MICRO FINANCE INSTITUTIONS AND RURAL DEVELOPMENT; A CASE STUDY OF RUKUNGIRI TOWN COUNCIL

BY TUMWEBAZE LYDIA M BA106571521DU

H

A THESIS SUBMITTED TO KAMPALA INTERNATIONAL UNIVERSITY, SCHOOL OF POST GRADUATE STUDIES IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD OF MASTERS IN BUSINESS ADMINISTRATION OF KAMPALA INTERNATIONAL UNIVERSITY

October 2007 DECLARATION

I declare that this thesis is my original work and the best of my knowledge. It has never been submitted before, for any academic work or published at any university or any institution of higher learning.

Signature TUMWEBAZE LYDIA M BA10657/52/DU APPROVAL

This is to certify that this dissertation submitted for examination has been my supervision.

DRA D~)A( USII E Date~i I DEDICATION

I dedicate this work to my beloved mother who through tireless effort ensured that I reach this great height. Without her effort, the dreams of reaching this level would have been a nightmare. God bless you mother.

In ACKNOWLEDGEMENT lam great full to the almighty God for his blessings that have brought me thi

I extend special thanks to my supervisor Dr. Musiime for the ideas, professional advice and support he accorded me throughout the thesis period.

Special thanks as well go to the people of Rukungiri town council who spared their time to give me information that was required to complete the thesis.

I thank my mother, sisters, brothers, friends and the Kampala international management for the financial, moral and spiritual support during my struggle. May the almighty God bless you.

iv TABLE OF CONTENTS Declaration Approval ii Dedication iii Acknowledgement iv Table of contents v List of tables/charts viii Abbreviations ix Abstract

CHAPTER ONE INTRODUCTION 1.0 Background of the Study 1 1.1 Government intervention 1 1.2 Statement of the Problem 3 1.3 Objectives of the study 4 1.4 Research questions 4 1.5Scope of the study 4 1.6 Significance of the study 5 1.7 Conceptual frame work 6

CHAPTER TWO LITERATURE REVIEW 2.1 Introduction 7 2.2 Micro-finance institutions 7 2.2.1 Origin of MFIs 8 22.2 The micro-finance industry in Uganda 9 2.2.3 Government intervention in the micro-finance sector 11 2.2.4 Forms of micro-finance products/services 13 2.2.5 Out reach of MFls in Uganda 15 2 3 Rural development

/~ ~‘

V ~

\~ ~ ~:-~j1 ~ I

O~T ~) /,

D/TE~ 2.3.1 Rural development strategy in Uganda 2.3.2 Classification of the rural people and MFls clients’ real needs 18 2.4 Impact MFls on their clients 20 2.5 Challenges faced by MFls 23

CHAPTER THREE RESEARCH METHODOLOGY 3.1 Introduction 28 3.2 Research Design 28 3.3 Study area 28 3.4 Sample Size 28 3.5 Sample frame 30 3.6 Research Procedure 30 3.7 Sources of Data 30 3.7.1 Primary Source 30 3.7.2 Secondary Source 30 3.8 Research Instruments 31 3.9 Data analysis 31 3.10 Limitations of the Study 31

CHAPTER FOUR DATA PRESENTATION, ANALYSIS AND INTERPRETATION 4.1 Introduction 32 4.2 Presentation and analysis of the findings 32 4.2 .1 The services rendered by MFls to the rural people in the area 33 4.2.1.1 Category of clients that receive micro finance services 34 4.2.1.2 The quality of MFls’ services rendered to the rural people in the area. ..37 4.2.1.3 Suggestions of the respondents on the existing services rendered by MFIs 37 4.2.2 How MFls have contributed development in the area 38

vi 4.2.2.1 Types of income generating activities operated by MFIs’ clients 40 4.2.2.2 Income profile of the respondents 41 4.2.3 The challenges faced by MFls while rendering their services to the people in the area 42 4.2.4 The strategies put in place by MFIs to help over come the challenges 44

CHAPTER FIVE DISCUSSIONS, CONCLUSIONS AND RECOMMENDATIONS 5.1 Introduction 46 5.2 Discussion of the findings 46 5.3 Conclusions 48 5.3.1 MFIs’ contribution to development in Rukungiri Town council sub-county.48 5.3.2 challenges faced by MFls while rendering their services 48 5.3.3 strategies put in place to over come the challenges 48 5.4 Recommendations 50 5.5 Areas for further research 53

REFERENCES 54

APPENDENCES Appendix I: Questionnaire for the clients of the selected MFls Appendix II: Questionnaire for the staff of the selected MFIs Appendix Ill: Introductory letter Appendix iv: Sample size of the selected respondents

vii o,~m:. LiST OF TABLES *

Table 1; Micro-finance in Uganda 10 Table 2; Products! services offered by MFls 14 Table 3; Occupation/I ivel ihood characteristics of different social-economic Groups 19 Table 4; Benefits as ranked by the clients 20 Table 5; Services rendered by MFIs to the rural people 32 Table 6; The age bracket of the respondents 34 Table 7; How MFIs have contributed to development in the area 37 Table 8; Types of income generating activities operated by the MFIs’ clients in the area 40 Table 9; The challenged faced by MFIs while rendering their services in the area 42

LiST OF FDGURES Figure 1; The level of education of the respondents 35 Figure2; The quality of MFIs’ services rendered to the rural people 36 Figure 3; Rural people’s monthly income profile 41

viii ABBREVIAT~ONS

ADB — African Development Bank.

AMFIU — Association of Microfinance Institutions in Uganda.

BOU — Bank of Uganda

EU — European Union.

FINCA — Foundation for International Community Assistance MFls- Micro-finance Institutions

MCAP — Micro-finance Capacity Building Plan.

MDI Act (2003) - Microfinance Deposit — taking Institution Act (2003) MFPED- Ministry of finance, planning and Economic Development.

MOP — Microfinance Out reach Plan.

MTCS — Medium Term Competitiveness strategy. NGOs- Non-Governmental Organisations. They often register as companies limited by guarantee and register with the NGO Board.

N PART — Non-Performing Assets Recovery Trust.

PAP — Poverty Alleviation Project. PEAP- Poverty Eradication Action Plan. PRIDE- Promotion of Rural Initiatives and Development Enterprises.

RMSP — Rural Microfinance Support Project. ROSCA- Rotating Savings and Credit Associations

SMES — Small and Medium Scale Enterprises

SUFFICE — Support to Feasible Financial Institutions and Capacity Building Efforts.

UNDP — United Nations Development Programme

UWFT — Uganda Women’s Finance Trust

YES — Youth Entrepreneurship Scheme.

ix z~’. /~ ~ j

~ ABSTRACT . . . Micro-finance institutions that include cooperatives, credit unions, NGOs and~ ~ some commercial banks were identified as the only financial institutions that would serve the poor. The services provided include savings and credit, assistance with group formation, business information and training services to their clients. Utilization of the services will enable the poor to increase their income levels, reduce poverty levels and women clients will be empowered.

Despite MFls’ efforts to reach the poor in rural communities, the poor are still unemployed, their level of poverty is high, and their general welfare is also low. The study was guided by both general and specific objectives; to establish the impact of MFls on rural development. The specific objectives to: examine how MFls have contributed development in Rukungiri town council, find out the challenges faced by MFIs while rendering their services to the rural people in the area and establish the strategies they have put in place to help overcome the challenges. The study was also based on a descriptive case study research design and both primary and secondary data was used in the study. Primary data was obtained with the help of researcher-administered questionnaires.

The findings were analyzed in line with the objectives and found out that MFIs have to a greater extent contributed to development in the area. Through the services rendered, the MFls clients were able to increase their income and reduce poverty levels. However, MFIs are faced with challenges while serving the people in the area that included high transaction costs, lack of appropriate products for the poor. And MFIs have tried to put in place strategies to help overcome some of the challenges like the classification of the rural people so that they can be assisted accordingly, adoption of credit registers. The researcher made recommendations on various aspects like savings, credit, and training so that the quality of the services could be improved. And that the government of Uganda should utilize Twesigye (1995)’s recommendation so as to be able to realize development in rural areas.

x CHAPTER ONE INTRODUCTION

1.0 Back ground of the Study Rural development means the improvement of the economic and social well being of the rural population. It involves extending the benefits of development to the poor the majority of whom reside in villages. The group includes small-scale farmers, tenants, small-scale businesspersons, and the landless. Cleaver (1997). However, according to World Bank (1993), low levels of development in rural areas have been a challenge to many governments in developing countries. And no country can have a complete growth if the rural population is not given a special attention. For instance, in Uganda 85% of her population is living in rural areas, the rural population is largely engaged in agriculture that provides them with unreliable incomes that depend on weather and sheer luck. The population is also engaged in small-scale enterprise that yields small income as compared to their expenditure; hence low living standards of the people in the rural areas. And the identified key constraint facing the rural people is lack of access to formal sector financial services to enable them to take advantages of economic opportunities to increase their level of income, expand their business, and hence improve their welfare.

1.1 Government intervention In the case of Uganda, the issue of the importance of improving financial access to the rural people was identified as a key development strategy right from the 1960’s. The formal banks that were inherited from the colonial government were judged to be serving the trade sector and neglecting the agricultural sector that was the backbone of Uganda’s economy employing over 80% of the population especially in the rural sector. This motivated the government to set up state owned banks (like the former Uganda commercial Bank Limited) whose mandate included among others to

(~POSTGRADUATE ~, i~ LIE~RARY ~ \~ DATE \ provide credit to the rural sector including agricultural credit. This was under th~?o(,~ policy of sectoral allocation of credit and controlled interest rates, which were administratively fixed by the Central Bank. The credit to the rural people engaged in agriculture was extended mainly in kind through the supply of production inputs like fertilizers, high yielding seeds and tractor hire services under special bank schemes like rural farmers scheme. The recovery performance of these credit schemes was poor partly because of the linkage between production and marketing. There were however concerns that this direct credit was not reaching all the rural people, but it was accessed by a small percentage with good political connections.

As a result of the identified concerns of direct credit, the controlled interest rate policy and the credit allocation policy were later dubbed as financial regressive policies contributing to the inefficiency of the financial sector and the financial sector reforms, which were implemented in the 1990’s were intended to re address the problem. The financial sector reforms included; liberalization of interest rates, removal of all forms of credit allocation, the privatization of state owned banks, design of appropriate banking laws (financial institution statute 1993), strengthening the independence and capacity of Bank of Uganda (The Bank of Uganda Act, 1993).

