review advisor: mustafa mohamed...
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UNIVERSITY OF HARGEISA
FACULTY OF ECONOMICS
HARGEISA, SOMALILAND
The Role of Microfinance in Job creation in Hargeisa s/land
Introduction
Advisor: Mustafa Mohamed Aden
By: Farhan Aw-dahir Dugsiiye 4
Conclusion &
Analysis &discussion recommendation
University of Hargeisa
Faculty of Economics
July, 2015 UOH
“ THE ROLE OF ACCOUNTING FOR INVENTORY MANAGEMENT IN BUSINES
Prepared by:
Farhan Aw-dahir Dugsiiye
ID: ECO 114917
Advisor: Pro. Mustafa Mohamed Aden
Project Paper Submitted in Partial Fulfillment of the Requirement for the
Degree of Economics
Research Proposal Submission Form
Project Paper Title: The Role of Microfinance in job creation in Hargeisa Somaliland
Director:
UNIVERSITY OF HARGEISA (UOH)
Faculty of Economics
Dear Sir:
Attached are the following documents for evaluation and approval:
Chapter1: Introduction
Chapter2: Literature review
Chapter3: Research methodology
Chapter4: Data Analysis and interpretation
Chapter 5: Conclusion and Recommendations
I have thoroughly checked by work and I am confident that this is free from grammatical errors,
weaknesses in sentence construction, spelling mistakes, referencing mistakes and others, I have
checked guidelines for writing project paper and I am satisfied that he project paper proposal
satisfied its requirement
Thanks you…………………………….
I have read the student research proposal and I am satisfied that it is in line with the UOH program
guidelines for writing project proposal. It is also free from major grammatical errors, sentence
construction weaknesses, citation and others.
Supervisor signature: ____________ Date: _______________
DECLARATION
Name: Farhan Aw-dahir Dugsiiye
Student number: Eco 114917
I have by declare that this project paper is the result of my own study based on my
Interest to take into this microfinance, aside from parental guidance and my
Friends support to enable me to establish this study. For the internet system of which I conduct research
as one of my source for this study, quotations for the inquiry and summaries
Which have been duly acknowledged?
I hereby verity that this research is not submitted in substance for any other degree
Signature: __________________ Date: __________________
Supervisor name: Pro. Mustafe Mohamed Aden
Application to conduct Research Paper
PART A: STUDENT PARTICULAR
1: Student name: Farhan Aw-dahir Dugsiiye
Student number: Eco 114917
PART B: PARTICULAR ABOUT THE PROJECT
1: Title of the project: The Role of Microfinance in job creation in Hargeisa Somaliland
2: Research Objective: The main objective of this research is to find the role of microfinance in
job creation.
3: Proposed research method.
PART C: FACULTY’S INPUTS
1: Topic chosen: Accepted/ Not Accepted
2: Suggested Supervisor for the student
Dedicated to
MY LOVED PARENT:
Mrs.: Moumina Mahamoud Mr.: Aw-dahir Dugsiiye
My ALLAH rest their souls in the heaven and be merciful to them as they were to me in my
childhood (Amen) and honorable professor who had a great talent teaching method, and brought
beautiful studies.
ACKNOWLEDGEMENTS
First, thanks to “ALLAH” who gave me the power of doing this program and implementing,
who also allowed me to reach my spiral goals?
First of all to complete this research required the assistance, guidance and support of a number of
people to whom I would like to express my deeply appreciation and acknowledge them which
makes this project finally seem uncomplicated.
I would like to thank my supervisor Pro: Mustafa Mohamed Aden for his guidance throughout
the preparation of this study. Realizing this project would not have been achievable without his
support and the encouragement of him this masterpiece would never have been completed.
For his special guidance and un accountable advice for doing the research and extremely diligent
in reviewing text chapters exercise, problem, and their solutions that paves the way in
implementing and preparing this research paper.
I am also would like to thanks many people who guided and supports me throughout the
developing of the text express my sincere appropriation their expert attention that effectively
guided this book through production process.
The text and its sump lent have been enriched by the comments of many reviewers; I am
indebted to each of them, who assisted me.
I am also, thanks to dozen of my colleagues for adopting their encouragement and cooperative
support.
I am also would like to thanks Kaaba Microfinance Institution that has found data and the
students of university of Hargeisa they support the questionnaire to fulfill.
Abstract
The objective of the paper is to investigate the role of microfinance in job creation.
Microfinance consist of micro-loan, saving, insurance, money transfer. It facilities the poor
household income to get easy micro-credit, this encouraged the society, low-income people,
youth and the other parts of society.
Job creation often refers to government policies to reduce unemployment that caused many of
the unemployment workers to work and also eliminate the rate of unemployment.
Therefore it is very necessary to accept an efficient inventory process to give the right status. The
research has chosen known organization to examine which method is efficient of fulfill this type
of operation.
Students of university of Hargeisa and Kaaba Microfinance Institution,
This project is examining most known microfinance method. And then select the most proper
microfinance method in job creation.
The researcher has chosen known Kaaba microfinance institution to find out the data.
The Somaliland government until has not started a plan to developing or improving a society at
side of job creation or economic sector. Because of Somaliland society has living a low living
standard. When the creation microfinance or small business has encouraged a poor people and
youth have a living standard of the society is grow up. The unemployment was bringing a many
of the generations to migration in the European countries, which preferred better life.
CONTEXT PAGE
Title page……………………………………………………………………......i
Research proposal submission form……………………………………………ii
Declaration page………………………………………………………………..iii
Application to conduct research paper………………………………………….iv
Dedication page…………………………………………………………………v
Acknowledgement……………………………………………………………...vi
Abstract………………………………………………………………………...ix
Table of contents………………………………………………………………..x
List of figures…………………………………………………………………..xii
List of abbreviations……………………………………………………………xii
CHAPTER ONE INTRODUCTION.................................................................1
1.1: Background of the study……………………………………………………2
1.2: Statement of the problem…………………………………………………….3
1.3: purpose of study…….………………………………………………..............4
1.4: Research questions and hypothesis……………………………………..…….4
1.5: Objectives of study…………………………………………………………...4
1.6: Scope……………………………………………………………………........4
1.7: significant of study ……….……………………………………………..........5
1.8: description of study area...........................................................................…….5
1.9 limitation of the study…………………………………………………………..6
2: LITERATURE REVIEW:…………………….………………………………7
2.0: Definition of microfinance …….………………….…………………………..7
2.1: Microfinance and microcredit …………………….……………………..........8
2.2: The history of microfinance…………………………….………………..........8
2.3: Characteristics of Microfinance ……………………………………………...9
2.4: Microfinance Service…………………….…………………………………..10
2.5: Microfinance Services in world ….………………………………………….11
2.6: Microfinance Services in Africa ……………………………………………..11
2.7: Impact of Microfinance ……………………………………………….…......12
2.8: Microfinance and its impact in development…………...………………..…...13
2.9: The impact of microfinance on poverty………………………………………14
2.10: Islamic in microfinance………………………………………………………14
2.10.1 Mudarabah………………………………………………………………….14
2.10.2 Musharakah…………………………………………………………….……15
2.10.3 Murabahah……………..……………………………………………………16
2.10.4 Ijarah…………………………………. …………………………………….17
2.10.5: Qard Al-hasan………………………………………………………………18
2.11: Kaaba microfinance institution……………………………………………….18
2.12: definition of job creation……………………………………………………..19
2.13: advantage of job creation………………………………………………………20
2.14: The role of the public sector in job creation…………………………………......21
2.15.0: The role of the private sector in job creation…………………………………..21
2.15.1: Direct action concerning skills development and training…………………….22
2.15.2: Direct actions concerning job creation…………………………………………23
2.15.3. Policy making and advocacy…………………………………………………..23
2.16: social and economic benefits of job creation……………………………………..24
2.16.1: Job creation is the best weapon in the battle against poverty……………………24
2.16.2: Job creation improves income distribution and reduces inequality………………24
2.16.3 Job creation can improve conditions and promote investment in the poorest
communities………………………………………………………………………………24
2.16.4: Job creation can stimulate output, income, consumption and Investment……….24
2.16.5: Job creation supports public and social goods and services………………………24
3.0: RESEARCH METHODOLOGY
3.0: Variable definition……………………………………………………………….25
3.1: Research design…………………………………………………………………..25
3.2: Research population…………………………………………………………….....26
3.3: Sampling Technique………………………………………………………………26
3.4: Sample Size……………………………………………………………………….33
3.5: Sampling Procedure……………………………………………………………….34
3.6: Research instruments………………………………………………………………34
3.7: Data collection procedure………………………………………………………….34
3.8: Data analysis……………………………………………………………………….28
3.9: Ethical issues of the study…………………………………………………………28
4.0: DATA ANALYSING AND INTERPRETATION
4.1 introduction……………………………………………………………...29
List of TABLES AND FIGURES Page
Tab & Fig 4.1…………………………………………………………………30
Tab & Fig 4.2…………………………………………………………………31
Tab & Fig 4.3…………………………………………………………………32
Tab & Fig 4.4…………………………………………………………………33
Tab & Fig 4.5………………………………………………………………....34
Tab & Fig 4.6…………………………………………………………………35
Tab & Fig 4.7…………………………………………………………………36
Tab & Fig 4.8…………………………………………………………………37
Tab & Fig 4.9…………………………………………………………………38
Tab & Fig 4.10………………………………………………………………..39
Tab & Fig 4.11………………………………………………………………..40
Tab & Fig 4.12………………………………………………………………..41
Tab & Fig 4.13………………………………………………………………..42
Tab & Fig 4.14………………………………………………………………..43
Tab & Fig 4.15………………………………………………………………..44
Tab & Fig 4.16………………………………………………………………..45
5.0: CONCLUSION AND RECOMMENDATIONS.................................46
5.1: Conclusion……………………………………………………….………47
5.2: Recommendations………………………………………………………49
6.0 Appendix
6.1 Appendix A
Questionnaire…………………………………………………………………53
Chapter One: Introduction
1.1 Background of the Study
Microfinance consists of the provision of financial services in small increments, typically to very
poor people.
