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THE ROLE OF MICROFINANCE INSTITUTIONS TO THE DEVELOPMENT IN RURAL HOUSEHOLDS

A CASE OF KANYENZE SACCO, KASESE

DECLARATION

I, the undersigned, hereby declare that, the work contained in this thesis is ultimately my own original work. Therefore it has not previously, in its entirety or in part been submitted to any institution for any kind of academic award.

Signed…………………………………….           Date……………………………

KULE CORONIEL

(Student)

ACRONYMS/ABBREVIATIONS

ACID Africa Christians in Development

AMFIU Association of Microfinance Institutions in Uganda

BRAC Bangladesh Rural Advancement Committee

CGAP Consortium Group to Assist the Poorest

CMF Commercial Microfinance currently Global Trust Bank

FINCA Foundation for International Community Assistance

FOCCAS Foundation for Credit and Community Assistance

MF Microfinance

MFIs Microfinance institutions

SACCO savings and credit cooperative organisations

USAID United States Agencyfor international development

UBOS Uganda bureau of statistics

Table of Contents

DECLARATION i

APPROVAL ii

DEDICATION iii

ACKNOWLEDGEMENT iv

ACRONYMS/ABBREVIATIONS v

List of tables vi

List of figures x

ABSTRACT xi

CHAPTER I 1

INTRODUCTION 1

1.0 Introduction 1

1.1 Background of the study 1

1.2 Statement of the problem 3

1.3 Purpose of the study 3

1.4 Objectives of the study 3

1.5 Research questions 3

1.6 Scope of the study 4

1.6.1 Geographical scope 4

1.6.2 Content scope 4

1.6.3 Time scope 4

1.7 Significance of the study 4

CHAPTER II 5

LITERATURE REVIEW 5

2.0 Introduction 5

2.1 Microfinance Services offered to rural households 5

2.1.1 Microloans/Microcredit 6

2.1.2 Savings Mobilisation 7

2.1.3 Transfers and payment services 8

2.1.4 Insurance 9

2.1.5 Credit cards and Smart cards 9

2.1.6 Training and Technical assistance 10

2.2 Indicators of development in rural households 10

2.2.1 Consumption and Food security. 11

2.2.2 Asset ownership and Development 11

2.3 Relevance of microfinance services to the development of rural households 13

2.3.1 Health and Education 14

2.3.2 Improved savings and economic Assurance 15

2.3.3 Empowering Women 15

2.3.4 Rising household Income 16

2.3.5 Improved Consumption and Asset development 16

2.3.6 Boosting Agriculture 16

2.3.7 Job Creation 17

2.3.8 Financial Stability and Reaching the Poor 17

2.3.9 Microenterprise development 18

CHAPTER III 19

METHODOLOGY 19

3.0 Introduction 19

3.1 Research Design 19

3.1.1 Qualitative research 19

3.1.2 Quantitative research 19

3.2 Study population, sample and area 20

3.2.1 Study population 20

3.2.2 Sample size 20

3.2.3 Study Area 20

3.3 Sampling Techniques 20

3.4 Sources of Data 20

3.4.1 Primary Data 21

3.4.2 Secondary Data 21

3. 5 Instruments of data collection 21

3.5.1 Questionnaires 21

3.5.2 Interview guide 21

3.5.3 Observation 21

3. 6 Data Analysis 21

3.7 Ethical considerations 22

3.8 Limitations and delimitations in the study 22

CHAPTER IV 23

PRESENTATION, ANALYSIS AND INTERPRETATION OF FINDINGS 23

4.0 Introduction 23

4.1 Overview of the study 23

4.1.1 Response rate 23

4.2 Demographic characteristics of the respondents 23

4.2.1 Gender of the respondents 23

4.2.2 Age of respondents 24

4.2.3: Level of Education of Respondents 25

4.3 Objectives of the study 26

4.3.1 Nature of Microfinance services 26

4.3.2 Indicators of development in rural households 28

4.3.3 Relevance of MF services to the development in rural households 29

CHAPTER V 38

Summary, Discussion, Conclusions and Recommendations of the study 38

5.0 Introduction 38

5.1 Summary of the Findings 38

5.2 Discussions of the findings 38

5.2.1 Microfinance services offered to rural households 38

5.2.2 Indicators of development in rural households 39

5.2.3. The relevance of microfinance services to the development in rural households 39

5.3. Recommendations from the research 40

5.3.1. Recommendations for microfinance institutions 40

5.3.2 Recommendations for the government 40

5.3.3. Recommendations for MFI clients 41

5.3.4. Recommendations for further research 41

5.4. Conclusion 41

APPENDICES 43

Interview guide for members 43

Questionnaire to Kanyenze Sacco staff 46

List of tables

Table 4.1: Showing gender of the respondents

Table 4.2a: Showing the age of clients

Table 4.2b: Showing age group of staff

Table 4.3: Showing response rate towards the presence of development in rural households.

Table 4.4, Shows response rate to observable indicators of development in rural households

Table 4.5: Showing whether MF services are relevant to the development in rural households.

Table 4.6 shows response to the creation of employment to rural households.

Table 4.7: Showing agreement of respondents towards agricultural production.

Table 4.8, Challenges faced in accessing and utilizing MFI services.

Table 4.9 Suggested solutions to the challenges faced in accessing and utilizing MFI services

List of figures

Figure 4.1: Showing level of Education of respondents

Figure 4.2: Showing findings on number of respondents’ agreement to MF services.

Figure 4.3: showing the development indicators in 35 rural households.

Figure 4.4 Figure showing respondents agreement to education loans.

Figure 4.5 showing the agreement to the contribution of savings mobilisation.

Figure 4.6 shows the response to the contribution of housing loans in promoting decent housing in rural households;

Figure 4.8: Other Contributions of MFI on the status of households

ABSTRACT

This study was aimed at establishing the role of microfinance to the development in rural households using an experimental case of Kanyenze Sacco. It aimed at achieving the following specific objectives: determine the nature of microfinance services, identify the indicators of development in rural households and establish the relationship between microfinance services and the development in rural households. 

A variety of literature on microfinance in the developed world, developing world, Africa, Uganda and rural areas of Kasese was reviewed. During the literature review, it was evident that the literature on the impact of microfinance on the development of rural households in Kasese district was scanty. By filling this gap, this research will be a referral document for other researchers and a resource book for microfinance institutions during the implementation of their programmes.

The study used both qualitative and quantitative research designs. The study population was inclusive of stakeholders of Kanyenze Sacco,with which a sample of 50 respondents was selected using purposive sampling. Data was gathered using questionnaires, interview guides and observation. It was processed and analyzed using both quantitative and qualitative techniques. Major limitations the researcher faced were attitudes of respondents, time constraint and limited funds. 

The findings revealed various MF services offered to rural households such as microloans savings and deposits; the development indicators such as, decent housing, education, health and sanitation, ownership of assets; and also established that households who had access to MF services were able to improve their socio-economic status through purchase of household items like furniture, land and solar installation, building of houses, starting up and or expanding investments and enterprises, among other findings.

The results of the research have led to the assertion and affirmation that although the benefits may vary from one beneficiary to another and from one household to another, microfinance has in various ways played a significant role to the development in rural households. This research report will be used as a document for other researchers and a resource book for the microfinance institutions in rural areas of Kasese district.

CHAPTER ONE

INTRODUCTION

1.0 Introduction

This chapter focused on the background to the study, statement of the problem, purpose of the study, objectives of the study, research questions, significance of the study, area and scope of the study. 

1.1 Background of the study

 George (2005), refers to microfinance as the provision of financial services to the low income-households, micro and small enterprises provide an enormous potential to support economic activities of the poor thus contribute to poverty alleviation. MF can also be defined as the practice of providing financial services such as micro credit, micro saving or micro insurance to poor or disadvantaged individuals. By helping them to accumulate usably large sums of money, thus expanding their choice and reducing the risks they face.

Microfinance has been treated as an important tool for economic development in many parts of the world. Lenders of microfinance offer small amounts of money to poor people who do not have the capability to reach traditional banking system to borrow money to initiate their business and improve their living standard. MF has got great influence on job creation, financial stability and reducing global poverty through empowering poor rural people (Johnson &Rogaly, 2007). 

Friedrich Wilhelm (1870), and his supporters were motivated by concern to assist the rural population to break out of their dependence on money lenders and to improve their welfare. The union expanded rapidly over a large sector of the Rhine province and other states of Germany. The cooperative movement quickly spread to other parts of Europe and North America and eventually supported by Cooperate movement in developed countries. In Indonesia, the Indonesian peoples’ credit bank opened in 1895 and became the largest microfinance institution in Indonesia with close to 900 units.

