i Interview Guide by A343R5

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									              MAKERERE UNIVERSITY


 CREDIT POLICY AND CLIENT SATISFACTION IN MBARARA TOWN,

A CASE STUDY OF ANKOLE FARMERS AND TRADERS CO-OPERATIVE,
               SAVINGS AND CREDIT SOCIETY




                            BY


                    BATONDANA BOSCO
                       07/U/4764/EXT




                       SUPERVISOR
                 MR. TURYAKIRA NAZARIUS




A RESEARCH REPORT SUBMITTED IN PARTIAL FULFILLMENT OF THE
 REQUIREMENTS FOR THE AWARD OF A DEGREE OF BACHELOR OF
           COMMERCE OF MAKERERE UNIVERSITY.




                        JULY, 2011
                                    DECLARATION

I Batondana Bosco hereby declare that “Credit Policies and Client satisfaction”, is my
original work. It has never been published and submitted to other university or institution
before. Where the work of other people has been consulted, due acknowledgement has
been done.




Signature:     …………………………………………………..

               BATONDANA BOSCO

               07/U/4764/EXT
               (STUDENT)

Date:          …………………………………………………...




                                             i
                                    APPROVAL

This is to certify that this report has been under my supervision and is now ready for
submission to Makerere University with my approval as a partial requirement for the
award of a Bachelor of commerce Degree

Signature:    …………………………………………………..

              MR. TURYAKIRA NAZARIUS

                     (SUPERVISOR)

Date:         …………………………………………………..




                                          ii
                                  DEDICATION

I dedicate this research work to my beloved parents Mr. Batondana Pascal and Mrs.
Boonabana Constance for the gift of education and encouragement they have given me.




                                         iii
                                ACKNOWLEDGEMENTS

Above everything, I thank the Almighty God who is the giver of all wisdom, knowledge
and understanding, without which I would not be able to start on this piece of work.

Special thanks go to my parents who have loved, encouraged and educated me up to this
level. It is a blessing to have you as parents.

With great pleasure, I thank my sisters, Atuha Happy, Nshemereirwe Jesca Mbabazi
Immy, Hellen and Agnes, brothers Aineho James and Batondana APollo for your love
and support. May the Blessings of the Lord enable and make you meet the desires of your
hearts.

To my supervisor Mr. Turyakira Nazarius, you are a parent; without your parental and
professional guidance, this research would not be what it is. May Almighty God Bless
You

Great thanks go to my friends Judith, Lillian and Alex Naturinda, Ezron Kambare for
your encouragement and being there for me. May the Lord God Bless you.

I take this privilege to thank all my lecturers who have equipped me with knowledge and
skills and prepared me for even greater challenges, through the course period. May the
Lord God bless you all.




                                                  iv
                                               TABLE OF CONTENTS



DECLARATION ................................................................................................................. i
APPROVAL ....................................................................................................................... ii
DEDICATION ................................................................................................................... iii
ACKNOWLEDGEMENTS ............................................................................................... iv
TABLE OF CONTENTS .................................................................................................... v
LIST OF TABLES ............................................................................................................. ix
ABSTRACT ........................................................................................................................ x


CHAPTER ONE: INTRODUCTION ............................................................................. 1
1.1 Back ground of the study .............................................................................................. 1
1.2 Statement of the problem .............................................................................................. 2
1.3 The purpose of the study ............................................................................................... 2
1.4 Objectives ..................................................................................................................... 3
1.6 Scope of the study ......................................................................................................... 3
1.6.1 Geographical scope .................................................................................................... 3
1.6.2 Subject scope ............................................................................................................. 3
1.6.3 Target Population ....................................................................................................... 4
1.7 Significance of the study............................................................................................... 4


CHAPTER TWO: LITERATURE REVIEW ................................................................ 6
2.0 Introduction ................................................................................................................... 6
2.1 Credit policies ............................................................................................................... 6
2.1.1 Interest rates ............................................................................................................... 6
2.1.2 Savings ....................................................................................................................... 9
2.1.3 Compulsory savings ................................................................................................... 9
2.1.4 Loan size .................................................................................................................. 11
2.1.5 Group Lending ......................................................................................................... 11
2.2 Client satisfaction........................................................................................................ 11



                                                                  v
2.2.1 Measuring Client Satisfaction .................................................................................. 14
2.3 Relationship between credit policies and client satisfaction....................................... 15
2.4 Conclusion .................................................................................................................. 18


CHAPTER THREE: METHODOLOGY .................................................................... 19
3.0 Introduction ................................................................................................................. 19
3.1 Research design .......................................................................................................... 19
3.2 Study population ......................................................................................................... 19
3.3 Sample size ................................................................................................................. 19
3.4 Sampling method and design ...................................................................................... 20
3.5 Research variables and their measurements ............................................................... 20
3.6 Sources of Data ........................................................................................................... 20
3.7 Data collection and Instruments.................................................................................. 20
(i) Interview Guide ............................................................................................................ 20
(ii) Questionnaires ............................................................................................................. 21
3.8 Data processing and analysis ...................................................................................... 21
3.8.1 Data processing ........................................................................................................ 21
3.9 Data analysis ............................................................................................................... 21
3.10 Problems that were encountered during the study .................................................... 22


CHAPTER FOUR ........................................................................................................... 23
ANALYSIS, PRESENTATION AND INTERPRETATION OF RESEARCH FINDINGS
........................................................................................................................................... 23
4.0 Introduction; ................................................................................................................ 23
4.1 Socio-economic backgrounds of the respondents. ............................ 23_Toc225671040
4.1.1 Gender of the respondents. ...................................................................................... 23
4.1.2 Age range of respondents......................................................................................... 23
4.1.3 Marital status of the respondents ............................................................................. 24
4.1.4 Education level of the respondents. ......................................................................... 24
4.1.5 The length of relationship with the SACCO ............................................................ 25




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4.2 Findings on the credit policies applied by Ankole farmers and traders co-operative
savings............................................................................................................................... 25
4.2.1 Response on whether evaluation of customer’ capital is considered before giving
out the loan........................................................................................................................ 25
4.2.2 Response on whether evaluation of customer’ character is considered before giving
out the loan........................................................................................................................ 26
4.2.3 Response on whether collateral security is considered before giving out the loan . 26
4.2.4 Response on whether credit standards policies are used to measure clients’
potentiality. ....................................................................................................................... 27
4.2.5 Response on the durations of the credit periods of Ankole farmers and trader’s co-
operative savings and credit society ................................................................................. 27
4.2.6 Response on whether evaluation of customer’ condition of operation is considered
before giving out the loan ................................................................................................. 28
4.2.7 Response on whether discounts to clients are offered ............................................. 28
4.3.1 Response on whether loan policies provided to respondents make them pay loans in
time ................................................................................................................................... 29
4.3.2 Response on whether there has been many causes of a loan defaulting .................. 30
4.3.3 Response on whether securities are sold by the society when the respondents fail to
repay the loan .................................................................................................................... 30
4.3.4 Response on whether the cooperative sues the borrowers on failure to repay the loan
........................................................................................................................................... 31
4.3.5 Response on whether credit period given by the society is ideal for loan recovery 31
4.3.6 Response on whether credit policies support loan recovery procedures. ................ 32
4.4.2 Findings on whether management consistency benefits the customers’ expectations
........................................................................................................................................... 33
4.4.3 Findings on whether the process of getting loan from Ankole farmers and trader’s
co-operative savings and credit society is easier .............................................................. 34
4.3.2 Response on whether customers are satisfied with how loans are collected ........... 34




                                                                    vii
CHAPTER FIVE ............................................................................................................ 38
SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS ........... 38
5.1 Introduction ................................................................................................................. 38
5.2 Summary of major Findings ....................................................................................... 38
5.2.1 Findings on Credit policies in Ankole farmers and trader’s co-operative savings and
credit society ..................................................................................................................... 38
5.2.2 Finding on how credit polices have affected clients in acquiring credits/loan from 39
5.2.3 Findings on the client’s satisfaction with Ankole farmers and trader cooperative
savings and credit society ................................................................................................. 39
5.2.4 Findings on Relationship between credit policies and loan performance................ 39
5.3 Conclusion .................................................................................................................. 40
5.5 Areas of Future Research ............................................................................................ 42
APPENDIX :I REFERENCES ........................................................................................ 43
APPENDIX II RESEARCH QUESTIONNAIRE ............................................................ 45
APPENDIX III BUDGET................................................................................................. 50




                                                                 viii
                                                     LIST OF TABLES


Table 1: Sex of respondents .............................................................................................. 23
Table 2: Age distribution of the respondents .................................................................... 23
Table 3: Marital status of respondents .............................................................................. 24
Table 4: Education of the respondents .............................................................................. 24
Table 5 : The duration that the respondent has been a loan customer of Ankole Farmers
and Traders Co-operative saving and credit society ......................................................... 25
Table 6 : showing whether evaluation of customer’ capital is considered before giving out
the loan .............................................................................................................................. 25
Table 7: showing whether evaluation of customer’ character is considered before giving
out the loan........................................................................................................................ 26
Table 8: showing whether collateral security is considered before giving out the loan ... 26
Table 9: showing whether credit standards policies are used to measure clients’
potentiality ........................................................................................................................ 27
Table 12: showing whether discounts are offered to clients. ............................................ 28
Table 14: Whether there has been many causes of a loan defaulting ............................... 30
Table 16 : Whether the co-operative sues the borrowers on failure to repay the loan ..... 31
Table 18: showing whether credit policies support loan recovery procedures ................ 32
Table 19 : showing whether customers are satisfied with credit policies provided by
ankole farmer’s co-operative savings ............................................................................... 32
Table 20: showing whether the management consistency benefits the farmers ............... 33
Table 21: showing whether the Staff members are approachable by customers .............. 33
Table 22: showing whether the process of getting loan is easy ....................................... 34
Table 23: showing whether customers are satisfied with how loans are collected ........... 34
Table 24: showing whether the loan defect levels have reduced in Ankole farmers and
traders cooperative savings for the last 6 years ................................................................ 35
Table 25 : The services provided by the society have helped to increase the levels of
incomes at house hold ....................................................................................................... 36




                                                                   ix
                                       ABSTRACT


The topic of the study was Credit policies and client satisfaction. This was conducted by
guidance of three objectives which include, identifying the credit policies; assess how
credit policies have affected clients in acquiring credits and relationship between credit
policy and the client satisfaction.

