A RESEARCH PROPOSAL ON;THE ROLE OF MICROFINANCE

INSTITUTIONS IN IMPROVING LIVELIHOOD OF HOUSEHOLD'S;

INCASE OF BEDELE TOWN, BUNNO BEDELE

GROUPS NAME. ID:NUMBER

𝑨𝒔𝒉𝒆𝒏𝒂𝒇𝒊 𝑴𝒆𝒏𝒈𝒊𝒔𝒕𝒖....................0100/12
𝑭𝒂𝒕𝒖𝒎𝒂 𝑬𝒃𝒓𝒂𝒉𝒊𝒎......................0758/12

ADVISOR:SENAIT N.

JUNE ,2014 EC
DEBRE MARKOS,ETHIOPIA

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 AKNOWLEDGEMENT

Firstly, we would like to give the most precious thanks to God who allowed us to write this
proposal, and gave us this expensive time in our life.
After, that we are going to thank our advisor [Link] N. for her restless assistance,
support and guided us to the right direction to finish our proposal effectively. Also we would
like to thank our entire classmates who encouraged and helped us to complete this proposal.
Lastly, a vote of thanks also goes to our family for their moral, spiritual and financial support
during our progress of this study. Without their continued support, this may have not been
achieved. our love for them endures for a life time.

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TABLE OF CONTENTS

LIST OF TABLES VI

LIST OF FIGURES VII

LIST OF ABBREVIATIONS AND ACRONYMS VIII

ACKNOWLEDGEMENT IX

ABSTRACT X

1. INTRODUCTION 1

1.1. Background 1
1.2. Problem statement 2
1.3. Objective of the Study 3
1.3.1. General objective 3
1.3.2. Specific objectives 3
1.4. Research Questions 3
1.5. Significance of the Study 4
1.6. Scope and Limitation of the Study 4
1.6.1. Scope of the study 4
1.6.2. Limitation of the study 4
1.7. Conceptual Framework 5
2. LITERATURE REVIEW 6

2.1. Theoretical Literature Review 6

2.1.1. Definitions and concepts 6
2.1.2. Sustainable livelihood framework 7
2.2. Empirical Review 8
2.2.1. Microfinance and its role in economic development 8

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 2.2.2. The role of microfinance on poverty reduction 9
2.2.3. Role of microfinance on livelihoods 10
2.3. Null Hypothesis 11
3. METHODOLOGY 12

3.1. Description of the Study Area 12

3.2. Type of Research Design 12
3.3. Data Sources and Types 13
3.4. Method of Data Collection 13
3.5. Sampling Techniques and sample size 14
3.6. Methods of Data Analysis 15
3.6.1. Econometric Method of data analysis 16
4Work Plan AND Logistic 17

4.1 work plan 16

4.2 Logistic 17

REFERENCE 20

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LIST OF TABLES

Table 2.1. Hypothetical relationship of variables 11

Table 3.1 Sampling Techniques of the Respondents 14

x
LIST OF FIGURES

Figure 1.1. Conceptual framework of the study 5

Figure 4.2 Source of income of the respondents 21
Figure.4.3, Loan Purpose of the Beneficiaries 22

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 LIST OF ABBREVIATIONS AND ACRONYMS

CSA Central Statistical Agency

FGD Focus Group Discussion
IFAD International Fund for Agricultural Development
MF Microfinance
MFIs Microfinance Institutions
Mo FED Ministry of Finance and Economic Development
NGOs Non-governmental Organizations
OCSSCO Oromia Credit and Saving Share Company Organization
PPS Probability Proportional to Size