Microfinance program in Bangladesh shapes the idea of the poor and help them to practice money management, time management, encourage them to save money for future which is bringing a fruitful result by reducing poverty, empowering poor and promote rural economy. More than subsidies poor need access to credit. Absence of formal employment makes them none ‘bankable’. This forces them to borrow from local moneylenders at exorbitant interest rates. Many innovative institutional mechanisms have been developed across the world to enhance credit to poor even in the absence of formal mortgage. The reason why, the Grameen Bank followed the principle that “people should not come to the bank; the bank should go to the people” (Ledgerwood, 2000). 

In Uganda, the microfinance industry began in earnest after the country’s return to peace, macroeconomic stability and after the 1993 financial sector reform, which created a relatively free operating environment. The sector has now over 20 years of experience providing financial services to households in poverty and has grown to become one of the biggest microfinance industries in Africa. Since 2005, MF is one of the pillars of the Uganda`s government development strategy (Rhyne& Christen 1999:8).

UBOS 2002, defined a household as a domestic unit consisting of members of a family who live together with non relatives such as servants. Rural households live in a simple environment, yet the structure and the dynamics of their daily life is complex. Patterns of social development vary across countries, and even across regions within a country; these patterns are highly sensitive to cultural differences. The study of rural households has drawn interest not only in development economics but also in many other disciplines. Vulnerability, inequity, and deprivation are common issues confronting rural societies, prompting development interventions targeting this sector (Erniel B. Barrios, 2007).

Bale (1999), defined the basic elements of rural development to include social infrastructure, physical infrastructure, and financial services in non-urban areas, non-farm and small-medium enterprises for rural households. The interaction of these three elements is expected to push development in rural households and communities. Rural household development is characterized in terms of the manifestation of income and employment, equitable access to productive resources, sustainable development of natural resources and human capital. Poor rural households have to do with poor infrastructure if any; they are mainly subsistence farmers usually consuming most of what they produce and commercial activity in the rural areas is very low.

The key elements that will facilitate the realization of rural development include social infrastructure, physical infrastructure, and financial services. The dynamics of these three elements will pave the way to uplift the living conditions of rural households. Observing events and issues related to such dynamics can facilitate the measurement of the constructs of rural development (World Bank report, 2000).

1.2 Statement of the problem

Microfinance Institutions are an intervention to fulfill the policy of government where people are encouraged to save for the future through established SACCOs in every place whether urban or rural. From the 1950s through to the 1970s, the provision of financial services by donors or governments was mainly in the form of subsidized rural credit programmes. These often resulted in high loan defaults, high losses and inability to reach poor rural households (Robinson, 2001).

People engage in various income activities but still overspend their incomes on food, clothing, alcohol and making heavy budgets on celebrations. Others still use traditional non-formal savings systems such as tucking cash under the mattresses, buying animal, and giving money to neighbours for safe keeping. These traditional methods often have hidden risks and costs, for example, cash hidden under a mattress or given to a neighbour can be stolen, and an animal can die or get sick (FINCA Internal Annual Management Report, 2004).

It is against this background that the researcher intends to carry out a study to analyse the role of MFIs to the development in rural households, where he will determine the nature of microfinance services offered to rural households, identify the indicators of development in rural households, and establish the relationship between microfinance services and the development of rural households.

1.3 Purpose of the study

The general purpose of the study was to explore the role of MFIs to the development in rural households.

1.4 Objectives of the study

The study was guided by the following objectives.

1. To determine the nature of microfinance services offered to rural households
2. To identify the indicators of development in rural households
3. To establish the relationship between microfinance services and the development in rural households

1.5 Research questions

• What is the nature of microfinance services offered to rural households?  

• What are the indicators of development in rural households?

• What is the relationship between MF services and the development in rural households?

1.6 Scope of the study

1.6.1 Geographical scope

The study was conducted from Kanyenze microfinance Sacco, in Kasese district, Kyondo Sub County,kinyabisiki trading center. It serves rural households in the villages of Kanyenze, kyamakungu, kinyabisiki which surrounds the SACCO.

1.6.2 Content scope

The research investigated the role of microfinance institutions to the development in rural households. It concentrated on determining the nature of microfinance services offered to rural households, identifying the indicators of development in rural households, and establishing the relationship between microfinance services and the development in rural households.

1.6.3 Time scope

The research was carried out from February to July 2015.

1.7 Significance of the study

The study was beneficial to the following groups of people;

The researcher fulfilled the requirement for an award of degree in Accounting and finance of Kyambogo University. 

The research has become a referral document for other researchers and a resource book for MFIs during the implementation of their programmes.

The rural households were equipped with information on the benefits of microfinance services towards their development.

It acted as evidence to management of microfinance institutions when giving accountability to their funders/sponsors.

It revealed some areas of improvement in their service delivery.

CHAPTER II

LITERATURE REVIEW

2.0 Introduction

This chapter reviewed the existing literature on the nature of Microfinance services offered to rural households, the indicators of development in rural households, and the relationship between microfinance services and the development of rural households. The researcher used secondary data sources, which included textbooks, journals, newspapers, books, and the internet.

2.1 Microfinance Services offered to rural households

Microfinance is perceived as the provision of financial and non financial services (MFIs) to low income groups without tangible collateral but whose activities are linked to income generating ventures. The financial services include savings, credit, payment facilities, remittances and insurance. The non-financial services mainly entail training in micro enterprise investment and business skills (Sinha, 2008). 

According to Dillinger (2003), MF is broad range of service that encompasses microcredit, micro savings and micro insurance. It indicates deposits, small loans, money transfer, payment services and various types of insurance products to the poor and low income household s. this is aimed at their income generation and improving their living standards by investing in microenterprises and small business.

Mayoux (2007), MF is a stipulation of greater assortment of financial services for examples, small and medium loans, deposits, payment service, money transfer, insurance for the low income household as well as poor micro businesses. Microfinance service is provided from three different types of sources like rural banks and cooperatives such as formal institutions, semiformal institutions like non-government organizations and informal source like shopkeepers as well as moneylenders.

Schreiner (2010: 112-119), argues that the most commonly identified models of operations of microfinance institutions include the Rotating Savings and Credit Association (ROSCAs), the Grameen Bank and the Village Banking models. Rotating Savings and Credit Association are formed when a group of individuals come together and form an agreement to make regular cyclical contributions with an aim of developing a common fund. After some period of specified time the lump-sum of the contributions is given to one member of the group in each cycle. This model is a very common form of savings and credit. 

The solidarity group model is based on group peer pressure. Loans are made available to individuals who are in organized groups of four to seven peoples. Members in each group encourage one another to repay the loan so that money can be given to another member. (Berenbach, and Guzman, 1994).

2.1.1 Microloans/Microcredit

Credit refers to borrowed funds with specified terms of repayment. When there are insufficient accumulated savings to finance a business and when the return on borrowed funds exceeds the interest rate charged on loan, it makes sense to borrow rather than postpone the business activity, assuming capacity to service the debt exists. Microcredit is a financial innovation that is generally considered to have originated with the Grameen Bank in Bangladesh (Waterfield and Duval, 1996).

Mohammed Yunus began his small lending program to poor households at a time when poverty in Bangladesh was quite rampant especially after the war and perennial floods that worsened the situation. Moved by the desperation of his people, Yunus who was then an economics professor at a university began lending some small amounts of money to poor women who would invest them in small micro enterprises. He discovered that the women were not only able to repay but they also paid on time. In the initial period, Grameen lend to both men and women in almost equal proportions. However in 1985, Yunus and his team refined the methodology to shift their lending pattern towards lending to more women than men (Roodman and Qureshi, 2006).

The difference between microcredit and the subsidized rural credit programs of the 1950s and 1960s was that microcredit insisted on repayment, charging interest rates that covered the cost of credit delivery and focusing on clients who were dependent on the informal sector for credit. Microcredit emphasizes building capacity of a micro-entrepreneur, employment generation, trust building, and help to the micro-entrepreneur on initiation and during difficult times. Microcredit is a tool for socioeconomic development (Robinson, 2001).

Loans are generally made for productive purposes that is, to generate revenue within a business. Some MFIs also make loans for consumption, housing or special occasions, while many MFIs insist that only productive loans be made. Any loan that increases the liquidity of the household frees up enterprise revenue which can be put back into the business (Waterfield and Duval, 1996).

Informal sector lenders approve loans based on the feasibility analysis and they use informal collateral sources. They demonstrate the importance of responding quickly to borrowers’ needs within a minimum of bureaucratic proceedings. Formal sectors have also proven the usefulness of personal guarantors to motivate the client to repay the loan (Waterfield and Duval, 1996: 74).