The consequence of the financial sector reform included the closure of some distressed banks, the closure of loss making rural branches of the re-structured public sector banks (UCB) which ultimately created a financial service gap especially in the rural areas (Bategeka, 1999)

As a result of the closure of banks, the micro-finance institutions that were either local or foreign, Non-Government Organizations (NGO’s) came in to fill the gap created. These NGO’s came with the mission statement of targeting the rural people, provided mainly credit in cash and other financial services as opposed to previous intervention that provided input. Though the government also ran some

2 credit programs like “entandikwa” and “youth entrepreneurship scheme”(which collapsed). Under scored the need for government to divert itself from direct credit delivery and leave it for the private sector. With the realization of the fact that micro-finance institutions can serve the unserved population, the government and donors play the role of policy formulation and provision of enabling environment for private sector to deliver micro-finance services to the rural people in a sustainable way through loan operational funds, capacity building and technical assistance. Micro-finance institutions have actually been able to reach the “economically active” poor with their financial services in both urban and rural areas of Uganda. Therefore, the researcher wished to establish the extent to which MFls have contributed to rural development.

1.2 Statement of the Problem Despite the existence of MFls program in Uganda since 1990s, plus the government’s support for the program to be extended to rural areas through projects like Micro-finance Outreach Plan (MOP), literature and practical daily experience indicate that the rural population still constitute a large disadvantaged group.

According to the budget speech (2001), Mr. Sseruwada said that despite impressive economic growth (6.85%), poverty still exist and there are increasing levels of unemployment in rural areas. According to Sseruwada, 48.2% of the people living in rural areas still live below the poverty line (below Uganda shillings 6000 per mchth), unemployment levels are increasing and the general welfare of the rural people is very low. This undesirable and worsening situation has fronted a challenge to researchers and rural development activists. It is against such background that the researcher wished to establish the impact of MFls on rural development using Rukungiri town council as the case study.

3 \~

1.3 OBJECTIVES OF THE STUDY ~* General ~ The general objective of this study was to establish the impact of MFls on rural development in Rukungiri town council. Specific (i) To examine how MFls have contributed to development in the area. (ii) To find out the challenges faced by MFls while offering their services to the rural people in the area. (iii) To establish the strategies put in place by MFls to help them over come the challenges.

1.4 Research questions (i) How have MFls contributed to development in Rukungiri town council? (ii) What are the challenges faced by MFIs while rendering their services to the rural people in the area? (iii) What are the strategies put in place by MFls to help them over come the challenges?

1.5 Scope of the study The study concentrated on establishing the impact of micro-finance institution on rural development in Rukungiri town council. The study basically considered the services rendered by MFIs to the rural people, how MFIs have contribution to development in the area, the challenges faced by MFls while rendering their services to the rural and the strategies they have put in place to over come the challenges.

The study was conducted in Rukungiii town council in Rukungiri district. The area has 4 wards (eastern, southern, northern and western). This area was selected because it is where almost all MFls outlets are located and the people in the area use MFls services.

4 Stratified sampling was used to select respondents for the study because the study only considered MFIs clients and staff. The soven’s formula was used to determine the number of respondents from the selected MFI5 to be able to determine their income levels, economic status and their general welfare. Then simple random sampling was used to select the determined number. Two micro-finance institutions were selected for the purpose of this study: PRIDE Uganda, Centenary Bank using simple random sampling because all the MFIs outlets are concentrated in one ward (the southern ward)

1.6 Significance of the study This study will be significant in the following aspects; The MFIs clients and the general public will be aware of the variety of services offered by MFIs and their various activities.

The recommendation to be made after the analysis of the collected data will help the selected MFls and the entire micro-finance industry to design effective policies that will address the rural people’s needs.

The information derived from the study will provide financial analysts, policy formulators and researchers with the basis for further research or know the problems they are likely to face while carrying out a research in Rukungiri district. .4-

1.7 Conceptual framework

Micro-finance institutions Contextual -Financial factors Rural intermediation -Political stability development -Social -Social culture -Poverty reduction intermediation -Infrastructure -Women -Enterprise development empowerment development -Economic policies -Increased services investment

Source: Literature Review

The diagram above, explains that micro-finance institutions provide services that include financial intermediation (savings, credit schemes, insurance) enterprise development services (business information and training) and social intermediation (group formation, cooperative training, leadership training) to the rural people. However, the ability of the poor to use such services and MFls to provide the services effectively will depend on the contextual factors like infrastructure development, social culture, political stability that will influence the services provided by the MFls and the activities to be undertaken by the poor that enhance development. Give the above factors, the impact of MFIs on rural development will be realized through poverty reduction, increased investment, increased levels of incomes, improved welfare, and trade development if the financial services are used by the rural people. /

~ CHAPTER TWO UTERATURE REVIEW 2.1 Introduction This chapter tackles the existing literature about micro-finance institutions in relation to rural development. It also highlights the MFls sector and coverage in Uganda. Plus the categories of the rural people and their real needs. It involves secondary data obtained from textbooks, journals, periodicals, and bulletins among others.

2.2 Micro-finance institutions James (2005) defined MFls as entities in the business of providing financial to low income people. The original focus of micro-finance was on the provision micro credit- small loans usually for short periods to finance working capital for micro-enterprises usually run by low-income people. However, the field of micro- finance has broaden greatly beyond credit only, to include micro-savings, micro insurance, remittances and other payments all of which have a great impact on the lives of the poor.

However Ledgerwood (1998), opined that in addition to financial intermediation, many MFIs provide social intermediation services such as group formation, development of self-confidence, and training in financial literacy and management capabilities among members of a group Thus, the definition of micro-finance should often include both financial intermediation and social intermediation.

Abila (2004) defined micro-finance as a specialized financial intervention meant to serve the poor in our community. It is micro because of the small size of the transactions, which involve proving loans as low as Ush 50,000 and accepting saving deposits as small as Ush 5000. It is financial because it provides safe and reliable financial services to the poor.

L~PO~ 7 L vrI~ Patrick further submitted that micro-finance is an investment to the poor. It is about improving the general economic security of the poor, enhancing them to create, own and accumulate wealth and assets. It further helps them generate productive self-employment without external assistance, there by addressing unemployment problems and seasonal fluctuations in incomes.

2.2.1 Origin of MFIs. Dr. Yuns popularized micro-finance through his work with urban women in Bangladesh. Dr. Yuns began a micro-finance program among women in Bangladesh in 1976 through the University of Chittagong. However, the concept is relatively simple and enjoys along tradition in many developing countries. The basic idea of micro- finance is to provide credit to working poor who other wise would not have access to credit services. This service has been provided in variety in different counties by moneylenders in poor communities for along time. The difference in the model popularized by Dr. Yuns was the focus on equitable credit for the purposes of improving economic activities in poor communities. Micro-finance products are different in different regions however; there are some unifying characteristics that allow a program to be considered a micro- finance program include lack of substantial amounts of collateral, group lending, small amounts of capital paid back with in a short time frame, higher but fair interest rates. (Zeller and Meyer 2002)

Versuluysen (1999) was also in line with Dr. Yuns idea about Micro-finance. According to Versuluysen, lack of other means to survive, the poor and those who cannot find jobs are increasingly resorting to self-employment in order to survive. Their small businesses have grown into a huge parallel economy that is altering the social geography of cities, towns and villages in developing countries. The growing role of self-employment and the fact that the poor are considered “unbankable” has also given rise to a new generation of financial intermediaries that are willing to work with the poor and Self- employed thus micro finance institutions.

8 / ~,

‘1

* )Am.

In Uganda, the concept of MFIs began in 1990s. In 1992, the government t~, Uganda in conjunction with East Africa development Bank championed the idea to have micro credit schemes as means of poverty alleviation in Uganda. Many MFls programs like credit schemes came as a result of low- income people pursuing business activities that were largely being ignored by the formal sector. These enterprises could not obtain credit from commercial banks, which have average lending threshold of US $ 100,000 and generally would deal with large firms (MFPED 2000) Among the pioneers of MFls in Uganda are Promotion of Rural Initiative and Development Enterprises (PRIDE) Uganda, Uganda women’s Finance Trust (UWFT) and FICA (Micro Finance Journal 2002). Most MFls are organized and operated by non-governmental organizations with initial capitalization from donors, who are interested in growth of small-scale enterprises. Their main objectives are reaching the poor and getting them means of coming out of poverty gradually through supporting small scale enterprises (Gohary 1998).

2.2.2 The Micro-finance industry in Uganda. According to Maureen (2004) Micro-finance in Uganda is a long history of informal financial services with providers and agencies such as munno mukabi,, bataka twezikye societies, village credit and savings associations, savings groups and moneylenders. Maureen further opined that micro-finance was considered as ‘charity’ to the poor. They (poor) were viewed to be too poor to repay the loan at a commercial rate and therefore, any loan given to them had to be subsidized. And that micro-finance is widely accepted as an activity not only a powerful instrument for achieving national development, but it can also be a very successful commercial operation.

A range of institutions provide micro-finance in Uganda. According to BOU (2001) policy statement on Micro-finance regulation, these institutions are

9 I

ii~i~~ grouped under four tiers. Tier 1 includes commercial banks, tier 2 includes crèd~ ~ institutions, while tier 3 includes micro deposit taking institutions (MDI) and tier 4 includes non- BOU regulated institutions.

Accord ing to AMFIU annual report (2006) the regulated micro-finance institutions include centenary bank, commercial micro-finance limited, FINCA Uganda, PRIDE, Uganda Finance Trust, Uganda micro-finance limited. These MFls vary considerably in terms of scale, professional skills and performance standards. Uganda has the leading micro-finance industry in Africa on the basis of competition, enabling environment, effective coordination of players, micro- finance operating as business and not just a social function.

Table 1; Micro-finance in Uganda Number of outlets Over 1000 Number of clients Over 600,000 Number of beneficiaries Estimated at 3 times the number of clients Outstanding loans to MFI Estimated at 87 billions clients Saving balance of MFI Estimated at 129 billions clients Source: AM FlU president (Mrs. Katantazi) April 2004

As a result of fast growing capacity in the Micro-finance industry in Uganda, the MFIs established an umbrella organization called the Association of Micro Finance Institutions in Uganda. (AMFIU), which is a member based organization incorporated in 1999 under the NGO Act and as a company limited by guarantee. The creation of AMFIU was motivated by the need to bring MFIs in Uganda together to share experiences and to create professionalism in the industry through development of industry standards.