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ABSTRACT

Livelihoods are ‘means of making a living’, the various activities and resources that
allow people to live. It comprises the capabilities, assets (including both material and
social) and activities required for a means of living. Thus, microfinance programs have
been considered as one of the main instruments in livelihood improvement in recent
development agenda. Microfinance comprises the provision of financial services
including credit and other facilities like savings, insurance, and transfer services to
poor household. The study will be conducte in bunno bedele zone in 01 and 02 kebeles
among the 35 target kebeles of the bunno bedele zone. The main objective of the study
is to identify the contribution of OCSSCO in improving household livelihood through
providing credit and also the main questions of this study area is; what are the main
contribution's of microfinance in improving livelihood's of househoold. Further, the
study used both primary and secondary data sources. The primary data was collected
with semi-structure interview and focus group discussion from sampled respondents;
whereas, secondary data gathered from different documents of the microfinance
institution that exists in the study area. Stratified random sampling will use to select 60
respondents (35 beneficiaries and 25 non-beneficiaries ) out of peoples of 01 and 02
kebeles of target area based on the principle of probability proportional to size (pps).
Generally, Microfinance Institutions have an explicit potential that intends to improve
the livelihoods of households. While improving livelihood, microfinance (OCSSCO)
credit service increases the income of the clients; which, in turn, enable them educating
their children and improves their nutritional status. Inferential statistics such as
crosstabs; independent sample t-test and custom table will use in data analysis.
Descriptive statistics like frequency, percentage, mean and standard deviation will be
employe to analyze the data. Chi-square (for categorical variables) and t-test (for
continuous variables) will use to see the significance of the relationships of independent
variables with dependent variables.
Key words: assets, client, role, microfinance institution, livelihood,

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xiv
 1. INTRODUCTION

1.1. Background

Ethiopia is one of the poorest and largest populated countries in Africa. Its total population
was 110,000,000 in 2014; its economy is based on agriculture, which accounts for more than
50% of GDP, 80% of exports, and 80% of total employment. The biggest sources of foreign
trade are coffee, flowers and oilseeds. Yet, in spite of high rates of growth most Ethiopians
live in poverty(world bank 2012).

The formal microfinance in Ethiopia started in 1994. In particular, the Licensing and
Supervision of Microfinance Institution Proclamation of the government encouraged the
spread of Microfinance Institutions(MFI) in both rural and urban areas as it authorized them
among other things, to legally accept deposits from the general public (hence diversity
sources of funds), to draw and accept drafts, and to manage funds for the micro financing
business. Currently there are 23 licensed MFIs reaching about 905,000 credit clients and some
saving clients. Considering the potential demand, particularly in rural areas, this only satisfies
an insignificant proportion (Gobezie, 2014).

The origins of MFIs in Ethiopia is largely rooted in their NGO past with a clearly defined
mission of rural poverty eradication. With a network of 500 sub-branches and branches, the
MFIs have expanded their outreach to many of the regions where the incidence of poverty is
highest. As of January 2001, MFIs has made loans to and mobilized savings from about
500,000 clients nationally. Some MFIs have also started to offer other services such as
managing pension remittances and money transfer services At least 41% of the MFI clients
nationally are women and in the majority from rural households. Most of the MFIs have two
types of loan products, namely loans for on-farm activities, which are due in four to twelve
months, and off-farm investments with more flexible repayments on weekly or monthly basis
(IFAD, 2001). On average, 60% of the MFI portfolio represents loans for on-farm
investments while income generating activities and petty trading accounted for about 40%.
(Dejene, 2010).

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Microfinance uses the likelihood approach to improve their livelihood by strengthening the
following five basic assets and comprises broad and inter related programs and policies.
These includes giving people salaried jobs and other opportunities to earn income; providing
loans; saving and other financial services; providing training in jobs and business skills;
developing institution alliance and network to advances economic interest, and promoting
policy and social changes that improve the farming household livelihood Projects (Barry et
al,1996).

Oromia Credit and Saving Share Company (OCSSCO) is currently operating largely in rural
areas to complement the agriculture lead and rural centered development effect of the Federal
Government of Ethiopia in general and Oromia Regional National State (ORNS) in Particular.
BEDELE town is also one of the places where OCSSO is giving credit for the households.

