Professional Documents
Culture Documents
ADDD
ADDD
ADDD
HARAMBEE UNIVERSITY
BY: ID.NO
LIST OF ABBREVIATIONS......................................................................................................................III
CHAPTER ONE............................................................................................................................................1
1. INTRODUCTION.....................................................................................................................................1
CHAPTER TWO...........................................................................................................................................5
2. LITERATURE REVIEW..........................................................................................................................5
2.2.2 Savings and loan association, saving banks and credit unions...................................................11
CHAPTER THREE.....................................................................................................................................17
Page I
3. METHODOLOGY OF THE STUDY....................................................................................................17
CHAPTER FOUR........................................................................................................................................19
REFERENCES............................................................................................................................................22
Page II
LIST OF TABLES
Table 4.1 Time break down…………………………………………………….30
Table 4.2. Budget break down……………………………………………………31
LIST OF ABBREVIATIONS
UN United Nations
Page
III
MSBS Mutual saving banks
Page
IV
CHAPTER ONE
1. INTRODUCTION
private investment contribute a lot to sustain economic growth, decent job creation more
sustainable production process and technology transfer .Therefore, strengthening partnership
with private investor would be an urgent task for the country to insure fair business
transaction ,create more middle class society and strengthen better local and foreign market
chain(isomiya 1994).
Private investment combines economic resource for future benefit, but in developing country
they lack those resource especially financial resources due to low saving culture of the society.
The solution to this problem is the arrangement of linkage between financial institutions and
private investors (Ibid, 1994).
Financial institution is institution which collect fund from the public and places them in
financial asset, such as deposit, loan and mortgage other than tangible asset. Those financial
institution contribute to private investment through money management and banking
service ,which include credit service, deposit service, insurance product, financial advisory
service .Financial institution can extend loans to private investors while, at the same time making
reasonable profit (Kabir,2002).
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1.2 Statement of the problem
Economic development is something all countries especially the less developed ones strive for
but this processes cannot take place without efficient mobilization and allocation researches for
the production of goods and services in economy. So many researchers conduct a research on the
contribution of financial institution for investment and other economic development issues from
those. (Melak, 2011) conduct his paper on the title of financial institution and investment on
Ethiopia by using secondary data form national bank of Ethiopia and other related book try to
indicate that financial institution over the post 6 and 7 years highly encourage investment as
well the expansion of investment in other way help the financial institution to stand by two legs
because investor are the high profit customer of financial institution and (Tesfaneh, 2010)
conduct his paper on the role of financial institution in employment creation through expanding
of investment in case of Addis Ababa by using time series data of form 1995-2007 and finally he
found that financial institution serve as a leading sector for un employment reduction but all of
them concerned on Addis Ababa and the researcher try to fill a gap by indicating the role of
financial institution in promoting private investment in case of Commercial Bank of Ethiopia,
Fiche Tulu Salale Branch by using primary and secondary data. In The Commercial Bank of
Ethiopia,Tulu Salale Branch, there are different problems were faced such as lack of skilled man
power, lack of awareness, Commercial Bank of Ethiopia, Tulu Salale Branch credit and saving
association does not give attention to investment. Based on these the researcher initiates to
conduct around this area. Therefore, this study is focused on the investigations of the role of
financial institutions in promoting private investment in Commercial Bank of Ethiopia, Tulu
Salale Branch.
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1.4 Objective of the Study
1.4.1 General Objective
The main objective of the study is to show (investigate) the role of financial institutions in
promoting private investment in Commercial Bank of Ethiopia, Tulu Salale Branch.
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subject matter under the study. The third chapter has explained about the methodology to be
adapted in the processes of research undertaking. The fourth chapter mainly the analysis part of
the study diagnosis the data will be collected and relates them to different aspects. Methods so as
to provide sound conclusion and recommendation are applied. Finally the fifth chapter will sum
up all the points that are raised in the paper, draw conclusion and raise sound recommendation.
Page 4
CHAPTER TWO
2. LITERATURE REVIEW
2.1 Investment and Financial Institution
An Investment is the current commitment of resource for a period in the expectation of receiving
future resource that will compensate the investor for the time the recourse are committed ,the
expected rate of inflation and the uncertainty of the future payment (k.relly and A.narton,
2004 ).Investment financed by financial institutions is made through the provision of credit
facilities to the potential investors for the production of capital good (Isomiya 1994). Capital
good is one aspect of what are called investment good.
