Assessment of Operational Performance of Meklit Microfinance Institution Share Company in Addis Ababa, Ethiopia

Abstract

The main objective of the study was to assess the operational performance of Meklit Microfinance Institution. It has made use of secondary and primary data sources for which 85 clients were selected through stratified and simple random sampling. The data was analyzed by making use of simple descriptive statistical tools. The study discloses that most clients have borrowed on an individual loan base for trade, and non-trade or consumption; that reveals as Meklit Microfinance Institution seems to give much emphasis on individual lending. The survey result reveals that incentives have not been given to clients who have paid back their loan exactly on the due date instead they are treated equally with late payers. It also indicates that the amount of loan given to clients is inadequate to run their business that forces them toward double loan from other formal and non-formal financial sources. Most respondents indicated that the collateral requested for individual business loan is very difficult to fulfill particularly for lower-income individuals. The analysis on the four consecutive years’ data shows that Meklit’s repayment rate was below 97% signaling the existence of poor repayment performance and high loan default. The study reveals that the portfolio at risk for more than 30 days were above 10% up to the end of 2011/2012 fiscal year that implies the risk of uncollectible is significant for both past due loans and loans not due but contaminated. In the study the contribution of women borrowers in arrear was found to be less than men except in the last two years (2011/2012 and 2012/2013) that shows women’s participation in microfinance as a guarantee for better repayment performance and longer relationship. The study has identified inadequate loan size, lack of supervision, collateral problem, lack of training, high interest rate, absence of special arrangement for reasonable late payment, inconvenient office location, and poor customer handling as factors that discourage borrowers not to be permanent clients. Finally, it is recommended that to enhance the pertinent challenges and promote a smooth relationship between Meklit and its clients; a pooled effort is needed from all concerned stakeholders. Particularly, Meklit shall pay special attention to educe clients’ dropout and address more clients by using different promotional mechanisms. In order to improve the repayment performance in Meklit and to exactly decide to use individual or group lending, further research that employs a blend of advanced statistical techniques with more samples need to be conducted.