to the customers financial responses

- Collateral: is any asset that is pledged against the debt. Thus fives of credit defined by
Meyer (1994) in above.

2.5.1. Credit Terms

Credit terms are standard and negotiated terms offered by a seller to a buyer that
control; the monthly and total credit amount, maximum time allowed for
repayment, discount for cash or early payment the among or rate of late payment
penalty (web finance in co, 2013).

2.6. Collection policy

Collection policy is a procedure a firm follows in attempting to collect accounts receivables. The
steps that a company follows in ensuring timely payment of its account receivables (Farley
Financial dictionary, 2012).

Collection policy or selection criteria are a statements of the institutions proorites as they apply
to the acquisition of new materials. collection policy guide the process of collection development
it is crier written glide lines that self the terms and conditions for supplying goods on credit,
customer qualificaitoncriteria and procedures for making collections (Harvey, 2012). The firm
determines its over all collection policy by the combination of collection procedures it under

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taxes. These procedures in clued telephoning customers, sending a letter, resending the invoice,
some times paying a person a visit, and legal action (Zewdu, 1998). This collection procedures
are applicable credit sales but not applicable in Abyssinia saving and credit institution except for
the legal action.

According to Zewdu (1998). this collection procedures are applicable credit sales but not
applicable in Abyssinia saving and credit institution except for the legal action.

According to Zewdu (1998), there is a number of qualitative measures may be applied to the
credit department of the firm, These are:

a) Average collection period: Accountants receivable due daily credit sales an

increase in the average collection period may be the result of predetermined
plan to extend credit terms of the consequence of poor credit administration.

b) Ration of bad debts to credit sales an increasing ration may indicate to many
weak account or an agrees market expansion policy.

c) Ageing of accounts receivables.

Whether the customers are paying their loans with the specified period or not age in got account
receivable is one mechanism in a collection policy. even through ageing of accounts receivable is
not applicable in Abyssinia saving credit institution, but it is applicable in most credit sale firms.

2.7. Steps in credit Evaluation management system

For effective credit system every institution should the principle puides and procedures for
printing credits to individual customers and collecting the individual accouts. according money
(2000), credit evaluation is the process a business or an individual must of through to become
eligible for loan or to pay for goods and services over one extended period. it also refers to the
process business or lenders under take when evaluating are request for credit collection
procedures differ from customer to customer, the firms should follow different treatments to each
customer for the extension of credit. The credit evaluation procedure of individual account
should involve the following stpes. credit information, investigation, analysis, limits and
collection procedures.

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Credit information:- is information about a person or company’s ability to pay debt, examined
especially by banks before they decide to leaned many. it also means that customer to extend
credit, which institution would ensure that receivable in full and on the due date the institution
should not fall in assessing three information science failing on it in curs addition cost by itself
collecting credit information involves expenses (usually called cost and time)(Credit information
Appril20,2013).

Credit investigation: is appraisal of a prospective borrowers ability and willingness to repay loan,
carried out by a credit analysis. before approving loan, a lender may applicants credit report, and
also verifies the applicant’s salary with his/her employer (Borron’s Educational series Inco,
2006)

Credit analysis: is the method of by which one calculates the credit worthiness of a business
organization. In other words, it is the evaluation of the ability of a company to honor it financial
obligation. The audited financial statements of a large company might be analyzed when it issues
or renewing a commercial loan. Rations should be calculated to determine the customers
branches and sub ranches do not calculate there analysis of each customer and even to the rations
of sub branches. so ratio analysis of Abyssinia saving credit institution branches as not been
competed (Simkovic and kaminetykey, 1010).

Credit limit: is the minimum and maximum amount or period to extend credit to the applicants of
the institution (we finance. www.com).

Collection procedure: is delayed statement of steps to be taken regarding when and how the past
due amount rate to recounts it is laid down usually in credit policy (web fiancé in co 2013).

Chapter four

Discussion and analysis

The respondent of the questioner are not be given response properly. Because of respondents are
careless and involenter.This study are analyzed and make recommendations from 96 sample size and 80

19
questionnaires are returned back. Total existing customers and employees of the bank 16 respectively.
The data to be presented and analyzed in mainly primary data gathered through questionnaires.