10

\~ ATI~ \~

< In addition, AMFIU was created with the motive of having a uniform voice to lobby the government to create a legal framework that enables the growth and development of micro-finance with in a healthy and strong financial sector. AMFIU played a key role in the consultative process for the development of the Micro finance Deposit taking Institutions Act (2003). AMFIU membership includes banks, credit institutions, NGOs, credit and savings co-operatives! institutions and special government credit programs.

2.2.3 Government Interventions in the micro finance sector. After the implementation of financial sector reforms in the early 1990’s, which among other things abolished direct credit to priority sectors, the government put in place some state credit programs such as the “Entandikwa” and the Youth Entrepreneurship (YES) credit schemes which were funded through the Treasury. The repayment performance of these loans was poor, as they were perceived to be political grants, which should not be paid back. The Medium Term Competitiveness Strategy for the private sector (MTCS, 2000) adopted the policy prescription of government divesting from direct credit delivery to minimize pollution of the credit environment through development of a bad credit culture of non-payment of loans.

According to the Entandikwa credit secretariat under the ministry of Gender, labour and social development proposed to divest the Entandikwa and YES scheme through the sale of management contacts to MFls or Non-performing Assets Recovery Trust (NPART) to sustainable MFls through institutions such as micro finance support centre limited. This would send an important signal to the population that there is no more free money from the government or donors and hence help to develop a good credit culture.

The other government supported credit program that exhibited a high level of success was the Poverty Alleviation Project (PAP) that was funded by African Development Bank (ADB) and Uganda Government. This program which was

11 ((Po~~

* 2’ implemented under the Prime Minister’s office, channeled funds to the pa ~?r~ through intermediary Entities (mainly MFls, NGOs, and co-operatives credit societies) who were paid a commission for management and recovery of the funds. The PAP projects that run from November 1994 to December 1998 disbursed a total of Shs. 13.5 billion to over 32,000 clients. To ensure continuity of delivery of financial services to the poor, a second five-year phase of the project code-named “Rural Micro finance Support Project (RMSP) was launched on 24th August 2000 with following mission statement. To provide sustainable financial services based on sound business principles through viable institutions and private sector operatives to the economically Active poor engaged in small-scale enterprises in the urban and rural areas of Uganda, so as to improve the standard of living. To provide capacity building through the micro finance support center to micro finance institutions and private sector operatives to enable them to deliver financial services sustainably to the active poor. (New vision 22 April 2004)

Due to the good performance of the RMSP project, government decided to institutionalize this project through the creation of “The micro finance support centre limited” a company limited by guarantee which would continue to wholesale credit to MFls in a sustainable manner. To ensure increased access to micro-finance by the poor, a project called “The Micro-finance Outreach Plan (MOP) was created under the Ministry of Finance, Planning and Economic Development (MFPED) to coordinate the efforts to ensure that well-managed, professional MFIs expand their services to cover the currently under-served areas in the country. MOP achieved this through a number of strategies that include capacity building of MFIs and the matching grants facility (MCAP) for remote rural outreach. Under the MCAP the government would pay up to 50% of the cost of branching out in rural areas or even covering the venture cost, say for the first year that the

12 organization starts its operations. This was an incentive mechanism to motivate MFIs to open branches in the rural areas.

The government is still proving more incentives to the financial institutions serving the rural community. For instance Dr. Suruma E. sought to increase credit to agriculture by making bad loans tax deductibles. This was an incentive to motivate financial institutions that are serving the rural clients in the agricultural sector that provides then with unreliable incomes that depend on weather and sheer luck. This unreliable income has contributed to high loan defaults among the rural clients and has affected the sustainability of the institutions in those areas. In the budget speech 2007/2008, Dr. Suruma said “In order to further encourage banks and to reduce the costs of lending to the agricultural sector, lam proposing that expenditures in lending to the agricultural sector be deductible for tax purposes.” However, according to Mr. Banyenzaki Rubanda county MP, the Micro-finance program would fail though highly supported by the government if the rural population was not sensitized about the services and the benefits of the program. (Shabomwe 2005)

2.2.4 Forms of micro-finance services/Products According to Rutherford (1996), MFls mainly provided micro-credit schemes to their clients. According to Rutherford, micro-finance credit schemes were about enabling people to profitably use small sums of cash to generate a return. He further said that the scheme could be divided into two types: first, those that build up cash reserves through foregoing income. Savings does this by making deposits out of income now and forth while foregoing its current use in order to draw a sum of these savings in the future The second type of credit scheme service allows assets to be converted into and out of lump sum of cash. Mortgages and pawns are the main examples of such services.

13 Sseruwada (2002), Observed that if poverty is understood as “low level~ income per household,” then reducing poverty is about raising average income levels. Therefore, providers of financial services who aim at enabling small-scale enterprises should focus on credit provision to increase their level of income, particularly credit for small-scale enterprises including agricultural production.

According to Gariyo (2001), MFIs did not just offer credit or help in mobilizing savings. During the survey, they sought to assess the range of financial services that MFls offer to their clients. These included credit delivery, savings, mobilization, training in micro credit delivery, group formation, loan applications, and insurance. The range of products is summarized in table 2. From the information obtained, 95.7% of the MFIs helped their clients with loan applications. 41(87.2%) assisted with group formation, monitoring of group activities, and training. Only 21(44.7%) offer credit with out other products, 15(10.6%)offer both credit and savings products. 10(21.3%)offer other products such as insurance. A combination of products is essential for effective delivery of micro-finance

Table 2: Products offered by MFIs Products Number of MFIs Percentage responding Assistance with loan application 45 95.7 Assistance with group formation 41 87.2 Monitoring activities of groups 41 87.2 Offering training to clients 43 91.5 Credit only 21 44.7 Credit and Savings 15 10.6 Others (insurance) 10 21.3 Source: Gariyo (May 2001) However, Ledgerwood (1998) concluded that there are three broad categories of services/products that may be provided to micro finance clients; the financial intermediation or financial products/services such as savings, credit, insurance, credit cards and payment, Social intermediation or the process of building human and social capital such as group formation, leadership training, cooperative learning and Enterprise development services or non financial services that assist micro entrepreneurs such as marketing, business training, production training and sub sector analysis.

~2.2.5 Out reach of MFls in Uganda Graham (May 1999) indicated that MFIs targeted non-poor and upper poor micro and small entrepreneurs. They have provided limited services to the poor and none to the very poor. According to him, coverage was low, with only 1% to 2% of entrepreneurs reached. The poor did not join MFls because MFls staff and group members excluded them. At times they excluded themselves because MFls products were not attractive to them. In all the literature reviewed in this study, a different view on outreach was only established by finding from the research done by the Economic Research Service (2000) which reported that in development countries, MFls reached about 7% of all households; 55% of MFls were active in rural and remote areas. Target groups were farmers, cattle keepers, fishermen and small entrepreneurs. Some MFls targeted disadvantaged group including elderly. This scenario indicated a lucky position because in Uganda micro-finance industry has experienced continuous up ward growth trend. 2002 analysis, estimated that there were more than 1300 micro finance organization operating through 500 plus branches, including hundreds of NGOs and over thousands co operatives and community based organizations (preliminary analysis, of the National baseline survey of MFls in Uganda)

15 :~ ~

~

2.3 Rural development ~ The World bank (Burkey 1998) refers to rural development as a strategy to improve the economic and social life of the rural poor, the majority of whom reside in villages. It involves extending the benefits of development to the poorest among those who seek a livelihood in rural areas. The group includes small- scale farmers, tenants and landless.

The economists (Todaro 1997) conceived development as a multimentionall process involving major changes in social structure, popular attitudes, and natural institutions as well as accelerating of economic growth, the reduction of inequality and the eradication of poverty.

Rural development involves reduction in rural-urban income gap, promotion of gender equalities and women empowerment, combating malaria and other diseases affecting the rural people, increased employment, and ability to over come liquidity constraints by the rural people thereby alleviating poverty and improving their welfare. (World Bank 2006)

2.3.1 Rural development strategy in Uganda Uganda cannot move forward if rural areas are left behind. The International Bank for Reconstruction and Development (July 2002) recommended the expansion of financial services to rural areas. It observed that a sustained process income generation will require improved access to rural financial services, including savings, credit, insurance, collateralization of fixed and moveable property, transfer of funds, trade finance and more complex financial instruments and transactions. Major focus of the rural financial strategy was thus to bring the financial institutions closer to rural clients and to make the clients more attractive to service providers. The rural development strategy identified rural poverty reduction, improvement in the well being of the rural people, and achievement of the broader economic growth as the main strategic objectives in the development

16 strategy. And these objectives could be achieved by extending financial services to the rural people.

In an effort to extent the financial services to the rural people, the government has introduced “Bana baggagawale” prosperity for all scheme. In order to assist people who are landless or whose land holding is too small to realize an income that is above the poverty line, government has set a side revolving fund to be used as a land acquisition loan facility. The facility was to be disbursed through Post bank and participating SACCOs and will be secured by the land that will acquired. Dr. Suruma in the budget speech 2007/2008 said” I have allocated sh 3 billion for this program, which will initially cover 30 districts with each district getting sh 100 millions. But the amount per borrower was to be kept low in order to enable many people to participate.

However, Ugandans have expressed displeasure with the way government intends to issue the prosperity for all funds. According to the African Peer Review Mechanism (APRM) team who toured different areas a cross the country. “The loans are not benefiting people from the grassroots. We need to see that such services are accessible to the people especially the farmers,” said Abiya, the shadow minister for sports. The many people consulted were of the view that if these funds are pushed to the grassroots, there will be ease in identifying markets giving farmers an opportunity to effectively fight poverty. www.red paper.ug

Though Uganda has tried to put a special attention on the rural population by extending financial services to them as a rural development strategy, the rural population still constitutes a large disadvantaged group. Twesigye (1995) concluded that the rural masses are not consulted or involved in the initiation of most strategies. And said that this explains why most rural development strategies introduced in African countries fail. But to realize development in rural areas, Emmanuel recommended that the rural masses should be mobili

17 \ (I

f~ ~T ~ ~ participate in their own development and to become consultants on govemmer~~~ projects meant for their development. Ask them what they need most and why and provide it. They know best what is good for them and if you disagree, then you have to teach them to see lasting value and necessity in your own project.