The study was carried out using descriptive, cross-sectional and correlation research
design based on 45 respondents who were selected using simple random sampling and
stratified sampling method. Questionnaires were the main instruments of the study and
data was analyzed using SPSS method and presented in tables, frequencies and
percentages.

Findings on credit policies reveal that Credit standards policies are used in measuring
client’s potentiality. Evaluation of customer’s capital is highly practiced by loan and
management department, Evaluation of customer’s character is not highly considered by
loan and management department. Findings on client satisfaction revealed that Credit
policies applied by loan officers are not favorable to clients. Most of the respondents
agreed that the management consistency benefits them. Most of the farmers are satisfied
with the process and loan procedure and they can easily access loans. Findings on the
relationship revealed that there is strong positive relationship between credit policies and
clients satisfaction (r=0.940)

Recommendations on credit policies were that the SACCO should put in place a
customized computer based information system that can track client records and provide
vital information about the clients who apply for loans, should make improvement in its
credit policies by following the minimum capital requirement. Recommendation on client
satisfaction was that the SACCO should increase on client satisfaction through improved
credit procedures and customer care. Recommendations on the relationship were that
SACCO should keep much emphasis on the exiting procedures that can help to achieve
client satisfaction




                                             x
                          CHAPTER ONE: INTRODUCTION

1.1 Back ground of the study

Credit policy refers to a set of guidelines to the lending process that provides a frame
work for the entire credit management process Bibangambah, (2001). A credit policy
identifies preserved loan qualities and establishes procedures for grading, documenting
and reviewing loans. it is clear terms and conditions for stipulating procedures involved
in lending and customer qualification criteria for making collections in an organization,
(Barlow, et al, 2000).

Credit policy is a general course of action developed by Microfinance Institutions for
recurring situations, designed to achieve established objectives, (Barlow, et al, 2000).

Client satisfaction is a measure of how products and services supplied by a company
meet or surpass customer expectation, (Farris, et al 2010).

Therefore, in order to promote the client satisfaction who are most of the times small
scale business owners; there is need for guide lines by credit institutions to ensure that
such businesses are able to mobilize resources for their growth. Credit policies have
emerged to provide financial services to small-scale enterprises, (Gohary).

Client satisfaction is important because it is a value generation strategy for the MFIs; the
MFI’s value is not only related to the bottom line of its financial statements but also to
the present value of its future revenues (Doyle, M. 2000). For this reason, two MFIs with
the same number of customers, the same costs, profitability and arrears condition may
have different values if one of them has more loyal customers than the other. Client
satisfaction is not only necessary for MFI sustainability but also a value generation
strategy for the shareholders and borrowers, (Barlow et al, 2000).

Ankole Farmers and Traders Cooperative Savings and Credit Society is a microfinance
institution based in Mbarara Municipality, Mbarara District. It started in 1999 from the
former Banyankole Coffee farmers and cooperative society and presently the membership
stands at 2000 members.



                                             1
It aims at reaching and helping rural farmers. Its objectives are to achieve self
sustainability empowerment clients, have excellent repayment rates. Among the credit
policies include; interest rates, group lending and compulsory savings.

The method of loan disbursement is done through groups, where group members act as
collateral by guaranteeing the repayment of loans, (AFFCSS Group Manual, 2006).

Although it is thoughtless to maintain customers with high risk of delinquency, rigid
policies applied in an undifferentiated manner tend to drive away good clients as well as
the risky customers.

1.2 Statement of the problem

Client satisfaction is a value generation strategy for MFIs, the MFI value is not only related
to the bottom line of its financial statements but also to the revenues of its future, (Doly M,
2000), and guaranteeing the MFIs future revenues greatly depends on strengthen its clients
loyalty.

The credit services from the Ankole farmers and traders’ co-operative, savings and credit
society require collateral securities, compulsory savings, and lending is to groups basing on
collateral provided by one individual on behalf of the group which is more risky as team
work issues can adversely affect performance.

Despite of the above, some clients are not borrowing because they lack collateral to
guarantee loans, do not raise compulsory savings, interest rate is high resulting into clients
being in the debts all the time or fail to borrow, so this study seeks to examine whether
the clients are satisfied with the credit policies available in MFIs taking a case study of
Ankole farmers and traders’ co-operative, savings and credit society.

1.3 The purpose of the study

The overall objective of this study will be to examine the relationship between credit
policies and client satisfaction in Ankole Farmers and Traders co-operative savings and
credit society.




                                                2
1.4 Objectives

Specifically the study objectives will be to:
   i.   Identify the credit policies of Ankole Farmers and Traders co-operative savings
        and credit society.

 ii.    Assess how credit policies have affected clients in acquiring credits.

 iii.   Assess the relationship between credit policy and the client satisfaction.

1.5 Research questions

Under credit policies and client satisfaction in Ankole Farmers and Traders co-operative
savings and credit society, the following questions will be asked;

   i.   What are the credit policies of Ankole Farmers and Traders co-operative savings
        and credit society?

 ii.    How credit policies have affected clients in accessing acquiring credits of Ankole
        Farmers and Traders co-operative savings and credit society?

 iii.   What is the relationship between credit policy and the client satisfaction

1.6 Scope of the study

1.6.1 Geographical scope

The study will be carried out on credit policies and client satisfaction in Ankole Farmers
and Traders Cooperative Savings and Credit Society which is found in Mbarara town,
Mbarara district.

1.6.2 Subject scope

This study will be confined to credit policy and client satisfaction in Mbarara town. It
will target the people who use credit loans and loans officers who work in loans section.
It will be guided by the objectives; to identify the credit policies, how credit policies have




                                              3
affected client’s satisfaction and the relationship between credit policy and the client
satisfaction.

1.6.3 Target Population

This research targeted people who are running small scale business enterprises using
micro credit loans and microfinance officials working in loans department. This was
believed to give enough data on the problem at hand.

1.7 Significance of the study

   The study is expected to benefit credit providers through helping them to improve
    these schemes. By the study identifying successes and failures involved in the credit
    use will help these credit providers in supervisory and monitoring so as to know the
    extent to which their clients are satisfied with their policies hence improving the lop
    holes involved in credits lending.

   The study is to benefit microfinance credit users who are to learn proper methods of
    utilizing funds from micro finance institutions so as to benefit after using the money
    well.

   A complete study will also be helpful to policy-makers, local government and non-
    governmental organizations plus other planners in the ministries of finance and
    economic planning by contributing a useful guide for formulating appropriate policies
    for credit towards their clients.

   Mbarara district in general as well as other districts have had their credit policies
    many of which have not been sustainable, so the findings of this study will benefit the
    district administrators who in future will be able to design and implement sustainable
    credits that will be a tool with which credit policy will be fairly extended to their
    clients hence facilitating their growth.

   The study is to benefit other researchers and scholars who may wish to use the
    findings of this study as reference for further research areas of micro finance credit
    utilization, its challenges and prospects towards the promotion of client satisfaction.

                                               4
5
                       CHAPTER TWO: LITERATURE REVIEW

2.0 Introduction

This chapter provides an insight of the related literature on the study of variables. It
provides literature on major aspects of the research, which include credit policies and
client satisfaction.

2.1 Credit policies

2.1.1 Interest rates

Fernando, Nimal A. (1985) puts it that Interest charged on loans is the main source of
income for Microcredit institutions and, because they incur huge costs, the rates are
correspondingly high. Four key factors determine these rates: the cost of funds, the
Microcredit institution’s operating expenses, loan losses, and profits needed to expand
their capital base and fund expected future growth.

Many policy makers question why microfinance interest rates remain high even when
MFIs receive concessional funds to finance lending. Although micro lenders receive loan
funds at concessional rates, they must cost these funds at market rates when they make
decisions about interest rates to ensure the sustainability of the institution's operations.
Donors provide concessional funds for a particular usage only for a limited period, as do
some governments.

However, concessional funds cannot be considered a permanent source of funds for
MFIs, and provision must be made through interest rates to sustain the lenders'
operations. Inflation adds to the cost of microfinance funds by eroding micro lenders'
equity. Thus, higher inflation rates contribute to higher nominal micro credit interest rates
through their effect on the real value of equity.       Micro lenders have two kinds of
operating costs: personnel and administrative. Because micro lending is still a labor-
intensive operation, personnel costs are high.