2.1.2 Savings Mobilisation

Savings is broadly defined as a means to secure future consumption at any time either in cash or in kind. Cash is deposited by clients in order to consume or invest it in a later date “saving” (Robinson, 2004).

Savings mobilization refers to a process where mostly regulated MFIs attract members to deposit money in accounts opened in their institutions. The mobilization of savings from low income people is an important issue for various reasons. For instance, in developing countries, a savings potential among the poor lacking a productive outlet can have an impact on the whole economy. The process of saving on regular basis can also contribute to improved quality of life for the poor (Otero, 2003).

From the MFIs’ perspective, savings mobilization enables them to eliminate dependence on external sources by increasing resources for lending. It also contributes to an improved repayment rate and a reduced level of risk assumed by MFIs when savings serve as a kind of guarantee. Finally, the saving component can help establish a closer relationship with clients and increase their trust in the institution (Otero, 2003; Robinson, 2001).

Savings mobilization has all along been a controversial issue in microfinance. In recent years there has been increasing awareness among policymakers and practitioners that there is a vast number in informal savings schemes and MFIs around the world (in particular, credit union Organisations) have been successful in mobilizing savings. Karlan and Appel (2011), for example explored specialized commitment savings products and mobile savings reminders, to effectively help MFIs’ members in the Philippines to mobilize savings among the poor as well as achieve their savings goals in Peru and Bolivia (Paxton, 1996).

There was a prevalent and powerful perception that the poor cannot save thus compulsory savings system offered required members to deposit small token amounts each week and levied more substantial amounts at source from loans. This poor savings culture was for three main reasons namely; life-cycle needs (child birth, education, etc.) for which they needed to amass large amounts of money, emergency needs which create a sudden and unanticipated need for large amounts of money, and investment opportunities that may concern existing or new businesses (Rutherford, 2009; Servet, 2006).

Compulsory savings represent funds that must be contributed by borrowers as a condition of receiving a loan, sometimes as a percentage of the loan or as a nominal account. Compulsory savings are useful to; demonstrate the ability of clients to manage cash flow and make periodic contributions, help to build asset base of client, demonstrate the value of savings practices to borrowers, among others (CGAP 2010). 

Voluntary savings are provided to both borrowers and non-borrowers who can deposit or withdraw according to their needs. Three conditions that must exist for an MFI to mobilize voluntary savings; 

• An enabling environment including appropriate legal and regulatory frameworks, a reasonable level of political stability and suitable demographic conditions.
• Adequate and effective supervisory capabilities to protect depositors.
• Consistently good management of the MFIs funds. The MFI should be financially solvent with a high rate of loan recovery (CGAP 2010).

2.1.3 Transfers and payment services

To avoid carrying cash for the purchase of goods or for relatives, the customers of many MFIs are able to conduct transfers. This obviates the need to travel long distances to handover money and the risk associated with cash payments (Drucken, 2012).

In traditional banks, payment services include cheques cashing and cheques writing privileges for customers who maintain deposits (Carkey, 1994). In this case the banks’ payment services are bundled with their savings services. MFIs may offer similar payment services or separately for a fee. If payment services are bundled with savings services, the MFI can pay an artificially low interest rate on customer deposits accounts to cover the cost of those services (Fruman, 1997).

2.1.4 Insurance

Some MFIs also offer a form of insurance, “Micro Insurances” or guarantee scheme. A typical example is Grameen Bank where each member is required to contribute 1% of the loan amount to an insurance fund. In case of death of a client, this fund is used to repay the loan and provide the deceased client’s family with the means to cover burial costs (Ledgerwood, 1999: 74).  

Churchill (2006), refers to micro insurance as a protection of low income people against specific risks in exchange for low premiums and low caps or coverage. Micro means small financial transaction that each insurance policy generates.  The target group consists of persons ignored by mainstream commercial and social insurance schemes. Products offered include health insurance, contracts covering properties such as assets, livestock and housing. Personal accidents are also covered. The other product is the crop micro insurance which covers natural calamities whose occurrence could affect agricultural activities.

Every one’s own account may be allocated certain insurance. Minor setbacks and short-term financial needs of a limited extent can be absorbed by one’s own savings. The dangers of people in developing and threshold countries are significantly higher than those of developed countries. The poor living conditions make diseases more probable. People are often malnourished, the quality of water is poor, and the possibilities for an adequate level of hygiene do not exist. The possibility of being affected by a natural disaster is also significantly higher than that of developed countries. People living below or barely above the poverty line are exposed to dangers against which a micro insurance can offer certain level of protection (Drucken, 2012).

2.1.5 Credit cards and Smart cards

Credit cards allow borrowers to access a line of credit if and when they need it. Credit cards are used when a purchase is made (assuming the supplier of the goods accept the credit card) or when access to cash is desired (the card is sometimes called a debit card if the client is assessing his or her own savings). Credit cards do offer considerable advantage to both clients and MFIs such as; minimizing administrative and operating costs, streamlining operations and providing an ongoing line of credit to borrowers enabling them to supplement their cash flow according to their needs (McDonald 1996).

Smart cards

The Swazi Business growth Trust, in the kingdom of Swaziland provides clients with smart cards but generally not available for use in retail outlets. Smart cards contain memory chips that contain information about a client’s available line of credit with a lending institution (McDonald 1996).

2.1.6 Training and Technical assistance

The early development of the sector was supported by such entities such as USAID and PRESETO center for microfinance (CMF), which provided training and workshops to the microfinance institutions in the industry. It’s CMF a one-stop shop for microfinance information and training came to be regarded at the time as the “gold standard” for training projects. Subsequent training projects have moved from a supply-led to a demand-led approach and focused on specific areas of need or on the achievement of specific goals, such as capacity building which MFIs identify as useful (Goodwin-Groen, CGAP consultant: 2004). 

Rural Microfinance Support Project that provide investment in sending people to training programs, exchange visits, etc. has clearly paid off in Uganda. As microfinance evolves and financial institutions grow and offer more complex services and products, constant professional development is necessary across all stakeholder groups. For example, SACCOs require training on record keeping and financial management (Goodwin, 2004).

Maximize the capacity building efforts of the outreach plan

Donors funding the microfinance outreach plan (MOP) and the responsible government officials ensures that the MOP’s capacity building efforts are managed by staff with appropriate skills and independence to design, implement and prioritize capacity building efforts effectively. MOP staff proactively collaborates with other capacity building programs in the sector to leverage opportunities and minimize redundancy (Goodwin, 2004). 

2.2 Indicators of development in rural households

National Economic and Development Authority and the World Bank (NEDA-WB, 2003), rural household development is considered to manifest from the presence of three ingredients: social infrastructure, physical infrastructure, and financial services. Rural development results from the improvement of the economic, social, and environmental conditions of the community. These three aspects complement each other and lead towards the overall improvement of individual and community wellbeing.  

The rural development and household living condition scale and data used in this study came from (NEDA-WB, 2005). A Likert scale was used to assess the perception of rural households on the different aspects of living conditions, including 18 items distributed among the different facets of living conditions. The scale was adopted from NEDA-WB (2003), which pilot-tested, validated and improved the instrument. Another Likert scale was also used to assess the perception of rural stakeholders on the different aspects of rural development, including 13 items distributed among the different constructs of rural development (NEDA-WB, 2003). 

2.2.1 Consumption and Food security.

In the developing countries, achieving household food security remains a critical objective of rural development. This can be done in principle by escalating agricultural productivity and off-farm income, thus improving the capability of households to steady their income and food purchasing power. Food security, at the household level, is defined in its most basic form as access, by all people at all times, to the food needed for a healthy life (Zeller M. & Meyer L, 2002). 

Household welfare is measured in terms of changes in consumption level. If the welfare improves significantly they acquire other assets that are not very liquid like solar panels among other electronic assets. For both theoretical and practical reasons, development indicators based on consumption were preferred than those based on income.  This is more the case because households are likely to provide information easily on what they consume than on what they earn (Zeller, 2006).

2.2.2 Asset ownership and Development

Barnes (1993) observes a strong case that assets are particularly useful indicator of household development because their level does not fluctuate as greatly as other economic indicators and it is not simply based on annual estimates. Formal saving and banking institutions are rare and as such households invest for the purposes of “saving” in highly liquid assets like livestock, or other highly liquid capital assets like ploughs. 