2.3.2 Classification of the rural people and the MFIs clients’ real needs. Classification of the rural people Jose’s study (1998) recommended for classification and focus on the real needs of the poor so that they could be assisted according, since some rural people could, while others could not increase their income by themselves. His findings tallied with Arderner’s findings in his report of 2000, which indicated that those who could increase their money by themselves needed assistance to create activities that could put them closer to or above the poverty line, while those who could not increase their income by themselves needed alternatives assistance from government, such as subsidies and welfare support.

Mean while, Graham (May 1999) in an effort to classify the rural people, divided society in East Africa into five social-economic groups (The very poor, upper poor, poor, non poor and the wealthy). According to him, the poor had low income, limited assets and engaged in activities that reflect those circumstances. Persons who participated in the Graham study were placed in these categories according to the information that was gathered about their incomes, assets and occupation (as indicated in table 3)

18 Table 3: Occupation /livelihood characteristics of different social-economic groups. Social economic group Occupation /means/sources of income Wealthy Professionals, consultant, factory owners, property owners, civil servants Non poor Small entrepreneurs, skilled factory workers, taxi owners, Real estate dealers, farmers, fishing boat owners, Hair salon owners, teachers, nurses.

Upper poor Market traders, unskilled factory workers, small fa mers, fishermen, established hawkers, and small salon operators.

Poor Street hawkers, domestic labourers, marginal farmers, peddlers, plantation workers Very poor Unemployed, elderly, refugees, disabled, landless, casual labourers, street children, orphans, Beggars. Source: Graham (May 1999)

Client’s real needs Despite shortfalls, the role of MFI5 in Uganda cannot be under stated. Yawe (March 2002) presented clients’ benefits from participation in micro-finance activities and the needs that were catered for as indicated in table 4. 1~p ~T ~, Table 4: Benefits as ranked by the clients \* DATE: Benefit Percentage of total respondents. Increased house hold income 83.1 ‘N000 ,, Ability to pay school fees 60 Access to more business opportunity 57.8 Improved family nutrition 45.8 Increase ability to pay health care 38.8 Source: Yawe (March 2002).

The benefits were both economic and social, while the short falls included the nature of loan products provided, Insufficient training, short payment periods and small loan sizes .In Yawe’s study, many clients confirmed being trained, but the training was insufficient for the nature of the loans they were under taking .The repayment terms were also oppressive and the loan sizes were too small to enable them make reasonable investments.

2.4 MFls and rural development According to Ledger wood (1998) micro-finance is not simply banking; it is a development tool. The goal of MFls as development organizations is to service the financial needs of underserved or unserved population in rural areas as a means of meeting development objectives. This is evidenced in many studies as discuss below:

According to MFPED (2004), in Uganda like any other developing country, MFls are reaching out to millions of people as a means of improving their livelihood and bettering their communities. Micro-finance creates an enabling environment that empowers the poor to actively participate in making choices affecting their lives and to harness their potential to improve their livelihood. Many of those who have utilized the financial services of MFIs have success stories to tell. For instance:

20 Ahmed Kimbuye says that every human being deserves to live a better life, but it can only happen if the resources are made accessible. “Micro credit is big factor, I own a house, livestock and a small business. It has helped me improve my life and set up sustainable projects that I can live on happily and support my family” (New Vision Thursday 7 July 2005)

Nayima says,” Ten years ago, I could not take care of my children. My life was hinged on doing odd jobs in order to find a meal for the family. My ten children had dropped out of school for lack fees. Yet lack education meant that the escape route from poverty would never become a reality for the family. However, the course of that event became no more after I accessed a loan of sh. 100,000 in 1995 through FINCA. I now operate a restaurant and a catering business feeding more members than my 10 children for whom I would toil for hours to find a meal.” (New vision 2005)

Zohir and Martin (2004) studied the potential wider impacts on a micro-finance program. They suggested two cases as wider impacts from participation in MFI. Casel deals with the wider impacts of MFIs as new institutions. Because MFIs are actually part of a natural progression from informal moneylenders to formalized financial institution, it is natural that this formalization would have wider community impacts for participants and staff. The authors suggested a number of potential outcomes including additional agricultural production and value added to products sold in local markets, increase in wage employment especially among the poor, and the emergence of new interest group in the local political scene. Case 2 deals especially with the wider impacts of group participation. This model suggests that the cultural implication of group participation encourages cultural development, which separately engenders social and economic development. These two factors in turn impact political participation and activism in poor communities

21 /\~ /~: (~p ~ ~ y \ * Germina and Mutesasira (May 2000). In their study “The impact of MFIs dq~ poverty alleviation” concluded that a combination of social intermediation and~’~°01n financial services contributed to reduced vulnerability and increased women empowerment for women clients in rural areas through: Building women’s human assets like self-esteem, bargaining power, control over decisions. Increasing women’s social assets such as social networks, membership of functionally useful groups and access to wider institutions in the society. They further said that loans from MFIs were used to expand business capital and generate more profits. Clients used profits from loans to buy physical assets such as houses and land. UWFT loans were also used for human assets such as education and health.

Banga (2004) observed that credit is considered to be an essential in put to increase agriculture productivity, mainly land and labour. It is believed that credit boosts income levels, increases employment at the house hold level and there by enhance rural development. Credit enables rural people to overcome their liquidity constraints and under take same investments, especially in improved farm technology and inputs. There by leading to increased agricultural production. Further more, credit helps rural people to smooth out their consumption patterns during the lean periods of the year.

Wamasembe (2001) observed that MFls by financing small and medium scale enterprises, they made a significant contribution to creation of employment levels and also increased household income. According to Wamasembe, the SMEs provided employment opportunities to approximately 90% of school dropouts, retired and retrenched civil servants, the skilled unemployed, women and army veterans.

Access to micro credit and micro-finance has been formed to increase expenditure on education and related improvements in health among poor clients and as a result human capital can be enhanced. James (2005) concluded that poor people tend to invest their income from micro enterprises that are normally

22 supported by MFIs in their children’s education and that children of micro-finance clients are more likely to go top school.

Despite the above development opportunities, which MFls contribute to rural households, formal banks hardly serve the rural people engaged in agriculture because they lack collateral that they could offer as security for loans. Furthermore, because of the small size loans, formal banks are averse to lending to the small borrowers because of high transaction costs. Another factor why formal banks are reluctant to serve people employed in agriculture is the high uncertainty of their incomes, which highly dependent on weather and Sheer luck plus their saved amounts which are too small to enable them open saving accounts with those banks. (World Bank, 1989; and Hiedhunes, 2000). As a result of these factors, poor households would rely almost exclusively on informal credit markets.

2.5 Challenges faced by MRs MFls have registered a significant impact on the improvement of the rural peoples’ welfare through their activities as presented in the previous discussion. However, MFIs are faced by the following challenges:

Lack of appropriate products for the poor, the poor are not a homogeneous group of people, hence the challenge of designing the appropriate products that meet their diverse needs. Currently, the MFIs are mainly providing generic products with standardized features. The current product features of most MFls are characterized by short loan periods (on average 4-12 months), no grace periods, weekly repayments and small loan amounts. These product features may not be suitable especially for agriculture related investments, from which the rural poor mainly derive their live hoods. (MFPED (2000)) The ministry further observed that before MFls design and implement new programs, they hardly consult the poor on the way the poor conceptuali poverty. This omission makes MFls to provide irrelevant services.

23 High transaction costs, according to Patrick and Beck (2006), in their stu~ “making micro-finance work for Africa” they concluded that the costs of serving the rural clients are high for MFIs. According to their findings, this was attributed to small sized transactions demanded by the rural people, their wide spread illiteracy and the fact that the rural people are largely geographically spread hence making supervision and monitoring costly and difficult. However, they further opined that even the clients served by MFIs are also affected by high transaction costs. They revealed that mainly these costs stem from distance to the nearest micro-finance institution, according to the respondents the median distance to the nearest financial institution ranges from 2km-6km, the time taken to reach to the nearest MEl is 30 minutes. They also revealed that the procedure for opening an account or seeking a loan is cumbersome and costly. Therefore, MFIs should find ways of reducing the transaction costs affecting them and their clients so as to be able to deliver the best services to their clients.

Default risks, according to Ledgerwood (2006), lending to some segments, especially the poor is surrounded by uncertainty about payment. They tend to have irregular/volatile income streams and expenditure patterns, they tend to be highly exposed to risks such as crop failure or a fall in commodity prices and therefore may face difficulties servicing the loans. So, financial institutions have legitimate concerns while dealing with the poor and tend to perceive such loans as risky.

Targeting the poorest of the poor, most MFIs were established in Uganda to serve the poorest of the poor, who happen to live in rural areas. Seibel (1998) noted that of the 2.6 billion people who lived in rural areas in developing countries, close to 1 billion lived below the poverty line. While the PEAP document assumes that the poor who do not have access to formal financial services will be targeted by MFIs (MFPED, 2001), noted that the MFIs are targeting only a small proportion of the poor whom they have code- named “the economically active poor.” The MFls definitions of the economically active poor are those that have businesses and the capacity to repay back the loans. From the poverty spectrum the economically active poor are the richest of the poor just close to the poverty line. There is therefore, need to create a specific policy to reach the poor.

• Lack of credit information, according to Priya Basu (2006), the problem of uncertainty are exacerbated by the lack of reliable information on the past credit history of borrowers. Credit history is difficult to obtain because the majority of the rural people rely on moneylenders and other informal lenders, and it is not in the interest of such lenders to pass on borrowers’ good credit records to other providers of finance. The unavailability of credit information has reduced the volume of lending to the rural people, because performance risks are unavailable. The current risk—management practice of financial institutions is to control loan amounts. Better credit information could directly increase the amount of financing available to rural borrowers.

~ However, James (2005), recommended the use of credit registers to over come the challenge of lack of credit information by financial institutions, according to James, credit registers allow borrowers to build a credit history and can assist in assessing risk, by reducing the cost of lending and improving access. The registries can dramatically reduce the time and cost of obtaining such information from individual sources and therefore can reduce the total cost of financial intermediation. James further said that credit registries are especially important for SMEs because their credit worthiness is more difficult to evaluate due to their limited visibility and transparency compared to large enterprises.