1.2. Problem statement

Ethiopia is predominantly an agricultural country that 85 percent of its population depends on

agriculture for their livelihood. Its agriculture is also characterized by low productivity, which
can be attributed to shortage of skilled human, lack of good governance and lack of capital that
compounded by inaccessibility of the poor to the existing formal financial institutions due to
some factors such as high collateral (guarantee) requirements for small loans. Since poor
people were regarded as credit worthless, access to credit is very limited (Gebrehiowot, 2012).
Relative to the experience of other developing countries, microfinance development in its
institutionalized form is a recent phenomenon in Ethiopia. Lack of financial resources is one of
the major problems facing poor households. Formal financial institutions are inefficient and
inaccessible in providing credit facilities to the poor (Assefa et al., 2005).
Therefore ;provision of formal microfinance for poor both rural and urban people is very
important in improving problems of financial resource of household livelihood.

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1.3. Objective of the Study

1.3.1. General objective

The purpose (general objective) of the research is to identify the role of OCSSCO in improving
livelihood and to assess challenges of the users in credit participation in the study area.

1.3.2. Specific objectives

 To identify the factor affecting of households in accessing microfinance credit service

in study area.
 To identify the contribution of credit in increasing household income.
1.4. Research Questions

 What are the contributions of credit in increasing households’ income?

 What are challenges of households in accessing microfinance credit service in study
area?
 What are the main purposes and income generating activities of households in the study
area?

1.5 Significance of the Study

The product of the research identifies the role of OCSSCO in improving household livelihood
in the study area. It also aims finding out the integration of the micro credit service and
initiate other researchers to generate and add information on existing knowledge of micro
finance contributions in improving the livelihood of households. Further, the findings of the
research provide multipurpose information to different users, including practitioners in
microfinance, donors, policy planners, academicians and the public at large. At worst, it raises
questions for further research and study.

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1.6. Scope and Limitation of the Study

1.6.1. Scope of the study

The research was carried out on microfinance institutions (OCSSCO) that found in Bedele
town. The study assessed and analyzed the role of OCSSCO toward improving the livelihood
of household of the study area. And the extent to which it contributes in initiating and
improving the livelihood of household. The study includes the indicator values to identify the
role of selected microfinance institutions on the improvement of household living standards in
the study area. So, the scope of the study is at the household level.

1.6.2. Limitation of the study

The researchers will be limite to deal with the role of microfinance institutions in improving
household livelihood with specific microfinance institution; due to financial, time and labor
constraints; that forced the researcher to limit the sample size and the scope of the research.
So, the researchers focused only on the role of microfinance institutions in improving the
livelihood of household (clients) of ossco at bedele branch.
1.7. Conceptual Framework
Conceptual frame work is the maps that showing the interaction of the concepts. It would
mobilize the habit of credit service. Creating better way better for achieving means of living
for the beneficiary or clients of ocssco that found in the town through institutional credit,
saving, insurance and generating employment opportunities, education opportunities,
nutrition facilities. Diagrammatically, it can be shown as follow:

Microfinance services

Saving credit insurance

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 Improving Livelihood

Economical Biological Social

(Income) (Food, health) (Social dignity)

Figure 1.1. Conceptual framework of the study

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 2. LITERATURE REVIEW

2.1. Theoretical Literature Review

2.1.1. Definitions and concepts

Microfinance is encompasses the provision of financial services and the management of small
amounts of money through a range of products and a system of intermediary functions that are
targeted at low income clients through the provision of small loans and other facilities like
savings, insurance, transfer services to poor low-income household and micro enterprises(by
asemia and osie 2007). Schreiner (2001) support this view by defining microfinance as “the
attempt to improve access to small deposits and small loans for poor households neglected by
banks.”

Therefore, microfinance involves the provision of financial services such as savings, loans and
insurance to poor people living in both urban and rural settings who are unable to obtain such
services from the formal financial sector. Related concepts to microfinance are micro savings;
micro insurance and MFIs. They are briefly explained in the subsequent paragraph.

Micro Savings is also a microfinance service that allows impoverished individuals to safeguard
money and other valuables items and even earn interest. It allows a lump sum to be enjoyed in
future in exchange for a series of savings made now (Arytery, 2008).

