Beside the survey of Micro and Small Enterprises owners, managers and other persons such as Sales manager, an in-depth interview has been made by the researcher with Micro Finance Institutions managers. This was done, in fact, so as to triangulate or validate the result that was obtained based on the information gathered through survey instrument that is questionnaire. In achieving this, three Micro Finance Institutions whose major operation located in Southern Nations Nationalities and peoples region (province), Hawassa, were selected using purposive sampling technique and interview was conducted with each of the three managers at different time in their office. Accordingly, the summarized outcome of the interview with respective managers of MFIs mainly OMO, Sidama and Vision Fund presented as follows;
According to the interview that was conducted with the above mentioned MFIs managers, the outcome of the interview provides that MFIs are of provided mainly financial services and non- financial services. MFIs are rendering a number of financial services that are essential for the growth of entrepreneurship in MSEs mainly saving, loan, insurance, payment, cash management, cash transfer and so on. Moreover, MFIs do provide a number of non- financial services such as trainings on enterprise development and other trainings( like financial management, book keeping, management, production and pricing skill) and consultancy services, and monitoring and supervision services that are necessary to capacitate entrepreneurs in running their business in such a way as to ensure sustainable development
MFIs loan products that are available to the MSEs are both term loans and installment loans depends on the collateral they present, nature of business projects and its expected cash flows. In a sense that, businesses having an activities whose revenue expected to generate only after a specific period of time, the repayment of the loan expected by the end of the period and for activities whose revenue cash flows come regularly at a fixed time interval, loan repayments can be made on installment basis.
MFIs saving products that are rendered to their clients are classified in to two categories. These are mandatory or compulsory saving and voluntary saving. Mandatory or compulsory savings are requiring a fixed percentage of loans that will be given to MSEs, to save and a certain amount after the delivery of credit need to be saved by MSEs. This type of saving account does not allow borrowers to withdraw their saving balance until the full amount of loan is discharged.in addition to compulsory saving account, MFIs in Ethiopia provide voluntary savings like demand deposit, ordinary saving account and time deposits. Though, MFIs in Ethiopia have voluntary savings, most of MFIs deposit mobilized through compulsory saving scheme. According to the outcome of an interview, about 80% of their deposit come from compulsory saving. That mean voluntary saving has no
In addition to the primary function of MFIs, they are also providing supplementary services which are non- financial services. As has been mentioned above, the major non-financial services that are provided by MFIs in the meantime today in Ethiopia are trainings on business development, setting up business plan, trainings on marketing, book keeping, financial management, production, pricing and so on.
Though, MFIs have the above mentioned services, they are not providing special products that are specifically designed for MSEs. They provide the above mentioned services generally to the population that are in need of financial as well as non-financial services and who have no access to traditional financial institutions. However, According to (Ledgerwood, 1999) well-designed services that are specifically targeting a particular market are essential to diversify the new businesses and strengthen the existing businesses in sustaining their overall condition as it intends to be. A well designed products can be accessed by the target clients at reasonable costs and should be affordable. The requirement of the lending party that is MFIs matters to ensure whether the products that are provided can meet the specific needs of MSEs entrepreneurs or not. Accordingly, the aforementioned MFIs managers above, were being asked to mention their requirements (criteria’s) to extend credit to MSEs entrepreneurs or any other borrowers.
The requirements or criteria’s of the interviewee MFIs so as to provide loans can be described as follows; MFIs require collaterals, guarantees( both group and individual), saved capital, financial information, business plan, license, nature of economic activity, business age, permanent working places and so on. The interviewee MFIs attaches high importance to collaterals and guarantees as compared to the other criteria’s. They have also attached high value on the capital level they have of MSEs entrepreneurs. This does not mean that MFIs attach less importance to others rather collateral, guarantees and capital have higher value by MFIs in extending credits. This can imply that collateral based financing dominate the loan portfolio of MFIs being interviewed. Regarding to collateral requirement, the interviewee MFIs have provides an information about their respective collateral requirements in proportion to that of loan amount to be extended to both the new enterprises and the existing enterprises. OMO MFI requires collateral, which is two times the amount of loan to be loaned out to both new and existing SMEs entrepreneurs, while Sidama MFI requires collateral, which is two times loan amount for new businesses and collateral having the same value of loan amount for the existing enterprises and Vision fund does not provide any loans for new businesses and from those of the existing enterprises, Vision Fund MFIs requires collateral that values half of the loan amount to be provided. This indicates that Vision fund targeting at supporting only those existing businesses and the other MFIs provided their services to both the existing businesses and new enterprises regardless of their age. However, the collateral requirement of both OMO and that of Sidama Micro Finance Institutions is too high. As the MSEs do not have an ample assets, they may not be able to present the required collaterals by MFIs so that they may not able to access credits. From this, one can understand that the MFIs products are not accessible, sufficient and effective enough to meet the exact need of entrepreneurs.
MFIs managers were being asked also to provide information on the accessibility and effectiveness of their products to entrepreneurs in terms of duration/ term, adequacy/ sufficiency, cost (time and Money), simplicity and criteria’s. Accordingly, their response can be presented as follows;
Regarding to the term of loans being outstanding, MFIs managers were responding, the term or duration of loan over which loans can be outstanding is determined by the purpose of loans, the nature of business activities that the borrower is engaged and the repayment capacity of the borrowers. However, the maximum period of loans actually lapsed for OMO micro finance institution is about 3 years ;whereas, for Sidama MFIs and that of Vision Fund is about 2 years. They provide also an information that though the maximum period is the aforementioned 3 years, most of MFIs loans extended to their borrowers’ falls in the category of one year and less. This can easily indicate that most of their loans need immediate repayment so that one can easily deduce that MFIs services mainly used to finance the working capital need of MSEs entrepreneurs. Therefore, the term of the loan is not sufficient and effective to meet the exact need of MSEs entrepreneurs.