~ High interest rates, the interest rates charged by MFls has received much attention in several studies and the general observations is that micro-credit interest rates were by their nature different from regular formal banking interest rates because they were at a very high risk, highly labor intensive and very costl

25 ~“NpQ ~ ~ \* ~)I~ ~A ~ LI~3~1: v

\* )ATIj: to administer. According to Hatch and Fredrick (1998), Micro-credit interest rat~~0~ were high but only for some and not all loans because lending was done on a cash-flow basis, without collateral. The loan size was small and carried higher risk especially for first time borrowers. The perception of interest rates varied with one’s attachment to a loan because as Hatch observed, micro-credit interest rates ought to include all operating costs necessary to make an institution viable.

Gender bias of micro finance interventions, the major challenge is that MFls perceive gender responsiveness to be focus on women. One MFls Executive when asked about how gender responsive their policies were said “The micro- finance industry is the most gender responsive in the whole world because it targets mainly the women clients and employs many women as loan officers” This clearly demonstrates a high degree of misunderstanding of gender issues, which have implications for micro finance as an instrument for rural development. (MFPED 2000). Therefore, MFls need to know and understand the gender relations and issues, appreciate how it impacts on men and women so that their policies can be gender responsive thus enhancing the participation of both men and women in Micro-finance activities.

~~Lack of collateral, according to Ledgerwood (2006), clients of MFls especially the rural people do not have collateral, most of them for instance have no fixed collateral or only small plots of land that most often cannot be mortgaged. Even identification of alternative collateral is costly and cumbersome. So only those with assets can borrow hence a small portion of the rural population is served by MFls.

According to Joann (1998), MFls’ operations are influenced by the contextual factor in the areas they operate. The factors include economic, political, social culture, infrastructure development. For instance, economic policies that affect the rate of inflation in the country, the growth of the economy all influence the

26 required interest rate of loans as well as the ability of the clients to successfully operate their businesses and utilize the services.

She further opined that, government investment in infrastructure development (roads, electricity, and communication facilities) and access to social services also affect the way in which MFIs operate. If because of poor roads micro entrepreneurs are not able to reach markets, access health care services, send their children to school, their activities are affected and so too is their use of financial services. Also according to Joanna, social culture and political stability too influences MFls and their clients, she said that there are cases in which a certain group with in a community cannot or will not take part in a financial service project due to religious, ethnic or other social influences. She further said that during periods of instabilities like civil wars, party or tribal rivalries, MFIs activities may need to be postponed until amore stable environment, particularly where concern for the safety of both staff and clients exists. Therefore, Joann concluded that MFls should understand the contextual factors in the areas they operate in while rendering their service.

27 CHAPTER THREE RESEARCH METHODOLOGY

3.1 Introduction This chapter outlines in detail the manner in which the study was executed. It highlights the research design, sampling design, study area, research procedure. It also states the data collection methods, and data processing and analysis tools, which were used plus the limitations that the researcher encountered in the pursuit of the study.

3.2 Research Design The study was based on a qualitative descriptive case study design that involves intensive and descriptive analysis of a single entity. The research design used a systematic collection and presentation of data to give a clear insight with an aim to discover the extent of the problem. This study highlighted the services offered by MFls to the rural people and examined whether they have an impact on rural development in Rukungiri town-council sub-county

3.3 Study area The study was conducted in Rukungiri town council sub-county. The area has 4 wards they are eastern, western, northern, and southern ward. The area is predominantly occupied by Bahororo, though Bakiga have started to migrate in the area. The main activities of the people in the area are crop farming and cattle keeping. A fraction of the population is involved in commercial business. The area was selected because most of the MFls outlets are located there and most of the people in this area use MFIs services.

3.4 Sample size The study concerns MFls clients and staff. Therefore, the researcher selected 22 workers of MFls and 92 clients served by MFIs; stratified sampling was used to select respondents from the selected MFIs. The researcher chose stratified random sampling method to determine the sample size because It is the appropriate method. It helped to Identify people deemed having reliable and very detailed Information that assisted the researcher establIsh the Impact & MFI5 on rural development For MFIs, simple random sampling was used to select two MFIs from the ward since all MFIs in the area are concentrated in one ward (the southern ward) The Soven’s formula (appendix lv) was used to determine the sample size of the respondents.

3.5 Sample frame The researcher considered the diet and the workers of MFIs. Therefore, the study induded MFI5 staff and the served dlents In the sub-county. The survey population induded 22 staff members out of 23 staff members of the selected micro-finance institutions, the staff members Interviewed induded loan officers, officers in charge of traIning, administrative officers and cashiers. And 92 clients out of 120 clients served by micro-finance Institution in the area. Therefore,.the total sample frame was 114(92+ 22).

3.6 Research procedure The researcher obtained an introductory letter from Kampala Intematlonal University and presented It to the selected MFIs in the Sub- County. Respondents espedally the MFI5 staff were consulted in advance In their respective places and. appointments were made when to fill the questionnaires. The questionnaires were done face to face with the selected respondents by translating the questionnaires from EnglIsh to Runyakole language for the study to obtain vMd answers to the set questions. The collected data was organized for analysis.

29 3.7 Sources of data

~/‘ 3.7.1 Primary source This involved raw data obtained from the field through interviewing the respondents and it was obtained by use of questionnaires. These questionnaires were designed and administered by the researcher through oral interviews.

3.7.2 Secondary source This involved literature obtained from published materials, like joumals, textbooks and newspapers. The Internet was also reviewed for any published journals and presentations by prominent academician.

3.8 Research instruments This study utilized questionnaires to obtain data from the respondents. The questionnaires were designed and administered by the researcher. The questionnaire included both closed and open-ended questions. This method was selected because it was easy to administer questionnaires, it saved time and it helped to collect information that was applicable to the study.

3.9 Data analysis The data collected was scrutinized and edited to eliminate any errors. The collected data was also coded; this is the process of translating edited responses into numerical figure. A complete coding schedule was done to ensure that various responses obtained were classified into meaningful forms so as to bring out the patterns that are essential clearly. The study also made use of both qualitative and quantitative data analysis. The researcher used the generated tables, charts and percentages to establish the impact of MFls on rural development.

30 3.10 Limitations of the study The limitations that the researcher encountered during the study include: The high level of illiteracy among the population rendered the use of self- administered questionnaires difficult. The researcher personally administering the questionnaires would spend a lot of time and well-trained research assistants were also used.

Finding appropriate time to fill questionnaires was hard since the staff members of the selected MFls had other activities outside office and during office hours they were busy with office work. For the external clients, they have limited time in the bank since they just go there for financial transactions and the other hours of the day, they were busy with their daily activities. However, the researcher arranged with the clients when to fill the questionnaires.

31 CHAPTER FOUR PRESENTA11ON ANALYSIS AND INTERPRETATION OF FINDINGS

4.1 Introduction The aim of the study was to establish the impact of MFls on rural development in Rukungiri Town council sub-county. This chapter deals with the systematic presentation, analysis and interpretation of the findings from the study. The study managed to capture a sample size of 110 respondents of the targeted 114 respondents, of these; 20 were staff while the rest were clients of the selected MFIs. The researcher-administered questionnaires were successfully conducted and responded to. The main tools used for analysis-included tables for percentage analysis and graphs/charts for comparison.

4.2 Presentation, analysis and interpretation of the findings The presentation and analysis of the findings was conducted in accordance with the objectives set in chapter one.

4.2.1 The Services rendered by MFls to the rural people in the area. Table 5: Services rendered by MFIs to the rural people Statement Frequency percentage Loan services 75 68.2% Savings facilities 93 84.5% Business information and 64 58.2% training Assistance with group 48 43.6% formation Insurance 21 19.1% Employment facilities 60 54.55% Source: Primary data

32 Table 5 indicates that savings facility was the most popular service of the services rendered by MFIs to the rural people accounting for 84.5% of the respondents followed by loan facilities having 68.2%, business information and training with 58.2%, employment facilities 54.55%, assistance with group formation 43.6% and insurance service 19.1% with the least percentage of the respondents. Other services included payment service and provide custody of valuables like wills, documents of title The pattern shown in the table above implies that the rural people have a saving spirit. They do not want to consume all their money, they save their money with the financial institutions to help them cope with future financial constraints like school fees, medical expenses, burial and social expenses (marriage and birth). The rural people especially women save their money with the financial institutions because it’s hard for them to find safe places to store their cash, and that cash kept at home can be stolen; it can be captured by mothers’ in-law with hard voices, visiting relatives with hard-luck stories, and alcoholic husbands with hard knuckles.

The findings of the study are supported by Rutherford (1996)’s findings that MFls mainly provided micro-credit schemes to their clients that included savings and credit services. This is evidenced by the fact that 80% and 65% of the respondents strongly agreed that MFls mainly render saving and credit services. The findings of the study also tallied with Gariya (2001)’s findings that MFls do not just offer credit or help in mobilizing savings, but that they also offer other services like insurance, assistance with group formation, business information and training, or employment facilities. How ever, the table also indicates that insurance was the least rendered services by MFls in the area. This is attributed to fact that no sensitization has ever been carried on MFls’ services. People only depend on information from friends or relatives and this explains why savings and loan services are the most demanded services.

33 / /j~1 ~ * DAT 4.2.1.1 Category of the clients that receive micro-finance services This is a major area of observation as regards the demographic characteristics of the respondents who receive micro-finance services. The variables looked at here include age bracket, level of education and gender. The findings show that female clients dominate in the MFIs. This was revealed in the findings from the interviews conducted with MFIs staff and their clients. However, the deviation between the number of male and female clients is greater in PRIDE Uganda. Findings show that 65% of the clientele bases are female. As regards to age bracket of the respondents, the greatest percentage of them was generally in the age bracket of 20-55 years. The detail as regards to age of the clients is given in table 6.

Table 6: The age bracket of the respondents Age bracket Frequency Percentage 20-35 years 26 23.6 36-45 years 29 26.4 46-55 years 26 23.6 56-65 years 17 15.5 Over 66 years 12 10.9 Total 110 100 Source: Primary data

The implication of the pattern shown in table 6 is that MFIs prefer to offer their services to individuals who are still energetic. They are able to efficiently use the services by undertaking productive business activities that generate incomes. This is in line with the MFIs’ goal to reduce the poverty levels and improve rural peoples’ welfare through increased incomes derived from small- scale enterprises.

34 Concerning the level of education of the respondents, findings reveal that the greatest percentage completed secondary school level, followed by those of primary level.