Micro Insurance is also a component of microfinance. It is the provision of insurance to

households. Poor households are especially vulnerable to risk both in the form of natural
calamities as well as more regular occurrences of illness and accidents. Microfinance
Institutions (MFIs) have played an active role in reducing or protecting the poor households
against this vulnerability. This is done by providing credit for increasing income earning
opportunities and through providing savings services to build up resources that can be drawn
down in cases of emergencies.

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On the other hand, the terms micro credit and microfinance are often used interchangeably, it is
important to highlight the difference between them because both terms are often confused.
Sinha (1998), states that “micro credit refers to small loans, whereas microfinance is
appropriate where NGOs and MFIs supplement the loans with other financial services such as
savings and insurance”. Therefore, microcredit is a component of microfinance in that it
involves the provision of credit to the poor, whilst microfinance add on non-credit financial
services such as saving insurance, pensions and payment services (Ayertey, 2008).

Livelihood is comprises the capabilities, assets (including both material and social resources)
and activities required for a means of living. It can also define as the activities, assets and
access that jointly determine the living gained by an individual or households. it is the means of
support something that provides income to live on, a specially paid work to secure necessity of
life through livelihood activities such as economic activities that people know own and
undertake to earn income today and in the future.

A sustainable livelihood is that which can cope with and recover from stresses and shocks and
maintainaienhance its capabilities and assets both now and in the future, without undermining
the natural resource base. Access to capital is one of the determinants of a household’s ability
to achieve well-being, defined broadly to include natural, physical, financial, human and social
capital (Barry et al., 1996).

2.1.2. Sustainable livelihood framework

Sustainable livelihood framework is a holistic, asset-based framework for understanding

poverty and the working of rural poverty reduction. It also points out the need to building the
assets of individuals and households. Moreover, this asset-access activities framework is
iterative and is a process unfolding over time for individuals, households, and communities
(Simon et al., 2000).

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Asset Resources: Assets are resources owned, controlled, and claimed to access by the
individual and the household who needed to cope with stresses and shocks, and to maintain
and enhance capabilities now and in the future (Ellis, 2000). Resource assets can be natural,
physical, financial, and social and human that contribute to a sustainable livelihood are
interdependent (Lipton pers. Comm. cited in Scoones, 1998).

Natural capital comprises the land, water, and biological resources that are utilized by people
to generate means of survival. Whereas physical capital is produced goods comprising
building, irrigation canals, roads, power lines, water supplies, tools, machines, technologies
and housing that are created by economic production processes. Financial capital refers to
stock of money to which the household has access. It is chiefly likely to be cash, savings, and
access to credit in the form of loans. Further, human capital is demographic such as gender
structures, the body of education, skills, knowledge, ability to and good health and physical
capability important for the successful pursuit of different livelihood strategies. So, human
capital refers to the available to the household; its education, skills and health that is enhanced
by investment in education, training and pursuing one or more occupations (Scoones, et al.,
2001). Social capital is the social resources (social networks, social claims, social relations,
affiliations, associations more generally; and consensual norms and relationships of legitimate
authority) upon which people draw when pursuing different livelihood strategies (Scoones,
1998: Ellis, 2000; Stephen and Simon, 2001).

2.2. Empirical Review

2.2.1. Microfinance and its role in economic development

Microfinance has a very important role to play in development according to proponents of

microfinance. UNCDF (2004) states that studies have shown that microfinance plays three
key roles in development.

 It helps farm households meet basic needs and protects against risks,
 It is associated with improvements in household economic welfare,

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  It helps to empower women by supporting women’s economic participation and so
promotes gender equity.

Otero (1999) illustrates the various ways in which “microfinance, at its core combats poverty”.
She states that microfinance creates access to productive capital for the poor, which together
with human capital, addressed through education and training, and social capital, achieved
through local organization building, enables people to move out of poverty.