The beginnings of the microfinance movement are most closely associated with the economist
Muhammed Yunus, who in the early 1970's was a professor in Bangladesh. In the midst of a
country-wide famine, he began making small loans to poor families in neighboring villages in an
effort to break their cycle of poverty.(1)
The experiment was a surprising success, with Yunus
receiving timely repayment and observing significant changes in the quality of life for his loan
recipients. Unable to self-finance an expansion of his project, he sought governmental assistance,
and the Grameen Bank was born. In order to focus on the very poor, the Bank only lent to
households owning less than a half-acre of land. Repayment rates remained high, and the Bank
began to spread its operations to other regions of the country. In less than a decade, the Bank was
operating independently from its governmental founders and was advertising consistent
repayment rates of about 98%. In 2006 Yunus was awarded the Nobel Peace Prize.
The success of the Grameen Bank did not go unnoticed. Institutions replicating its model sprang
up in virtually every region of the globe. Between 1997 and 2002, the total number of MFIs grew
from 618 to 2,572. Altogether, these institutions claimed about 65 million clients, up from 13.5
million in 1997 and still growing at 35% a year. The amount of money flowing to clients also
continues to climb rapidly and the Grameen Bank has extended over $750 million worth of credit
in the past two years alone.
Alongside the explosion of the microfinance industry in absolute terms, there has been a steady
growth in private financing for MFIs. The bulk of microfinance funding is still provided by
development-oriented international financial institutions and NGO's. Yet estimates place demand
for unmet financial services at roughly 1.8 billion individuals. Even at its current growth rates, it
is clear that microfinance will only be extended to meet this enormous demand by leveraging
private capital, flows of which dwarf all other potential sources. Commercial financing has
grown most rapidly in Latin America, where regulated financial institutions now serve 54% of
the continent's microfinance clients and, importantly, are now responsible for 74% of the region's
loans. Overall, 2005 saw private lending to MFIs jump from $513 million to $981 million.
The European Progress Microfinance Facility has proved to be a successful tool to create jobs,
particularly amongst groups with difficulties to raise finance from more traditional sources, by
helping start-ups by micro-entrepreneurs, according to the second annual report on its
implementation, published today. Through this Facility twenty microfinance providers
throughout the European Union have received guarantees or funding (debt or equity) to facilitate
their lending to would-be micro-entrepreneurs worth €170 million over the coming two to three
years.(2)
A recent study by the UN office of the Special Adviser on Africa suggests that now is a good
time to reassess the role of microfinance in Africa's development. Drawing from experience
elsewhere, it seems clear that micro-finance is not a magic bullet. On its own it cannot
fundamentally transform African economies held back by many structural constraints. Yet
providing a whole range of financial services to the poor including credit for small and micro-
enterprises, savings facilities, insurance, pensions, and payment and transfer facilities is clearly
desirable and can contribute to the achievement of the Millennium Development Goals.
Africa has seen an increase in such services in recent years. Microfinance institutions offer a
variety of products.(3)
Where such institutions do not reach, traditional and informal providers
such as the tontines in Cameroon, the Susu in Ghana and the banquiers ambulates in Benin
continue to serve the poor. Their informality limits their potential to expand their activities,
however, and they often charge high rates.
Somaliland, a relatively small area in the Northwest, became independent in 1991. Since then, it
has managed to restore many aspects of normal society. However it has lost many citizens,
people who fled to safe countries and took another nationality. (4)
Doses of Hope (DoH) are an
NGO that works in Somaliland. It was started by three refugees in the Netherlands. It now has
two main activities, micro credit and a second section that assists disabled children and adults.
Many disabilities are the result of the Civil War.
Somaliland is an Islamic country and Islam has serious reservations against the charging of
interest. But a micro-finance project that only gets back what it loans will soon run out of money,
given inflation and the costs of running the project. There had to be a stage when interest or an
alternative is introduced. A dose of Hope does not charge interest; it charges administrative
costs. These are deducted at source: someone borrowing $200 will be given $180 with $20 kept
back for administrative costs.
Some community members, particularly borrowers who have trouble repaying or who just do not
want to repay, complain about the administrative costs, claiming that they are non-Islamic.
1.2 Statement of the Problem
Microfinance is providing financial service to low income people. It refers to a project to create
small business such to beneficiary poor and young people.
Microfinance consist of micro-loan, saving, insurance, money transfer. It facilities the poor
household income to get easy micro-credit, this encouraged the society, low-income people,
youth and the other parts of society.
Job creation often refers to government policies to reduce unemployment that caused many of
the unemployment workers to work and also eliminate the rate of unemployment.
The Government can motivate job creation when it invests in projects that improve or create new
services. These activities could include releasing contracts to the private sector for infrastructure,
defense, engineering, justice, etc. Other ways that the government creates jobs is by issuing
special grants for privately run programs. These are often for special studies and research. Grant
receivers do employ people. However these grants are often connected to special favors called
earmarks. These seemingly good gestures destroy independent innovation that is developed by
unconnected science communities and can cause discouragement to innovate by others.
The Somaliland government until has not started a plan to developing or improving a society at
side of job creation or economic sector. Because of Somaliland society has living a low living
standard. When the creation microfinance or small business has encouraged a poor people and
youth have a living standard of the society is grow up. The unemployment was bringing a many
of the generations to migration in the European countries, which preferred better life.
1.3 Purpose of the Study
The purpose of this study investigates the role of microfinance in job creation in Hargeisa
Somaliland.
1.4 Research questions
1: how does the microfinance reduce the poverty?
2: how does the job creation decrease the credit of youth?
3: what is the relationship between microfinance and job creation?
1.5 Objectives of Study
The specific objectives are:
To establish whether microfinance have the required financial capacity (cost-
effectiveness of credit operation).
To investigate how microfinance increases entrepreneurial competence and culture.
To find out products microfinance institutions employ to enable the Youth access credit
and accumulate savings.
To establish the extent to which microfinance institutions have succeeded in poverty
eradication among the youth.
1.6 Scope
The study will be conducted in Hargeisa the capital city of Somaliland. It will focus Micro-
finance institutions where KAABA, will the specific case for this research. It will cover three
months effective from 26th
April, 2015.
1.7 Significance of study
Upon the completion of this study the following stakeholders will benefits:
Society: is the first beneficiary of the microfinance and also making job creation, because when
the microfinance providing a poor people or young people is increased the employment of the
society.
The provision microfinance or loan they are making in small business that facilities to create
income or other business is very important to society and increased economic of the society.
Institutions: based on the outcome of this study it concerned all institutions to beneficiary this
study to focus on the microfinance, because of this study will eliminate needs toward making
research the role of microfinance in job creation.