4.1 analysis of employee respondent

Personal/demographic information

Table 4.1 sex distribution of respondents

Sex Number of respondents Percent

Male 12 75

Female 4 25
Total 16 100
Source: own survey (2009)

As can be seen in the table the sex distribution of respondent 12(75%) of respondents are male and
4(25%) are female. So we can understand that the most work run by male employees.

Table 4.2 age distribution of the respondent

Age In no In percent
18-25 10 62.5
26-35 4 25
36-45 2 12.5
Above 46 0 0
Total 16 100
Source: own survey (2009)

From the age distribution shows in the table 10(62.5%) are under the age of 18-25, 4(25%) are 26-35,
2(12.5%) are 36-45.this indicates that the majority of respondent are young age group.

Table 4.3 educational level

Item In no In percent
Certificate 0 0
Diploma 2 12.5

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Degree 12 75
Master 2 12.5
Total 16 100
Source: own survey

As can be from the above table 2(12.5%) are diploma holder, 12(75%) are degree, and the
remaining 2(12.5%) are master holders. Therefore these shows educational levels of the
employee are degree holders.

Table 4.4 work experience: in this organization

Item In no In percent
1-2 4 25
3-5 10 62.5
6-10 2 12.5
Above 10 0 0
Total 16 100
Source: own survey

As can see from the above table 4(25%) are 1-2, 10(62.5%) are 3-5, and the remaining 2(12.5%)
are 6-10 year of experience and there is no above 10 years experience.

Question related to the study

Table 4.5 factors that affect lending and saving activity of the bank?

This part deals with the response of employee respondents to the factor that affect lending and
saving activity of Abyssinia Aksum branch?

In no In percent
Yes 9 56.25
No 7 43.75
Total 16 100

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Source: own survey

As presented from the above table 4.5 from the total number of respondent 9(56.25%) are said
yes and 7(43.75%) are no. this shows that the majority of the respondents are said traditional
cultural and religion of the peoples are affect lending and saving activity.

Table 4.6 the main factors of lending

Item In no In percent
Weeding 8 50
Teskar 4 25
Funeral system 2 12.5
Religion holiday 2 12.5
Total 16 100
Source: own survey

According to the above table total number of respondent wear asked accordingly 8(50%) are
weeding 42(25%) are teskar, 2(12.5%) are funeral system and the remaining 2(12.5%) are said
religion holiday. Therefore weeding is major factors that affect lending and saving activity.

Table 4.7 does the bank motivate the borrower to pay loan on time?

Item In no In percent
Yes 11 68.75
No 5 31.25
Total 16 100
Source: own survey

According to the above table 4.7 the total number respondent wear asked accordingly,
11)68.75%) are depicted that bank is motivated the borrower to pay on time and 5(31.25%) are
said no. therefore bank are motivated the bank borrowers to pay loan on time.

Table 4.8 if does the bank concept is credit given to the customer with in special period?

Item In no In percent

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Yes 12 75
No 4 25
Total 16 100
Source: own survey

As indicated the above table 4.7, 12(75%) are said yes 4(25%) are no. this shows that the
majority respondents are said that banks collect credit on customer with in specific period.

Table 4.9 which sector is most user of bank credit?

Item In no In percent
Commercial 8 50
Agriculture 4 25
Other 4 25
Total 16 100
Source: own survey

As represented from the above table out of the total number respondent wear asked accordingly8
(50%) are said that commercial, 4(25%) are said agriculture and the remaining 4(25%) are said
other. This shows that the majority customers of the bank are customer sector.

Table 4.10 when you borrow from the table the bank interest rate changed according the type of
low due think the interest rate affect lending?

Item In no In percent
Yes 7 43.75
No 9 56.25
Total 16 100
Source: own survey

According to the above table 4.10 out of the total respondent wear asked accordingly 7(43.75%)
are said yes and 9(56.25%) are said no. this shows that lending is not affected by interest rate.

Table 4.11 what are time agreement regarding to the customer?

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Item In no In percent
Monthly 9 56.25
Quarterly 5 31.25
Yearly 2 12.5
Total 16 100
Source: own survey

As represented to the above table the total number of respondent wear asked accordingly,
9(56.25%) said that the time agreement is monthly, 5(31.25%) are quarterly and the remaining
2(12.5%) are yearly. This shows that the majority of the respondent depicted that the time
agreement regarding to customer repayment is monthly.