The aim of microfinance according to Otero (1999) is not just about providing capital to the
poor to combat poverty on an individual level, it also has a role at an institutional level. It seeks
to create institutions that deliver financial services to the poor, who are continuously ignored by
the formal banking sector. Littlefield and Rosenberg (2004) state that the poor are generally
excluded from the financial services sector of the economy. So, MFIs have emerged to address
this market failure. By addressing this gap in the market in a financially sustainable manner,
MFIs can help households to access capital markets to fund their lending portfolios, allowing
them to dramatically increase their income.

2.2.2. The role of microfinance on poverty reduction

Ditcher (1999), states that microfinance is a tool for poverty reduction and while arguing that
the record of MFIs in microfinance is “generally well below expectation” he concedes that
some positive impacts do take place. From a study of a number of MFIs he states that findings
show that consumption smoothing effects, signs of redistribution of wealth and influence
within the household are the most common impact of MFI programs. Hulme and Mosley
(1996) in a comprehensive study on the use of microfinance to combat poverty, argue that well-
designed programs can improve the incomes of the poor and can move them out of poverty.

Wright (1999), states that there is significant difference between increasing income and
reducing poverty. He argues that by increasing the income of the poor, MFIs are not necessarily
reducing poverty. It depends on what the poor do with this money, oftentimes it is gambled
9
away or spent on alcohol, so focusing solely on increasing incomes is not enough. The focus
needs to be on helping the poor to “sustain a specified level of well-being” by offering them a
variety of financial services tailored to their needs so that their net wealth and income security
can be improved.

2.2.3. Role of microfinance on livelihoods

Having access to MF services have led to an enhancement in the quality of life of clients, had
increased their self-confidence, and had helped them diversify their livelihood security
strategies and thereby increase their income (Robinson, 2001). Health care and education are
two key areas of non-financial impact of MF at a household level. Wright (2000) stated that
from the little research that has been conducted on the impact of MF interventions on health
and education, nutritional indicators seem to improve where MFIs have been working. MF
interventions have been shown to have a positive impact on the education of clients‟ children
because one of the first things that poor people do with new income from micro-enterprise
activities are to invest in their children’s education (Littlefield et al., 2003).

Moreover, women empowerment is also a key objective of MF interventions. Women need

empowerment as they are constrained by the norms, beliefs, customs and values through
which societies differentiate between women and men. MFI cannot empower women directly
but can help them through training and awareness rising to challenge the existing norms,
cultures and values that place them at a disadvantage in relation to men and to help them have
greater control over resources and their lives as Kabeer, quoted in (Mosedale, 2003).
2.3. Null Hypothesis
There are independent (explanatory) and dependent variables in the hypothesis

Table 2.1 Hypothetical relationship of variables

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 Independent Variables Effect of independent
variables on dependent
variables
Age Negative/positive

Marital status Positive

Educational status Positive

Religion Negative

Dependency ratio Negative

Asset ownership Positive

Family members Negative/positive

Table 2.1: Types of variables and the effect of independent variables on dependent variable
The dependent variable is: - livelihood improvement through participating in microfinance
credit.

3. METHODOLOGY
3.1. Description of the Study Area
Bedele is the town and The District is located in Oromia regional state at 468 km away from
Addis Ababa ,Capital city of Ethiopia .It is bounded by Cora in south west ,by dabo Hanna in
north and by gachi district in the east. The district accounts total population 0f 98,034,with the
total household 10,[Link] these ,5800 were males and 4200 were females households .the
topographic features of the district is characterized by different terrain features , such as
pleatue ,gentle slope and valley . The average rainfall of the district was 1361mm, with an
average temperature of 27oc with minimum and maximum of [Link] dega and kola agro
ecology is known climate type in the district according to annual report of bedele districts
agricultural office reported in 2007.]