Government: if they need information about the microfinance and job creation has received in
this book. Because this study has concerned government, institutions, society and other needed
information. This study will assistance some of the institution of the government and international
institutions such as ministry of social affairs and labor, ministry of trade and investment, banks,
institutions and international organization. Lastly, the study will also intend to add to the existing
literature on microfinance in job creation, to help future researchers interested in the subject matter and as
a basis for further reference.
1.8 Description of the study Area
Population: The total population of Somaliland is estimated 3.5 million; the majority of the
population lived in the rural areas as pastoralist and nomads 50%, while about 35% live in urban
cities or centers. The remaining 15% live outside of the country. (5)
Mainly in Europe and North
America. The average life expectancy for males is 50 years old, and for females 55. The
population is dispersed in Hargeisa, the capital city, and other main towns and cities such as
Burao, Borama, Berbera, Erigabo, Gabiley, Saylac and Las Anod.
Location: The Republic of Somaliland is situated in the Horn of Africa with boundaries defined
by the Gulf of Aden in the North, Somalia in the East and Southeast, the Federal Republic of
Ethiopia in the South and West, and the Republic of Djibouti to the Northwest.
Culture and language: Somali is the official language, including Arabic and English. It is
mandatory that Arabic be taught in schools and mosques, with English too being spoken and
taught in schools around the country. Somali is one of the Cushitic Languages of the Afro-asiatic
family.
Economy: The region’s main source of income comes from the export of livestock (camels,
cattle, goats, and sheep) to Saudi Arabia and the Gulf States through the port of Berbera. Produce
from agriculture are sorghum and maize, with the Hargeisa highland being best suited for dry-
farming, whilst the Haud region is more suitable for animal grazing. The economy of Somaliland
is estimated GDP $1.5 billion and the GDP per capital income $429 and the other sectors to
contribution is agriculture sector is 65%, industry is 10% and service is 25%.
Religious: Majority of the population consists of Sunni Muslims; Islam is the principle faith and
religion. Religion informs social norms and practice, such as women wearing a hijab (a veil
covering the body except for the hands and face) in public, and all Somalis abstaining from
gambling, the eating of pork, or drinking of alcohol, as is discouraged in Islam. 100% is Muslim
pure.
1.9 Limitation of Study
There is some of the limitation in the microfinance. Firstly there are little of institutions to
provide microfinance in Somaliland especially in Hargeisa. The government of our country there
is not making a strategic to developing a low-income people or young people because they bring
a many of family to living a low standard living.
There is not data with concerned microfinance because when visited to the ministry of finance
that was told there is not data of the microfinance.
The second constraint to this research was finance and time. The time allowed for the completion
of this work was short, coupled with the fact that other academic work were in progress.
Chapter two
Literature Review
2.0 What is microfinance?
Microfinance, according to (Otero, 1999) is “the provision of financial services to low-income
poor and very poor self-employed people”. These financial services according to (Ledgerwood,
1999) generally include savings and credit but can also include other financial services such as
insurance and payment services. (Schreiner & Colombet 2001) define microfinance as “the
attempt to improve access to small deposits and small loans for poor households neglected by
banks.” Therefore, microfinance involves the provision of financial services such as savings,
loans and insurance to poor people living in both urban and rural settings who are unable to
obtain such services from the formal financial sector.
“Microfinance is commonly associated with small, working capital loans that are invested in
microenterprises or income-generating activities” (Churchill & Frankiewicz2006). Such
microenterprises are often family owned and have less than five employees, sometimes based out
of the home, as for instance small retail kiosk, sewing workshops, carpentry shops and market
stalls (Whole Planet Foundation, 2009).
Today however microfinance is referred to more generally as the provision of financial services
to those excluded from the formal financial system (UNCDF, 2002). In the beginning the credits
that were given to poor were called micro credits or micro-lending, but soon it became clear that
also other financial services were used and needed by the poor which enlarged the micro credits
to “microfinance” (Kuzu, 2005).
"Microfinance can be broadly defined as: “The provision of small-scale financial services such
as savings, credit and other basic financial services to poor and low-income people”.
According to United Nation (UN)
The term "microfinance institutions (MFI‟s)" now, refers to a wide range of organizations
dedicated to providing these services and includes non-governmental organizations, credit
unions, cooperatives, private commercial banks, non-bank financial institutions and parts of
State-owned banks.”Poor people are not able to access loans from commercial banks normally
because of lack in guarantee and collateral. But there are many other reasons also involved for
which commercial banks were not willing to finance poor. These reasons are included that poor
have less education, no proper experience and training, high expenses on transactions of small
loans and lower rate of profit. (Mazher 2010).
2.1 Microfinance and microcredit.
In the literature, the terms microcredit and microfinance are often used interchangeably, but it is
important to highlight the difference between them because both terms are often confused.
(Sinha 1998) states “microcredit refers to small loans, where as microfinance is appropriate
where NGOs and MFIs supplement the loans with other financial services (savings, insurance,
etc)”. Therefore microcredit is a component of microfinance in that it involves providing credit
to the poor, but microfinance also involves additional non-credit financial services such as
savings, insurance, pensions and payment services (Okiocredit, 2005).
2.2 The History of Microfinance
Microcredit and microfinance are relatively new terms in the field of development, first coming
to prominence in the 1970s, according to (Robinson 2001) and Otero (1999). Prior to then, from
the 1950s through to the 1970s, the provision of financial services by donors or governments was
mainly in the form of subsidized rural credit programmers’. These often resulted in high loan a
default, high loses and an inability to reach poor rural households (Robinson, 2001). Robinson
states that the 1980s represented a turning point in the history of microfinance in that MFIs such
as Grameen Bank and BRI began to show that they could provide small loans and savings
services profitably on a large scale. They received no continuing subsidies, were commercially
funded and fully sustainable, and could attain wide outreach to clients (Robinson, 2001). It was
also at this time that the term “microcredit” came to prominence in development (MIX, 2005).
The difference between microcredit and the subsidized rural credit programmers of the 1950s
and 1960s was that microcredit insisted on repayment, on charging interest rates that covered the
cost of credit delivery and by focusing on clients who were dependent on the informal sector for
credit (ibid.). It was now clear for the first time that microcredit could provide large-scale
outreach profitably. The 1990s “saw accelerated growth in the number of microfinance
institutions created and an increased emphasis on reaching scale” (Robinson, 2001). (Dichter
1999) refers to the 1990s as “the microfinance decade”. Microfinance had now turned into an
industry according to (Robinson 2001). Along with the growth in microcredit institutions,
attention changed from just the provision of credit to the poor (microcredit), to the provision of
other financial services such as savings and pensions (microfinance) when it became clear that
the poor had a demand for these other services (MIX, 2005). The importance of microfinance in
the field of development was reinforced with the launch of the Microcredit Summit in 1997. The
Summit aims to reach 175 million of the world’s poorest families, especially the women of those
families, with credit for the self-employed and other financial and business services, by the end
of 2015 (Microcredit Summit, 2005). More recently, the UN, as previously stated, declared 2005
as the International Year of Microcredit.
2.3 Characteristics of microfinance
Microfinance gives access to financial and non-financial services to low-income people, who
wish to access money for starting or developing an income generation activity. The individual
loans and savings of the poor clients are small (Kodheka, 2003). Microfinance came into being
from the appreciation that micro-entrepreneurs and some poorer clients can be ‘bankable’, that
is, they can repay, both the principal and interest, on time and also make savings, provided
financial services are tailored to suit their needs. Microfinance as a discipline has created
financial products and services that together have enabled low-income people to become clients
of a banking intermediary. The characteristics of microfinance products include:
i. Little amounts of loans and savings and short- terms loan (usually up to the term of one year).
ii. Payment schedules attribute frequent installments (or frequent deposits) and Installments
made up from both principal and interest, which amortized in course of time.
iii. Higher interest rates on credit (higher than commercial bank rates but lower than loan-shark
rates), which reflect the labor-intensive work associated with making small loans and allowing
the microfinance intermediary to become sustainable overtime.
iv. Easy entrance to the microfinance intermediary saves the time and money of the client and
permits the intermediary to have a better idea about the clients’ financial and social status.
v. Application procedures are simple and short processing periods (between the completion of
the application and the disbursement of the loan).
vi. The clients who pay on time become eligible for repeat loans with higher amounts and the use
of tapered interest rates (decreasing interest rates over several loan cycles) as an incentive to
repay on time. Large size loans are less costly to the MFI, so some lenders provide large size
loans on relatively lower rates.
vii. No collateral is required contrary to formal banking practices. Instead of collateral,
microfinance intermediaries use alternative methods, like, the assessments of clients’ repayment
potential by running cash flow analyses, which is based on the stream of cash flows, generated
by the activities for which loans are taken.