Table 4.12 is effect improve lending for client?

Item In no In percent
Yes 6 37.5
No 10 62.5
Total 16 100
Source: own survey

The above table shows that 6(37.5%) are said yes and 10(62.5%) are said no. this shows that the
majority respondent depict that there is no effect improve lending for the client.

Table 4.13 how do you see the credit polices and procedure of the bank?

Item In no In percent
Excellent 1 6.25
Very good 5 31.25
Satisfied 4 25
Good 4 25
poor 2 12.5
Total 16 100

Source: own survey

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As can see from the above table 1(6.25%) are said that excellent, 5(31.25%) are very good,
4(25%) are satisfied, 4(25%) are good, and the remaining 2(12.5%) are said poor. therefore the
branch has best practice credit policy and procedure of the bank.

Table4.14 creditor’s selection and processing of the bank?

Item In no In percent
Excellent 6 37.25
Satisfied 3 18.75
Poor 4 25
Very good 4 25
Good 0 0
Total 16 100
Source: own survey

The above table shows that 6(37.25%) are said that excellent, 3(18.75%) are said satisfied,
4(25%) are poor, 4(25%) are very poor and the remaining are said good. therefore the bank
selection and processing is in good manner.

Table 4.15 the bank officer visit client business

Item In no In percent
Yes 7 43.75
No 9 56.25
Total 16 100
Source: own survey

This shows that 7(43.25%) are said that yes and 9(56.25%) are no. so, the bank has the
satisfactory way in visiting their client business effectively so, the visit client business properly
satisfied them client business effectively so the visit client business properly satisfied them.

Table 4.16 the bank selected the credits client effectively?

Item In no In percent
Yes 11 68.75

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No 5 31.25
Total 16 100
Source: own survey

From the above table I can understand 11(68.75%) are said that yes and 5(31.25%) are said no.
So, the bank selected its credits customers in a good way.

Table 4.17 the consultation before approval the credits?

Item In no In percent
Good 4 25
Very good 5 31.25
Satisfied 3 18.75
Poor 4 25
Total 16 100
Source: own survey

Te above table shows that 4(25%) are said good, 5(31.25%) are very good, 3(18.75%) are
satisfied and 4(25%) are poor. So this shows that the consultant is in good manner.

Table 4.18 mechanisms taken by the bank to improve the management?

Item In no In percent
Excellent 4 18.75
Very good 3 12.5
Satisfied 2 25
Good 4 25
Poor 3 18.75
Total 16 100
Source: own survey

As the above table shows that mechanism is taken by the bank to improve the credits
management system answered by the respondent 18.75% are excellent, 12.5% are very good,

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25% are satisfied, 25% are good and 18.75 are poor. This shows that the bank mechanism
introduced by the management is in a good manner.

Table 4.18 about consultant post credit of the bank?

What is your feeling about Item In no In percent

consultant post credit of the bank/ Excellent 5 31.5
Very good 3 18.75
Satisfied 4 25
Good 2 12.5
Poor 2 12.5
Total 16 100
Source: own survey (2009)

The above table indicated that 5(31.5%0 are excellent, 3(18.75%) are very good, $(25%) are
satisfied, 2(12.5%) are good and 2(12.5%) are poor. This shows that the credit of the bank good
in the application of consultant gave the bank before approval of the credit.

Analysis of customer result

Table 4.1 biographical information

Sex Item In no In percent

Male 50 62.5
Female 30 37.5

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 Total 80 100
Age distribution 18-25 19 23.75
26-35 31 38.75
36-45 20 25
Above 45 10 12.5
Total 80 100
Educational level Illiterate -
Certificate 8 10
Diploma 22 27.5
Degree 42 52.5
Master 8 10
Total 80 100
Source: own survey (2009)

The above table shows that 50(62.5%) are male and 30(37.5%) are female. This shows that the
majority of the customer is male. According to age distribution 18-25 are 19(23.75%) , 26-35 are
38.75, 20(25%) are 36-45 and 10(12.5%) are above 45. This shows that the majority of the bank
customers are young age group. According to educational level 8(10%) are certificate,
22(27.5%) are diploma, 42(52.5%) are degree and 8(10%) are master holders and there is no
illiterate credit customer of the bank.