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The most common vegetation in the district is: Bamboo ,Gravilia robista ,wanza
Bizana,shola,white tree, acacia species, also cereals such as coffee (coffee
arabica),maize,sorghhum,teff,vegetables(sweetpotato,tomatoes,onion,chilies),fruits(avocado,
mango,orange,banana,papaya,lemon) (field survey,2017).The farming system of bedele
district was mixed (crop production and livestock rearing).The major land use categories of
district are forest, agriculture and range lands.
3.2. Type of Research Design
A cross-sectional type of research design was used, which employed comparative study
between participants and non- participants of micro finance scheme. Furthermore, descriptive
survey type of research will be used. Cross-sectional survey design was selected to collect
data from the sample population at specific point in time and based on the results to make
generalizations. Descriptive survey research will be chosen to generally describe the
differences experienced by households aroused from obtaining microfinance services in
comparison with non-beneficiary households.

3.3. Data Sources and Types

Two types of data sources, primary and secondary were used to obtain the desired qualitative
and quantitative data types in order to meet the study purposes. Primary data has been
obtained from the potential informants (beneficiaries and non-beneficiaries) and the micro
finance specialists who were working for the organization delivering the scheme. The
secondary data are further gathered from document of the microfinance institution that exists
in the study area.

3.4 Sampling Techniques and sample size

The sample frame comprised of two categories: the microfinance participant and non-
participant households. The sampling frame will be compiled by drawing together lists of
names of beneficiaries obtained from the microfinance documents who were providing micro
finance service to them. For non-participants names will obtained from village savings and
credit cooperatives using credit seekers data.

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The total number of target population is 580 i.e. the number of households registered in credit
seeker data and the clients of the bedele in the two kebele. From the total of.580 target
population 60 respondents will selected randomly as a sample. Hence the corresponding
number of respondents from the two kebele was obtained based on the principle of probability
proportional to size (pps) as it is indicated in the table below.

Beneficiaries Non-Beneficiaries

No of clients Sample taken No of credit Sample taken

seeker
Kebele Total

01 162 17 118 12 29

02 180 18 120 13 31

Total 342 35 238 25 60

Table 3.1 Sampling Techniques of the Respondents

The participants in the micro finance service will be select from the lists using stratified
random sampling method, based on the loan cycle of the beneficiaries. OCSSCO provides
microfinance credit and other services for 35 kebeles. Among these kebeles, two kebeles 01
and 02 were selected through random sampling techniques. Purposive stratified random
sampling technique was used to select a total of 60 households (35 households participating in
micro finance scheme and 25 non-participants) for the study. Those participants who have
reached second the loan cycle and above have been targeted to study the role of the bedele
scheme in improving household livelihood.

Sampling design follows the following path:

Bedele Zone purposely (due to resource and time constraints)

Bedele District purposely (interest of the researcher)

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 bedele Town purposely (availability of MFI in Bedele town)

01 02 Selected randomly

60
Based on probability proportions to size
Respondents

3.5 Method of Data Collection

Primary data will be gathered through informal and formal survey. Informal survey will be

under taken first; to collect background information which will be useful for subsequent

survey. Then formal survey will be conducted to assess the role of microfinance institution in

improving household livelihood in the study area by using open ended and closed ended

questions for semi-structured interview schedule and checklist for focus group discussion.

The interview will help to gather the necessary qualitative and quantitative information

through asking questions and writing down the response of the respondents which build

research purpose. It will proposing to those people select as a sample. On the other hand,

focus group discussion will be used by the researcher to obtain qualitative data. FGD allowed

a dialogue among participants and stimulates them to openly express their views on the issues

raise

Secondary data will be gather through reviewing of documents, reports and records of
published and unpublished documents. It is the main source of information and these data
were easily available inexpensive and obtain quickly. These secondary data indicate the past

14
and current performance of microfinance institutions in improving livelihood through
providing microfinance credit service.
3.6. Methods of Data Analysis

The quantitative data, which will collecting, based on semi-structured interview analyzed by using
inferential statistics like cross tab, Custom table and independent sample t-test. Descriptive statistics
such as frequency, percentage, mean and standard deviations will used to analyze the quantitative
data. Chi-square (for categorical variables) and t-test (for continuous variables) will used to identify
the significance of the relationship of independent variables with dependent variables. It includes the
comparison of demographic factors, income, sources of income, and household income and
expenditure on food items & non-food items using SPSSS. Moreover, the qualitative data will
analyzed by describing, summarizing and interpreting for further clarity.