2.4 Micro finance services
Micro finance Services refer mainly to small loans; savings mobilization and training in micro
enterprise investment services extended to poor people to enable them undertake self
employment projects that generate income (Onuaman, 2002). Micro finance came into being
from the appreciation that micro entrepreneurs and some poorer clients can be ‘bankable’, that is,
they can repay both the principal and interest, on time and also make savings, provided financial
services are tailored to suit their needs (Coetze, 2003)). Micro finance is perceived as the
provision of financial and non financial services by micro finance institutions (MFIs) to low
income groups without tangible collateral but whose activities are linked to income generating
ventures (Sinha, 2008). These financial services include savings, credit, payment facilities,
remittances and insurance. The non-financial services mainly entail training in micro enterprise
investment and business skills. There is also a belief that micro finance encompasses micro
credit, micro savings and micro insurance (CGAP, 2004). Micro finance is not a new
development. Its origin can be traced back to 1976, when Muhammad Yunus set up the Grameen
Bank, as experiment, on the outskirts of Chittagong University campus in the village of Jobra,
Bangladesh. The aim was to provide collateral free loans to poor people, especially in rural areas,
at full-cost interest rates that are repayable in frequent installments. Borrowers were organized
into groups and peer pressure among them reduced the risk of default (Khan& Rahaman, 2007).
In many cases, basic business skill training should accompany the provision of micro loans to
improve the capacity of the poor to use funds (UN, 2005).
2.5 Microfinance Services in the World
The current global youth population is very large. Of the world’s more than 3 billion people
estimated to be under the age of 25, approximately 1.3 billion are between the ages of 15 and 24.
Just under half of these young people live on less than two dollars a day, as estimated by the UN
(Youth Save, 2010). Yet young people the world over are aware of the inequities of the global
system, which leaves them vulnerable in many ways. Unemployment, especially amongst them,
also leads to high risk behavior – crime, drugs and spread of HIV/AIDs. Moreover in line with
most cultures in developing countries, the employed have to look after the unemployed extended
family members, thereby reducing their ability to save and opportunities for wealth creation that
is needed to spur economic growth. To this end, microfinance, the provision of a wide range of
financial services, has proved immensely valuable to poor people, especially the youth and
women on a sustainable basis. Access to financial services has allowed many families throughout
the developing world to make significant progress in their own efforts to escape poverty
(Onuman, 2005). The provision of credit has increasingly been regarded as an important tool for
raising the incomes of youths, mainly by mobilizing resources to more productive uses. As
development takes place, one question that arises is the extent to which credit can be offered to
the youths to facilitate their taking advantage of the developing entrepreneurial activities. The
generation of self-employment in non-farm activities for example, requires investment in
working capital. However, at low levels of income, the accumulation of such capital may be
difficult. Under such circumstances, loans, by increasing family income, can help the youth to
accumulate their own capital and invest in employment-generating activities (Schreiner, 2010).
2.6 Microfinance Services in Africa
Many diverse institutional models of micro financing are functioning in Africa, but most clients
are served by credit unions and co-operatives members sell (e.g. coffee, tea, cotton etc.) or the
nature of their employment (Onuman, 2005). In West and Central Africa however, savings and
credit cooperatives are generally more community-based. In contrast to Asia, the lack of
population density means that rural and agricultural finance is particularly challenging, and thus
many MFIs are urban-based and focused. Perhaps as a result the July 2003 Micro Banking
Bulletin identified only 8 sustainable institutions and estimated that only around 25 million
clients are being served throughout the continent. However, these numbers may under-estimate
or ignore the large numbers being served by cooperatives and postal banks. Nonetheless both
international and domestic banks are starting to take an interest in the potential of the low-
income market in Africa. The last twenty years have seen significant improvements in micro
financing through advances in understanding and providing financial services to better advance
development and eradicate poverty. This includes providing the financial means to save, access
credit, and start small businesses, with the potential to enhance community development, as well
as local and national policy making.
2.7 Impact of Microfinance
Microfinance institutions offer several services to their clients who in most cases are the
economically less privileged. According to Bennett (1994) and Ledgerwood (1999) microfinance
clients who are mostly men and women slightly below or above the poverty line can be able to
access variety of products and services which are mostly financial. Microfinance institutions
offer services to the low income earning groups because these groups are ignored by large
financial institutions since they are considered less profitable. Olaitan (2001) and Akanji (2001)
argue that products and services that make microfinance institutions different from large
financial institutions include increased provision of credit, increased provision of savings,
repositories and other financial services to low income earners or poor households.
The impact of microfinance can be described in a triangle where it has effect on financial
sustainability, outreach to the poor, and institutional performance/impact.
2.8 Microfinance and its impact in development
Microfinance has a very important role to play in development according to proponents of
microfinance. UNCDF (2004) states that studies have shown that microfinance plays three key
roles in development. It:
♦ helps very poor households meet basic needs and protects against risks,
♦ is associated with improvements in household economic welfare,
♦ helps to empower women by supporting women’s economic participation and so promotes
gender equity.
Otero (1999) illustrates the various ways in which “microfinance, at its core combats poverty”.
She states that microfinance creates access to productive capital for the poor, which together
with human capital, addressed through education and training, and social capital, achieved
through local organization building, enables people to move out of poverty (1999). By providing
material capital to a poor person, their sense of dignity is strengthened and this can help to
empower the person to participate in the economy and society (Otero, 1999). The aim of
microfinance according to (Otero 1999) is not just about providing capital to the poor to combat
poverty on an individual level, it also has a role at an institutional level. It seeks to create
institutions that deliver financial services to the poor, who are continuously ignored by the
formal banking sector. (Littlefield & Rosenberg 2004) states that the poor are generally excluded
from the financial services sector of the economy so MFIs have emerged to address this market
failure. By addressing this gap in the market in a financially sustainable manner, an MFI can
become part of the formal financial system of a country and so can access capital markets to fund
their lending portfolios, allowing them to dramatically increase the number of poor people they
can reach (Otero, 1999).while acknowledging the role microfinance can have in helping to
reduce poverty, concluded from their research on microfinance that “most contemporary
schemes are less effective than they might be” (1996). They state that microfinance is not a
panacea for poverty-alleviation and that in some cases the poorest people have been made worse-
off by microfinance. (Rogaly 1996) finds five major faults with MFIs. He argues that:
♦ They encourage a single-sector approach to the allocation of resources to fight poverty,
♦ Microcredit is irrelevant to the poorest people,
♦ an over-simplistic notion of poverty is used,
♦ there is an over-emphasis on scale,
♦ there is inadequate learning and change taking place.
2.9The impact of microfinance on poverty
There is a certain amount of debate about whether impact assessment of microfinance projects is
necessary or not according to (Simanowitz 2001). The argument is that if the market can provide
adequate proxies for impact, showing that clients are happy to pay for a service, assessments are
a waste of resources (ibid.). However, this is too simplistic a rationale as market proxies mask
the range of client responses and benefits to the MFI (ibid.) Therefore, impact assessment of
microfinance interventions is necessary, not just to demonstrate to donors that their interventions
are having a positive impact, but to allow for learning within MFIs so that they can improve their
services and the impact of their projects (Simanowitz, 2001). Poverty is more than just a lack of
income. (Wright 1999) highlights the shortcomings of focusing solely on increased income as a
measure of the impact of microfinance on poverty. He states that there is a significant difference
between increasing income and reducing poverty (1999). He argues that by increasing the
income of the poor, MFIs are not necessarily reducing poverty. It depends what the poor do with
this money, often times it is gambled away or spent on alcohol (1999), so focusing solely on
increasing incomes is not enough.