Financial institution contributes to the operation and growth of investment through various roles,
including that of intermediary and provides of payment settlement facilities and they must also
execute these roles faultlessly in order to promote confidence and stability in the system
additionally financial institution contribute to private investors through giving overdraft,
loan ,mortgage ,LC loan and taking deposit.
Financial institution can extend to the poor while, at the same time making a reasonable profit
by charging high interest rate .Financial institution can afford the high transaction cost of
processing large volume of loan as small as a few dollars. Financial institution provide client
from house hold with a range of money management and bank service which include :credit
service, where by small loans are allocated against collateral substitutes, such as group
guarantees or compulsory savings, deposit service, designed to offer alternative saving option;
Insurance products; including insurance against loan default due to misadventure, and financial
advisory services, were the views and need of the poor are brought to the attention of policy
makers. Financial institution can be profitable in the providing services to the poor .If cost are
contained, risk are managed, and the clients are treated as active partnership (M.kabir Hassan,
2002).
Financial institutions are mobilization of financial resource has led to capital formation since
capital formation requires the release of domestic goods and service which promote the real
investment. Then any economy that wants to increase its real capital formation must be able to
provide a climate respective to the impact of resource from overseas and the encouragement of
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domestic savings. This requires an institution arrangement that encourage the mobilized savings
and productive investments (Josiah etal, 2012).
Financial institutions are firms that provide financial service to surplus spending units (Lenders)
and deficit spending units (borrowers). The most important financial institutions are financial
intermediaries-various institutions such as, Banks, saving and loan association and credit unions
that serve as go-between to link up surplus spending unit and deficit spending units. Here the
linkage between saver and borrower is indirect. For example, an investor might deposit some
surplus fund in a saving account at a bank; the deposit is an asset for the investor and liability for
the bank. If the bank, in turn, makes a loan to deficit surplus unit, the loan is an asset for the bank
and liability for the deficit spending unit (Burton nasiba lombra, 2003).
Economic growth and development of any country depend up on a well join financial system.
Financial system is comparison of financial institution. It provides a mechanism by which saving
are transformed in to investments. Thus financial institution can be said to play a significant role
in economic growth of a country by mobilizing surplus fund and utilizing them effectively for
productive purposes.
Banks rank as the most important of our financial intermediaries-institutions that serve as
“middle men” for transfer of fund from the millions of individual households, investors and other
entities with surplus funds to those who borrow in order to purchase consumer goods or invest in
real assets such as houses, business plants, and equipment. Financial intermediaries promote
economic efficiency by gathering the saving from millions of individual households other
surplus units and making the funds available in appropriate denominations and maturities to
deficit spending units. This process contributes to raises the nations living standards. Financial
intermediaries transfer funds from saver to borrower, improving the well-being of both savers
and borrowers. Banks and other financial intermediaries are important sources of financial
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innovations that have expanded the range of alternatives open to both savers and borrowers.
(Lloyd b. Thomas, 2006).
Financial institution could benefit countries over all society by overcoming the liquidity and UN
employment problems associated with highly imperfect credit markets (Kheker, 1998).
• Lending money by over draft installment loan or other means, cash management
and treasury.
• .traditionally large commercial banks also underwrite bonds and make markets in
currency, interest rate, and credit related securities but today large commercial
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banks usually have an investment bank arm that is involved in the
aforementioned activity.
Commercial various types of deposits from public especially from its clients, including saving
account deposit, recurring account deposit and fixed deposit. These deposits are payable after a
certain time period.
Credit creation is most significant function of commercial banks. While sanctioning a loan to
customer, they do not provide cash to the borrower. Instead, they open a deposit account from
which the borrower can withdraw. In other word sanctioning a loan, they automatically create
deposit known as a credit creation from commercial bank (Albuquerque, etal 1855).
2.2.1.3 Overdraft
Over draft - Occur when money is withdrawn from a bank account and the available balance
goes below zero. In this situation the account is said to be over drown, if there is a prior
agreement with account providing for an overdraft and the amount with drown is within
authorized overdraft limit, then interest is normally charged at the agreed rate., if the negative
balance exceed the agreed terms, then additional fees may be charged and high interest rate may
apply. Over draft occur varieties of reason this may include. Internal short term- loan- the
account holders over may occur for variety reason this may include (Mishkin,2007).