Administrative costs consist mainly of rent, utility charges, transport, office supplies, and
depreciation of fixed assets. Making and recovering small loans is costly on a per unit


                                             6
basis. Often loan recovery is executed by staffs who visit clients, increasing costs in time
taken and transportation used. Poor physical infrastructure inadequate road networks,
transportation, and telecommunication systems in many countries in which micro lenders
operate also increases administrative costs and adds significantly to the cost of
microfinance operations.

Some microcredit institutions charge high interest rates because of Inappropriate
Comparisons. Microcredit interest rates are often compared with those charged by both
commercial banks and excessively subsidized lending organizations. Such comparisons
are inappropriate. Commercial banks most often deal with large loans, and their
transaction costs are lower than those of MFIs on a per unit basis. Thus, commercial
banks are able to charge lower interest rates than MFIs. Financial institution receiving
large subsidies may charge much lower interest rates than other MFIs.

Other inappropriate comparisons of MFI interest rates include those charged by
government-owned MFIs or government-sponsored microfinance programs that are often
compelled to charge lower-than-cost-recovery interest rates based on political
considerations. Moreover, the poor have to incur unusually high transaction costs to
access credit from these sources due to credit rationing systems and rent-seeking
practices adopted by their employees. Thus, a comparison based on nominal interest rates
charged by such institutions may be highly misleading.

Lower microcredit interest rates on the other hand, will help increase the depth and
breadth of availability of affordable finance for poor households. Imposing ceilings on
microcredit interest rates is not the answer. Lenders will incur losses if a rate ceiling is set
at a level less than that required for cost recovery, reducing an MFI's willingness and
ability to expand operations. Rate ceilings will reduce the creditworthiness of MFIs,
reducing their ability to borrow from the market to annually.

While high microcredit interest rates have helped the industry grow, and enabled many
millions of poor and low-income households to gain access to credit, there are still those
who cannot afford such loans because of their high cost. Microcredit has not reached a
majority of the poorest people and is not widely used for financing farming activities.


                                               7
Only those who can generate a sufficiently high surplus of funds can afford high interest
rates on microcredit. More specifically, a borrower's realized rate of return on investment
needs to be greater than the interest rate to service the loan.

Uncertainty about public policy on microcredit interest rates has a negative effect on the
supply of microcredit. A clear policy statement from governments assuring that interest-
rate ceilings on microcredit will not be imposed would eliminate a significant policy risk
and encourage existing institutions to increase investments, and new institutions to enter
the market, improving the potential for greater market competition. Policy makers can
create a liberal environment for international commercial and social investors to make
equity investments in local MFIs. Therefore, high interest rates are high, because micro
lending remains a high-cost operation. The key to reducing these rates in a sustainable
manner is to reduce costs through improved market competition, innovation, and
efficiency. Interest rate ceilings are not an appropriate intervention, and there are no
quick solutions or shortcuts. Pacific, policy makers need to recognize, and rectify
impediments such as lack of physical, human, and financial infrastructure, promote
competition and efficiency, and be proactive in providing an enabling environment for
MFIs to develop in a sustainable manner, (Fernando, 1985).

The requirement of compulsory savings and the mobilization of voluntary savings reflect
two very different philosophies. The former assumes that the poor must be taught to save,
and that they need to learn financial discipline. The latter assumes that the working poor
already save, and that what is required are institutions and services appropriate to their
needs. Microfinance clients may not feel comfortable putting voluntary savings accounts
in compulsory savings accounts, or even in other accounts with the same institution. They
know they cannot withdraw the compulsory savings until their loan is repaid (or after a
certain number of years), and they fear that they may also not have easy access, de facto,
to their voluntary savings, (World Bank. 1989).

This is another major credit policy that cannot escape the researcher’s analysis. Interest
rate is the cost of borrowing money or a return from lending money. It can also be
referred to as the price of accessing and utilizing credit resources. It is important to note



                                               8
that interest rate affects the borrower’s demand. A high interest rate drains the enterprise
of the profits. With time, this affects the performance of small scale enterprises.

Currently, interest rate in Ankole Farmers and Traders Cooperative Savings and Credit
Society is 2.5% per month. That is 30% per annum (Group manual, 2000) it was revealed
that micro finance clients though considered poor, are more sensitive to the availability
and convenience of credit other than interest rate.

2.1.2 Savings

There is substantial empirical evidence that institutional savings that offer security,
convenience, liquidity, confidentiality, and returns to the depositor, represent a crucial
financial service for poor clients; if priced correctly, voluntary savings can contribute to
the institution’s self-sufficiency and outreach. The introduction of commercial
microfinance is likely to have some level of political visibility nearly everywhere, and the
probability becomes higher when voluntary savings instruments are added, since both the
institution’s outreach and visibility increase. Therefore, a microcredit institution that
plans to pursue deposit mobilization will need political support at both the local and
national levels.

Deposits as a source of commercial finance for microcredit institutions, has generated a
lot of interest and debate in recent years. Locally mobilized voluntary savings is
potentially the largest and the most immediately available source of finance for some
microcredit institutions. Another important reason for undertaking the institutional
mobilization of voluntary savings is the vast unmet demand for institutional savings
services at the local levels of developing countries.

2.1.3 Compulsory savings

Closely related to group lending is compulsory savings stipulated by micro finance
institutions. Studies on micro finance institutions by Gonzalez (1998) show that loans in
these institutions are paid in advance against future saving in light of repayment
schedules.




                                              9
Clients are supposed to save a certain minimum amount before securing credit

To consolidate the existing dispersed policies, and to ensure that users of Tier for
financial services in Uganda are guaranteed safety of their savings, Capacity building
serves primarily urban areas, is generally only targeted to MFI managers and not MFI
members, and can be very costly. Capacity building entails the development of skills and
competencies, such as providing training workshops for financial literacy. MFI members
have had little to no exposure to financial education and are thus less inclined to hold
managers accountable for fraudulent behaviors and mismanagement.

Therefore, the capacity of Uganda Cooperative Savings and Credit Union must begin
forming SACCOs and conferring them the tools to build capacity amongst microfinance
management, staff, and members. This includes logistical support, certification in
operations and management, certification in corporate governance, management tools,
governance tools, and enhanced monitoring and evaluation techniques. Consequently
various microfinance institutions have come up with different credit policies such as
compulsory savings and interest rates to guarantee their sustainability and it not clear
whether these credit policies suits client’s expectations as well as satisfaction, (Caleb
Akandwanaho S.S., 2009).

A key approach to Programme delivery is working through groups or community based
organizations including savings and credit cooperative societies. Working through groups
also grounded in social organization history on social safety nets established in
communities through working in community-wide or special interest groups UBOS
(2004).

It is important to note that behind the above approach is the widely-held and dominant
belief that the needs and interests of poorer people are directly or indirectly represented
through community-based organizations, and that working with CBOs is therefore a best
route to poverty reduction. The groups present an opportunity of a multiple effect in
poverty reduction.




                                            10
2.1.4 Loan size

This is amount of loan advanced to clients. It can be small, medium or big. Sewagudde,
(1999) argues that efficient loan size should fit the borrowers repayment capacity and
should also stipulate enterprise performance .He adds that loan size which is in
appropriate reflect poor fit between the objectives of the lender and borrower and tend to
result into bad loans.

2.1.5 Group Lending

Another major lending term in micro finance is the group lending. Karon (1996), reveals
that group lending is a method where disbursing of loans is done through groups, where
group members act as collateral by guaranteeing the repayment of loans.

As per Ankole Farmers and Traders Cooperative Savings And Credit Society Manual
2000, the major objectives of group lending methodology is to reach many women,
achieve self sustainability empowerment clients, have excellent repayment rates to
mention but a few.

It is further revealed that people in a group range from 5-15. Another major reason of
group methodology is to give members the responsibility of assessing, supervising and
monitoring loans. Thus reducing the costs of Ankole Farmers and Traders Cooperative
Savings and Credit Society for supervision.

Groups consist 5-10 people and form what is referred to as enterprise group. These are
later attached to other such groups to form a market enterprise committee of 30-60
people. Critics of this methodology however urge that is lowers close contact between
clients and the lenders hence it inconveniences the client and kills efficient collaboration
among them especially as the group number increases, (Pischke, 1996).

2.2 Client   satisfaction

The survey report by Tawanda S., (2007) established that determinants of client
satisfaction for Microcredit policies revolve around access to both credit and savings
facilities packaged in a manner that is responsive to their varied needs. For savings


                                              11
facilities, apart from being given the opportunity to open savings accounts, clients prefer
unlimited access to their savings while on credit facilities, clients want to have access to
loan amounts they actually apply for at a ‘reasonable’ price and on flexible repayment
term conditions that is, the loan term should not be cast in stone. Financial services
should be delivered by courteous staff that is preferably not being ‘changed/swapped
around’ too often.

The microfinance market has over the years become very competitive, which has created
the need for industry players to pay attention to understanding their clients’ preferences
and priorities. Documenting client satisfaction and monitoring client satisfaction index
(CSI) is an important task to ensure that microfinance providers remain competitive.
Whilst microfinance services have been wide spread in urban and periurban areas, few
microfinance institutions (MFIs) have penetrated rural markets.