2.10.0 Islamic in microfinance
2.10.1 Mudarabah
Mudarabah has the potential to be adapted as Islamic microfinance scheme. Mudarabah is where
the capital provider or microfinance institution (rabbul mal) and the small entrepreneur
(mudarib) become a partner. The profits from the project are shared between capital provider and
entrepreneur, but the financial loss will be borne entirely by the capital provider. This is due to
the premise that a mudarib invests the mudarabah capital on a trust basis; hence it is not liable for
losses except in cases of misconduct. Negligence and breach of the terms of mudarabah contract,
the mudarib becomes liable for the amount of capital.Mudarabah structure could be based on a
simple or bilateral arrangement where Islamic bank provides capital and the micro-entrepreneur
acts as an entrepreneur.Mudarabah structure may also be based on two-tier structure or re-
mudarabah where 3 parties i.e. capital provider (public, government, zakat, waqf etc.),
intermediate mudarib (Islamic Bank) and final mudarib (micro entrepreneur).The profit-sharing
ratio on mudarabah is pre-determined only as a percentage of the businessprofit and not a lump
sum payment. The profit allocation ratio must be clearly stated and must be on the basis of an
agreed percentage. Profit can only be claimed when the mudarabah operations make a profit.
Any losses must be compensated by profits of future operations.After full settlement has been
made, the business entity will be owned by the entrepreneur. The entrepreneur will exercise full
control over the business without interference from the Islamic bank but of course with
monitoring. On the practical side, there is a problem to determine the actual total profit to be
shared because micro entrepreneurs normally do not have proper accounts or financial statement
(Dhumale & Sapcanin 1999).Meanwhile, muzara’ah is a form of mudarabah contract in farming
where Islamic bank can provide land or monetary capital for farming product in return for a
share of the harvest according to the agreed profit sharing ratio. In the context of microfinance,
the capital provider may need huge capital and expertise to manage such initiative and may need
to manage higher risk because the Islamic bank need to involve directly in the farming sector
through provision of asset such as land.In the case of mudarabah, the Islamic bank may face
capital impairment risk as loss makingoperations of micro entrepreneurs expose the Islamic bank
to the risk of capital erosion. In addition, since in mudarabah the Islamic bank should not request
collateral may expose Islamic bank to credit risk on these transactions. As part of risk mitigation,
even though the entrepreneur exercises full control, Islamic bank can still undertake supervision
(Iqbal & Mirakhor 1987).
2.10.2 Musharakah
Musharakah can also be developed as a micro finance scheme where Islamic bank will enter into
a partnership with micro entrepreneurs. If there is profit, it will be shared based on pre-agreed
ratio, and if there is loss, it will then be shared according to capital contribution ratio.
The most suitable technique of musharakah for microfinance could be the concept diminishing
partnership or musharakah mutanaqisah.
Musharakah Mutanaqisah
A: (Islamic Bank 80%) B: (Micro Entrepreneur 20%)
Another form of Musharakah is musaqat. Musaqat is a profit and loss sharing partnership
contract for orchards. In this case, the harvest will be shared among all the equity partners
(including entrepreneur as a partner) according to the capital contributions. All the Musharakah
principles will be applicable for this form of Musharakah.
This scheme, however, could be of high risk, since it needs the capital and expertise to directly
involve in the business especially in managing the orchards. Musharakah capital may also be
subjected to capital impairment risk, where the capital may not be recovered, as it ranks lower
than debt instruments upon liquidation (Haron & Hock 2007).
The normal risk mitigation techniques that can be adopted by Islamic banks are also applicable
in the case of microfinance i.e. through a third-party guarantee. This guarantee can be obtained
and structured for the loss of capital of some or all partners through the active role of the so
called Credit Guarantee Corporation (CGC) as practiced in the case of SME financing in
Malaysia.
2.10.3 Murabahah
Using murabahah as a mode of microfinance requires Islamic bank to acquire and purchase asset
or business equipment then sells the asset to entrepreneur at mark-up. Repayments of the selling
price will be paid on installment basis. The Islamic bank will become the owner of the asset until
the full settlement. This scheme is the most appropriate scheme for purchasing business
equipment. This mode of financing has already been introduced in Yemen in 1997.
In 1999, there are more than 1000 active borrowers [Dhumale & Sapcanin 1999]. Borrowers
must form a group of 5 micro entrepreneurs where all members will act as guarantor if there is
default among their group members. The benefit of this mode of financing is continuous
monitoring, and entrepreneurs with a good reputation of repayment will be offered extra loan
found to be more practical and most suitable scheme for Islamic microfinance to be provided by
Islamic banks. This is due to the fact that the buy-resell model which allows repayments in equal
installment is easier to administer and monitor. The above diagram indicates the application of
the extended concept of murabahah i.e. Murabahah to the Purchase Orderer. This is where a
micro-entrepreneur enters into a sale and purchase agreement, or memorandum of understanding
to purchase a specific kind of goods or equipments needed by the micro-entrepreneur with the
Islamic bank.
The Islamic bank then sells the goods to the entrepreneur at cost plus mark-up, and entrepreneur
can pay back later in lump sum or by installments (bai muajal). A number of shari’ah principles
must be met for the contract to be valid (Haron & Hock 2007).
Such as the goods must in existence at the time of sale; ownership of the goods must be with the
bank; the goods must have the commercial value; the goods are not be used for a “haram”
purpose; the goods must be specifically identified and known; the delivery of goods is certain
and not conditional upon certain other events; and, the selling price is fixed at cost plus mark up
Murabahah could be easily implemented for microfinance purposes and can be further
exemplified by the used of deferred payment sale (bai’ al-muajal). Murabahah, however, May
expose Islamic bank as in the case conventional lending to credit risk.
This, however, can be mitigated by requesting for an urboun, a third party financial guarantee, or
pledge of assets. In addition, Islamic bank can also institutes direct debit from the entrepreneur’s
account, centralizes blacklisting system, and minimum non-compounded penalty to deter
delinquent entrepreneurs. Murabahah to the Purchase Ordered also exposes Islamic banks to
delivery risk where goods are not delivered, goods not delivered on time, or goods delivered not
according to specification by the entrepreneur after payment is made by the Islamic bank. To
mitigate delivery risks, Islamic bank may request a performance guarantee from the seller to give
assurance on the delivery of goods.
2.10.4 Ijarah
Ijarah by definition is a long term contract of rental subject to specified conditions as prescribed
by the shari’ah. Unlike conventional finance lease, the less or (Islamic bank) not only
owned the asset but takes the responsibility of monitoring the used of asset and discharges its
responsibility to maintain and repair the asset in case of mechanical default those are not due to
wear and tear.
Ijarah Muntahia Bitamleek is an elaborate concept of ijarah where the transfer of ownership
will take place at the end of the contract and pre-agreed between the lessor and the lessee. The
title of the asset will be transferred to the lessee either by way of gift, token price and pre-
determined price at the beginning of the contract or through gradual transfer of ownership.
Ijarah Muntahia Bitamleek is more suitable for micro finance scheme especially for micro
entrepreneurs who are in need of assets or equipments. Islamic bank will purchase the assets
required by the entrepreneurs and rent the assets to qualified entrepreneurs.
In this case, the entrepreneurs can just rent the asset over a period of time and pay the rentals at
regular intervals. The entrepreneur as a lessee will be responsible to safeguard the asset whereas
the lessor will monitor their usage. For ijarah, the Islamic bank may be exposed to settlement risk
where the entrepreneur as a lessee is unable to service the rental as and when it falls due.
Similarly, the Islamic bank can request an urboun from the entrepreneur which can also be taken
as an advance payment of the lease rental. Alternatively, the Islamic bank as the owner of the
asset should has the right to repossess the asset.
2.10.5 Qard Al hasan
Qard al-hasan or interest free loan is one of the most advanced and suitable tools for
microfinance purposes. In principle, “Qard al-hasan” is a kind of borrowing of money that lender
does not have any expectation from borrower except the receiving the principle. In fact, Muslims
would use“Qardhul al-hasan” to help one another when they need financial help in order to
please Allah (Mirakhor & Iqbal, 2007). The only different between” Qard al-
hasan” and sadaqahis that sadaqah is pure charity and the giver does not have any expectation of
money but in qard al-hasan borrower must return back the principle within the agreed period of
time (Mirakhor & Iqbal, 2007).Qard al-hasan can be used as an instrument to provide fund for
micro financing to support small business and start-ups as it is less expensive compared to other
source of Islamic finance. The term of repayment can be agreed by installment in the certain
agreed period of time. The only extra charge for qard al-hasan is the service charge fee that
micro-finance institution is allowed to receive (Mirakhor & Iqbal, 2007).
2.11 Kaaba microfinance
Kaaba Micro finance Institution’s (K-MFI) is a financial service provider that aims to strengthen
the economic base of the low-income women and youth in Somaliland through loans and savings
service. The institution offers different kinds of help and combines cost-efficient methodologies
with a very high level of customer service.