Internal Short Term Loan; the account holders find themselves short of money and knowingly
make an insufficient fund deposit. They accept the associated fees and cover the over draft with
their next deposit. Failure to Maintain Accurate Account register; the account holder doesn’t
accurately account for activity on their account and overspends through
negligence(Albuquerque, etal 1855).
ATM overdraft; Bank or ATMS may allow cash withdrawals despite in sufficient availability of
founds. If the ATM is unable to communicate with the card holder’s bank, it may automatically
authorize a withdrawal based on limits preset by the authorized network.
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Temporary deposit Hold: A deposit made to the account can be placed on hold by the bank, this
may be due to individual bank policies. UN expected electronic withdrawals- this could occur in
good faith of both parties of electronic with in question is made legally possible by terms of
contract such as the initiation of a recurring service following a free trial period(Ibid, etal 1855)..
These are documents that provide that the seller has performed the duties under an under an
underlying contract (e.g. sales of goods contract) and the goods (or service) have been supplied
as agreed. In return for these documents, the beneficiary receives payment from the financial
institution that issued the letter of credit. The letter of credit serves as a guarantee to the seller
that it will be paid regardless of whether the buyer ultimately fails to pay. In this way the risk
that the buyer will fail to pay is transferred from the seller to the letter of credit issuer. The letter
of credit reflected in the better of credit. Documents that can be presented for payments can
explore or slipper must present the document required by the letter of credit(Mishkin,2007).
2.2.1.5 LOAN
Loan - is an arrangement in which a lender gives money or property to a borrower, and the
borrower agrees to return the property or repay the money usually long with interest, at future
point in time .Usually there is a pre determined time for repaying the loan and generally the
lender has to bear the risk that borrowers may not repay a loan (through) modern capital market
have developed many ways of managing this risk. The terms of standardized loan are formally
presented (usually in writing) to this party in the transaction before any money or property
changes hands .If a lenders requires collateral ,this will be stipulated In the loan document as
well. Most loan also have legal stipulation regarding the ma maximum amount of interest that
can be changed, as well as other convenient, such as the length of time before repayment is
required .Loan can come from individuals, corporations, financial institution and government
they are a way to grow over all money supply in an economy as well as open up competition,
introduce new products and expand business operations (Chandersekhal,1997).
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2.2.1.6 Bank Deposit
Money placed into banking institution for safe keeping, bank deposit is made to deposit
account at a banking institution, such as savings account, checking account and money market
account. The account made has right to withdraw money any deposited funds, as set forth in the
terms and conditions of the account .the deposit itself is a liability owed by the bank to the
depositor (the person or entity that made the deposit) and refers to this liability rather than to the
actual funds that are deposited. Banks and financial institutions accept many type of deposit each
day. Deposits are deferent based on the type of account for which the deposit is intended.
Deposits are typically made with cash, checks or the electronic transfer, in to accounts that
include savings, checking money market, and certificate of deposit(Chandersekhal,1997).
Money market account is similar to saving account typically pay a higher interest rate.
Depositors are allowed only a certain number of withdrawals each month. Many money market
accounts are covered through the federal deposit insurance corporation (Birritu, 2007).
Checking account for the flexibility of writing checks against deposited funds. They are
generally federal deposit insurance corporation insured money deposit in checking account can
be withdrawn by visiting the bank, writing a check or using an ATM or debit card(Ibid, 2007).
D.Certificate of Deposit
With certificate of deposit, a bank receives a deposit and issues a certificate to the customer. A
certificate of deposit is a short or medium term investment tool that pays interest on deposited
funds. The interest rate is generally slightly higher than the rate on saving accounts. Money
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deposited in to certificate deposit must be kept there for a specified period of time. If the
certificate deposit is cashed in before the specified date the depositary pay penalty ( Kabir,2002).
The decision to save and decision to invest is typically made by different individuals and groups.
Many house hold and firms engage in investment. A different and small group of individuals and
firm purchase investment goods to realize investment goals .The saving of the masses must be
transferred to investors in capital goods. The key role in financial institution and market is to
facilitate the transfer of funds. Banks have developed system to facilitate the transfer of funds.
Such that, money can be transferred almost instantaneously and minimal risk (Lloyd B Thomas
2006).