Whilst there is evidence from literature that favorable micro credit policies has enabled
Financial institutions to satisfy their clients with financial services it is still not clear
whether microcredit policies have had an impact on client satisfaction. Also, the research
in a Central American country revealed different correlation with some client service
satisfaction issues depending on the loan amount. The higher the amount, the lower the
satisfaction with “service hours” and “service speed” and also more demands for other
financial services as well as fewer requirements of other related services such as training.
This shows us how important it is to fine tune the target and align the capacities of the
MFI to the market being targeted (Barsky, J. 1994).

According to Ashish Bhave (2002), the major attributes of client satisfaction are product
quality, product packaging, keeping delivery commitments, price, responsiveness and
ability to resolve complaints, overall communication, accessibility and attitude. Studies
have shown that 70% of clients change service providers due to poor service quality, 15%
due to product quality and another 15% due to price. What motivates companies to
conduct client satisfaction surveys is a desire to know what their clients expect from the
company’s products and services.




                                             12
Barsky, J. (1994). Says that client expectations are the client defined attributes of your
products or services which you must meet or exceed to achieve client satisfaction. These
can be classified into two categories that is, expressed expectations (agreed upon
requirements that are written down) and implied expectations (not written or spoken but
are the ones the client would “expect” the supplier to meet nevertheless).

Ashish Behaved, (2002) suggest that there is a strong connection between satisfaction
and microcredit policies. It is important for an institution to measure client satisfaction as
it “stimulates improvements in the work practices and processes used within the
company” (Ashish Behaved, 2002).

Overall client satisfaction is determined by the client’s satisfaction with different
components that are considered relevant for explaining the overall satisfaction. A
satisfied client is loyal to the institution. Indicators of client loyalty include: longterm
relationship; multiple relationships, immunity to the pull from the competition, high
degree of satisfaction, willingness to refer others Barlow, et al., 2000).

In a Harvard Business Review article Fredrick F. Reichheld says that the path to
sustainable profitable growth begins with creating more promoters and fewer detractors
and makes the net promoter number transparent throughout your organization.

The State of the Art Project’s methodological guide to measuring client satisfaction states
that satisfaction is a somewhat vague concept and that a client can be more or less
satisfied with the quality of a service. Satisfaction should therefore be viewed as a
continuous variable rating from not satisfied at all to being completely satisfied. The
report by Michal Matul and Dorota Szubert (2003), further categorizes, the level of
influence of the different product attributes and service offered by MFIs, where interest
rate, diversity of loans, staff politeness, responses to suggestions are considered to have
high influence on client satisfaction, way of making repayments, application and other
fees, staff professionalism are considered to have medium influence and time of waiting
for a loan approval, group savings, clarity of requirements, collateral demanded,
incentives for repeat borrowers, simplicity and clarity of application forms, loan size,
repayment period and access to loan to have low influence on client satisfaction.


                                             13
2.2.1 Measuring Client Satisfaction

Corporations of all sizes are coming to understand the value of client satisfaction as a
strategic weapon that results in increased market share and profits and that it can be
quantified, measured and tracked, however many companies still do not measure client
satisfaction (Dr. Jon Anton et al, 2003).

According to Dr. Jon Anton et al, (2003) a satisfied client is the one that will promote
your institution to other potential clients. On the other hand an unsatisfied client is the
one that will discourage others to buy your products and services. The likelihood that
your client would recommend your company to a friend can be measured on a 10 point
scale. Scores of 9-10 show that the client is very satisfied and will trumpet your product
or service at any chance they get while scores 78 show passively satisfied clients. Scores
16 show that clients are unsatisfied with your products and services and may leave you
for a competing product. The net growth score or satisfaction score is the percentage of
promoters minus the percentage of detractors and gives net indication of how many
clients are effectively growing your company. Delighted clients can result in literally
generations of repeat clients (Dr. Jon Anton 2003).

To understand the return on investment (ROI) companies need to understand the
correlation between client satisfaction, client retention, client life time value and a
company’s profitability. If clients are satisfied they are retained. The longer the client is
retained the more the value they provide as it is cheaper to service an existing client than
to recruit a new one. (Dr. Jon Anton 2003). Literature measures client loyalty based on
the retention rate which is determined by the number of repeat loans issued divided by
the number of loans paid off in the same period. In addition the three degree dimension
measures client loyalty by the average number of years that a client has used your
services (length), how many products is the client purchasing from your organization
(breadth) and what is the share of purc hases for example, of the client’s total outstanding
debts, what percentage is with you?.

According to findings of a survey on client satisfaction and loyalty (Michal Matul and
Dorota Szubert, February, 2003, it was found that client relationship is built as clients


                                             14
progressively access loans from the MFI as more experienced clients are much more
satisfied with their relationships with the staff. In addition those receiving higher loan
sizes were relatively more satisfied. The higher loan sizes mean that the client would
have participated longer having received a number of loans from the institution.

2.3 Relationship between credit policies and client satisfaction

The basic credit product proposition, with stepped lending amounts, does not fit with the
client that has already learned and evolved in his/her credit needs. Accordingly, MFIs
looking for new markets turn to segments with lower income or higher risk, where
microcredit is not necessarily the most adequate product, resulting in high attrition levels
due to the lack of sustainability that small loans produce or due the vulnerability of
clients being approached.

Clients perceive that price, amounts, and the methodology (accessibility) are more or less
the same among the operating MFIs. The new product developments have limited
innovations and add little value to the client however complicated the MFI control and
operation. In countries where the subject of client satisfaction has been studied, it was
found that between 35% and 50% of clients alternate or use, in parallel, more than one
formal microcredit provider. This phenomenon of parallel credit, illustrates that the
market generates its own alternatives, without waiting for the MFI to adjust its credit
policies (Doyle, 2000).

Drake and Elisabeth (2002) states that for certain segments, the amounts and the terms
are more important than the interest rate, since having a greater loan amount for working
capital allows them to dilute their business’ fixed costs more quickly. Also the longer
term allows them to reduce renewal costs. In some cases there is also extreme precaution
by the loan officers to reduce the amount the client may access in order to assure the
payment. Ironically, however, clients requiring additional amounts will look for other
credit providers, increasing the institution’s risk.




                                              15
Doyle, Meter; (2000) says that Micro-entrepreneurs, being business people, try to
optimize their costs, subconsciously or consciously, so that ultimately, the MFI value
proposition is translated into a total price to the client.

Although, lowering the interest rate for the best clients has been demonstrated to be an
effective short term retention tactic. For now it is complicated to reward clients with good
payment behavior with a lower interest rate, since the budgets and projections of most
MFIs work with average pricing, which creates constraints on offering price discounts
without negatively impacting MFI income. In fact, MFIs are very inelastic in terms of
decreasing interest rates, unless there exists an institutional commitment for improving
efficiency and transfer those gains to the clients or the competition forces this efficiency.
(Drake and Elisabeth, 2002).

A base in line survey on lending methodology by micro finance in Uganda indicates
conflicting interest of coincidence between micro finance and their clients, (USAID,
1997) whereas micro finance institutions prefer group lending methodology, clients
prefer individual borrowing which is easier to administer.

Graham (1999) argues that some micro finance institutions have conservative expensive
systems that are driven more by the needs of organization and distrust of clients than by
the desire to offer.

According to Porter, Michael E;(1998) many people think that microfinance institutions
over charge their clients for financial services, especially credit. This overburdens them
with debt and ultimately makes them even poorer. For sustained, growing financial
services to the poor, a balance is needed between covering the relatively high costs
involved in delivering small loan products and doing so efficiently to keep those costs as
low as feasible and affordable to the targeted clients. Worldwide experience shows that
the clients of MFIs typically are the economically active, “entrepreneurial” poor; the
challenge is reaching even poorer clients, without giving them excessive debt and without
causing losses to the MFIs.




                                               16
Evidence indicates that interest rates of some leading MFIs in Uganda have been falling
from about 5% a month prior to 2000 to around 3% a month currently Churchill, (2003)
and some are shifting from a flat rate to declining balance as a basis for charges. This
trend is likely a result of increasing scale, efficiency and competition.

Therefore, credit policies must cover operational and financial costs and growth, to
achieve the objectives of a sustainable, healthy, growing microfinance industry reaching
increased numbers of the poor, especially in rural areas. Microfinance interest rates
cannot be expected to fall below the minimum costs necessary for MFIs to survive, so
they will not be “affordable” for some purposes, for which alternative approaches are
needed. Interest rates are “too high” if they result from inefficiencies. Increased
competition and performance based capacity-building are appropriate strategies to
improve efficiency for lower costs and interest rates. Consumer education, disclosure of
interest rates and fees, and a code of conduct will help clients to make better choices and
force MFIs to compete transparently. These strategies would put downward pressure on
interest rates without retarding growth of the industry, as typically happens under interest
rate ceilings.

All in all, favorable credit policies create favorable working conditions for the small-
scale enterprises. A longer loan period say 2 years, and a meaningful small loan say 5m
can do wonders to the performance of small-scale enterprise.

However, short-term loans do not make the small-scale enterprises.

High interest rates are not compatible with small-scale enterprise performance. This kind
of rate will gradually eat up the profits made by small-scale enterprises and hence, the
credit will be a liability rather than facility.
In Uganda and particularly at Ankole Farmers and Traders Cooperative Savings And
Credit Society this problem of mismanaging loans by the enterprises has been overcome
by the eligibility criteria in place.
Clients have to be identified selected and funded (Branch management manual, 2003).
Note that for purposes research and consistence, the research will confine her to the
group methodology.