3.6.1. Econometric Method of data analysis

The modeling methodology used to analyze the factors determining household’s participation
in credit program is logistic regression that allows the prediction of discrete variables by a
mix of continuous and discrete predictors (McCullagh and Nelder,2013). The model
constrains the estimated probabilities to be either 0 or 1, relaxes the constraints that the effect
of independent variables is constant across different predicted values of the dependent
variable.

The logit model assumes that while only the values of 0 and 1 are observed for the variable
Y , there is a latent, unobserved continuous variable Y* that determines the value of Y. It is
assumed that εi is normally distributed across observations, and the mean and variance of ε are
normalized to 0 and 1. The Y* can be specified as follows:

Y*i = β 0 + β1x1i + β 2x2i + … + β kxki + εi (1)

and that: Yi = 1 if Y*i > 0 Yi = 0 otherwise. It is assumed that y i* is a function of observed and
unobserved variables yi* = β0 + x1i β1 + x2i β2 …. + xki βk + εi (2)

yi* = xi β + εi (3)

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Where: yi*= latent and measure of credit market participation by i th household,
Xi = a vector of explanatory variables describing the personal, social, economic and
environmental factors,
β i= a vector of parameters to be estimated, and
εi = a random error term (assumed to follow a standard normal distribution).

The model is determined by the assumed distribution of ε. The observed and coded discrete
credit market (MFI) participation variable, yi*, is determined from the model as follows:
Pr(yi=1)
= Pr (εi > -(β0 + x1i β1 + x2i β2 …. + xki βk))
= 1- Pr (εi ≤ -(β0 + x1i β1 + x2i β2 …. + xki βk))
= 1- Φ (-xi β)
Where, Φ represents the cumulative normal distribution function. The interpretation of this
model’s primary parameter set, β, is as follows: positive signs indicate likely factor for
household’s participation in credit program as the value of the associated variables increase,
while negative signs suggest the converse.
The model considers households as utility maximizers who compare and rank level of utility
that they get by household’s participation in credit program against its reservation utility
attained without participation. In general, the effect of a change in one of the explanatory
variables (say the j-th variable) on the choice probability is given by the derivative.
3.7 Null Hypothesis
There are independent (explanatory) and dependent variables in the hypothesis
Table 2.1. Hypothetical relationship of variables
Independent Variables Effect of independent
variables on dependent
variables
Age Negative/positive

Marital status Positive

Educational status Positive

Religion Negative

Dependency ratio Negative

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Asset ownership Positive

Family members Negative

4. WORK PLAN AND LOGISTICS
4.1Work plan

1 Literature review April 20-26/2021

2 Preparation of questioners

April26 –MAY 1/2022

3 Selection of sample and JUNE1 -2/2022

Respondents

4 Recruitment and training of JUNE 4-6/2022

enumerators

5 Conducting primary and JUNE 6 -12/2022

secondary data collection

6 Data coding ,entering JUNE13-15 /2022

Data processing and JUNE 16-18 /2022

7 analyzing

8 Thesis writing JUNE20-25 /2022

9 Thesis submission JUNE-25/2022

4.2 LOGISTICS
Budget

Stationery costs

No Item Unit Quantity Unit price Total cost

1 Flash disk No 1 250bir 250

2 Notebook big No 1 60 60

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 3 Pen No 6 10 60

4 Peper No 20 20 20

5 Total 390

Miscellaneous expense

No Item Birr

1 Transportation cost 750

2 Communication cost (mobile card) 100

3 Thesis copy service and binder 400

Sub total 1250

Budget summery

No Item Total birr

1 Stationery 390

2 Miscellaneous expense 1250

Total 1640 birr

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5 REFERRENCES

Aryeetey, E. (2008), “From Informal Financing to Formal Financing in Sub Saharan Africa”,
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