K-MFI has been operating under Doses of Hope Foundation (DHF) a non-governmental
development foundation operating in Somaliland since 1998. The first micro finance began in
1999 micro finance project with 150 women beneficiaries; from 1999 to 2007 the microfinance
program has directly reached out 7000 beneficiaries, and has indirectly benefited another 38,000
out of which 80% are low-income women and youth. In partnership with Oxfam Novib, DHF
has in 2008 begun the transformation of the microfinance program into an independent
microfinance institution now known as Kaaba Micro finance institution (K-MFI).
The transformation process started with a seed capital of Euro 150,000 from Oxfam Novib and
culminated in the legal existence of K-MFI as a separate organization with its own registration,
management and structure in 2009. Since then K-MFI has gone through profound transformation
and has accessed financial services to 5076 clients from 2010 & 2013 alone, which is more than
double of its 2008 & 2009 of 1559 clients, thus fulfilling its overall objective to empower its
clients economically, and to contribute positively to the high unemployment rate of the country
through self-employment opportunities. K-MFI’s main goal is to provide financial services
primarily to the low-income women and youth in Somaliland to become self-reliant and serve as
agents of change in their respective communities. (Kaaba 2013).
2.12 What is meant by Job Creation?
Job creation is difficult to evaluate because it is difficult to measure. This report attempts to
survey a wide range of job creation strategies that policy makers can implement during times of
economic recession. The proverbial golden egg of job creation policies is the “net new job”—the
job that is created without displacing any other economic activity. While it is easy enough to
measure whether a new job has been created at the macroeconomic scale by looking at aggregate
data from the Bureau of Labor Statistics, it is very difficult to determine if
(1) The jobs created didn’t merely displace jobs in other locations or sectors, and
(2) If the jobs were created because of a specific policy. Throughout this report, this dilemma
emerges frequently; the theoretical mechanism for how a policy creates jobs may be well
understood, but data showing that it actually did create net new jobs is ambivalent at best or,
more commonly, simply nonexistent.
The process by which the number of jobs in an economy increases, Job creation often refers to
government policies intended to reduce unemployment. Job creation programs may take a
variety of forms. For example, a government may lower taxes and reduce regulation to make
hiring less expensive. On the other hand, a government may hire workers itself, for example, to
build a road.
2.13 Advantages of job creation
Shifting the focus to job creation has four advantages:
Employment is much easier to measure than unemployment. Measuring unemployment
involves subtle distinctions between individuals who are in the labor force and those
who are not: those counted as unemployed must say they are actively looking for a job;
yet in high-unemployment countries in particular, so-called discouraged workers stop
looking for work and remain uncounted. Conversely, many who claim to be looking
for work may be half-hearted about it, the more so as their prospects dwindle.
A second reason for trying to understand job creation better is that for any given level
of unemployment, faster job creation increases a country's output, and, among other
things, raises the ratio of workers to pensioners, thereby lowering the cost of its social
safety net.
Third, the insights gained from studying unemployment do not necessarily hold up
when the focus shifts to job creation. For example, laws, programs, or labor
agreements making it relatively difficult or expensive to lay off workers seem to have
no effect one way or the other on the unemployment rate. However, strong systems of
job protection appear to have a big effect in holding down job creation.
Finally, analyzing employment growth instead of experience with unemployment
offers richer results. Data on unemployment, for example, tell us nothing about the
kinds of jobs available in the workplace, or the terms under which workers hold them,
such as whether they are permanent or temporary, or full-time as opposed to part-time.
A look at these factors lets us assess, among other things, whether faster job creation in
the United States than in Continental Europe comes from historical conditions, such as
a much lower proportion of farm jobs or traditional manufacturing jobs, which have
been stagnant or declining in all advanced countries. This approach can also examine
the effects of women entering the workforce in larger numbers in recent years, and can
shed light on important policy questions, such as whether promoting part-time work
leads to higher overall job creation or merely cannibalizes full-time jobs.
2.14 The role of the public sector in Job creation
The current debates on job creation focus on various policy measures that essentially add up to
attempts to tinker with the market in a capitalist system, hoping to unlock resources and open up
initiatives for creating employment. Whilst such attempts are not too he dismissed, we should be
mindful of their shortcomings.
Public sector
The only source of capital reserves great enough to make a significant dent in the unemployment
statistics of our country, apart from what is in the hands of the largest capitalist enterprises lies
with the state. The public sector, which includes the parastatals, the public service and local
government, already makes up almost 50% of the economy. The crisis of the public sector is well
documented, but to argue that privatization and contracting out are measures that will assist in
solving this crisis is simply ridiculous. All this will lead to is reduced employment levels, and
will thus add to the burden of the government in terms of job creation.
Measures to reform the public sector must include:
Policy to reform the running state enterprises; and
Policy to inform the transformation of the public service and local government
administration
2.15 The Role of the Private Sector
Improving employment opportunities for young people requires a broad and concerted effort
from all stakeholders. While governments are primarily responsible for creating an enabling
environment for youth employment, employers – as major providers of jobs, and workers – as
direct beneficiaries, have an important role in the process. Action by employers and their
organizations to support youth employment can take several forms, which varies across countries
depending on national circumstances. These include:
2.16.1 Direct action concerning skills development and training
Employers and their organizations have a central role in the identification (and subsequent
design and implementation) of the appropriate education, training and general skills requirements
that economies need. Business has a clear interest in ensuring that education and training creates
the skilled labour force they will need for the future. As key customers of the education and
training system, business can help inform policy and practice across a variety of related issues.
Traditionally a great deal of efforts of employers worldwide have focused on equipping school
leavers, first-time jobseekers and young unemployed with the technical skills and attitudes that
are required from them to become more “employable” or “suitable” for the labour market.
Examples of interventions by employers in this area include:
Enterprises’ participation in national vocational training systems and training
programmers through interventions aimed at facilitating the transition of young people to
the world of work (e.g. enterprise-based training)
Measures to increase the number and scope of training opportunities for young people
within the private sector (e.g. campaigns geared towards businesses to create or expand
training places; joint efforts by employers and educational authorities to increase
vocational training places and apprenticeship places in enterprises)
Special training schemes organized by employers, individually or collectively, outside the
framework of national training systems in order to generate the skills required by a
specific industry or company, including schemes targeting disadvantaged youth.
Establishment of school-industry partnership arrangements in order to enhance the
relevance of education and easing young people transition from school to work (e.g.
workplace learning initiatives within the educational framework) (Anderson,2005)
2.16.2 Direct actions concerning job creation
Private sector growth is a key engine of job creation and more than ad hoc measures are required
to enable employers to create jobs for young people on a sustainable basis. In many countries,
however, employers, often through their organizations, are also implementing or pioneering a
number of initiatives to expand job opportunities for young workers, and to facilitate their
integration into the labour market. Examples of action in this area include:
Job facilitation and placement schemes to match young jobseekers with job offers from
companies (e.g. a job bank by an organization)
Use of government programmers’ and incentives to create new jobs for young people
(e.g. a Fund)
Mentoring of young entrepreneurs and business start-up assistance
Establishment of young entrepreneurs’ networks or support to ease access to enterprise
networks
2.16.3. Policy making and advocacy
The participation of employers and their organizations in the design, implementation and
evaluation of policies and programmers’ for youth employment has proven critical for enhancing
the relevance of interventions and make them more respondent to labour market requirements.
Employers, through their organizations, can also play an important role in raising-awareness,
generating and disseminating information, and mobilizing support around youth employment
issues. Some actions undertaken by employers in this regard include:
Participation in national tripartite policy-making bodies dealing with vocational
education and training and job creation (e.g. boards of educational and training
institutions; funding bodies for grant allocation to young entrepreneurs)
Contribution to policy and programmer’s development and implementation through
social dialogue and collective bargaining
Research into and dissemination of information on youth employment issues,
specifically with regard to private sector needs concerning skills and job requirements.
Promotional campaigns and other initiatives targeting different groups depending on
circumstances (e.g. young people, parents, schools, industry partners, etc.) using tools such as
advertisements, radio spots, television chat shows, videos, newspaper articles, job fairs In the
real word, action in each of the three main areas highlighted above is often intertwined, as the
examples contained in this tool show.