                                                   17
According to the literature available at Ankole Farmers and Traders Cooperative Savings
And Credit Society, the maximum amount for each cycle is as follows Maximum for first
cycle 250, 000, Maximum for second cycle 400, 000 Maximum for third cycle 500.000
,Maximum for any forth cycle 800, 000, Above the fourth cycle 1,000, 000 and above

Pische, (1991) who urges that poor loan sizing is illustrated by extensive credit rationing
which issues too little loan to too many borrowers. This is the case with microfinance
institutions. This is however due to the credit worthiness of such businesses.

In Ankole Farmers and Traders Cooperative Savings and Credit Society the difference in
respect of this is in the name. This compulsory saving is called loan Guarantee Fund .It is
20% of the intended credit facility.

CEEWA report on studies done about lending methodologies of MFIs in Uganda, clients
have no problem with compulsory savings which they argue should be at their own will
to met risks and expand their businesses.

As regards Ankole Farmers and Traders Cooperative Savings and Credit Society a 20%
compulsory fund is so bigger rate when you consider the small amount of loan extended
to loans. The clients’ major complaint is to have an interest carried on this saving. It puts
Ankole Farmers and Traders Cooperative Savings and Credit Society in an unfavorable
condition in a competitive micro finance industry. This is so, because commercial banks
like centenary bank have down scaled to cater even for micro borrowers without
compulsory saving.

2.4 Conclusion

Favorable credit policies create favorable working conditions as well as client’s
satisfaction running various business enterprises. A longer loan period say 2 years, and a
meaningful small loan say 5 million can do wonders to the client satisfaction given
favorable credit policies. However, short-term loans do not contribute to the client
satisfaction. High interest rates affect client satisfaction, this kind of rate will gradually
eat up the profits made by clients and hence, the credit will be a liability rather than
facility.


                                             18
                        CHAPTER THREE: METHODOLOGY
3.0 Introduction

This part of research describes the methodology that was employed in the study.

3.1 Research design

This study focused towards establishing the relationship between credit policy and client
satisfaction. In order to achieve this, cross sectional survey study using combinations of
both descriptive and analytical methods.

Cross-sectional design is a type of research methods that involve observation of all of a
population, or a representative subset, at a defined time. Also it aims at providing data on
the entire population under study. More so, an assessment was taken on the client
satisfaction in relation to the credit policies then data was generated depending on the
respondent’s opinions and attitudes towards the problem under investigation.

3.2 Study population

The study population included the clients as well as staff of Ankole farmers and Traders
cooperative savings and society.

About 45 clients were targeted. In other words the loans register will be used to select the
respondents thus acting as a population frame for the research study.

3.3 Sample size

From the population, a sample of 45 clients was selected as a representation of the whole
population using micro credit loans register. This helped the researcher to get clients
opinion on the issues raised in this study.




                                              19
3.4 Sampling method and design

Simple random sampling method was used to select the sample because it is regarded as
most appropriate. In this study, a sample of 45 clients was used as representatives of the
whole population of clients that benefit from the credit loans.

3.5 Research variables and their measurements

The former is the independent variable while the later is the dependent variable. Because
credit policy is a presumed effect of client satisfaction while small scale business
performance is a presumed effect from the action of microcredit policy.

The independent variable were measured by parameters such as loan size, interest rates,
loan period, interest rate, group lending, compulsory savings and loan processing period
among others. The dependent variable were measured by performance variables like
changes in level of assets level of sales, profitability, and level of loan recovery among
others.

3.6 Sources of Data

The study used both secondary and primary data. Primary data is the kind of information
observed or collected directly from first-hand experience while secondary data is the data
collected in the past in other wards, the existing information.

(i) Primary data was got through the use of observation, questionnaires and interviews.
This was the raw data that had not been searched for.

(ii) Secondary data was sourced from documented statements, electronic sources like
internet and reports on client’s satisfaction.

3.7 Data collection and Instruments

(i) Interview Guide

This is a set of questions set by the researcher in relation to the objectives of the study to
guide the interviews that were conducted between the respondents and the researcher at a


                                                 20
time of the field study; this enabled the respondents to express their opinions and views
on the problem under study.

(ii) Questionnaires

Questionnaires were both open and close ended questions set by the researcher to the
respondents. They were both close and open ended and targeted people who knew how to
read and write, this enabled the respondents to express their opinions on the problem
under study. This led to yielding of enough field data.

3.8 Data processing and analysis

3.8.1 Data processing
Data from the field was be sorted, coded and organized in tables to reveal the percentage
scores of the different study attributes.

Editing and Coding

This was carried out to ensure that data obtained from respondents is accurate, reliable
and completeness this will involve proper and careful scrutinizing of questionnaires to
check for errors, incompleteness and inconsistence.

Frequency tabulation: This involved placing the number of responses falling into a
particular category and recording theme using tallies so as to come up with a statistical
table.

3.9 Data analysis

Data from the research field was analyzed by both qualitative and quantitative methods.

Quantitatively, data was used to generate tallies, frequencies and there after computer
programmes like SPSS were used to sort the findings and present them in tabular and
graphical in units of percentages.




                                            21
Qualitatively, thematic analysis was applied. By this method data was coded and
arranged in themes and sub-themes leaving a room for exploration.

3.10 Problems that were encountered during the study

              The researcher faced a problem of financial constraints since research
              involved traveling to the place of study, typing and printing costs.
              However this was overcome by making proper budget plans.

             Most respondents were not cooperative since they were not willing to give
              complete information. However had to first explain the purpose of the
              study to the respondents first.

             It was very hard to trace the respondents since they were always busy in
              their gardens/farms and having tight programs .However, the researcher
              got the introductory letter from the faculty.




                                            22
                                   CHAPTER FOUR

 ANALYSIS, PRESENTATION AND INTERPRETATION OF RESEARCH FINDINGS

4.0 Introduction;

This chapter presents and discusses the implications of the findings. The findings are
presented in a tabular form and were analyzed using frequencies and percentages.

4.1 Socio-economic backgrounds of the respondents.

Findings on the socio-economic background of the respondents were considered and can
summarized in the table below:-

4.1.1 Gender of the respondents.

Table 1: Sex of respondents
Sex            Frequency           Percentage     Cumulative percentage
Male           22                  49             49
Female         23                  51             100
Total          45                  100
Source: primary data

From table 1 above, 49% of the respondents were male and 51% were female. This
implied that female were more engaged in cooperative savings activities though some
males are also engaged in co-operative savings.

4.1.2 Age range of respondents
Table 2: Age distribution of the respondents

Age                 Frequency       Percentage        Cumulative frequency
Below 20            4               9                 9
21-30 years         32              71                80
31-40 years         5               11                91
Above 40 years      4               9                 100

Total           45                  100
Source; Primary data


                                           23
The findings from table 2 shows that, 9% of the respondents were aged 20 years, 21-30
years were 71%, 31-40 years were 11% and those aged 40 years and above were only
9%. This implies that the researcher was able to collect reliable data from the respondents
because of the rational age distribution.

4.1.3 Marital status of the respondents
Table 3: Marital status of respondents
Marital of status       Frequency           Percentage       Cumulative percent
Married                    26                   57                  57
Single                     10                   22                  79
Widow                       9                   21                 100
Total                      45                  100
Source of data; primary

From table 3, 57% of the respondents were married, 22 are single and 21% are widow.
The divorced and engaged are options which were not exploited to help the researcher
save time. This implies that majority of the respondents had responsibilities in their
families.

4.1.4 Education level of the respondents.

Table 4: Education of the respondents
Education           Frequency       Percentage     Cumulative parentage
Primary             14              31             31
Secondary           9               20             51
certificate         18              40             91
Degree              4               9              100
Total               45              100
Source of data; primary

From table 4, 31% were primary holders, 20% were secondary holders, 40% were
certificate holders and those with degree were 9%. This means that most of the
respondents were in position to answer question.




                                              24
4.1.5 The length of relationship with the SACCO
Table 5 : The duration that the respondent has been a loan customer of Ankole
Farmers and Traders Co-operative saving and credit society
Duration               Frequency        Percentage         Cumulative percentage
1-2 years              9                20                 20
3-4 years              23               51                 71
5-6 years              8                18                 89
6 years and above      5                11                 100
Total                  45               100

From table5, 20% of the respondents have been customers for 1-2 years, 51% for 3-4
years, 18% for 5-6 year, and those who have been for 6years and above were 11%. This
implies that most of the respondents have been customers of the SACCO for quite
sometime and was in position to give true information.

4.2 Findings on the credit policies applied by Ankole farmers and traders co-
operative savings
This part of the study was interested in finding out the credit policies employed by
Ankole farmers and trader’s co-operative savings and credit society Staff to manage and
monitor loans by their clients
4.2.1 Response on whether evaluation of customer’ capital is considered before
giving out the loan
Table 6 : showing whether evaluation of customer’ capital is considered before
giving out the loan
Response              Frequency             Percentage        Cumulative percentage
Strongly agree                  14                  30                     30
Agree                           27                  60                     90
Not Sure                         2                   5                     95
disagree                         2                   5                    100
Strongly agree                   -                  00                     00
Total                           45                 100
From table 6 above, 30% of the respondents strongly agreed that customer’s capital is
considered before giving him /her loan, 60% agreed, 5% were not sure, 5% disagreed and
none of the respondents strongly disagreed. This indicates that customer’s capital is
considered before giving the loan.