Table 4.2 job work type

Item In no In percent
Trade 30 37.5
Small scale - 0
Government employee 30 37.5

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 Private employee 8 10
Other 12 15
Total 80 100
Source: own survey 2009

The above table shows that 30(37.5%) are trader, 30(37.5%) are government, 8(10%) are private,
and 12(15%) are other. This shows that the majority of the customer are trader.

Table 4.3 how long have you been customer of the bank?

Item In no In percent
1-2 49 61.25
3-5 31 38.75
6-10 - 0
Above 10 years - 0
Total 80 100
Source; own survey 2009

The above table shows that 49(61.25%) are 1-2 and 3-6 are 31(31.75%) and there is no customer
more than6 year. This shows that the majority of the customers are 1-2 years.

Table 4.4 question related to the study.

Are traditional culture Item In no In percent

religionsaffect the leaning and Yes 36 45
saving activity. No 44 55
Total 80 100
The reasons affect customer Weeding 8 22.2
lending and saving activity? Teskar 10 27.8
Funeral system of the people 8 22.2
Religion 10 27.8
Total 36 100

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Source: own survey 2009

The above table indicates that 36(45%) are yes and 44(55%) are no. this shows that the majority
of the people are said that traditional, cultural and religion of the people are not affect the people
lending and saving activity and the respondent reason who said no are 8(22.2%) are weeding,
10(27.8%) teskar, 8(22.2%) are funeral system of people and 10(27.8%) are religion. These
shows that teskar and religion holiday are affect people’s lending and saving activity.

Table 4.5 does the bank motivate the borrower to pay loan on time?

Item In no In percent
Yes 70 87.5
No 10 12.5
Total 80 100
Source: own survey 2009

This indicates that 70(87.5%) are said yes and 10(12.5%) are no. this shows that the bank
motivated its customer its pay loan on time.

Table 4.6 does the bank collect its credit given to customer with in specific period?

Item In no In percent
Yes 60 75
No 20 25
Total 80 100
Source: own survey 2009

The above table shows that 60(75%) yes and 20(25%) are no. this indicates that the bank collect
its credit given to customers on specific time.

Table 4.7 which sector is the most user of the bank?

Item In no In percent
Commercial 50 62.5
Agricultural 18 22.5

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Other 12 15
Total 80 100
Source: own survey 2009

The above table shows that 50(62.5%) are commercial, 18(22.5%) agriculture and 12(15%) are
other. This shows that the majority of the banks are commercial sector.

Table 4.8 do you borrow from bank interest rate charged according to the type of low due think
the interest rate affect lending/

Item In no In percent
Yes 32 40
No 48 60
Total 80 100
Source: own survey 2009

The above table shows that 32(40%) are said yes and 48(60%) are said no. this shows that the
majority of the respondent are not borrowed from the bank.

Table 4.9 group lend method

Is there a problem in group lending practice?

Item In no In percent
Yes 45 56.25
No 35 43.75
Total 80 100
Source: own survey 2009

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Here according to the above table (56.25%) of the respondents are said that there is problem in
group lending method and (43.75%) of the respondents are said that no problem in group lending
practices creates conflicts among customers as a human behavior is different people for the
repayment of the loan as result for the settlement of respective wastage of time happen in
addition the group members was face to cover the share of defaulted individual.

Table 4.10 the practice of credit policies and procedures.

How do you think the practice of credit policies and procedures of the bank?

Item In no In percent
Yes 39 48.75
No 41 51.25
Total 80 100
Source: own survey, 2009

From the above table shows I can understand that 39(48.75%) of the sample respondents
replayed that yes, so bank have good in the practice of credit policies and procedures. On the
other hand 41(51.25%) of respondent re the credit policies and procedures practices the
respondents said that no. therefore the bank has good practices in credit policies and procedures
respectively.

Table 4.11 the speed of creditor’s selection and processing.

What looks like the speed of creditor’s selection and processing?

Item In no In percent

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Excellent 20 25
Satisfied 10 12.5
Poor 30 37.5
Very good 15 18.75
Good 5 6.25
Total 80 100
Source: own survey, 2009

From the above table I can understand 20(25%) the respondents are said excellent about the
speed of creditors selection and processing, 10(12.5%0 are said satisfied,30(37.5%) are replayed
poor, 15(18.25%) are said that very good and 5(6.25%) are said that good. From this result I
conclude that the bank is going in a good way in the selection and processing of the clients.