2.2.2 Savings and loan association, saving banks and credit unions
Three financial institutions specialize in consumer saving instruments saving and loan
associations, mutual savings banks and credit unions saving and loan associations obtain funds in
the terms of middle incomes servers and land these funds to preachers of real estate. Innovative
lending and saving polices, such as early entry in to government lending programs, hear
promotional efforts and attractive facilities have appealed to the general public (Kabir,2002).
Until the 1980S saving and loans invested primarily in conventional, home mortgages. In the
past decade, however saving and loans have selectively entered veteran ant administration and or
home loan bank insured mortgage loan volume available in these markets. Mortgage interests in
the principle source of income of saving and loans and correspondingly in interest paid on saving
is the major disposition of this comes (ibid, 2002).
Mutual saving banks (MSBS) are a regional phenomenon existing is one’s country. MSBS do
not make extensive use of money market borrowing for liquidity and have no capital stock. An
innovative deposit medium adopted by SMBs was negotiable orderly with drawl account no
account), an interest bearing checking account. in additional real estate mortgages. Investments
of MSBs include corporate bonds, federal funds open market paper and short term marketable
securities (Ibid, 2002).
Credits unions are saving institutions are formed around a common association such as
membership in a church, resided in a neigh boor hood, employment by common employers.
These over of funds is saving by members, which are represented by share. Funds are invested in
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loans to members generates consumer loans although real estate loans may be made credit
unions are restricted in the in the amounts that may be lent on secured in the amounts and
unsecured loans as well as the term of loans and interest rates that may be charged. (Lloyed.b
Thomas,2006)
There are three principal types fiancé companies are sales, finance companies, personal fiancé
companies and business fiancé companies sales fiancé companies cater to the loan needs of
retailers and their customers by maintaining a close relationship with the dealer sales fiancé
companies may make loans to the dealers customers on one of three bases. Full recourse or
repurchase, depending up in weather the dealer or the fiancé company assumes the risk in case of
default. Fiancé companies that are subsidiaries of is dealers or manufactures are called captive
fiancé companies in additional to providing financing to customers of the dealers inventory of
flow stock(Mishkin,2007).
Personal fiancé companies provide customer with small, short-term direct loans which may be
secured by collateral or unsecured.
These loans are repaid from customer’s discretionary income. Business fiancé companies serve
commercial loans needs b y providing secured loans on inventory, receivables and fixed assets
or by factoring account relievable financing is also provided in the form of long term lease
agreement on fixed a assets (Source O. Edmister 2nd edition).
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association other person in the event of this or her death whole life polices the premium to years
when the provides protection for a year or less and becomes more costly as the individuals grows
older. Life insurance companies accumulate enormous amount of reserved under whole life
polices but very little with term life policies. Insurance helps individuals and companies manage
risk and preserve wealth. By insuring a large number of people, insurance companies can operate
profitably and at the same time pay for claims that may arise. Insurance companies use statistical
analysis to project what their actual losses will be within a given class. They know that not all
insured individuals will suffer losses at the same time or at all(Ibid,2007)..
Insurance companies protect individual against risk life insurance companies, function financial
intermediaries collecting premiums form insured persons and investing the funds unit needed for
death benefits.(IBID)
Investment companies seek varying objectives in their investment a reflected by their varying I
investment techniques. Those seeking capital growth invest primarily in common stocks.
There are three fundamental types of investment companies: unit investment trust (UITs), face
amount certificate companies and managed investment companies. All three types have the
following things in common:
Professional management
Unit investment trusts sell a fixed number of shares to unit holders, who receive a proportionate
share of net income from the underlying trust.
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The UIT security is redeemable and represents an undivided interest in a specific portfolio of
securities.
The portfolio is merely supervised, not managed, as it remains fixed for the life of the trust. In
other words, there is no day-to-day management of the portfolio.
A face amount certificate company: issues debt certificates at a predetermined rate of interest.
Additional characteristics include:
Certificate holders may redeem their certificates for a fixed amount on a specified date, or for a
specific surrender value, before maturity.
Certificates can be purchased either in periodic installments or all at once with a lump-sum
payment.
The most common type of Investment Company is the management investment company, which
actively manages a portfolio of securities to achieve its investment objective. There are two types
of management investment company: closed-end and Open-end. The primary differences
between the two come down to where investors buy and sell their shares - in the primary or
secondary markets - and the type of securities the investment company sells.