                                           25
4.2.2 Response on whether evaluation of customer’ character is considered before
giving out the loan
Table 7: showing whether evaluation of customer’ character is considered before
giving out the loan
Response             Frequency                Percentage          Cumulative percentage
Strongly agree               -                       00                      00
Agree                       18                       40                      45
Not sure                    20                       45                      85
Disagree                     7                       15                     100
Strongly disagree            -                       00                      00
Total                       45                      100
Source: primary data

From table 7 above, none of the respondents strongly agreed that the SACCO considers
customers character before giving out loans, 40% agreed, 45% not sure, 15% disagree
and none strongly disagreed. This indicates that evaluation of customer’s character is not
highly considered by Ankole farmers and trader’s co-operative savings and credit society.

4.2.3 Response on whether collateral security is considered before giving out the
loan
Table 8: showing whether collateral security is considered before giving out the loan
Response             Frequency           Percentage         Cumulative percentage
Strongly agree               36                  80                      80
Agree                         9                  20                     100
Not sure                      -                  00                      00
Disagree                      -                  00                      00
Strongly disagree             -                  00                      00
Total                        45                 100
From table 8 above, 80% of the respondents strongly agreed that collateral security is
highly considered before issuing /giving out the loan, 20% agreed, none were not sure,
none disagreed and none strongly disagreed. This implies that the SACCO considers
collateral security before issuing out the loan. This is in total agreement with (Kyagulanyi
(2000) who observed that collateral security is commonly used as a policy.




                                            26
4.2.4 Response on whether credit standards policies are used to measure clients’
potentiality.

Table 9: showing whether credit standards policies are used to measure clients’
potentiality

Response               Frequency              Percentage       Cumulative percentage
Strongly agree                18                     40                   40
Agree                         13                     30                   70
Not Sure                       7                     15                   85
disagree                       7                     15                  100
Strongly disagree              -                     00                   00
Total                         45                    100



From table 9 above 40% of the respondents strongly agreed that they use credit standards
to measure potentiality, 30% agreed, 15 % were not sure, 15% disagreed and none
strongly disagreed. This means that credit standards policies are used in measuring
client’s potentiality. This is in line with Pandey (1985), who argued that it is a very
important policy because it stipulates the minimum financial strength an applicant must
demonstrate in order to be granted credit.

4.2.5 Response on the durations of the credit periods of Ankole farmers and trader’s
co-operative savings and credit society
Table 10: Showing the durations of the credit periods of Ankole farmers and
trader’s co-operative savings and credit society


Response               Frequency              Percentage       Cumulative percentage
 1-3 months                    5                     10                   10
4-6 month                     18                     40                   50
7-9 month                      7                     15                   65
10-12months                    5                     10                   75
Not Applicable                10                     25                  100
Total                         45                    100




                                             27
From table 10 above , 10% said it’s between 1-3 months as duration of loan repayment,
40% 4-6 months, 15% 7-9 months, 10% 10-12 months and 25 % never had what to say.
This implied that the majority of respondents were giving only 4-6 months as duration of
loan repayment. It is in line with Van Horne and Wachowicz (1994), who advocated for a
little period of time which is not more than six months to recover the loan.

4.2.6 Response on whether evaluation of customer’ condition of operation is
considered before giving out the loan


Table 11: showing whether evaluation of customer’ condition of operation is
considered before giving out the loan
Response              Frequency             Percentage          Cumulative percentage
Strongly agree                 5                   15                      15
Agree                         11                   30                      45
Not Sure                       9                    5                      50
disagree                      20                   50                     100
Strongly disagree              -                   00                      00
Total                         45                  100
From table 11 above, 15% of the respondents agreed that evaluating customer’s condition
of operation is considered before giving him /her loan, 30% agreed, 5% were not sure,
50% disagreed and none strongly disagreed. This means that evaluation of customer’s
conditions of operation is not considered before giving out loan as a policy.

4.2.7 Response on whether discounts to clients are offered


Table 102: showing whether discounts are offered to clients.
Response           Frequency           Percentage        Cumulative percentage
Strongly agree            19                  45                     45
Agree                     16                  35                     80
Not Sure                   4                   5                     85
disagree                   6                  15                    100
Strongly disagree          -                  00                     00
Total                     45                 100
 From table 12 above, 45% of the respondents strongly agreed that they do offer
discounts to their clients, 35% agreed, 5% were not sure, 15% disagreed and none


                                            28
strongly disagreed with the statement. This implies that the majority of respondents in the
SACCO were offered discounts.

4.3 Finding on how credit polices have affected clients in acquiring credits/loan from
Ankole farmers and trader’s co-operative savings and credit society
In this section the researcher based on the factors that have affected clients in acquiring
credit/ loans.
4.3.1 Response on whether loan policies provided to respondents make them pay
loans in time
Table 13: showing whether loan policies provided to respondents make them pay
loans in time
Pay in time                   Frequency           Percentage       Cumulative percentage
Strongly agree                14                  31               31
Agree                         9                   20               51
Not sure                      -                   00               51
Disagree                      22                  49               100
Strongly disagree             -                   00               00
Total                         45                  100

Source; primary data

Findings from table 13 above reveal that 31% of respondents strongly agree that loan
policies provided make them pay in time, 20% agreed, none were sure, 49% disagreed
and none strongly disagreed. This implies that loan policies provided make clients pay
loans in time though 49% disagreed.




                                             29
4.3.2 Response on whether there has been many causes of a loan defaulting

Table 114: Whether there has been many causes of a loan defaulting
Causes of a loan             Frequency           Percentage       Cumulative percentage
defaulting
Strongly agree               9                   20               20
Agree                        23                  51               71
Not sure                     -                   00               71
Disagree                     13                  29               100
Strongly disagree            -                   00               00
Total                        45                  100
Source; primary data

From table 14 above, 20% of respondents strongly agreed that there has been many
causes of loan defaulting, 51% agreed, none were not sure, 29% disagreed and none
strongly disagreed. This implies that loan default has been a problem to the respondents.

4.3.3 Response on whether securities are sold by the society when the respondents
fail to repay the loan

Table 15: Whether securities are sold by the society when the respondents fail to
repay the loan
Response                     Frequency           Percentage       Cumulative percentage
Strongly agree               23                  51               51
Agree                        -                   00               51
Not sure                     -                   00               51
Disagree                     22                  49               100
Strongly disagree            -                   00               00
Total                        45                  100
Source; primary data

From the table 16 above, 51% strongly agreed that their securities are sold off if they fail
to repay the loan, none agreed, none were not sure, 49% disagreed and none strongly
disagreed. This implies that client securities are sold if he/she fails to pay the loan in
time.




                                            30
4.3.4 Response on whether the cooperative sues the borrowers on failure to repay
the loan

Table 126 : Whether the co-operative sues the borrowers on failure to repay the
loan
Response                      Frequency           Percentage       Cumulative percentage
Strongly agree                4                   9                9
Agree                         32                  71               80
Not sure                      -                   00               80
Disagree                      4                   9                89
Strongly disagree             5                   11               100
Total                         45                  100
Source; primary data

From table 16, 9% strongly agreed with statement that clients are issued on failure to pay
the loan, 71% agreed, none were not sure, 9% disagreed and 11% strongly disagreed.
This implies that this policy is a bit effective since failure to repay the loan is a serious
offense and therefore punishable by law governing the co-operative.

4.3.5 Response on whether credit period given by the society is ideal for loan
recovery

Table17: Whether credit period given by the society is ideal for loan recovery

Response                      Frequency           Percentage       Cumulative percentage
Strongly agree                4                   9                9
Agree                         27                  60               69
Not sure                      -                   00               69
Disagree                      14                  31               100
Strongly disagree             -                   00
Total                         45                  100
Source; primary data

From table 17 above, 9% strongly agreed that they are given ideal period for loan
recovery, 60% agreed, none were not sure, 31% disagreed and none strongly disagreed.
This implied that the majority of respondents were comfortable with the credit period.




                                             31
4.3.6 Response on whether credit policies support loan recovery procedures.
Respondents were asked whether credit policies support loan recovery procedures, below
were the results obtained by the researcher
Table 13: showing whether credit policies support loan recovery procedures
Response                     Frequency             Percentage   Cumulative percentage
Strongly agree               9                     20           20
Agree                        31                    69           89
Not sure                     -                     00           89
Disagree                     5                     11           100
Strong disagree              -                     00
Total                        45                    100
Source; primary data

From the table above, 20% strongly agreed with the statement that credit policies support
loan recovery procedure, 69% agreed, none were not sure, 11% disagreed and none
strongly disagreed. This implies that credit policies have also an influence in loan
recovery procedures.

4.4 Findings on the clients’ satisfaction with Ankole farmers and trader cooperative
savings and credit society

Table 14 : showing whether customers are satisfied with credit policies provided by
ankole farmer’s co-operative savings
Response                     Frequency             Percentage   Cumulative percentage
Strongly agree               -                     00           00
Agree                        14                    31           31
Not sure                     5                     11           42
Disagree                     26                    58           100
Strong disagree              -                     00           -
Total                        45                    100

According to table 19 above, none of the respondents strongly agreed that they are not
satisfied with credit policies provided from the society, 31% agreed, 11% were not sure,
58% disagreed and none strongly disagreed. It implies that credit policies provided to the
clients do not satisfy.


