| Abstract: | The study was conducted in Meklit Microfinance Institution. The main objective of the study was to
assess the operational performance of Meklit Microfinance Institution. It has made use of primary
and secondary data sources and 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. Sample respondents agreed for the effective loan utilization that can be assured
through regular supervision by the lender to control the use of loan for unintended purpose. 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. The survey result indicates
that the amount of loan given to clients is inadequate to run their business that liable them for
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 the
poor 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, and lack of training, high interest rate, absence of special arrangement for reasonable
late payment, office location, and poor customer handling as factors that discourages 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 reduce 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. |