Close end investment companies a closed-end investment company issues shares in a one-
time public offering. It does not continually offer new shares, nor does it redeem its shares like
an open-end investment company. Once shares are issued, an investor may purchase them on the
open market and sell them in the same way. The market value of the closed-end fund's shares
will be based on supply and demand, much like other securities. Instead of selling at net asset
value, the shares can sell at a premium or at a discount to the net asset value.
Open end investment companies’ Open-end investment companies, also known as mutual fund
continuously issue new shares. These shares may only be purchased from the investment
company and sold back to the investment company. Mutual funds are discussed in more detail in
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the Variable Contracts section. (Source: Albuquerque, Martim (1855). Notes and Quires.
London: George Bell. p. 431-434.)
Greenwood and Jovanovich (1990), Levine (1991),saint-Paul ( 1992) have constructed the
investments.
Financial sectors also improve liquidity of investments. In the model Levine (1991) , the stock
market improve firm efficiency because they eliminate premature liquidation of firm
capita(Mishkin,2007).
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In the case of liquidity shocks, the investor can sell shares to the other agent. The stock market
influence growth also by increasing fraction of resources allocated to firms by allowing agents to
diversify productivity risks and thus and thus encouraging risk-averse investors to invest more in
firms. In the model constructed by bencivenga and smith (1991), the financial sector increase
liquidity of investment and decrease the premature withdrawal of investors which are harmful to
economic growth. If the financial market work properly, investment to the non-liquid objects
which are more productive to the economy(Mishkin,2007).
According to the above theories the financial development enhances allocative efficiency,
reduce liquidity risk, facilitate risk management by offering savers &investors investment
alternative for portfolio diversification.
ATM overdraft; Bank or ATMS may allow cash withdrawals despite in sufficient availability of
founds. If the ATM is unable to communicate with the card holder’s bank, it may automatically
authorize a withdrawal based on limits preset by the authorized network.
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CHAPTER THREE
3. METHODOLOGY OF THE STUDY
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3.5. Source of data
For the study purpose, both primary and secondary data will be gathered from the concerned
bodies; managers and employees found in Commercial Bank of Ethiopia, Tulu Salale Branch.
Primary data will be collected through questioners which consist of both open and closed-ended
questions to get detail and truthful information for our study. Secondary data will be collected
from different materials like data from unpublished and published articles.
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CHAPTER FOUR
4. WORK AND BUDGET BREAKDOWN SCHEDULES
4.1. Work Plan
N Activities Months in the year 2023/2024
o
Dec Jan1-5 Feb 5-10 Mar 11 -30 Apr -30 May- 2-5 June 1-30
30
1. Problem
identification
2. Review of
related
literature
3. Proposal
preparation
4. Proposal sub-
mission
5. Proposal
defenses
6. Revising the
proposal
7. Design Data
collection
instrument
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8. Pilot test
9. Data
collection
10 Data
organizing
11 Thesis
. writing(first
draft)
12 Submitting
. first draft
13 Writing the
. final report
14 Submission
.
15 Defense of the
. research
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20
4.2. Budget Plan
No Quantity Unit price birr Total cost Remark
1.8 Transportation - - -
2.o Contingency 5% 12 36
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REFERENCES
Burrito (2007 p.21)Impact of privatization on economic growth, Political Economy, Vol. 14,
Christopher W. Anderson and Luis Garcia-Frijol. VOL.LXI, No 1 Feb 2006
Chandersekhal (1997) Government policy and private investment in developing countries.IMF
working papers, Washington DC, .
DE, Albuquerque, Martim (1855) and Queries: London ;George Bell (p.431)
Encyclopedia puritanical
Financial market and institution, Burton NASIBA LOMBRA,2003(P.8)
Green Wood & Smith (1996)determinants and constraints of private investment in Ethiopia,
Isomia (1994)Assessment of investment performance and policy, oxfordvol 12, p 29).
KHEKER, 1998
K.RELLY ANDA.NARTON 2004. P5private investment in developing countries: an empirical
analysis.IMF staff papers, , 38(1), p 33-58).
Levine (1991)
Mary Josiah, etal 6(3); 83-93, 2012 ISSN 1818-1932/DOI: 3923, hjbm.2012, 83, 93@ 2012
academic journal Inc
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