For very well-off households they may add other expensive investments like water boreholes or own small scale wind powered electric generators. It is for these reasons that ownership and access to assets is a very important socioeconomic indicator in the rural areas. Apart from ownership of assets focus group discussions revealed that the general condition of a homestead is also a strong indication of the social economic status of that particular household. In light of this, other variables like walls, roofing and floor of main house among other well-being indicators were used to explain household socioeconomic status. (UBOS report, 2002).  

Table showingIndicators that compares household development; by UBOS(2002).

2.3 Relevance of microfinance services to the development of rural households

The role of Microfinance in rural household development is demonstrated through the crucial role that savings and credit play in economic growth. Financial services are paramount in promoting economic growth and that one ‘can only become an entrepreneur by previously becoming a debtor’ (Schumpeter, 1959). The provision of MF services focuses on three core dimensions of poverty alleviation. These are centered on the terms “Promotion” (promotion of individuals and households out of poverty) and “Protection” (protection of people from vulnerability because of fluctuations of income) (Rogaly, 1999).  

In Thailand, Kabuki and Townsend (2005) found out that micro financing enhances asset growth, consumption smoothing and occupational mobility. The MF services as well help in decreasing borrowers’ vulnerability, especially if women are the main recipients. They further found that income, consumption and agricultural investment increased among recipients as well as overall wages levels in a village in Thailand. MF programs have positive impacts on households’ wellbeing which is indicated in the recipient of the microcredit’s children’s education, health and household nutrition especially when the recipients are women. Furthermore it extends to women feelings of empowerment and independence.

Three aspects are generally highlighted. Firstly, there is an increased capacity to deal with risk through the withdrawal of savings or obtaining credit in the case of an emergency. This may mean that productive assets (machinery, inventory, land, and livestock) need not be sold during an emergency thus the flow of income is not interrupted. Secondly, there is an improved management of consumption requirements over the year, to maintain adequate levels of food intake. Thirdly, opportunities to invest in productive enterprises increase. These increased capabilities of rural households to produce, consume, and invest may be reflected only partly in the actual credit and savings relationships with MFIs, because reliable access to microfinance forms a potential that can be tapped if and when required (Pitt &Khandker, 1998).

2.3.1 Health and Education

Littlefield, Morduch and Hashemi (2003), acknowledges the sparse specific evidence of the impact of microfinance on health but where studies have been conducted they conclude, “Households of MF clients appear to have better nutrition, health practices and health education than comparable non-client households”. Among the examples they give is FOCCAS, a Ugandan MFI whose clients were given health care instructions on breastfeeding and family planning. They were seen to have much better health care practices than non-clients, with 95% of clients engaged in improved health and nutrition practices for their children, as opposed to 72% for non-clients. 

Littlefield, Murduch and Hashemi (2003, p.4), one of the first things that poor people do with new income from microenterprise activities is to invest in their children’s education. Studies show that children of microfinance clients are more likely to go to school and stay longer in school than children of non-clients. Again, in their study of FOCCAS, client households were found to be investing more in education than non-client households. 

Pitt and Khandker (1998), examined the effects of credit program participation on the school enrollment status of boys and girls aged 5–17 years. They found a very strong and statistically significant effect on both girls’ and boys’ enrollment, and that the impact on boys is even bigger. A 1% increase in Grameen Bank credit to females is predicted to increase the probability of girls’ enrollment by 1.86 percentage points measured at the mean. For boys, a 1% increase in Grameen bank credit to women increases the probability of school enrollment by 2.4 percentage points and a 1% increase in Grameen bank credit to men increases the probability of school enrollment by 2.8 percentage points.

2.3.2 Improved savings and economic Assurance

MFIs can help people become more economically secure. Savings serve as reserves for important household expenditures such as school fees, feeding and other emergencies, and as insurance against sudden crises such as illness, natural disasters, or accidents that can otherwise result in destitution for people already living at the poverty line (Cheston, 1999). 

In many countries, only a fraction of the population even has a bank account. Most people have no suitable opinion for saving money. Larger sums of money can often not be kept at home, since protection from thieves is lacking. People therefore often save inform of material assets e.g. buying livestock. The advantages of money “versatile usability and divisibility” are thereby lost. A bank account allows money in a secure and suitable form. MFIs are often the only possibility for people with low income to open such an account (Drucken, 2012).

Savings and Saving Products SACCOs, as financial intermediaries channel savings into loans and provide safe and reliable saving opportunities for the economically active poor, especially in rural areas. Evidence shows that poor people are looking for opportunities to save their surplus income to protect them from future emergencies, anticipate life-cycle events or harness opportunities, like undertaking larger investments without having to take a loan (Rutherford and Arora, 2009). 

The benefits of saving for households range from acting as a buffer to shield them from future emergency expenditures (sickness and injuries), smoothening seasonal consumption needs, harnessing opportunities (investing into a new business or buying land) and financing major expenditures, such as school fees and other life-cycle events, like child-birth and funerals (Rutherford and Arora, 2009). 

2.3.3 Empowering Women

Access to MFIs can empower women to become more confident, more assertive, more likely to take part in family and community decisions and better able to confront gender inequities. However, they also state that just because women are clients of MFIs does not mean they will automatically become empowered. Microfinance projects can reduce the isolation of women as when they come together in groups they have an opportunity to share information, discuss ideas and develop a bond that wasn’t there previously. From studies of the Grameen Bank and BRAC, clients of these programmes suffered from significantly fewer beatings from their husbands than they did before they joined the MFI (Hulme and Mosley, 1996).

2.3.4 Rising household Income

Coleman (1999), correctly points that the demand for loan is highly correlated with household income and therefore the coefficient for loan access may be a biased estimator of impact. He found that microfinance programs have a positive impact on the richer households but the impact is insignificant to the other poorer households. In his study, richer households were able to commandeer larger loans to them because they sat in influential positions in the village banks as committee members. He further argued that it is the size of loans that households were able to acquire was very important in determining the impact of those loans in household incomes. 

Hulme and Mosley (1996), for instance, concluded that growth in incomes of borrowers always exceeds that of the control group (control groups consists of potential borrowers who are qualified but do not participate in microfinance the program). They also found that the positive impacts on income are larger for better-off borrowers. The results also show that households participating in joint liability borrowing had significantly higher incomes than non-parting households, and that the amount of loan borrowed in the initial period has a significant positive relationship with household income. 

2.3.5 Improved Consumption and Asset development

Prolonged participation in a microfinance program is expected to affect not only short-term flows but perhaps longer-term stock of assets of households. The offer of loans helps beneficiaries to build up asset bases for their families or consume certain products that they would not consume if they were earning low incomes (transport, meals, and weddings). As the incomes of households increase, there is likely to be an improvement in the consumption patterns. Households can now afford some of the expenditure and assets that were out of their reach originally. This may be enhanced through encouraging of Savings especially using low or no fee small deposit savings accounts (Shreiner and Morduch, 2001).  

2.3.6 Boosting Agriculture

When low income economies attempted to develop their economies after World War II, rural finance emerged as a big concern. Large state agricultural banks were given the responsibility of allocating funds with the hope that by availing subsidized credit, farmers would be induced to irrigate, apply fertilizers and adopt new crop varieties and technologies. The aim was to increase land productivity, increase labor demand and thereby increase agricultural wages (Armendariz de Aghion and Morduch, 2005). 

Zohir and Matin (2004, p.318), stated that many MFI loans are used for agricultural production, trading, processing and transport, resulting in an increase in the use of agricultural inputs and increased output of agricultural products. The financial savings become available for investment in agriculture, agriculture-related trade, processing, and in a host of other enterprises with expected benefits for technological progress. This leads to enhanced employment opportunities in these sectors for the wider community and a reduction in the prices of such produce due to increased supply. Loans inform of agricultural tools and machinery as such donkey carts, hoes, tractors among others are good supporting tools for boosting agriculture. 

2.3.7 Job Creation

Sundaresan (2008), mentioned that businesses started with help of microfinance can also create jobs for other people along with the entrepreneur himself. In some cases people create big investment from individual loan to start bigger businesses and whole community get benefits like employment among others. They also state that trading activities financed by MFIs can help to establish new marketing links, increase the income of traders, and this can lead to reduced migration due to increased employment opportunities and increased income.

Employment Levels and Gender Equality, MFI’s human resources contribute significantly to its productivity. In addition, they represent the single largest cost for the Tier-4 institutions. Hence, motivated staff members constitute a key area for the provision of efficiency and performance quality of an MFI (Churchill and Frankiewicz, 2006).

2.3.8 Financial Stability and Reaching the Poor

Arner (2007), argued that small loans have offered an opportunity to create extra income, so that people can pay for their extreme necessities. After availing financial aid through microfinance, people don’t rely on any public assistance programs. Making inexpensive credit available to the rural poor has been a key to breaking the vicious circle of low capital, low productivity, and low savings thus overcoming poverty. Microfinance therefore empowers those individuals who are financially disadvantaged.