                                              32
4.4.2 Findings on whether management consistency benefits the customers’
expectations
Respondents were asked whether management consistency benefits them, below were the
findings
Table 15: showing whether the management consistency benefits the farmers
Management consistency       Frequency           Percentage       Cumulative percentage
Strongly agree               9                   20               20
Agree                        23                  51               71
Not sure                     -                   00               71
Disagree                     9                   20               91
Strongly disagree            4                   9                100
Total                        45                  100
Source; primary data

Findings from the table 20 above, 20% of the respondents strongly agreed that the
management consistency benefits them, 51% agreed, none were not sure, 20% disagreed
and 9% strongly disagreed .This implied that farmers of Ankole farmers and trader’s co-
operative savings and credit society really benefit from the consistency of the
management.

4.4.3 Findings on the response whether staff members are approachable

Respondents were asked about whether their staff members are approachable; - below
were the findings.
Table 16: showing whether the Staff members are approachable by customers
Staff members                Frequency           Percentage       Cumulative percentage
Strongly agree               41                  91               91
Agree                        4                   9                100
Not sure                     -                   00               100
Disagree                     -                   00               100
Strongly disagree            -                   00               00
Total                        45                  100
Source; primary data

Findings from table 21 above, 91% of the respondents strongly agreed with the statement
that staff members of Ankole farmers and trader’s co-operative savings and credit society


                                            33
are approachable, 9% agreed, none were not sure, none disagreed and none strongly
disagreed. This implied that staff members are easily approachable and this has reduced
on the number of loan defaulters among farmers.

4.4.3 Findings on whether the process of getting loan from Ankole farmers and
trader’s co-operative savings and credit society is easier
Table 17: showing whether the process of getting loan is easy
Customer                     Frequency           Percentage      Cumulative percentage
Strongly agree               33                  73              73
Agree                        12                  27              100
Not sure                     -                   00              100
Disagree                     -                   00              100
Strongly disagree            -                   00              100
Total                        45                  100             -
Source; primary data

Findings from table 22 above, 73% of the respondent strongly agreed that the process of
getting loan is a bit easier, 27% agreed, none were not sure, none disagreed and none
strongly disagreed. This indicated that farmers are satisfied with the process and they can
easily access loans from Ankole farmers and trader’s co-operative savings and credit
society.

4.3.2 Response on whether customers are satisfied with how loans are collected


Respondents were asked whether customers are satisfied with how loans are collected,
below were the results observed.


Table 18: showing whether customers are satisfied with how loans are collected
Response                     Frequency           Percentage      Cumulative percentage
Strongly agree               5                   11              11
Agree                        -                   00              11
Not sure                     5                   11              22
Disagree                     26                  58              80
Strongly disagree            9                   20              100
Total                        45                  100



                                            34
From table 23 above, 11% of the respondents strongly agreed that they are satisfied with
they way loans are collected, none agreed, 11% were not sure, 58% disagreed and 20%
strongly disagreed. This implies that customers are not satisfied with the way loan are
being collected.

4.5 Findings on the relationship between credit policies and clients’ satisfaction of
Ankole farmers and trader’s co-operative savings and credit society

In this section, the researcher aimed at finding out some of the relationship between
credit policies and client satisfaction of Ankole farmers and trader’s co-operative savings
and credit society; - below were the results.

4.5.1 Findings on whether the loan defect levels have reduced in Ankole farmers and
traders cooperative savings for the last 6 years
Table 19: showing whether the loan defect levels have reduced in Ankole farmers and
traders cooperative savings for the last 6 years

Response                    Frequency         Percentage       Cumulative percentage
Strongly agree              -                 00               00
Agree                       10                22               22
Not sure                    -                 00               22
Disagree                    31                69               91
Strongly disagree           4                 9                100
Total                       45                100
Finding from table 24 above, none of the respondents strongly agreed with statement that
the loan defect levels have reduced, 22% agreed, none were not sure, 69 % disagreed, 9%
strongly disagreed. This implied that loan defects levels have not reduced in with
statement that the loan defect levels have reduced in Ankole farmers and trader’s co-
operative savings and credit society for the last 6 years.




                                                35
4.5.2 Findings on whether the services provided by the society have helped to
increase the levels of incomes at house hold.

Table 20 : The services provided by the society have helped to increase the levels of
incomes at house hold
Response                    Frequency         Percentage     Cumulative percentage
Strongly agree              32                71             71
Agree                       13                29             100
Not sure                    -                 00             100
Disagree                    -                 00             100
Strong disagree             -                 00             100
Total                       45                100
Findings from the table 25 above show that, 71% of respondents strongly agreed that the
existence of Ankole farmers and trader’s co-operative savings and credit society has
increased the levels of incomes at house hold, 29% agreed, none were not sure, none
disagreed, none strongly disagreed. This implied that there is a relationship between the
services provided by the society and the levels of income at house hold.




                                           36
                                  Cor relations

                                                        Credit       Client's
                                                       policies    satisf action
   Credit policies           Pearson Correlation          1.000             .940**
                             Sig. (2-tailed)                    .           .000
                             N                                45              45
   Client's satisf ac tion   Pearson Correlation            .940**         1.000
                             Sig. (2-tailed)                .000                .
                             N                                45              45
      **. Correlation is s ignif icant at the 0.01 level (2-tailed).




Results revealed that there is a strong relationship between Credit policies and Client’
satisfaction making (0.940** sig. =000). This implies that Credit policies can lead to
client satisfaction of Ankole farmers and trader’s co-operative savings and credit society.




                                             37
                                   CHAPTER FIVE

   SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS

5.1 Introduction
In this chapter, the researcher summarizes the study findings, makes conclusions and
recommendations of the study in accordance with the study objectives.

5.2 Summary of major Findings
The study employed 45 respondents from of Ankole farmers and trader’s co-operative
savings and credit society and they were more females than males with certificate as the
highest qualification. Many of the respondents had spent 3-4 years with the SACCO

5.2.1 Findings on Credit policies in Ankole farmers and trader’s co-operative
savings and credit society
Credit standards policies are used in measuring client’s potentiality. This is in line with
Pandey (1985), who argued that it is a very important policy because it stipulates the
minimum financial strength an applicant must demonstrate in order to be granted credit.

Market identification policy is practiced by loan and management department of Ankole
farmers and trader’s co-operative savings and credit society. Collateral security as a
policy of knowing the credit worthiness of a client is commonly used (Kyagulanyi
(2000).

Evaluation of customer’s capital is highly practiced by loan and management department
of Ankole farmers and trader’s co-operative savings and credit society to find out the
credit worthiness of clients. Evaluation of customer’s character is not highly considered
by loan and management department of Ankole farmers and trader’s co-operative savings
and credit society

It was revealed that evaluation of customer’s conditions of operation is also a major
policy practiced by loan and management department of Ankole farmers and trader’s co-
operative savings and credit society. Credit periods are set for a customer which is a very




                                            38
good strategy. Respondents are offered discounts and evaluating customer’s capital is
also highly practiced.

5.2.2 Finding on how credit polices have affected clients in acquiring credits/loan
from
Credit co-operative savings some times do not allow the clients enough yet their interest
rates are very high this does not favor the clients. The credit cooperative has to sale the
client securities if he/she had failed to pay the loans this scares them. Most of the
respondents agreed that credit policies applied by the SACCO support loan recovery
procedure.

5.2.3 Findings on the client’s satisfaction with Ankole farmers and trader
cooperative savings and credit society

Credit management policies applied by loan officers in Ankole farmers and trader’s co-
operative savings and credit society are not favorable to clients. Most of the respondents
agreed that the management consistency benefits them. The staff members of Ankole
farmers and trader’s co-operative savings and credit society are easily approachable.

Most of the farmers are satisfied with the process and loan procedure and they can easily
access loans from Ankole farmers and trader’s co-operative savings and credit society.

Most of customers are not satisfied with the way loan are being collected that some times
people use a lot of force and I think its the most discouraging factors for not using
Ankole farmers and trader’s co-operative savings and credit society.

5.2.4 Findings on Relationship between credit policies and loan performance.

The relationship between credit policies and Loan performance in Ankole farmers and
trader’s co-operative savings and credit society was found significant at (0.01 >
probability of error (p) = 0.000) with r = 0.940 so the study rejected the null hypothesis of
no significance and concluded that there was a statistically strong positive relationship
between credit policies and clients satisfaction.




                                             39
5.3 Conclusion

5.3.1 Conclusions on credit policy

Credit policies have been put in place to ensure that loans are given out to good
customers. According to the findings they do not employ good procures in giving out
credits and this has hindered the SACCO in meeting the customer satisfaction.

5.3.2 Conclusion on client satisfaction

The findings revealed that the client satisfaction is still low in the SACCO and the
customers are still few in the SACCO and this has led to slow growth of the SACCO.
This calls for attention of the management of SACCO in order to enhance client
satisfaction.

5.3.3 Conclusion on the relationship between credit policy and client satisfaction

The study also revealed that there is a strong positive relationship between credit policy
and Client satisfaction .This implies that good credit policies/procedures lead to client
satisfaction.