Figure; 1 The level of education of the respondents

13.40%

1.30% 19.20% ‘~‘~‘~ I rnediaiy EFun~veisity

26.10%

Source; primary data

From figure 1, it is evident that 41.3% attained secondary school education and is the most attained level of education, followed by 26.1% who attained primary education. Those who attained university level were the minority. The above pattern is attributed to the fact that most people always find it difficult to proceed schooling beyond secondary level because of high costs associated with education. They therefore opt to start income generating activities for survival. More over at this level, they have basic knowledge to run such activities. Besides, at this level they are informed just enough to be able to transact business with MFIs to expand their activities. For instance, aspects that may require basic knowledge and understanding are ascertaining whether a profit is likely to be made from running a business using a loan given the interest rate charged on such a loan. 4.2.1.2 The quality of MFIs’ services rendered to the rural people in the area. Figure 2; The quality of services rendered by MFIs

good fair Elipoor

55%

Source: primary data

From figure 2, the respondents described the quality of MFIs’ services as good, fair and poor. 28% good, 55% fair, and 17% poor. Therefore, this makes it a challenge for micro-finance institutions to move from 55% fair position to at least 82.3% good position in providing their services in the area.

4.2.1.3 Suggestions of the respondents to improve on the existing services rendered by MFIs Employment of more staff to improve on their operations. Staff of MFIs is not sufficient as compared to the number of clients waiting to be served. Therefore, respondents suggested thatmore staff should be recruited and that both old and the new staff that will be recruited should be training on how to handle customers. Extend their outreach to include villages. This is in line with the MCAP facility; therefore MFIs should utilize this facility so as to be able to deliver services with good quality as suggested by the respondents.

Rural sensitization about MFIs’ services should be carried out. This view is supported by Rubanda county MP Mr. Banyezaki that micro-finance program would fail though supported by the government if the rural population is not sensitized a bout the services and the benefits of the program.

4.2.2 How MFIs have contributed to development in Rukungiri town council sub-county? Table 7: How MFls have contributed to development in the sub-county Statement Frequency Percentage Increasing income 69 62.7% levels Increasing 59 53.6% investment Increasing 43 39.1% agricultural productivity Empowerment of 52 47.3% women Reducing poverty 79 71.8% levels Source: primary data

Table 7 indicates that MFIs significantly contributed to poverty reduction among the rural people accounting for 71.8% of the respondents, followed by increasing income levels with 62.7%, increasing investment with 53.9%, empowerment of women with 47.3%, and increasing agricultural productivity with 39.1% of the

~

\~. * respondents. Others included increasing employment, reducing in inco~~~( inequalities, development of business sector, and managing scarce resources.

The pattern shown in the above table implies that the rural people are able to acquire the basic needs by using MFls’ services and have improved their quality of life. Through savings, the rural people have been able to cope with unexpected events like burial, medical expenses, and marriage expenses. They are also able to gather useful large sums of money for investment in livelihood activities or payment of school fees for their children. For instance, AM a client of PRIDE micro finance said that through weekly savings of 1200 shillings, she was able to gather large sums of money that helped her to start a cosmetics shop. And that she is proud that the shop is helping to finance 4 of 6 children to attend university education. She said “I could not finish school because I had to work, but am proud that my children are in a university”

The credit obtained from MFls has helped the rural people to acquire income generating and household assets. TB a client of PRIDE, he started as a small retail trader but he was unable to support his family of 11 members (his wife, himself and their 9 children) with the income earned from the retail shop. When the MFls program was introduced, TB acquired a loan of 150,000 from PRIDE and used it to increase stock in his retail shop. After a specified time, TB was able to repay the loan and acquired another loan of 300000 shillings still to increase on the retail shop stock. With the loans acquired, TB’s shop has grown bigger and he has used the profits from the shop to construct a small house with rental units on the land he owned. His income increased from both sources, he was earning 50,000 shillings per month but now he is earning over 200,000 shillings per month. Insurance facilities have also helped people to protect their assets against losses and cover major medical expenses.

38 With the MFls’ services, the rural people have been able to take advantage of economic opportunities, sent more of their children to school, have made women clients more confident and assertive, thus able to confront gender inequalities. TL a woman client of centenary bank. Her husband used to see her as a house girl waiting to be fed. TL used her father’s land title to secure a loan from centenary bank of 500,000 shillings that helped her to start a restaurant. TL generated profits from the restaurant and was able to recover her father’s land title that she had used as collateral. According to TL, “My husband now respects me and he even consults me on some family issues but he no longer sees me as a house girl waiting to be fed.”

The findings of the study are supported by the MFPED (2004)’s conclusion that MFls are reaching out to millions of people as a means of improving their livelihood and bettering their communities. However, the table also indicates that the rural people were unable to increase their agricultural productivity given MFls services. This was mainly because of fluctuating prices for agricultural products and unpredictable whether conditions that make people less attracted to improving their agricultural productivity.

39 4.2.2.1 Types of income generating activities operated by MFls clients From the findings, the greatest percentage of the respondents is in retail trade and in operation of restaurants. The results are shown in table 8

Table 8: Types of activities operated by the MFIs clients in the area Activities Frequency Response rate Retail trade 29 26.4% Tailoring 9 8.2% Restaurant 21 19.1% Bakery 17 15.5% Crop growing 17 15.5% Poultry 9 8.2% Others 8 7.3% Total 110 100 Source: primary data

From the above illustration (table 8), it is evident that the greatest percentage of the activities operated by MFls clients are retail trade (26.4%), followed by operation of restaurants accounting for 19.1%, crop growing and bakery at 15.5%, poultry and bakery at 8.2%. The category of others (7.3%) included in the above illustration includes handcraft, piggery, mechanical workshop, and artistry. This component had the least percentage individually and thus were aggregated into one category; the least individual percentage being of handcraft which is generally limited.

The pattern shown in table 8 implies that the individuals who obtained micro- finance services perceived the above types of enterprises as the most profitable from which the greatest return can be generated. This is because their objective is to maximize benefit from the services that they buy from MFls so as to improve their quality of life and that of their dependants.

40 4.2.2.2 Income profile of the respondents Figure 3: Rural peoples’ monthly income profile

0400,000490,000 100,000-390,000 1] 700,00490,000 01000000 and above

Source: primary data

Figure 3 indicates that most of the rural people’s monthly income profile is between 400,000-690,000 Uganda shillings accounting for 28% of the respondents followed by 100,.’i 390,000 and 700,000-990,000 both accounting for 26%, then his,, as and above with the least percentage of 20%.. The pattern in the chad above implies that Fis’ clients in the area were able to improve their level of income which attributed to the income generating activities under taken by the rural people as shown in table 8. As a result, the rural have improved their nutrition and health, sent more of their children to school, and improved their general welfare. /

\\~-~ ~ 4.2.3 The challenges faced by MFIs while rendering their services to thèK~0 rural people in the area. Table 9:The challenges faced by MFIs while rendering their services to people in the area. Statement Frequency Percentage High interest rates 50 45.5% Lack of enough 65 59.1% management staff Default risks 59 53.6% Lack of credit 62 56.4% information

High transaction costs 69 62.7% ~j Lack of appropriate 55 50% products for the poor Source: primary data From table 9, it’s indicated that MFls are greatly challenged by high transaction costs accounting to 62.7% of the respondents, followed by lack of credit information with 56.4%, default risks with 53.6%, lack of appropriate products for the poor 50%, high interest rates 45.5% of the respondents. The other challenges faced by MFls while rendering their services in the area include lack of collateral, high level of illiteracy among clients and social culture.

Table 9 indicates that MFls are faced with many challenges especially the high transaction costs of serving the rural people. This is attributed to the fact that the rural clients are scattered, which makes monitoring and supervision expensive and difficult after granting the loan mostly for the first borrowers. The rural people are also characterized by small sized transactions like the small loans, which are expensive for the institution, plus the wide spread illiteracy among clients that makes training costly. For the clients, the high transaction costs stem from the cumbersome procedures of opening the bank account or obtaining a loan for the

42 first time. This is supported by Patrick and Beck (2006)’s findings that the costs of serving the rural people are high.

The challenge of lack of credit information resulted from the fact that most rural borrowers depend on moneylenders and such lenders are always not willing to borrowers’ information to other finance providers. Hence making it difficult and costly for MFls to obtain such information. Lack of credit information has contributed to reduction on the volume of lending to the rural people in the area. This finding agrees with Priya Basu (2006)’s findings. The default risks is as a result of the irregular income streams and expenditure patterns of the rural people that makes lending to them more uncertain about payment. However, for the client default cases would lead to imprisonment or loss of property.

High interest rates was also a challenge to MFIs in the area, clients appreciated the small loan amounts provided but expressed dissatisfaction on the interests rates charged by the institutions that they are high. The rates ranged between 3%-5% that was high for the poor that have unpredictable incomes. The high interest rates resulted from the economic policies that affect the rate of inflation in the country. For instance according to staff of the selected MFls, the increase in fuel prices or the abolition of kavera policy that was included in the 2007/2008 budget will affect the interest rate significantly. This was supported by Joann’s conclusion that contextual factors affect the use of MFls and the ability of MFls to provide their services effectively.

For lack of appropriate products for the poor is attributed to the fact that MFls offer generic products and services of which some are either irrelevant to the poor or do not suit their needs or flexible to match with their incomes and expenditure patterns which are volatile. This is also in line with the MFPED (2000)’s conclusion that the poor are never consulted by MFls when designing

~~POSTCR~~ LIBRARY ~) - (

the products/services hence rendering services that are irrelevant to them or render services that do not meet the poor peoples’ needs.

According to the staff of the MFls, these challenges have contributed to the limited operations of MFls in rural areas because they find them expensive and unattractive.

4.2.4 Strategies put in place to help overcome the challenges faced by MFIs. Findings show that lack of appropriate products for the poor is among the challenges faced by MFls in the area and over come this challenge, MFls are now associated with better staffing policies that recruit staff from the local area who understand the vulnerability that the rural clients operate in so as to help in designing of appropriate products and services that best suits their needs. MFIs are also trying to classify the poor people according to their occupation and needs so that they can be assisted accordingly. This is in line with Jose (1998)’s recommendation for the classification and focus on the real needs of the poor so that they can be assisted accordingly. Since some could, while others could not increase their incomes themselves.

From the findings, MFls’ clients expressed dissatisfaction with the available staff as compared to the number of clients waiting to served. To over come this, some institutions have resorted to use of technology to improve on their service delivery like use of ATM machines, which have a self-service facility, where customers serve themselves anytime beyond working hours.