Reaching the Poor

As highlighted, one of the key roles microfinance has to play in development is in bringing access to financial services to the poor, to those who are neglected by the formal banking sector. This is their social mission. Mainstream banks target clients that have collateral. The poor do not have assets to act as collateral, therefore they are ignored by the formal financial sector. These banks tend to be found in urban centres while the majority of the poor in the developing world live in rural areas, where financial services are not provided. Therefore, if MFIs are to fill this void they must reach the rural poor (Littlefield and Rosenberg, 2004).

2.3.9 Microenterprise development

The MFIs offer Enterprise Development facilities by assisting people, individually and in groups, to access financial services to start and grow enterprises which can sustain them and their families above the poverty line. This is mainly done through the provision of access to Microcredit services, for building up self-employment, in form of loans at interest free, low interest and market rates (Rogaly 1999). 

Often, small loans are necessary to allow people to become self-employed or to significantly employ their income in profitable ventures. A loan in an amount of $50-500 can open up completely new perspectives for an individual. However, traditional banks do not grant such small loans. The administrative costs would be too high and the profit too low. MFIs allow such small loans to be granted. In general, the repayment rate is astonishingly high, since offerings of MFIs are often the only option for these individuals to receive a loan, and they will do everything they can to make use of this opportunity (Drucken, 2012).

CHAPTER III

METHODOLOGY

3.0 Introduction

This chapter outlines in detail the manner in which the study was executed. It highlights the research design, study population, sample size, areas of study, the sampling design and procedure. It also states the data collection methods, the data processing and analysis, which the researcher used.

3.1 Research Design

The study was cross-sectional; both quantitative and qualitative methods were used to investigate the role of microfinance institutions to the development in rural households. The use of both methods also ensured that the data was effectively interpreted using the numbers, figures as well as the narrative.

3.1.1 Qualitative research

Qualitative methods were used because of their flexibility in insuring that interview guides allow more probing into the problem. The use of interviews was relied on to collect the qualitative data. The interviews were used to collect data from the key informants in the study. This approach was supported by Weinriech (2006:2), who points out that; qualitative research methodologies are designed to provide the researcher with the perspective of target audience through immersion in a culture or situation and direct interaction with the people under study. 

3.1.2 Quantitative research

The researcher also used a sample from a wider study population that was used to generate data that could be generalized to a larger community and the data was presented in numerical figures and tables. This approach is recommended by York (1998:1), who explains that quantitative research is about questionnaire, administered to a stratified or random sample of a population, enabling us to draw inferences about the behaviour of a whole population from a smaller number.

3.2 Study population, sample and area

3.2.1 Study population

The target population consisted of the stakeholders of Kanyenze Sacco who included the members with accessibility to the services of the Sacco, staff who also included the loans officers, manager, branch supervisors, tellers, and the accountants. It was from this population that the sample was chosen. 

3.2.2 Sample size

A sample 50 respondents; 15 from staff and 35 from the Sacco members/clients was selected. This particular sample size was selected because it was easier to manage and it was enough to generate findings as well as generalising the findings to a bigger population. Below is the table for composition of the sample.

3.2.3 Study Area

The study was carried out from Kanyenze Sacco in Kasese district. The Sacco is situated in a rural county of the district, serving rural households in over seven sub-counties. The area was also not far from where the researcher commutes and this enabled him to save resources when collecting data.

3.3 SamplingTechniques

Non probability sampling; that is purposive sampling technique was used to select the sample basing on the fact that the respondents were well knowledgeable about the development parameters in rural households and they were believed to have appropriate information pertaining to the study. 

3.4 Sources of Data

The researcher used both primary and secondary sources of data.  

3.4.1 Primary Data

The data was obtained from rural households who are members of the Sacco, staff and management. The information was obtained by use of self-administered questionnaires, interview guides and observation.  

3.4.2 Secondary Data

This data was obtained from published materials, which included journals, textbooks magazines, internal reports and newspapers. They also included minutes, internal and credit officers’ reports of Kanyenze Sacco, which were written about the control and utilization of loanable funds and customer business operations.

3. 5 Instruments of data collection

The researcher used data collection instruments namely, questionnaires, interview guide and observation.  

3.5.1 Questionnaires

Questionnaires were used to obtain quantitative data because of its versatility, its time and cost efficiency from the management and staff of Kanyenze Sacco. (The questionnaire used is attached as appendix ii).

3.5.2 Interview guide

The researcher designed an interview schedule to guide the discussion with the respondents (members of the Sacco), who were key informers and thus needed to elaborate on several issues, noting the responses thereof. The collected responses were then analyzed.

3.5.3 Observation

The researcher employed the observation method to capture data on the development indicators that exist in rural households. These indicators included; the nature on housing conditions, sanitation and other premises available.

3. 6 Data Analysis

The researcher used both descriptive and statistical approaches in processing and analyzing the data. Mostly quantitative data was obtained from the questionnaires, observation and interview guide, analyzed using statistical methods to give it a broader and more meaningful picture of the sample.  Qualitative data was presented using supporting information collected from respondents.

3.7 Ethical considerations

The researcher considered the research values of voluntary participation, anonymity and protection of respondents from any possible harm that could arise from participating in the study. Thus the researcher; introduced the purpose of the study as a fulfillment of a bachelors’ Study programme and not for any other hidden agenda. Request was made to the respondents to participate in the study on a voluntary basis and refusal or abstaining from participating was permitted. The researcher also assured the respondents of confidentiality of the information given and protection from any possible harm that could arise from the study since the findings would be used for the intended purposes only. 

3.8 Limitations and delimitations in the study

The researcher faced certain challenges but initiated ways of handling them so as to enable research get completed. 

The respondents were very far apart and this affected the period within which the research was completed. This meant that in a day either one or two respondents could be met since the distance travelled from one to another was so long. This was controlled by ensuring that at least the questionnaires were filled on the day the respondents were identified in their localities. This also ensured that no questionnaires were lost or not returned.

There was a challenge of the responses from the respondents who had participated and benefited from more than two MFIs which proved confusing as far as synchronizing results was concerned. The researcher handled this issue by guiding the respondents to identify themselves with only one MFI for the study.

Attitude of Respondents: Some respondents did not want to give out their information for confidential and other respondents expected allowances at the end of the discussions. However the researcher overcame this problem by convincing respondents that information required is for academic purposes only and is to be treated with utmost confidentiality.

Limited Funds: The researcher experienced financial hardship, and this was minimized by reducing expenditures by choosing completely voluntary respondents who accepted involving in the discussions without any allowance.

CHAPTER IV

PRESENTATION, ANALYSIS AND INTERPRETATION OF FINDINGS

4.0 Introduction

This chapter consists of the presentation, discussion and analysis of the findings from the study. It provides results which were analyzed from raw data collected in the field. It is in two categories; the first one represents the demographic characteristics of the respondents while the other category represents the responses of the questions that were asked concerning research objectives. The analysis was done and data is represented in form of tables, graphs and pie-charts.

4.1 Overview of the study

The study was carried out in Kasese district in western Uganda, with emphasis on Kanyenze Sacco, a microfinance institute serving rural households. Questionnaires observation and interview guides were designed to obtain data from a sample size of 50 was selected, and these were stakeholders of Kanyenze Sacco who included members, management and staff. The findings of the study were presented in accordance to the study objectives.

4.1.1 Response rate

A sample of 50 respondents was selected using purposive sampling method. Questionnaires, interviews and observation were administered to them for data collection. All respondents returned the questionnaires, giving a response rate of 100%.

4.2 Demographic characteristics of the respondents

The background characteristics compiled show the gender, age, and the education level. This data was analyzed and is presented as below;

4.2.1 Gender of the respondents

Table 4.1: Showing gender of the respondents

Source: primary data 2015

From table 4.1 above, it’s indicated, majority of respondents (54%) were females and the males were only 46% of the total respondents.

This implies females are more committed to implementing microfinance programs in rural areas and they actively participate in ensuring its sustainable impact at household level. This is also emphasized by Goodland (1999:23), who found out that women have a special position in the provision of microfinance because they are often among the poor and they make a substantial contribution to a households’ development.

The women, being the main actors in microfinance could be as a result of the fact that they are very sympathetic to the welfare of their household members. Therefore they try as much as possible to get involved in activities that would enable them earn income that could assist them to buy the daily necessities as well as social services such as health, education and land.

