Assessment of Credit Management practices of MFIs in Ethiopia: (The Case of Addis Credit & saving institution)

Abstract

This research examines the credit management practices of microfinance institutions in Ethiopia the case of Addis credit and saving institution (AdCSI) which is engaged in development activities in Addis Ababa city administration. This study was conducted with the objective of assessing the practices of the credit management of MFIs in the case of AdCSI. The institution is selected purposively with regard to its capacity, service years and areas of interventions. In order to achieve this objective, primarily data were collected from 76 employees, 96 customers and 9 officials using semi-structured questionnaires and interviews. Moreover, two focal group discussions with 24 participants from customers were conducted to cross check the result obtained using different methodology. Furthermore, secondary data were obtained from the records of AdCSI and loan ledger. In this study, the researcher prefers to focus on the major component of credit management used by many MFIs in developing countries. These are: credit policy and procedure; credit appraisal processes; credit administration and documentation; and credit follow-up, supervision and monitoring. These major components of credit management are chosen to assess the credit management of the institution. The finding of the study has revealed that the selected MFI has major weaknesses in managing their credit based on the above chosen factors/components. Among the major weaknesses assessed by the researcher are include Lack of proper collection of credit information; the standard and eligibility criteria are mainly affiliated by the government policy; making credit decision without maintaining the standard and criteria based on the credit policy; in ability to properly identify their borrowers like their work address, activities, profitability etc; being difficult to provide technical support on the job; absence of wellestablished credit administration system like computerized credit administration systems and document record, HR and facilities; absence of early notification systems regarding deadlines, interest due, penalties etc; and no proper, regular and effective the follow up and supervision systems. One major recommendation that was made for management to put in place follow up the implementation credit policies and standards that conform to regulatory requirements and the institution‘s over all objectives and improve the miss implementation of the ADCSI credit management policies or procedure. Cope up to the changes of credit management policies with the regulatory body or organ. Furthermore, the institution needs to allocate sufficient and skilled staff and adequate facilities.