RIFT VALLY UNIVERSITY

FUCULITY OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING

EVALUATING LOAN PORTFOLIO AND EFFECT OF

DELINQUENCY:
THE CASE OF VISION FUND FINANCE INSTITUTION,
SODDO BRANCH

A senior Essay in Partial Fulfilment of Bachelor of Arts (BA) Degree in

Accounting
By:
NIGUSSE THOMAS ID No: 233/12
ASSEFA UDUNO ID NO: 365/1
TILAHUN MATIYOSE ID NO: 293/1
MARKOSE MASORO ID NO: 318/12
Advisor: NURU
July 2015
TABLE OF CONTENT Page

ACKNOWLEDGMENTS.........................................................................................

CHAPTER ONE......................................................................................................1
1. INTRODUCTION...............................................................................................1

1.1 Background of the study.....................................................................................................1

1.2 Statement of the problem....................................................................................................2
1.3 Objective of the study.........................................................................................................3
1.3.1 General Objective..........................................................................................................................3
1.3.2 Specific Objective.........................................................................................................................3
1.4 Research questions..............................................................................................................3
1.5 Significance of the Study...................................................................................................4
1.6 Scope of the Study...........................................................................................................................4
1.7 Limitation of the study........................................................................................................4

CHAPTER TWO.....................................................................................................5

2. LITERATURE REVIEW.........................................................................................5
2.1 Nature and Evolution of MFIs............................................................................................5
2.2 Concept of Institutional Development................................................................................9
2.3 Over view of loan portfolio and effect of delinquency and its impact.............................11
2.4 Loan portfolio...................................................................................................................14
2.5 Causes of delinquency......................................................................................................15
2.6 Treatment of delinquency.................................................................................................16
2.7 Effects of delinquency......................................................................................................17

CHAPTER THREE...............................................................................................19

3 RESEARCH METHODOLOGY:......................................................................................19
3.1 description of the study area...........................................................................................................19
3.2 Source of Data and Data Collection Method..................................................................................19
3.3 Sampling techniques.....................................................................................................................19
3.4 Distributed and returned questionnaires.........................................................................................20
3.5 METHOD OF DATA ANALYSIS ...............................................................................20
3.5.1 DATA ANALYSIS AND PRESENTATION..............................................20
3.5.2 LOAN OUTSTANDING AND PORTFOLIO QUALITY TREND OF SODDO
VFMFI FROM 2012-2015..................................................................................21
 3.5.3 DEMOGRAPHIC CHARACTERISTICS OF SAMPLE HHS.....................24
3.5.4 FACTORS AFFECTING LOAN REPAYMEN...........................................26
3.5.5 CLIENTS TRAINING----------------------------------------------------------------------28
3.5.6 LOAN OFFICERS JOB SATISFACTION AND THEIR DILIGENCE------------28
3.5.7 CLIENT SCREENING/SELECTION CRITERION-----------------------------------29
3.5.8 LOAN GIVEN BY FAVOURITISM-----------------------------------------------------30
CHAPTE FOUR....................................................................................................32

4. SUMMARY, CONCLUTION AND RECOMMENDTION............................32

4.1 SUMMARY..............................................................................................................32
4.2 Conclusion................................................................................................................32
4.3 Recommendation......................................................................................................33

BIBLIOGRAPHY.....................................................................................................

APPENDIXES...........................................................................................................

QUESTIONNAIRES- PART ONE..........................................................................................

QUESTIONNAIRES-PART TWO........................................................................................9

I LIST OF TABLE
TABLE PAGE
Table .1 Distribution and returned questionnaires----------------------------------20
Table .2 Targeted vs actual loan outstanding relationship-------------------------22
Table .3 Loan outstanding and portfolio quality relationship----------------------22
Table 4. Portfolio allotment in sectoral activities -------------------------------------23
Table .5 Targetad client vs actual clients and gender relationship------------------24
Table .6 Age gender and martital status of the selected HHs-------------------------24
Table 7 What is your level of education-------------------------------------------------25
Table .8What kind of loans do the delinquent clients take----------------------------25
Table 9 What factors affecting your portfolio quality---------------------------------26
Table 10 Prior to coming vision fund microfinance-----------------------------------28
Table 11 Are you satisified in your job postion----------------------------------------29
Table 12 What are the criteria -----------------------------------------------------------29
Table 13 Have you encountered any loan---------------------------------------------30
Table 14 How much loan do you provide----------------------------------------------30
 BIBLIOGRAPHY