Table 4.12 the bank treatments of its customers.

What looks like the bank treatment of its customer?

Item In no In percent
Excellent 25 31.25
Very good 18 22.5
Satisfied 10 12.5
Good 15 18.75
Poor 12 15
Total 80 100
Source: own survey, 2009

As can be seen from the table 25(31.25%0, 18(22.5%), 10(12.5%),15(18.75%),12(15%) of the

sample respondents of the bank customers answered excellent, very good, satisfied, good and
poor respectively about the customer treatment of the bank. So, the bank treats its credit
customers effectively and the customers satisfied by them.

Table 4.13 the bank screen its potential creditors effectively.

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How do you think the bank effectiveness in screening its potential creditors?

Item In no In percent
Excellent 39 48.75
Satisfied 20 25
Good 9 11.25
Very good 12 15
Poor - 0
Total 80 100
Source: own survey, 2009

The above table indicates that 39(48.75%), 20(25%), 9(11.25%), 12(15%) answered that the
bank is excellent, satisfied, good, very good and poor respectively. As a result or finding show
the bank has successful in the selection of clients effectively.

Table 4.14 Access of credit information

How do you think each accessibility of information?

Item In no In percent
Excellent 6 7.5
Very good 20 25
Satisfied 18 22.5
Good 26 32.5
Poor 10 12.5
Total 80 100
Source: own survey, 2009

As I can observe from the above table 6(7.5%), 20(25%), 18(22.5%), 26(32.5%), 10(12.5%) are
respond excellent, very good, satisfied, good and poor respectively. Therefore the bank should
work enough to get information to their clients effectively and easily they wanted.

Table 4.15 the service customers receive.

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What is your feeling about the service you receive?

Item In no In percent
Excellent 11 13.75
Very good 10 12.5
Satisfied 30 37.5
Good 23 28.75
Poor 6 7.5
Total 80 100
Source: own survey, 2009

As can be seen from 13.75% of the respondent excellent,10(12.5%) very good, 30(37.5%)
satisfied, 23(28.75%) good and 6(7.5%) respondents are said poor. This indicates the service
they receive is very well. Generally, the bank that provides credit service to the customer is
successful and the customers are satisfied.

Chapter five

5. Conclusion and recommendation

5.1 concussions

The research is going to conclude the study based on the literature review discussion and
analysis of questionnaire and personal observation. As you have seen from the literature section
of the study, the major activities of the bank among. Other things are to mobilize deposit and
channel them to the economy in the form of loan. The bank also manages and centers the whole
activities have to mobilized deposit and how to distribute them to develop on economy in the
primary source of income for the branch to minimize the risk due to become non forming loan.
Most of the employee or respondent are degree holders which is the same for the credit
customers. Credit management system of bank is very good for most respondents of the study.

The credit policies and procedures of the bank are very good for the employee the bank on the
other hand customer of the bank the credit policies and procedures is very good so the policies
and procedures more can for table for customers and employees.

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According con based on the data are analyzed and interpreted impervious chapter there searcher
gives the following concussing.

- Interest rate is one of factors which affect lending and saving activity. The interest rate
charged on customers when they borrow increases from time to time. This is costly to
customers when they repay the principal plus the in tersest. In the other case the interest
given for customers when they deposit is very low. This leads to decrease the number of
customers in Abyssinia Aksum branch.
- Weeding, tusker, religion holidays and funeral system of the society are some of the
traditional, cultural and religion factors which affect lending.
- Some people borrow money for ceremony of the weeding. Tusker and others. when there
is high expenses incurred for ceremony of the above factors saving also affected
# remain the study has shown the factors which affect lending activates of at Abyssinia
Aksum branch and one objective of the study is to recommended possible suggestion on the
basis of findings. Therefore, the following recommendations have been for worded.