4.2.2 Age of respondents

Table 4.2a: Showing the age of clients

Primary data 2015

From the presentation, majority of clients 32% belonged in the (30-40yrs), 20% in (41-50yrs), 14% in below 30 age groups, and 4% in the category of above 50 years.

Since the age group of 30-40, it could be attributed to the fact that his age group has a population several responsibilities to undertake especially paying school fees and feeding the family. Thus when the available funds are not enough, they resort to MFIs in order to fulfill their obligations in the family. These people are also well respected in the community and are well known to the leaders of the community which minimizes the cases of defaulting and running away from the community. 

Table 4.2b: showing age group of staff

Field data 2015

Majority 14% belonged in an age group of below 30 years which has a population that is very physically active and comprising an active labour force, implying that they are still able to walk long distances in rural areas supervising microfinance activities

4.2.3: Level of Education of Respondents

Fig 4.1: Showing level of Education of respondents

Primary data 2015

From the figure 4.2, majority (32%) of respondents were O/A Level holders, (22%) of the respondents were diploma holders, 26% were certificate holders and 12% were primary/none holders. 

This implies that the respondents were capable of providing the researcher with relevant information since most of them had attained some level of education where they could understand English. These educated people also create ease for sensitization process and training about business development and loan utilization and repayment. 

4.3 Objectives of the study

4.3.1 Nature of Microfinance services

The respondents were asked to tell whether they access any service from their MFI and all (100%) accepted receipt of services adding that activities and services of the available MFIs were offered to both men and women and the process of accessing the services are both group and individual applications to the particular MFI. 

Later, when asked to tick/mention the services that they get from their MFIs, the following were the findings. 

Figure 4.2: Showing findings on number of respondents’ agreement to MF services.

Source: primary data 2015

The respondents 98% explained that all the MFIs provide loans as a primary activity and service to the households. The loans usually depend on the type of project the client intends to undertake. The amount disbursed is different for each client and it also depends on the MFI. However, Kanyenze  institution also provide loans as physical items like agricultural inputs such as seedlings, animals and repayment is done in the same way of giving back the seeds and the animals.

MFIs encourage personal savings by the clients as indicated by the 94%, adding that in case they have micro deposit taking facilities, the clients open savings accounts with them and save regularly. Clients are encouraged to save as a mandatory practice before taking the loan and during the loan utilization period. 

Respondents 74% also mentioned that MFIs provide training and skills development to enable the clients to plan, manage and evaluate the investment, keep the record of all activities of the investment and also to utilize the loan more effectively. The clients are also trained on how to analyse the income generating activities and investment opportunities. The training takes place before and after the clients receives the loan, and at the end of the loan period. These training encounters imply that clients share their experiences and challenges with the service providers who strategise how to improve, adjust their programmes and policies to suit their customers/clients accordingly.

MFIs assist needy students through either a full or half bursary scheme like the ACID program as indicated by the 64% beneficiaries. This implies that the clients mobilize and bank half of the money required for school fees and upon presenting of the bank slips, he/she is given the other half of the money through direct transfer to the school account. 

MFIs sensitize clients about their policy issues for the MFIs and their new products, food security,HIV/AIDS and other health issues as indicated by 78%. This means that clients are given information about new loans, savings procedures and any other new product from MFI which enables the clients to benefit from the promotions and also diversify the investment portfolio. The health sensitization enables clients to take necessary precautions for the infected persons appropriately.

42% of respondents revealed that Insurance cover and collateral details were emphasized so as to enable the MFIs not to lose the funds and for the family to benefit as well in case death occurred to the beneficiary. This insurance cover implies that the families do not suffer the burden of paying back the loan but are given some funds as contribution towards the funeral arrangements of the dead client. 

The above mentioned service provided by the MFI, are similar to what has been reported by microfinance institutions elsewhere in the world. For example in Bangladesh, the Grameen Bank’s MFIs educate the local communities about the opportunity to improve their lives with microfinance, make micro loans and provide other financial services such as savings accounts and insurance, collect weekly loan payments and assist clients in solving some of the life challenges they may face (Grameen Foundation 2000:2).

4.3.2 Indicators of development in rural households

Respondents were asked to state whether they observe any development in rural households and the responses were as follows: 

Table 4.3: Showing response rate towards the presence of development inrural households.

Source: primary data 2015

Majority 94% of the response of agreementis an indication that rural households realize development in their homesteads. 

When asked to tick/mention some of the indicators, their response rate was as follows. 

Table 4.4 shows response rate to observable indicators of development in rural households

Source: primary data 2015.

Eye-witness discovered other development indicators in addition to the ones mentioned above in the visited 35 households for the clients.

Figure 4.3: showing the development indicators in 35 rural households.

Primary data 2015

This observable development is likely to be attributed to the MF services that these households access and utilize. The presence of these indicators was an implication that there is development in rural households.

4.3.3 Relevance of MF services to the development in rural households

Respondents were asked to tell if there is any relevance between MF services and the development in rural households; their response rate was as follows:

Table 4.5: Showing whether MF services are relevant to the development in ruralhouseholds.

Primary data 2015

All respondents (100%) responded that there is relevance between microfinance services and the development in rural households, while no respondent(s) responded with a “no” or “not sure” answer.

This implies that the development in rural households could be sourced from participation in microfinance activities. 

To assess relevance of MF services to the development in rural households, respondent(s) were presented with statements on 5 point Likert scale and asked to rank the statements by indicating their level of agreement ranging from “5- strongly agree” to “1-strongly disagree”. Averages for every statement were calculated and the general average score evaluated. Scores were also converted to percentages as follows;

“Loans have boosted education standards in rural households”

Figure 4.4 Figure showing respondents agreement to education loans.

Field data 2015

Men/women acquired the ability to educate their children because before the acquisition of the loan, they were not able to pay fees. “With the microfinance loan, we would set aside some of it to pay the school fees even if it was not intended that purpose” the clients responded. They would work harder at their projects in order to repay the loan some of which they had used for the school fees.

This has especially been a big relief to the women who suffer the burden of looking after children when they have been abandoned by their fathers or when the husbands have died. This meant that when the women benefited from the profits of their investments they channeled some of it to the education of their children. The school going children as a result of meeting the dues of the school is an indicator of development since the household had the access to the social service and was utilizing it effectively.

“Savings mobilisation has improved the savings culture of rural households”

Figure 4.5 showing the agreement to the contribution of savingsmobilisation.

Primary data 2015

Respondents who strongly and/or agreed explained that MFIs have improved the savings culture in rural households adding that, the savings culture in rural households was established as an impact for the services from the MFIs especially the mobilisation of savings, opening of personal bank accounts with the MFIs and with the existing commercial banks in Kasese district. The MFIs usually prefer the loan disbursement and repayment through the Banks and thus each beneficiary had to open up an account.

“MFIs have led to creation of employment to some rural household members”

Table 4.6 shows response to the creation of employment torural households.

Field data 2015

 The 50% which showed their strong agreement and the 42% “agreed” explained that through the provision of microenterprise loans, members have been able to employ themselves or employ others where the business has grown tremendously. 

“Loans have promoted decent housing among rural households”

Figure 4.6 shows the response to the contribution of housing loans inpromoting decent housing in rural households;

Field Data 2015

40% respondents who agreed and the 38% of the respondents who strongly agreed explained that through MFIs, housing programs were introduced by other foreign organizations like “Habitat for Humanity international” which has left most of the households with decent houses. This was so because the foreign organizations would consider MFI as a gateway to reach the rural poor. This also implies that through involvement in the utilization of MF services men have been able to generate more income that is later used to create decent houses in their particular households. 

“MF services have boosted agricultural production in rural households”

Table 4.7: showing agreement of respondents towards agricultural production.

Field data 2015

The explanations got from the 55% and 34% of the respondents who strongly and/or agreed was that through acquisition of agricultural machines such as rakes, hoes, seedlings and animals, they were able to boost their agricultural produce improve consumption habits together with balanced feeding.

Other benefits that the respondents mentioned in the discussions were as indicated below.

Figure 4.7: Other Contributions of MFI on the status of households

Source: Field data. 2015

The respondents also reported that through the MFIs’ funds, the men and women in rural households of Kyondo sub-county have been able to start and/or expand their income generating activities as expressed by the 78%. This is because with the provision of capital, it becomes easier for them to startup income generating activities such as retail trade in shops, petty trade in fresh produce like tomatoes, mangoes, onions, sweet bananas, yams, pumpkins, sweet potatoes and other consumables like paraffin and charcoal sold in daily markets or along the road sides, selling used clothes and shoes. The advantage with the small business was that it would be set up in front of their homes or by the road side or in the daily markets or evening markets. This would enable a person to continue the household chores and the farming activities at home. 