2.17 SOCIAL AND ECONOMIC BENEFITS OF JOB CREATION
2.17.1 Job creation is the best weapon in the battle against poverty. Unemployment is a major cause of poverty. Those who are unemployed are much more likely to be living
below the poverty line. Job creation is the best antidote for poverty—as cited above, it support saving,
diminishes debt accumulation, and supports spending.
2.17.2 Job creation improves income distribution and reduces inequality.
There is a direct relation between unemployment and inequality. Job creation promises to improve
income distribution and reduce inequality. The social benefits of decreased inequality have been well-
documented. Of particular significance are the ways in which inequality makes everyone worse off,
including the rich. Increased inequality can threaten democratic institutions and damage social cohesion.
Even the symbolic value of job creation at this time should not be underestimated.
2.17.3 Job creation can improve conditions and promote investment in the
poorest communities.
Job creation can result in improved economic and social conditions in the poorest areas. It is known that
low-wage workers tend to live in poorer communities and spend a larger portion of their income locally.
Thus, job creation will result in increased spending in the neediest regions, which can further increase
employment where unemployment is the highest and most burdensome. Lowering poverty rates will
increase the inducement to invest in poor neighborhoods, with a positive impact on economic and social
conditions.
2.17.4 Job creation can stimulate output, income, consumption and
Investment. Unemployment means lower output, income, consumption and investment. Job creation will increase
output and income, which will result in more consumption spending, and ultimately increase the
inducement to invest.
2.17.5 Job creation supports public and social goods and services.
As already stated, unemployment decreases tax revenues and puts extra demands on government
budgets as well as private agencies, resulting in less public and social goods and services. This
includes fewer people employed in these types of positions. By supporting healthy government
budgets, job creation supports public and social goods and services. In addition, some of the new
jobs can (and should!) directly support such services.
Chapter three
Research Methodology
3.0Variable defections
Microfinance is the provision of savings accounts, loans, insurance, money transfers and other
banking services to customers that lack access to traditional financial services, usually because of
poverty. Making small loans to individuals who lack the necessary resources to secure traditional
credit is known as microcredit.
Job creation the process by which the number of jobs in an economy increases. Job creation
often refers to government policies intended to reduce unemployment. Job creation programs
may take a variety of forms. For example, a government may lower taxes and reduce regulation
to make hiring less expensive. On the other hand, a government may hire workers itself, for
example, to build a road.
3.1Research design
The study will engage a descriptive correlation? Design in order to describe the role of
microfinance in job creation in Somaliland small and medium sized microfinance institutions
mainly in Hargeisa. This design is chosen because it will be easier and less time to the
researchers. Descriptive correlation research? Is popular in social science enables to show the
relationship between the variable of the study (dependent variable and in dependents variable).
Therefore, this design deeply interacts in describing the respondents in a form of qualitative and
quantitative approaches. This research will be analyzed in quantitative method and qualitative
method as well, because quantitative method is more objective in measuring data as
comprehensive way in forms of graphical methods.
3.2 Research population
The target population of this study will be 20 from the KAABA microfinance institution and
University of Hargeisa; these are project managers which this study directly affects, 9 of the
target population will be managers and workers, Also, a portion of this target population of 10
will be the students that study in the University of Hargeisa, where social development projects
are implemented, including local microfinance institutions.
The target population used in this study was drawn out the reports of KAABA microfinance
institutions and University of Hargeisa.
3.3 Sampling Technique
Systematic sampling technique will be employed when selecting respondents of this study. In the
University of Hargeisa and KAABA microfinance institution, the researcher will select one out
of every five students who cross the main gate of the University of Hargeisa, and the KAABA
microfinance the researcher will select one out of every two workers or managers.
3.4Sample Size
As the target populations of the study were many, a sample will be chosen from each category of
the population Table 1 below shows the respondents of the study with the following categories:
target population and sample size, percentage. The Slovenes formula is used to determine the
minimum sample size.
)(1 2eN
Nn
Where:
n = the required sample size
N = the known population size &
e = the level of significance (Which is given = 0.05)
Table 1
Respondents of the Study
Population target Sample size Percentage
Students 10 52.6%
Managers 5 26.3%
Workers 4 21.1%
Total 19 100%
3.5 Sampling Procedure
The target population of 20 which included the project managers and students, Being the
respondents are large a sample of 19 will be drawn out. So, this study will use stratified random
sampling as the social development projects are stratified in the KAABA microfinance
institution and students of University of Hargeisa. Then proportionate systematic random
sampling and purposive non-random sampling will used for the students.
3.6 Research instruments
Research instruments are the tools which the researcher uses to collect suitable data for his/her
research study. There are several research instruments; every research study has its own
instruments applicable to it.
This study will use a collection of instruments or tools for collecting facts and information from
different types of the respondents so as to become research more reliable and strong much trust,
so that instruments/tools will be used are questionnaires, observations and interview.
3.7Data collection procedure
The data collection procedure of this research will consists of both quantitative and qualitative
method by visiting target group study and the researcher will collect the data from sample size by
using questionnaires, observation and interview under a descriptive correlation research design to
obtain adequate and reliable information for the research paper.
3.8 Data analysis
The study will use quantitative data analysis at the end of each section; the data will be
summarized in one of the major appropriate applications, SPSS (Scientific Package for Social
Science). Also the data will be displayed in a calculated table and percentages as statistics
approaches the method of analyze the research strongly show descriptive relationship between
the variables of the study.
3.9 Ethical issues of the study
The study will take into account some of the following ethical issues which would lead the
researcher to be disqualified from conducting the research. Firstly, the issue of plagiarism, fraud,
confidentiality, voluntary consent among others was keenly observed by the researcher so that
the research conducted would be of value to the researcher and also the information obtained to
be of significant to the public in general.
Chapter Four
4.0 Data Analysis and interpretation
4.1 Introduction
This chapter explains analysis of the collected information and it concerned the questionnaires
and interviews that the researcher collect from the respondents during the data collection and it
shows in tables and graphs which is pie chart, par chart, the tables will contain numbers as well
as percentage of the alternative, and interpretation will be evaluating the finding and comparing
the results.
The questionnaires of this chapter are 20 questions and it mainly focuses on the role of
microfinance in employment creation there are 4 questions which have not directly related the
topic and the researcher didn’t illustrate as a table or graph because it does not give a more sense
about the topic and the analysis are as follows.
1. Gender of respondents
Shows that 58% of the respondents were male where as 42% of the respondents were female;
this shows that my questionnaires mostly were distributed male due to the randomly selected
method.
2. Age of the respondents
The respondent answered in different ages which are between 58% less than 25yrs, where 26-
35yrs.is 16%, were is 10% 36-45yrs, over 56yrs 10% and 5% 46-55yrs.
3. Marital Status
53% of the respondents were single and 47% were married, the most of respondents answered
single.
4. Level of Educations
58% of the respondents were university level where as 37% of the respondents were secondary
level. While the remaining respondents are others 5%
Q1-Do you work?
Frequency Percentage Valid Percent Cumulative Percent
Valid Yes 11 57.9 57.9 57.9
No 8 42.1 42.1 100.0
Total 19 100.0 100.0
Table 4.1
Table4.1and Chart4.1 shows that 58% of the respondents were yes, where as 42% of the
respondents were answered NO; this shows the most of respondent are worked.
Q2-Do you take enough salary?
Frequency Percentage Valid Percent Cumulative Percent
Valid Yes 9 47.4 47.4 47.4
No 10 52.6 52.6 100.0
Total 19 100.0 100.0
Table 4.2
This above chart and table 4.2 explains that 47% of the respondents answering Yes that they
take enough salary, where as 53% of the respondents were answering No they are not taking
enough salary. This means that mostly of the people are not taking enough salary.
Q3-what is your work?
Frequency Percentag
e
Valid Percent Cumulative
Percent
Valid manager 3 15.8 15.8 15.8
assistance 3 15.8 15.8 31.6
work 6 31.6 31.6 63.2
Others (please specify) 7 36.8 36.8 100.0
Total 19 100.0 100.0
Table 4.3
As the table and chart 4.3 above shows the respondents as managers16%, while 16% assistance,
where as 31% work and the remaining 37% were answering others, which means not work.
What is your level of experience?
Frequency Percent Valid Percent Cumulative
Percent
Valid Less than one year 7 36.8 36.8 36.8
1-3yrs 7 36.8 36.8 73.7
4-5yrs 2 10.5 10.5 84.2
over8yrs 3 15.8 15.8 100.0
Total 19 100.0 100.0
Table 4.4
As the table and chart 4.4 above shows that 8 respondents equivalent 42% less than one year
experience, while 6 respondents equivalent 32% answered 1-3yrs, where as 2 respondents
equivalent11% answered 4-5yrs, and 3 respondents 15% were answering over 8ys experience.