5.4 Recommendations

5.4.1 Recommendations on Credit policies

       Ankole farmers and trader’s co-operative savings and credit society should put in
        place a customized computer based information system that can track client
        records and provide vital information about the clients who apply for loans

       Ankole farmers and trader’s co-operative savings and credit society should make
        improvement in its credit policies by following the minimum capital requirement
        rule dictated by the Basel 1 Accord, strengthening client screening by evaluating
        the clients basing on the capacity, condition capital, collateral and project
        evaluation before the loan is advanced to the clients




                                             40
      Ankole farmers and trader’s co-operative savings and credit society should
       emphasis the role of a joint credit risk management approach other than being a
       role of the top management only. A Participatory approach needs to be followed
       while managing credit risk that involves the participation of each and every
       employee involved in the SACCO because loan performance and the general
       performance of the SACCO as a whole is determined by many factors
       independent of the credit department.

      Ankole farmers and trader’s co-operative savings and credit society should
       mobilize adequate capital to meet all the financial needs of all the members’
       especially high income earners. So that, they can stay in SACCOs. This can be
       achieved through having varied investment portfolio –treasury bills, securities as
       opposed to the current and limited ones of only extending credit.

5.4.2 Recommendations on client satisfaction

      The Ankole farmers and trader’s co-operative savings and credit society should
       increase   on client satisfaction through improved credit procedures and customer
       care in order to achieve client satisfaction.

      Thee SACCO should improve on the procedures of collecting loans from the
       clients and should reduce on selling customers properties such that client
       satisfaction can be achieved.

5.4.3 Recommendations on the relationship between credit policies and client
satisfaction.

      The SACCO should keep much emphasis on the use of procedures that can help
       to achieve client satisfaction.

      The SACCO should create awareness to all the clients through education
       programmes that       improved credit policies can increase client satisfaction.




                                             41
5.5 Areas of Future Research

This study embraced the relationship between credit policies and loan performance.
Further studies in the related field would encompass the following areas;

      Risk management and financial Performance of SACCOs

      Non-Performing Loans and financial performance of SACCOs

      There is also need to research on the influence of governance on SACCOs’
       performance and development.




                                           42
APPENDIX :I REFERENCES

Caleb Akandwanaho S.S., (2009) Microfinance Policy and Regulatory Framework in

     Uganda Ministry of State for Finance, Planning and Economic Development

     (MoFPED)

Barlow, Janelle, Dianna Maul and Edwardson Michael (2000); Emotional Value:

     Creating Strong Bonds with Your Customers; Berreneet-Koehler Publisher Ltd

Churchill, Craig F; Banking on Customer Loyalty; Journal of Microfinance; Volume

     2 Number 2.

Doyle, Meter; (2000) Value Based Marketing; Wiley, England

Rosenberg, Richard, (2001) Talking about performance ratios, Measuring Client
Retention; The Micro banking Bulletin, Issue No. 6, April 2001

Pawlak, Katarzyna and Selma Jahic, (2004) Promoting Client-focused Organization –

Partner’s Exit Monitoring System; MFC Spotlight Note 9; Microfinance Centre, Feb

      2004

Fernando, Nimal A. (1985). An Analysis of Interest Rates in the Informal Rural Credit

      Market of Sri Lanka. Staff Studies. 15 (1&2): 29–41. Colombo: Central Bank of

      Sri Lanka.

The World Bank. 1989. The World Development Report 1989. Washington DC: The

    World Bank.

Consultative Group to Assist the Poor (CGAP). 1996. Microcredit Interest Rates.

     Occasional Paper No. 1. Washington DC: CGAP.



                                          43
Consultative Group to Assist the Poor (CGAP).. 2002. Making Sense of Microcredit

     Interest Rates. Donor Brief No. 6.Washington DC: CGAP.

Consultative Group to Assist the Poor (CGAP).. 2004. Interest Rate Ceilings and

    Microfinance: The Story So Far. Occasional Paper No. 9. Washington DC: CGAP.




                                          44
APPENDIX II RESEARCH QUESTIONNAIRE

Dear Respondent,

I am a student of Makerere University pursuing a Bachelor of Commerce Degree and you
have been selected to participate in the ongoing study of credit policies and client
satisfaction in Ankole Farmers and Traders’ Co-Operative Savings and Credit Society as
a case study. I kindly seek your opinion and answer the questions raised in this
questionnaire to facilitate my study by ticking the appropriate option. The result of the
study obtained thereafter shall be used by academic purposes only and be treated with
maximum confidentiality. It is only through your positive response that this study can be
successfully completed.

Thanks for your cooperation and time provided.

Tick in the boxes provided the appropriate opinion.

SECTION A:              BACKGROUND INFORMATION
1.     Gender
       a) Male
       b) Female
2.     Age
       a) Below 20 years
       b) 20-30 years
       c) 30-40 years
       d) Above 40 years
3.     Marital Status
       a) Married
       b) Single
       c) Widow
       d) Separated/Divorced




                                           45
4.     Education Level
       a) Primary level
       b) Secondary level
       c) Certificate level
       d) Degree level
       e) Masters Level
       f) PHD level
       Others (Specify)…………………………………………………………………..
5.     How long have you been a loan customer of Ankole Farmers and Trader Co-
       operative?
       Savings and Credit Society?
       a) 1-2 years
       b) 3-4 years
       c) 5-6 years
       d) 6 years and above




                                       SECTION B
CREDIT POLICIES OF ANKOLE AND TRADERS CO-OPERATIVE SAVINGS
                                AND CREDIT SOCIETY
Tick in the appropriate box.
No Statement                                       strongly Agree uncertain disagree strongly
                                                   agree                             disagree
6     Customer’s capital is considered before
     giving out the loan to customers.

7     Customer’s character is considered
     before giving out the loan to customers.


8
      Collateral securities are considered
     before giving out the loan to clients.
9    Credit standards policies to measure



                                              46
     clients’ potentiality are set
10
      Durations of the credit periods are
     enough for customers to pay back.
11    Customer’s conditions of operation are
     considered before giving out the loan.
12   Discounts are given to customers
.


                                     SECTION C
     HOW CREDIT POLICES HAVE AFFECTED CLIENTS IN ACQUIRING
      CREDITS/LOAN FROM ANKOLE FARMERS AND TRADER’S CO-
                  OPERATIVE SAVINGS AND CREDIT SOCIETY
No Statement                                    strongly Agree uncertain disagree strongly
                                                agree                             disagree
13   Credit policies support loan recovery
     procedures.
14   Loan processing time is enough for
     customers.
15   Credit period given by the society is
     ideal for loan recovery.
16   There has been many causes of a loan
     defaulting.
17   The society sues the borrowers on
     failure to repay the loan.
18   The loan policies provided to customers
     make borrowers to pay back the loan in
     time.
19   Collateral securities are sold by the
     society when the borrowers fail to repay
     the loan.




                                           47
                                      SECTION D
       CLIENT SATISFACTION OF ANKOLE FARMERS AND TRADER
               COOPERATIVE SAVINGS AND CREDIT SOCIETY
Tick in the appropriate box.
No Statement                                     strongly Agree uncertain disagree strongly
                                                 agree                             disagree
20   Customers are satisfied with the credit
     policies provided from the society.
21   Management consistency benefits the
     customer expectations
22   Staff members are easily approachable
     by customer.
23   Customers get loans from Ankole
     Farmers and Trader Co-operative
     Savings and Credit Society.
24   Customers are satisfied with the way
     how loans are collected in the society.

                                      SECTION E
         RELATIONSHIP BETWEEN CREDIT POLICIES AND CLIENT
  SATISFACTION OF ANKOLE FARMERS AND TRADERS CO-OPERATIVE
                         SAVINGS AND CREDIT SOCIETY
Tick the appropriate:
No Statement                                     strongly Agree uncertain disagree strongly
                                                 agree                             disagree
26   The client satisfaction of Ankole
     farmers and trader cooperative savings
     and credit society depends on improved
     credit policies and procedures
27   The credit services provided by the
     society have helped to increase the level
     of income at household level.
28   Loan defect levels have reduced in the
     Ankole farmers and trader cooperative
     savings and credit society for the last
     6yrs
29   Credit policies directly affect customer



                                            48
 satisfaction.



                                  SECTION D
  INTERVIEW GUIDE FOR ANKOLE FARMERS AND TRADERS CO-
      OPERATIVE SAVINGS AND CREDIT SOCIETY OFFICIALS
1. How old are you?
2. What is your marital status?
3. What is your highest level of education?
4. Position held in Ankole Farmers and Trader Cooperative Savings and Credit
   Society?
5. How many years have you spent working with Ankole Farmers and Trader Co-
   Operative Savings and Credit Society?
6. What type of customer do you serve?
7. What are the requirements for accessing your loan?
8. What range of findings do you give to your clients?
9. What credit policies do you have in this society?
                    END




                         Thanks for your cooperation




                                       49
                APPENDIX III   BUDGET

ITEM                                    AMOUNT (Shs)
Typing                                       45000/=
Printing                                     60000/=
Photocopying                                 25000/=
Binding                                      30000/=
Transport                                    75000/=
Lunch                                        40000/=
Miscellaneous                                15000/=
Total                                        290000/=




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