Respondent also reported that the men/women in rural households have been able to increase their incomes as indicated by 74%. This could be as a result of the acquisition of capital from the MFI and the starting up of an income generating activity or expansion of their stock in the shops as well as diversity into other enterprises. This is because the lack of capital is usually a set back to the development of rural households.

The clients in rural households gained the ability to purchase the household items like furniture, beds and beddings, clothing, solar equipment, sanitary ware, cups, plates, hoes and many other things that would improve their well being in the home as expressed by 68%. The ability to purchase these items could be as a result of having little money to spend on those items after having acquired a loan to startup an income generating activity. This is because before that loan they had no projects from which to get any money on a regular basis. But after the loan, projects were established and income was realised.

The women who participated in MFIs acquired the ability and confidence to participate in leadership in their communities as explained by 80%. The women who had engaged in microfinance gained confidence as a result of the group discussions during the training and meetings they attended with the MFIs. The ability to communicate in the group discussions enabled the women to campaign for the leadership positions in their rural villages. This confidence would not have been possible if they had no exposure to express themselves before large numbers of people.

The existence of well planned and clean homesteads in a community was also an impact of MFI as expressed by the 82% of the respondents. It also meant that the men/women had either got loans or earned income and spent some of it on the welfare of the household instead of neglecting that function. The acquisition of this property would improve the levels of hygiene and reduce the incidence of diseases in the household. This boosted their social status in the community because their homes were very neat with good furniture and a meeting place for the group and other social gatherings. 

However respondents when asked about the challenges encounters in accessing and utilizing the MF services, some respondents established that although they get the services from the MFIs, there are some challenges faced.

Table 4.8, Challenges faced in accessing and utilizing MFI services.

Source: primary data. 2015

12% reported that, deductions in terms of interest rate and others were high and this created the feeling that the client was working for the benefit of the MFI and not for him/herself. This made it rather risky to take up the credit facilities yet at the moment it was inevitable.

The MFIs demanded for collateral as a prerequisite for accessing loans yet most clients didn’t have any kind of collateral as indicated by the 14%. The group collateral had also become a problem since it was reported that it was difficult to get trustworthy group members by 6%. This was because members would join the group only to access credit and after doing so they would relocate to an unknown destination for some time. 

The short repayment period affected the flow of money of respondents from their micro businesses to the MFI. The 4% of the respondents revealed that they had to borrow from other MFI to service the loans or risk the taking of their property by the MFI. 

The long procedure of accessing the loan was also mentioned by 8% of the respondents as a big challenge. It was however reported that the period between the application and the actual disbursement was too long for the clients. At times the clients lost hope, forgot and tried othermeans, only to be summoned to the MFI offices that their applications had been successful. 

4% expressed the fears that the micro insurance given by the MFIs and for which money was deducted from their loan might be a hoax and only benefiting some clients and not all of them. This was because of the procedure of claiming the insurance funds in case the partner/spouse dies.

4% of the respondents explained that the MFIs had strict and rigid policies that could not be changed no matter what. Examples included paying of fines when one could not fulfill the repayment schedule, not granting the loan to a group even if it was only one member who had failed to pay and confiscating property when one had failed to pay. 

In addition, respondents mentioned lack of flexibility from the MFI when their clients were sick, lost family members or were involved in accidents. The respondents who were 6% explained that “borrowed money did not know sorrow, did not know sickness, and did not know death” in other words, whatever the situation of the client; the loan had to be serviced. 

6% mentioned that at times it was difficult for clients to fulfill their repayment schedules and they ended up defaulting.Some members’ businesses would neither breakeven nor make any profit yet the MFI wanted the group repayment made on schedule. This could have been as a result of circumstances beyond their control like weather for farmers, accidents for those in transport businesses.

Respondents comprising 18% revealed the challenge of clients diverting loan funds to other social problems. This was because the MFIs do not target those social aspects as activities warranting loans. The most common activity to which funds had been diverted by almost all clients was explained to be school fees. 

The paperwork involved in filling the forms and signing agreement/contracts was cited by 16% of the respondents as affecting the speed with which the clients are served. It was also pointed out that there were letters of recommendations required from local authorities or employers that would not be readily available and in some instances money was paid for the stamps. 

Suggestions to eliminate the challenges faced in accessing and utilizing the MFI services were made as below

Table 4.9 Suggested solutions to the challenges faced in accessing and utilizingMFI services

Source: primary data. 2015

The respondents had specific suggestions that could overcome the challenges faced with the MF services in their households as outlined in the above table. The respondents established that the MFIs could increase the money given to the clients so as to allow them expand and diversify their investment opportunities, reduce the interest rates so that all the profits realized do not go towards paying the interest and also increase the grace period to allow the growth of the enterprise and also for the organization of payment.

It was suggested that the government should be involved in the provision of regulations to govern the microfinance programs, the interest rate and safe guard the property of the clients. Furthermore, the MFIs were requested to establish loan products for social problems like school fees, weddings and funerals, collaborate and share successes and failures so as to harmonize the service delivery and also to elicit the support of employers to the clients to assist in the repayment of money by their staff/employees.

There was also a suggestion that the MFIs should continuously sensitize their clients on loan utilization and repayment and discuss with them before they confiscate their property. This is because the clients say that if given more flexible terms they would be able to pay back the loan.

CHAPTER V

Summary, Discussion, Conclusions and Recommendations of the study

5.0 Introduction

This chapter includes the discussion of the findings specifically on the objectives of the study, the conclusions that were arrived at and the recommendations from the research which was conducted to establish the “Role of microfinance institutions to the development in rural households”.

5.1 Summary of the Findings

Background information: Majority of respondents (54%) were female, majority (46) in the age group (31-40) years for clients, and below 30 years for the MF staff. Most respondents were educated, majority (32%) being “O/A” holders.

Microfinance services offered to rural households: Majority (100%) of respondents accepted receipt of services from their MFI; the most accessed services were savings and deposits (96%) and microloans (98%). Indicators of development in rural households: The major indicator of development identified as decent housing with 96% describing it in iron-roofed houses. Relevance of microfinance services and development in rural households: Majority (100%) of respondents accepted the contribution of microfinance services to the development in rural households with the major contribution being realised in the initiation of income generating activities, and the purchase of household items and other services. 

5.2 Discussions of the findings

This was arrived at by determining the MF services offered to rural households, identifying the indicators of development in rural households, and establishing the relationship between microfinance services, the development in rural households. These conclusions are also policy recommendations that may be adopted by the relevant authorities accordingly.

5.2.1 Microfinance services offered to rural households

MFIs services such as microloans, savings mobilization, training, supervision monitoring, bursaries and sensitisation, insurance, payments to the clients in rural households were found to be enjoyed by rural households. MFIs train clients about their products and cross cutting issues like gender, environment and HIV/AIDS. The MFIs provide the services either to a group, individual who expresses interest in the services and complies with the requirements. This is in line with the literature review as CGAP (2004) stated that the MF services include; microloans, savings, training and payments and remittance. 

The research concludes that some MFIs operating in rural areas are providing services to individual and group, women and men from various households. These results are in agreement with those of Ghalib (2007) who observed that all microfinance program targets one thing in general; human development that is geared towards both the economic and social uplift of the people they cater for. 

5.2.2 Indicators of development in rural households

Indicators of development in rural households were found to be decent housing, purchase of, furniture, animals, electronics and other assets, improved feeding, health and sanitation, education and establishment of income generating activities. This is evident that rural households are realizing development in their homesteads through their various economic activities. This is in line with the literature according to UBOS (2002) which indicated that household development lied in the ownership of assets, health, sanitation, housing systems, education and other essential elements of good standards of living. 

5.2.3 Relevance of microfinance services to the development in rural households

The research was aimed at establishing whether there is a role played by microfinance institutions to the development in rural households. 

The findings reveal thatthere has been development in rural households as a result ofmicrofinance services. This was evidenced by the fact that the household members have been able toearn, own and increase their incomes, establish income generating activities,mobilize savings, open personal bank accounts, meet the school fees for thechildren, purchase household property e.g. furniture, land, house, solarequipment, beds and beddings, clothing and food. 

The findings reveal that there has been an improvement of the socialstatus of women as a result of microfinance. This was evidenced by the fact that the women have been able to meet social obligations through financialcontributions, participate in civil and political leadership roles, increase theirintegrity and confidence in the community, open up their homes for meetings andvisitors thus they have had to furnish the houses adequately. The womenparticipating in the MF activities have also earned a status of beingcommunity advisors, opinion leaders, role models and case studies in the community for research and consultations which is in line with the conclusions of Hulme and Mosley (1996).