For default risks, some MFls like PRIDE have at least solved this problem by assisting their clients with group formation and the institution offers services like loans to members in the group so that in case of failure to repay the loan by the member, the group members are responsible for that loan repayment. And legal

44 proceedings are also taken against clients who fail to have adopted the use of repay the loan.

To over come the problem of lack of credit information, MFIs have adopted the use of credit registers. The registers would allow the borrowers to build up a credit history and could assist the institution in assessing risk, thereby reducing the cost of lending and improving access to increased loan amounts. This was in line with James (2005)’s recommendation that lenders should use credit registers that give easy and reliable access to credit history and could dramatically reduce the time and cost of obtaining it from individual sources,

~UI ~\ (~POsTcR/~~~ LIL~

* /~

I CHAPTER FIVE \* L)4~p \~ DISCUSSION CONCLUSION AND RECOMMENDATIONS.

— 5.1 Introduction The purpose of the study was to establish the impact of MFls on rural development in Rukungiri town council. The objectives of the study were to; examine how MFIs have contributed to development in the area, find out the challenges faced by MFls while rendering their services to the rural people and the strategies put in place to over come the challenges. This chapter therefore presents the discussion of the findings, conclusions and recommendations made in the study.

5.2 Discussion of the findings The findings indicate that MFls have to greater extent contributed to development in the area through rendering a range of services to the rural people that including saving facilities, loans, employment, insurance, business information and training as shown in table 5. The MFls clients in the area were able to utilize the services by under taking income-generating activities like retail trade, restaurants or handcraft as shown in table 8. As a result, their poverty levels have reduced, income and investment levels have increased, women clients were empowered and employment facilities have increased

However, according to the findings, the respondents appreciated the provision of some services but expressed concerns regarding some services like micro- finance savings and loans plus training service. For instance, it was found out that saving was a very important service for the rural people that helped them not to consume all their money. However, some expressed dissatisfaction on the procedure of opening a savings account, which was cumbersome and expensive. With loans, clients appreciated the importance of loans in developing their business enterprises but some expressed dissatisfaction on the high interest

46 rates that are charged. Plus the small sizes of loans that are offered, clients said that the loans are too small to contribute significantly to bigger investment and the oppressive nature of repaying the loans because for some institutions, clients were expected to make weekly payments and this was difficult for clients due to their unpredictable income flows.

It was also found out that training was an important service to be rendered a long side others by MFIs. The management staff of the selected MFIs expressed the vitality of training their clients especially on business management. They stated that effective utilization of other services rendered by MFI5 is built on how effectively the clients have been trained to utilize the services. The skills trained in include among others budgeting and costing, planning, monitoring, and financial accountability. The staff respondents however revealed that the high level of illiteracy largely hampers the service of training. This makes it more costly and time consuming.

The other objective was to find out the challenges faced by MFls while rendering their services to the rural people. And according to findings as indicated in table 9, MFls are mainly challenged by high transaction costs accounting to 63% of the respondents strongly agreeing. These high transaction costs stem from the small sized transactions of the rural people, their high level of illiteracy and the fact that they are scattered which makes monitoring and supervision costly and difficult. The other challenges faced by MFls include lack of appropriate products for the poor, high default risks, lack of credit information, high interest rates, and lack of enough management staff.

And the last objective was to establish the strategies put in place to over come the challenges. According to the findings, MFIs have tried to put in place strategies to help over come some of the challenges. The strategies put in place include better staffing that involves recruiting staff from the local community and -~ ~ ~

\* ~ classification of the rural so as to be assisted accordingly, use of ATM machin~≤~)’7~ to improve on the efficiency, and adoption of credit registers. Also according to the findings, though MFIs have tried to put in place strategies to help over come some of the challenges, MFIs still find serving rural population unattractive.

5.3 Conclusion

5.3.1 MFls’ contribution to development in Rukungiri Town council MFIs have to a greater extent contributed to development in the area. The findings revealed that micro-finance institutions have helped the rural people in the area to increase their income levels and investment, obtain high returns on investments, and improve their quality of life plus that of their dependents. They were also helped to store their liquidity safely, and obtain a return on their savings. They were able to do business with dignity, more children were sent to school, child labour was decreased and were able to escape or decrease exploitation by the locally powerful. Housing, nutrition and health have improved; in addition, the economically active people who are able to expand their economic activities have created jobs for others. Therefore, access to micro-finance institutions has become an important part of many development initiatives in the area.

5.3.2 challenges faced by MFls while rendering their services in the area. Though MFls have proved to be important tools in enhancing rural development, they sometimes find rural areas unattractive and this may explain their limited operation in rural areas. From the findings, micro-finance institutions are faced with many challenges while rendering their services to the rural people ranging from high transaction costs resulting from the small loan sizes demanded by the rural people that makes diligence cost per loan high, wide spread illiteracy and the fact that the rural are widely geographically spread further drive up administrative costs and

48 supervision costs after the loan is granted and many other challenges as shown in table 9.

5.3.3 Strategies put in place to over come the challenges MFIs have put in place strategies to help over come some of the challenge like classification of the rural people so that they can be assisted accordingly and better staffing that involves recruiting staff from the local community that can help in designing appropriate products that match with rural peoples’ real needs, group lending legal proceedings are taken against loan defaulters to reduce on default risks, use of ATM machines, and adoption of credit registers to reduce on the costs and time of obtaining individual credit information.

In general conclusion therefore, MFIs have to a greater extent contributed to development in Rukungiri Town council. Through the services rendered by MFIs, people were able to reduce their poverty levels, employment have increased, women clients were empowered and the general welfare of the people improved. However, MFls were faced with many challenges while rendering their services that included high transaction costs, lack of appropriate products for the poor, high interest rates and lack of credit information. Though MFI5 have tried to put in place some strategies to help over come some of the challenges like use of ATM machines, credit registers, taking legal proceedings against loan defaulters, classification of the poor so as to be assisted accordingly. MFls still find rural areas unattractive and this explains their limited operation in rural areas.

49 /~\/. / !~D

5.4 Recommendations The findings show that the causes of high transaction costs to the clients from the difficult and cumbersome procedure of opening a bank account and obtaining a loan. Therefore, micro-finance institutions should simplify the procedure of opening a bank account or obtaining a loan, this could help in encouraging more rural people to use financial institutions by reducing clients’ transaction costs. Also to reduce the financial institutions’ cost of lending to the rural people, the government of Uganda should implement Dr. Suruma (2007)’s proposal that expenditures in lending to the agricultural sector be deductible for tax purposes.

Findings also revealed that lack of appropriate products for the poor was a challenge to micro-finance institutions therefore, they should have flexible products and services for the poor. For instance, the interest rates charged on loans should be revised to suit the needs of the clients. This can be best done by interviewing the clients and get an opinion on what they really want. However, there must be an optimal rate, which is not too high and at the same time not too low to cover the operating costs. There is also a need for flexibility in scheduling of loan repayments.

Training was seen as an important service to the rural people in the area but there is need to develop other methods of training so as to increase on learning. Wishes from the interviewed clients include on-site training, trade fares, consultancies and business counseling. Micro-finance institutions should also encourage their clients to contribute towards covering training costs.

Findings revealed that lack of credit information by MFls for their clients makes the process of lending to the rural clients costly. However, this can be solved if current regulations may provide for the sharing of information. It is preferable that regulations allow sharing of both positive and negative information to improve reliability of credit risk evaluation. This will also allow borrowers to build their

50 credit history, which can especially benefit small borrowers because it will allow them to establish a good borrowing reputation and to improve their chances to increase borrowing as their businesses grow.

Since there are few micro-finance institutions in the area, they should do the following in order to improve on their quality of services Expand their outreach to include villages

o Put in place programs to sensitize and teach the rural people about micro- finance services and their benefits. Employment of more staff, more personnel should be employed to remove inefficiency and reduce quelling for long hours.

o At least all financial institutions should introduce more computerized systems to increase speed like ATM machines, which have a self-service facility.

o Less competent staff should be laid off to create space for more competent people.

Findings indicate that MFls did not fully contribute to development in the area due to the challenges involved in rural operations like high transaction costs, lack of appropriate products for the poor and this may explain why rural areas still remain undeveloped though the government has supported MFls rural out reach as a strategy for rural development. Therefore, the government of Uganda to realize development in rural areas should utilize Twesigye (1995)’s recommendation that the rural masses should be mobilized to participate in their own development and to become consultants on government projects meant for their development. Ask them what they need most and why and provide it. They know best what is good for them and if you disagree, then you have to teach them to see lasting value and necessity in your own project.

51 1• — ‘-‘V ~* 5.5 Areas for further research \~ The role of Bona Bagaggawale (prosperity for all) fund In alleviatIng absolute’~ O%(• poverty In Uganda. Failure of rural development strategies In Uganda: causes and effects Factors affectIng demand for micro finance servIces in Uganda.

52 Bibliography Abila Partrick (2004), “micro-finance supplement’ the New Vision publishers Kampala Uganda.

Africa Peer Review ~Mëchanisth~ ~APRM) team (2007), Bona Bagaaggawale (Prosperity for all) fund. Retrieved from www.re~ paper. Ug on Thursday

September 6th 2007

Arderner (2000), The importance of rotating savings and credit associations for women. Berg publication limited oxford.

Banga Margaret, A~~l 2004, Micro-finance and poverty reduction in Uganda Achievements and challenges. Economic policy research center Kampala Uganda

Bank of Uganda (December 2001) the industrial finance BOU

Bategeka L (1999), “Uganda~s Achievements and challenges in the finance sector: whose interests count? “Journal of the Uganda institute of Bankers. Vol. 7

Dr. Suruma (2007) Budget Speech 2007/2008 retrieved from www.new vision.ug on Friday 15th 2007 pg 2

Emmanuel K. Twesigye (1995), Education for rural development in Uganda.

Ohioi Wesleyan University, retrieved on 28th September 2007 from http://www. hart ford-hwp.com

Germina A. & Mutesasira K. (May 2000), Vulnerability, Risk, Asset and Empowerment. The impact of MFls on poverty alleviation

53 L ~1 FE

Gohary R. (1998), the role of Human and physical capital on micro Enterprises. ~~ Tulane University, Mexico.

Graham A.N Wright et al (1999), “use and impact of saving services among the poor/n Uganda,” the Uganda Banker, Kitara publishers Kampala.