Craig F. Churchill, Managing growth: the organizational Architecture of

Microfinance Institutions. ACCION International, 1999.
Credit program action publication.
http://financial-dictionary.thefreedictionary.com/loan+portfolio(20-Dec-09)
Katherine Strains (1995), the hidden beast delinquency in micro enterprise Organizational
Operation Manual & related Documents, (FVMFIs, 1998)
Robert Peck Christen: Banking serves for the poor (2003).
Steam, Katherine (1999), method for managing delinquency.
Teshome Yohannes Dayesso, (2000). Growth with a poor quality is a death sentence for
MFI. Buusaa Gonofaa MFI.
Teshome Yohannes Dayesso, (2000). Analyzing the institutional development of MFIs,
Buusaa Gonofaa MFI.
Appendixes
Questionnaires- Part One
To the clients

Dear Respondent:

The aim of this questionnaire is to gather data and opinions of clients and employees on portfolio quality
and effect of delinquency and its impact analyses of selected VISION FUND micro financing institution,
Soddo Branch and to come up with recommendations so as to improve portfolio quality. Therefore, your
cooperation in filling out the questions is highly indispensable to the success of the research.
Please return the questionnaires within a week. Put a’√” mark on check boxes that fit your response and
provide your statement when necessary in the space provided. Thank you in advance.

1. Are you willing to confer the following information feedback on the assessment of loan portfolio
and effect of delinquency? Yes NO
2. Sex Male Female
3. Age?
4. Your place of home? Town Rural
5. Is your business needs training to achieve your goal? Yes No
6. Prior to coming VISION FUND micro financing institution, have you taken any training to your
business? Yes No
7. For the question ‘6’ if your answer is yes, the training provided you is
Very good, important & understandable Not that much enough
Training is unnecessary
8. What kind of loans do you received/borrowed?
Commercial/trade loan
Service business
Agri - business
Agricultural loan
Individual loan
All type
9. How are employees (loan officers) job satisfaction and their diligence to follow up clients and to
collect the repayment on time after loan disbursement?
Very strong Medium Weak Very weak

10. Do you think that the loan you borrowed is payable on due date?
Yes No
11. Why some clients do not pay the loan on the due date that they borrowed?
The loan they borrowed is beyond their paying capacity
They pay other payable
Unwilling to pay
No strong fallow up of loan officer
12. Have you encountered any loan which is given by favouritism (relatives/friendship)?
Yes No
 13. Do you think that, you/any other customer was received/borrowed loans while delinquent?
Yes No
14. Do you think that the loan officers observe clients business, income generation and paying
capacity of the client prior to providing loan?

Questionnaires-Part Two

To the staff member

Dear Respondent:

The aim of this questionnaire is to gather data and opinions of clients and employees on portfolio
quality and effect of delinquency and its impact analysis of selected Wisdom Micro Financing
Institution Soddo Branch and to come up with recommendations, so as to improve portfolio
quality. Therefore, your cooperation in filling out/respond the questions are highly indispensable
to the success of the research.

Please return the questionnaires within a week. Put a’√” mark on check boxes that fit your response and
provide your statement when necessary in the space provided. Thank you in advance.

1. Are you willing to confer the following necessary information’s in the research of loan portfolio
and effect of delinquency?
Yes No
2. Your sex? Male Female
3. Is the institution providing successful training of credit discipline to loan officers?
Yes not successful training do not know
4. How is the loan officers (employees) competence to the work of credit discipline?
Very high High Low Very low
5. For the question No 5 if the answer is very low, what is your comment?
Providing on the job training
The loan office should carefully know the institution loan policy
Experience sharing
All
6. Are you satisfied in your job position?
a. Yes no
 7. For question no. 7 if your answer is no, what are the possible factors in work dissatisfaction?

8. What are the criteria’s used to select customers between themselves?

9Comparing men and women who have more willingness to pay any inability?

10 What type of problem will encounter the institution if the amount (rate) of delinquency
increases from period to period?

11 What type of measurement do you suggest to detect delinquency?

12 Without having an adequate knowledge/understanding of the real cause of delinquency of

the loan, if WMFIs lend credit to the customer, what do you think the outcome will come
in the future?

Acknowledgments
Above all, the prime and foremost great thanks to our Almighty God, who has been our constant
source of love and straight to do whatever endeavours?

Next, but first in my place, I would like to express my sincere and deepest gratitude to my
advisor Ato Nuru for his unreserved guidance, constrictive comments, and tirelessly giving
direction through charitable gesture to work and realize my research paper.
And also I would like to extend my heartfelt thanks to my wife Wro Erkata Petrose who has
continuously supported and backed me up through in all my movement to accomplish my
research paper.

Lastly, I would like to acknowledge W/R Hiwote (FVMFI branch manager), Ato Tekalign
Tafese (Manager of Damota Union), Ato Feked Sima and Ato Wondimu Wolde (World Vision
Ethiopia Soddo Project) who are supported and encouraged me diligently in all directions to
accomplish my study.