- Interest rate affects lending and saving these effects of interest rate can be minimizing ,it
the government appreciate borrowers through favor able rate
- The influence at tradition ,culture and religion activity can be save by giving awareness
from the people about the disadvantage and giving training about modern activates that
maniples extravagance.
- Increase in price of goods and service is another problem for lending activities. To
stabilize the price of goods a service the government must interfere in the market activity
and financial institution must be restricted the amount of loan at the time of increase in
price of goods service.
- Because of lack of control by the Abyssinia Aksum branch borrowers are vat used the
loan in the primary aim. To eliminate this situation the Aksum branch of bank must
gather information about the characteristics of borrowers before the loan and it must
control the activity that related with the loan after gave the loan.
- Traditional practice like, Ekub and Edir have great in fence on modern leading this can
be minimize by giving awareness and training to the people above the advantage of
modern lending and attracting customers by fluorine interest rate.

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 - Generally, the bank have significance Role in the economy of developing country, the
sector contribute a lot by minimizing un employment by providing a facilities work
opportunities through providing credit another service. There for it should strength its
follow up and supervision on the activities of customer and strength it credit risk
preventive method through modifying.

ABSTRACT

Bank are financial institution that accept deposit and lend the deposit money to those when what
it. The money that bank gives credit the higher will be it profits and higher risk of default.

The overall objectives or this study is to assess the credit management system of Abyssinia
Aksum branch. The study used qualitative and quantitative methods. This study is descriptive
types of study. The resented archer was used to collect data from employees through census
method and for customer used convenient sampling technique. The primary data collected
through questioner distributed from employees and credit customer of the bank. The secondary
data collected from document publication materials and manual report of the bank. The
secondary data collected from documents publication materials and manual report of the bank.
The credit service of the bank is good and the bank should work to easily get information to the
customer due to some customers don’t get information easily. Based on the finding on the study.
I had forwarded some recommendation giving credit management system training to the
employee of the bank.

Key words

1. Credit; - an agreement based on largely on trust dev which goods and services or many is
exchanged against a promise to pay later.

2, management: - is the process of reaching organizational goals by working with and through
people.

37
3. System:- is a set of interacting or enter dependent component parts forming a complex
/intricate whole/en.wiki paid. Org/ wiki/

Declaration

I undersigned declare that these senior essay is original work and has not been presented for a
degree student in any other university that all sources of material used for the paper have been
duly aknologed,

Declared by: temesgentsega

Signature-----------

Confirmed by---------

Advisor ---

Signature ------

Date-------

Approved by

Examiner name

Signature

Date

ACKNOWLEDGMENT

- Above all I would like to thank <<GOD>> in all aspect of my life

- Second My sincere thanks goto my advisorMuluMiesho for contributing necessary
information as well as for his special assistance in providing professional and technical
guidance to do this paper.

38
 - Third I would like to thank for Aksum University especially business and economics
college for despising such program through which students to develop their individual
talents
- Forth my thanks also goto the Abyssinia Aksum branch employees and manager and my
family.
- Five I would like to thank full to the whole my friends for their moral support this
throughout my life.
Finally I would like to thank to all family for their moral, financial and lovely support me
from the beginning to end of my life.

Recommendation

Bank customer communication should not end up other finalization of grant in the loan. They
started again at the point of failure of performance in repayment of debt without maintaining the
responsibility of credit awareness concerning the essence of credit in triode. Proper credit
analysis and loan management are vital task in any bank so as to be successful in business.

39
The bank should be able to minimize risk by being very carefully in the credit management
system and credit analysis.

The bank work hard to easily get information by the customer to know about the bank credit
services effectively.

Example:- Distributed annual report of the bank to customer through easily understandable
broacher calendars, and promotional means,

The branch should work to minimize the credit risk by

Improve its relationship with customers to explain and describe the bank credit policies and
procedures.

Arranging credit facilities, to investors who want to invest an important investment area.

To make credit policies and procedures of the bank more conformable for the customers giving
credit management system training to the employee of the bank.

- Even if the credit is not collected with specific period, the bank must be ready to make
change like.
- The grace period of those activities which requires log period.
- Appreciating customers, which pay on time, by giving them a discount and having street
follow up for those customers which don’t pay on time of the sometime and create
awareness on its customer about the time value of money.
- Since group base lending method has problems for social guarantee for those who are
suspected based on experience.
- The bank should substitute the preventive metered that use group lending mitral to
reduce credit risk that because in group lending a lot of problem arise because all
customers (group member) are not loyal to pay the credit on specified time. So, it may
increase administration cost and also advertisement cost to collect.

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41