Graham A.N Wright, (1999), Examining the impact of micro finance services, increasing income and reducing poverty.

Hulme & Mosley (1998), Finance against poverty London. International Bank for Reconstruction and development (July 2002) Rural development strategy retrieved on 29th March 2007 from www.word bank.org/

~James E Quigly (September 2005). Financial sector assessment Hand book World Bank Washington ~

John K Hatch & Laura Fredrick (1998), Poverty Assessment by MFls; Areview of current practice

Jose Garson (1998), Micro finance and anti-poverty strategies, Donor perspective UNCDF policy series.

Jose Garson & Harry Mugwanga (2001), the study on dropouts Amagest Kenyan MFIs. The east Africa puplications kabeer (2001), micro finance “Giving women credit. The strength and limitations of credit as a tool for alleviating poverty” world Development.

Kevin Cleaver (1997), Rural development strategies for poverty reduction and Environmental protection in sub-sahara Africa world bank Washington retrieved on 17th April 2007 from http//www.world bank.org/

54 ~Ledger wood white (2006), Transforming MFIs. Providing full financial senilces to the poor. Word bank Washington

~ Ledger wood, (1998), Micro-finance Handbook, An Institutional and financial perspective. The World Bank Washington.

Maureen Najjember (2004), The role of micro-finance in financing Agricultural activities in Uganda. Institute of bankers Kampala Uganda

Ministry of Finance Planning and Economic Development (2000), Plan for modernization of Agriculture: Eradicating poverty in Uganda, Kampala

Ministry of finance, Planning and Economic Development (2001), Budget speech. Kampala Uganda MFPED

Ministry of Finance, Planning and Economic Development (2001), Uganda poverty status Report Kampala. Uganda

New Vision (2005) “Micro-finance out reach” the New vision publishers Kampala Uganda

Okurut, Margret & Ashie, (April 2004), Micro-finance and poverty Reduction in Uganda. Economic policy Research centre, Kampala Uganda. i Priya Basu (2006), Improving access to finance for India~s rural poor. World bank Washington

Rutherfold Greene (1996), “Poverty assessment by MFIs a review of current practice, “US agency for international Development, Los Angels.

Seibel (1998) Micro credit, explore it on your own. Micro finance for small

55 LiBRAi~Y Shabomwe George (2005), Micro credit and small-scale enterprises in Makerere University Kampala

Sseruwada M (2002), The achievements of Nyamufumura village bank. Monitor publications Kampala Uganda

Stan Burkey (1998), People first, a guide to self reliant, and participatory rural development. World bank Washington

Todora M. P. (1999), Economic development 6th edition London

Versuluysen E (1999), Defying the odds; Banking for the poor, Kumarian press Canada.

William G. Cochran (1994), statistical methods 8th edition East West press New York

World Bank (2006), Rural development indicators Hand book second edition. World bank Washington

Wright & Rippey (2003), IMP-Act DFID Financial sector deepening project Uganda. Retrieved from www.worldbank.org/

Yawe Agnes, (March 2002), Engendering micro finance seivices beyond access, a paper on women’~s empowerment or feminization of debt towards a new agenda in African micro finance.

Zeller & Meyar (2002), Improving the performance of micro-finance: Financial Sustainability, Outreach and Impact. World Bank Washington Zie Garlyo (May 2001), Repo,t of the suwey for the profile of MRs in Uganda for the AMPIU. World Bank Washington

Zohlr, SaJjad & Martin (2004), WIder Impacts of MRa Issues and concepts Journal of International development volume 6

S 57 /~

APPENDIX I

Questionnaire for the clients of the selected MFls in the selected area (Rukungiri town council)

Dear Sir or Madam:

lam Lydia, a student of Kampala International University pursuing a Masters in Business Administration. lam carrying out a research study on “the impact MFls on rural development in Rukungiri town council”, you have been selected to participate in this study and therefore, kindly requested to answer the questions below. The information given here in will be solely for academic purposes and will be treated with at most confidentiality.

I. Demographic information

1.1 Gender (a) Male ~ (b) Female 1.2 Age (a) 20-35 years El (d) 56-65 years El (b)36-45 years (e) 66 and above ~ (c) 46-55 years 1.3 Which MFIs do you use? (a) Centenary LE (b) Pride 1 .4 Years of experience with the institution/organization (a) 1-2 El (c) 5-6 El (b) 3-4 El (d) 7 and above j~j 1.5 Level of education (a) Primary ~ (b) Tertiary El (c) A’ level El (d) 0’ level El 1.6 Occupation (a) Businessperson El (b) Not employed El

(C) Civil servant El (e) Farmer El (d) Teacher El (f) Employer EZ (g) Others

1.7 Monthly household income (a) 100,000-390,000 El (b) 400,000-690,000 EEl (c) 700,000-990,000 El (d) 1000,000 and above El

2. What are the services rendered by MFIs in Rukungiri Town council? 2.1 What are the services rendered by MFls to you? Loan facilities El Savings facilities El Business information and training Assistance with group formation Insurance services El Others (specify)

2.2 Are the services rendered by MFls sufficient compared to your needs? (a) Yes El (b)No El 2.3 If no, then suggest what MFls should do to meet your needs?

2.4 Comment on the services rendered by MFls

.1 ~ii /1 ~ (~POSTGRA DUA~ E. ‘~\ 2 b~ LiBRARY ~ ‘4 44 DATF~:~~ 44

‘~ ~. I

IC I 3. How have MFls contributed to development in the area? 3i How have MFIs contributed to development in your area? Increasing income levels Increasing investment El Increasing agricultural productivity Empowerment of women Reducing poverty levels El Others (specify)

3.2 In your own opinion, how have you benefited from MFIs?

3.3 What problems have you encountered while using MFIs?

THANK YOU

3 APPENDIX 11

QUESTIONNAIRE FOR THE STAFF OF THE SELECTED MFIs

Dear sir! madam: lam Lydia, a student of Kampala International University pursuing a Masters in Business Administration. lam carrying out a research study on “the impact MFIs on rural development in Rukungiri town council”, you have been selected to participate in this study and therefore, kindly requested to answer the questions below. The information given here in will be solely for academic purposes and will be treated with at most confidentiality.

1.Demographic information

1.1 Who is your employer? (a) Centenary bank El (b) Pride El 1.2 Your gender (a) Male El (b) Female El 1.3 Age (a) 20-35 years ~ (d) 56-65 years El (b) 36-45 years El (e) 66 and above El (c) 46-55 years ~ 1.4 Profession (a) Accountant El (d) Physician (b) Loans officer El (e) Other (specify) (c) Secretary

1 Li ~ I 1 .5 Academic qualifications * (a) O’level ~ (d) Bachelor’s degree ~ n (b) A’ level (e) Masters (c) Diploma El 1 .6 Monthly household income (Uganda shillings) (a) 100,000-390,000 El (c) 700,000-990,000 El (b) 400,000-690,000 El (d) 1000,000 and above El 1 .7 What is the objective of your institution? (a) Poverty alleviation El (b) Creating employment (c) Increasing incomes (d) Enhance economic growth ~J (e) Others (specify)

2. What are the services rendered by MFls to the rural people of Rukungiri town council? 2.1 What are the services rendered by MFIs to the rural people? Loan facilities El Saving facilities Business information and training Insurance services El Assistance with group formation El Employment services El Others (specify)

2 2.2 While rendering your serves, who are your targeted clients? Women El Small scale entrepreneurs El Youth Farmers Civil servants Others (specify) 2.3 Do you make assessment to determine your clients’ needs? (a) Yes [El (b) No El 2.4 If yes, what are your clients’ most common needs? Increase household income El Pay school fees and health care dues El Access more business opportunities El Improve agricultural productivity El Facilitate their social activities El Others (specify)

2.5 Are your services sufficient compared to your clients’ needs? (a) Yes El (b) No El 2.6 If no, what should your organization do to ensure that it meets its clients’ needs?

3 7

3. How have MFIs contributed to development in Rukungiri town council? 3.1 How have MFls contributed to development in the area? Increasing income levels El Increasing investment El Increasing agricultural productivity El Empowerment of women Reducing poverty levels El Others (specify)

3.2 From your position in 3.1 above, how has your organization helped the people in the area to achieve above statements?

3.3 How has your organization helped to improve the welfare of your clients?

3.4 In your own view, comment on the general development of the area from the time your organization started its operations in the area until today.

4 4. What are the challenges faced by MFls while rendering their services to the rural people in the area and what strategies are put in place to overcome those challenges? 4.1 What are the challenges faced by MFIs? High interest rates Lack of enough management staff High default risks El Lack of credit information El High transaction costs El Lack of appropriate products for the poor El 4.2 What are other problems that are associated with the distribution of services to your clients?

.4.3 What strategies have your organization put in place to help over come those challenges?

4.4 Suggest the possible ways that you would wish your institution to put in place in order to help its employees to cope with the challenges.

THANK YOU

5 APP~!b~iDIX III

~‘ P.O.BOX 20000 KAMPALA KAMPALA~UGANj~)~ INTERNATIONAL UNIVERSITY TEL:~O4j-266813

OFFICE OF THE bIRECTOR SCHOOL OF PQST-GRAbJATE STUbIES

TO WhOM IT

MAY CONCERN

Dear Sir/Madam.

RE: INTRODUCTION LETTFRFO’ ‘IS TUMWFBAzFIyDJ~

The above named is our student in the School pursuing a masters Degree in Business Administration (MBA).

She wishes to carry out a research in your Organization on “The Impact of Micro-Finance Institution,sonRuralDcyelopmcnt” A Case stud of Rukunoiri Town Council Sub County

The research is a requirement fbi’ the Award oF a Masters Degree in 13 usiness Ad iii i iii siration.

Any assistance accorded to her regarding her research will be highly appreciated.

Yours faithFully5

~: O~a I. .Saniue I DlRECi’OR-SC~{OOL OF POSTGRADuAT1~ S’l’UDI ES APPENDIX IV

Sample size of the respondents

n= N/1+N(e2) here n= sample size N= population 1= constant e2 =level of significance 0.05

Staff of the selected MFIs n= 2311+23(95%)2 n= 23/1+23*0.052 =23/1÷23*0.0025 =23/1+0.0575 =23/1.0575 =21.7 or22

Clients of the selected MFIs n= 120/1+120(95%)2 =120/1+120*0.052 =120/1+120*0.0025 =120/1+0.3 =92