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A Study on Loan Recovery Performance of Rural

Saving and Credit Cooperatives in Layi Gaint

Woreda, South Gonder Zone, Amhara Regional

State, Ethiopia

By

Dejen Debeb Asmare

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Germany was the first country in the field of credit.

Herr F.W. Raffeisen (1818-1888) and Herr Franz Schulze (1809-

1883)

The history of SACCOs in Ethiopia began during the Regime of

Emperor Haile Selasie .

BACKGRAUND OF THE STUDY

Statement of the Problem

Access to financial services to the poor facilitates economic growth

In this regard SACCs help those who have no access to the

financial services of formal financial institutions

They can contribute a lot to reduce the negative impact of local

money lenders in areas they operate in.

But there are problems which hinder the cooperatives to achieve

their objectives.

The requirement that has to be provided for receiving a loan.

The interest rate that the cooperatives charge.

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Conti…

The cost of funds can sometimes exceed the interest earned on

loans and investments, resulting in a loss to the sector.

This in turn discourages members’ motive to deposit as well as to

borrow.

The cooperatives’ ability and, in practice, its failure

to initiate projects for increasing revenues, both via the use of

accumulated savings and by acting as a channel for transferring

outside sources of finance to its members, and again recover all

of the loans on due date with interest.

Therefore, the study is intended to assess loan recovery

performance of RUSACCOs

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Objectives of the Study

General objective

The general objective of the study is to assess loan recovery performance of

primary rural saving and credit cooperatives in Layi gaint woreda

Specific objectives

To assess loan operation of primary rural saving and credit cooperatives.

To assess recovery performance of the cooperatives.

To investigate factors that affect loan recovery performance of the

cooperatives.

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Significance of the study

It would be helpful to

RUSACCOs in the study area and similar cooperatives found in

other areas

To cooperative promoters

Bench mark for undertaking further research

Scope:

It only assessed loan recovery performance of selected SACCOs

Limitations:

Time and budget constraint

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1.6 Scope and limitation of the study

RESEARCH METHODOLOGY

3.1 Description of the Study Area

3.2.1. Selection of the study area

LayiGaint Woreda was selected purposely

Because of the availability of the required data

No study conducted so far in the area

3.2.2. The sampling design

There are 30 registered primary saving and credit cooperatives and

one saving and credit cooperative union in the woreda .

This study is about rural saving and credit cooperatives

Four sample SACCOs

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Sample Selection of the Study

The sample size of the study or the number of member

respondents was determined by using Kothari (2004) sampling

design formula:

n = z2 p q N

e2 (N-1) +z2 p q

Where:

n= sample size

N=total population (564)

Z=95%confidence interval under normal curve (1.96)

e= acceptable error term (0.05) and

P and q are estimates of the proportion of population to be

sampled (P=0.10 and q= 0.90)

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Source of data and Methods of data Collection

Both qualitative and quantitative data were used.

The data were collected from both primary and secondary

sources.

Interview schedule was translated in to the local

language, Amharic.

Secondary data, mainly concerning amount of loan

disbursed and recovered

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Method of data analysis

Analysis by using Descriptive Statistics:

Mean, percentage, frequency and standard deviation

Analysis using Multiple Linear Regressions (MLR)

It was used to analyze factors that affect loan recovery performance

of the cooperatives by using statistical soft ware called SPSS version

16.0

4. RESULTS AND DISCUSSION

Loan Disbursement and recovery of sample cooperatives

• In rural areas, financial institutions including banks were not accessible due to high operating costs to administer their operation.

• Due to this fact, rural people had no access to save money in financial institutions.

• Moreover, they had no opportunity to get credit when they need.

• In order to overcome this problem, rural people have an opportunity in their hands that is establishing user owned financial institution known as RUSACCO.

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Conti…• RUSACCOs have extended credit for their members for production

purposes such, as purchasing of agricultural inputs.

• Moreover, they extend credit for petty trade and social purposes such as medical care and school fee.

Between the year 2002 and 2011, sample cooperatives extended a total of Birr 2,560,563.20 for their members for production, petty trade and social purposes.

Out of the total loan extended for members, Birr 1,569,696 (75.46%) was for production, Birr 444,551(21.37%) for petty trade and Birr 65,893(3.17%) was for social purpose.

• Based on the information explored from key informant interview, sample RUSACCOs provide credit to some members without collateral.

• This discrimination makes some members to withdraw from membership and facilitates loan default.

• The loan that was given without guaranty was funded by world bank and CPR Gaint project.

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4.5. Result of MLR4.5.1. Extent of factors that affect loan recovery performance

Model summary of loan recovery

Model Sum of Squares Df

1 Regression 2.013E7 16

Residual 1.118E7 95

Total 3.131E7 111

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The MLR result indicated that the correlation between independent

variables as factors affecting loan recovery performance were strong

with the value of R=0.802.

More over, these variables explained 56.5% of the change in

RUSACCOs loan recovery performance

The model of the study regarding loan recovery is:

Y =1571.845+ 0.150 FS+ 0.201 LIR+0.234 CCM+ 0.582 MOD+

0.137 SAVING+ 0.123 lLOANS+ 0.174 LASIZE

Result of MLR for loan recovery performance

Model

Unstandardized Coefficients

Standardized

Coefficients

SigB Std. Error Beta

1 (Constant) 1571.845 283.660

Family size40.980 19.131 .150

.035**

2 Lending interest

rate213.242 91.492 .201

.022**

Coordination of

committee277.034 94.566 .234

.004**

Mode of delivery3273.989 416.580 .582

.000***

Loan size166.219 93.954 .123

.080*

Land size of the

respondent171.416 68.444 .174

.014**

Saving76.765 41.648 .137

.068*

Note: *, ** ,*** Significant at 1% , 5% and 10% probability level

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Conclusion and Recommendation

Conclusion

But both the FGDS and kII results revealed that the loan committee of the sample

cooperatives was not strictly monitoring the loan utilization of the borrower as per

the loan policy of the cooperatives.

Sample cooperatives did not have a loan provision plan

Between the year 2002 and 2011, those cooperatives extended a total of Birr

2,560,563.20 for their members for production, petty trade and social purposes.

The cooperatives did not collect all loans on due date.

The MLR result shows that family size, mode of delivery, lending interest rate,

coordination of committee, loan size, land size and saving are variables that had a

significant influence on the loan recovery performance of RUSACCOs

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Recommendations

Due to lack of strict adherence to the loan policy of the cooperatives,

there were defaults

Therefore, RUSACCOs and other responsible bodies should have totake strict measures.

The collateral type to get loan in all RUSACCOs is dependant only onthe saving amount of the borrower they have to develop additionalcollateral system.

There are members who took credit and are guarantor for someother members.

Therefore members should get extension service form concernedbodies.

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Self-financing of RUSACCOs from mobilized savings is

compulsory for their healthy operation.

However, the demand for loans cannot be solved from their internal

source only.

Therefore, an external credit is required to meet the loan demand

and development needs.

Loans should be supervised regularly for increased out come and

proper utilization of resources.

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Thank you!!!

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