The research established that despite the challenges and misgivings of some household members about microfinance, it is regarded as a very practical and strategic intervention in providing the much needed funds for the poor who may not have easy access to the mainstream financial services. The researcher concludes that there is a significant role played by microfinance to the development in rural households as evidenced by the benefits that the household members enjoyed as a result of their participation and access to the microfinance institution services.

5.3. Recommendations from the research

These recommendations from the research findings are geared towards making policies at institution level to enable the provision of better services to the clientele. This is because the MFIs have been in existence in the area for over ten years and households have benefited from their services, therefore, it is important to address the needs of the clients so as to harmonize operations for more impact in the community in particular and the country in general.

5.3.1. Recommendations for microfinance institutions

MFIs could reduce the interest rates, increase on the amount given as loans to the clients and assess repayment capabilities before loan provision. The MFIs are urged to establish loan products like the school fees and asset loans and they should not ask for group security where groups are just formed for loan purposes.

Further requests are made to the MFIs to continuously supervise, monitor and follow up their clients adequately and closely to avoid diversion of funds, network and collaborate with other MFIs in the area, to improve on customer care and not to rely on groups only but also consider individuals on merit as well. The MFIs should also collaborate with and facilitate the local government technical and extension workers to monitor and supervise clients in the areas where they operate. This is because the government workers are skilled and always in the field to promote government programmes in the villages. 

5.3.2 Recommendations for the government

The government is urged to get involved in determining the interest rate, centralise the interest rates such that the rate is uniform for the MFIs and also monitor the services of the MFIs. The respondents also recommend that the government could protect the borrowers from the MFIs and also provide community sensitisation and training guidelines for the access and utilization of MFI services.

5.3.3. Recommendations for MFI clients

Clients from other MFIs should be trained thoroughly before undertaking credit, use money for intended purposes only, avoid money misuse and diversion of funds. The clients are also urged not to move from one MFI to another but rather study the operation of the MFI before accessing its services and also support each other with skills, supervision and monitoring as a group. The clients are further encouraged to get more investment opportunities instead of only one, have an enterprise before borrowing the money and not to use credit to start investments but rather to expand or diversify investments.

5.3.4. Recommendations for further research

The current study was based on small sample size taken from rural households who are members of Kanyenze Sacco. Further research done on a bigger scale with large sample size could shed light on how microfinance activities affect the average living standard of people in rural households. 

Other area of emphasis includes;

1. i) The impact of MFI on the small scale industry in Uganda, 
2. ii) The factors that lead to people joining more than one MFI

iii) The possibilities of providing asset loans rather than cash loans for some beneficiaries.

5.4. Conclusion

These conclusions were drawn from the research findings as guided by the research objectives and questions. The main objective of the research was to determine the role of microfinance institutions to the development in rural households. The findings revealed that there is a big role played by microfinance to the development in rural households. This is because the access and utilization of MF services by the rural people has given them the opportunity to get access to capital to start and expand existing micro businesses, and as a result increase their incomes. 

The increased income in turn have led to the men/women contributing financially to the household upkeep and purchases; women empowerment as evidenced by their political involvement in leadership positions, socially getting the confidence to participate in community meetings and decision making at all levels. The access to and utilization of the microcredit facilities has had a share of challenges for the rural households but the benefits outweigh them for the study to conclude that microfinance has had invaluable impact and lessons for the development in rural households.

The experience obtained by clients through their participation in the MFIs has enabled them to suggest to the government to get involved in controlling the interest rates on the loans and also for the beneficiaries to utilize the loan for its intended purposes. The MFIs have thereby been urged to be more flexible, reduce interest rates, increase the size of the loan and continuously train, supervise and monitor the progress of the project of the customers.

The study has conclusively confirmed that MFIs play a very big role to the development in rural households. The above analysis of conclusions confirms that there is a role that is played by MFIs to the development in rural households. The benefits that accrue to the rural households have been explicitly discussed and it is important to note that the study will provide one of the very first resource books for development workers, loan officers, and policymakers in the field of microfinance in rural areas of Kasese District.

APPENDICES

Interview guide for members

Dear respondent,

My name is KuleCoroniel, an undergraduate of Kyambogo University pursuing a Bachelor of Science in Accounting and Finance. I am carrying out a study on the “Role of microfinance institutions in the development of rural households” using a case of Kanyenze Sacco. 

I request for your participation to make this research successful. The information provided here will be restricted to academic purposes and treated with utmost confidentiality.

Instructions:

Please write or tick/check any appropriate response to each question in the box or space provided.

Section A: Background Information

1). Age bracket (years):    

(i) Below 30                (ii) 30-40            (iii) 41-50            (iv) Above 50 

2). Sex:              (I) Male           (ii) Female 

3). Level of education:     (i) Primary (ii) Ordinary  (iii) Advanced 

(iv) Diploma (v) Degree and/or Above (vi) None 

Section B: Research Objectives

Part I

1(a) Are there any microfinance service offered to you by your microfinance Institution?

1. Yes (ii) No (iii) Not sure 

1(b). If yes above, what services are offered to you by your microfinance institution? (Tick any that apply).

(i) Savings (ii) Microloans

(iii) Credit card (iv) Micro insurance

(v) Transfers (vi) Training

(vii) Smart cards (viii) Payments

(ix) Any other (specify)

Part II

2(a) Do you notice any development in rural households of your village?

(i) Yes (ii) No (iii) Not sure

(b) If yes above, which indicators of development are observable for rural households in this village? (Tick any that apply).

(i) Decent housing (v) Food production

(ii) Ownership of Assets (vi) Proper sanitation and hygiene

(iii) Education (vii) Employment

(iv) Proper lighting (viii) Consumption and appropriate feeding

 Others (please specify)…………………………………………………………………………

Part III

3(a) Do you agree that microfinance services contribute to the development of rural households?

(i) Yes (ii) No (iii) Not sure 

b). For each of the statements below, tick the box that indicates the extent of your agreement about microfinance services. Use the following alternatives to show your agreement; Strongly Agree (SA); Agree (A); Neutral (N), Strong Disagree (SD) and Disagree (D). 

1. C) In your opinion,explain thecontributions of microfinance services to the development in your families?

……………………………………………………………………………………………………………………………………………………………………………………………………

4(a) What challenges do you face in accessing and utilizing the microfinance services?…………………………………………………………………………………………………………………………………………………………………………………………

(b) Suggest measures that could be used to overcome the challenges in microfinance service delivery.……………………………………………………………………………………………………………………………………………………………………………………………

THANK YOU FOR YOUR TIME

Questionnaire to Kanyenze Sacco staff

Dear Respondent, 

My name is KuleCoroniel, an undergraduate of Kyambogo University pursuing a Bachelor of Science in Accounting and Finance. I am doing research on the “Role of microfinance institutions in the development of rural households” using a case of Kanyenze Sacco. 

I request for your participation to make this research successful. The information provided here will be restricted to academic purposes and treated with utmost confidentiality.

Instructions:

Please write or tick/write any appropriate response to each question in the box or space provided.

Section A: Background Information

1). Age bracket (years):    

(i) Below 30                (ii) 30-40            (iii) 41-50             (iv) Above 50 

2). Sex:              (i) Male           (ii) Female 

3). Level of education:  (i) Ordinary              (ii) Advanced 

(ii) Certificate                         (iv) Diploma (v) Degree and/or Above 

Section B:  Research Objective.

(1) Outline the services offered by this MFI to rural households?

………………………………………………………………………………..……………………………………………………………………………………………………………………

2(a) Is there any development observed for rural households in the villages you serve?

(i) Yes (ii) No (iii) Not sure 

(b) If yes above, what are the common indicators of development in rural households in these areas?……………………………………………………………………………………………………………………………………………………………………….…………………….

3(a) Are microfinance services relevant to the development in rural households of the villages you serve?(i) Yes (ii) No (iii) Not sure

b). For each of the statements below, tick the box that indicates the extent of your agreement about microfinance services. Use the following alternatives to show your agreement; Strongly Agree (SA); Agree (A); Neutral (N), Strong Disagree (SD) and Disagree (D). 

(c) In your own opinion, describe the ways how microfinance services have been relevant to the development in rural households.

4(a) What challenges have clients reported to you in accessing and utilizing your Microfinance services?

…………………………………………………………………………………………………………………………………………………………………………………………

(b) Suggest measures that could used to overcome the challenges in microfinance service delivery.……………………………………………………………………………………………………………………………………………………………………………………………

THANK YOU FOR YOUR TIME.

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