The most of respondents answered less than one year.
Q5-Do you have any microfinance institution to take a loan?
Frequency Percentage Valid Percent Cumulative Percent
Valid Yes 5 26.3 26.3 26.3
No 14 73.7 73.7 100.0
Total 19 100.0 100.0
Table 4.5
Table and chart 4.5 indicates that 5 respondents equivalent to 26 % answered yes, and 14
respondents equivalent 74% Respond answered No, this means the most of respondent do not
have any microfinance institution to take a loan.
Q6-What level of income?
Frequency Percentage Valid Percent Cumulative
Percent
Valid $50-$100 7 36.8 36.8 36.8
$150-$200 4 21.1 21.1 57.9
$250-$300 1 5.3 5.3 63.2
$350-$500 2 10.5 10.5 73.7
Others(please specify) 5 26.3 26.3 100.0
Total 19 100.0 100.0
Table 4.6
Table and chart 4.6 above shows that 7 respondents equivalent 37% were answered $50-100$,
while 4 respondents equivalent 21% answered $150-$200, where as 1 respondent equivalent 5%
were answered $250-$300, were 2 respondent equivalent11% answered $350-$500. And 5
respondents equivalent 26% were answered others.
Q7-Do you benefit by microfinance institution?
Frequency Percentage Valid Percent Cumulative Percent
Valid Yes 12 63.2 63.2 63.2
No 7 36.8 36.8 100.0
Total 19 100.0 100.0
Table 7
This above chart and table 4.7 explains that 63% of the respondents answering Yes, they
benefit by microfinance institution, where as 37% of the respondents were answering No, they
not benefit by microfinance institution. Means the majority of respondent answered were benefit
by microfinance institution.
Q8-If you obtain loan from MFI's what made you to seek financial assistance from the MFI's?
Frequency Percentage Valid Percent Cumulative
Percent
Valid Easy loan repayment 6 31.6 31.6 31.6
Good services 9 47.4 47.4 78.9
Other state 4 21.1 21.1 100.0
Total 19 100.0 100.0
Table 4.8
This above chart and table 4.8 explains that 32% of the respondents answered easy loan
repayment, they take easy loan repayment, and where as 47% of the respondents were answering
good services, 21% of respondent answered other state. The most of respondents answered good
service.
Q9-Do you face any challenges as a loan beneficiary from the MFI’s?
Frequency Percentage Valid Percent Cumulative Percent
Valid Yes 10 52.6 52.6 52.6
No 9 47.4 47.4 100.0
Total 19 100.0 100.0
Table 4.9
This above chart and table 4.9 explains that 53% of the respondents answering Yes, where as
47% of the respondents were answering No. This means that mostly of the respondent answered
a faced challenges as a loan beneficiary from MFI’s.
Q10-The job creation will increase income of the people?
Frequency Percentage Valid Percent Cumulative Percent
Valid Yes 13 68.4 68.4 68.4
No 6 31.6 31.6 100.0
Total 19 100.0 100.0
Table 4.10
This above chart and table 4.10 explains that 68% of the respondents answering Yes, where as
32% of the respondents were answering No. This means that mostly of the people answered the
job creation will increase income of the people.
Q11-Do you believe that micro-finance participates job creation?
Frequency Percentage Valid Percent Cumulative
Percent
Valid Strong agree 10 52.6 52.6 52.6
Agree 5 26.3 26.3 78.9
Disagree 2 10.5 10.5 89.5
Strong disagree 2 10.5 10.5 100.0
Total 19 100.0 100.0
Table 4.11
Table 4.11
As the table and chart 4.11, this shows that 52 % of the respondents strongly agree, where as
26% of the respondents agree, where as 10% and10% of the respondents disagree and strong
disagree respectively. The most of people answered that microfinance participate job creation.
Q12-Do you thing the microfinance participates increasing income of poor people?
Frequency Percentage Valid Percent Cumulative
Percent
Valid Strong agree 10 52.6 52.6 52.6
Agree 4 21.1 21.1 73.7
Disagree 3 15.8 15.8 89.5
Strong disagree 2 10.5 10.5 100.0
Total 19 100.0 100.0
Table 4.12
Table and chart 4.12 this shows that 53% of the respondents strongly agree, where as 21% of the
respondents agree, where as 16% of respondent disagree and10% of the respondents strong
disagree. The most of people answered the microfinance participation increasing income of poor
people.
Q13-Do you think the microfinance will increase job creation?
Frequency Percentage Valid Percent Cumulative
Percent
Valid Strong agree 7 36.8 36.8 36.8
Agree 8 42.1 42.1 78.9
Disagree 2 10.5 10.5 89.5
Strong disagree 2 10.5 10.5 100.0
Total 19 100.0 100.0
Table 4.13
As the table and chart 4.13, this shows that 37 % of the respondents strongly agree, where as
42% of the respondents agree, where as 11% and10% of the respondents disagree and strong
disagree respectively.
Q14-Do you believe the job creation will increase economy?
Frequency Percentage Valid Percent Cumulative
Percent
Valid Strong agree 9 47.4 47.4 47.4
Agree 7 36.8 36.8 84.2
Disagree 2 10.5 10.5 94.7
Strong disagree 1 5.3 5.3 100.0
Total 19 100.0 100.0
Table 4.14
Table and chart 4.14, This shows that 47 % of the respondents strongly agree, where as 37% of
the respondents agree, where as 11% of respondent disagree and10% of the respondents strong
disagree. The most of people answered the job creation will increase economy.
Q15-Do you believe the job creation will reduce unemployment?
Frequency Percentage Valid Percent Cumulative
Percent
Valid Strong agree 10 52.6 52.6 52.6
Agree 4 21.1 21.1 73.7
Disagree 3 15.8 15.8 89.5
Strong disagree 2 10.5 10.5 100.0
Total 19 100.0 100.0
Table 4.15
Table and chart 4.15, this shows that 53 % of the respondents strongly agree, where as 21% of
the respondents agree, 16% of respondents were answered disagree and10% of the respondents
strong disagree. The most of respondent answered the job creation will reduce unemployment.
Will The job creation reduce poverty?
Frequency Percentage Valid Percent Cumulative
Percent
Valid Yes 14 73.7 73.7 73.7
No 5 26.3 26.3 100.0
Total 19 100.0 100.0
Table 4.16
Chart and table 4.16 explains that 74% of the respondents answering Yes, where as 26% of the
respondents were answering No. This means that mostly of the people answered the job creation
will reduce poverty.
Chapter five
5.1Conclusion.
Microfinance as “the attempt to improve access to small deposits and small loans for poor
households neglected by banks.” Therefore, microfinance involves the provision of financial
services such as savings, loans and insurance to poor people living in both urban and rural
settings who are unable to obtain such services from the formal financial sector...
The term "microfinance institutions (MFI‟s)" now, refers to a wide range of organizations
dedicated to providing these services and includes non-governmental organizations, credit
unions, cooperatives, private commercial banks, non-bank financial institutions and parts of
State-owned banks.”Poor people are not able to access loans from commercial banks normally
because of lack in guarantee and collateral. But there are many other reasons also involved for
which commercial banks were not willing to finance poor. These reasons are included that poor
have less education, no proper experience and training, high expenses on transactions of small
loans and lower rate of profit.
Microfinance has a very important role to play in development according to proponents of
microfinance. States that study have shown that microfinance plays three key roles in
development. It:
♦ helps very poor households meet basic needs and protects against risks,
♦ is associated with improvements in household economic welfare,
♦ helps to empower women by supporting women’s economic participation and so promotes
gender equity.
Qard al-hasan can be used as an instrument to provide fund for micro financing to support small
business and start-ups as it is less expensive compared to other source of Islamic finance. The
term of repayment can be agreed by installment in the certain agreed period of time. The only
extra charge for qard al-hasan is the service charge fee that micro-finance institution is allowed
to receive.
Somaliland microfinance became independent in 1991. Since then, it has managed to restore
many aspects of normal society. However it has lost many citizens, people who fled to safe
countries and took another nationality. Doses of Hope (DoH) are an NGO that works in
Somaliland. It was started by three refugees in the Netherlands. It now has two main activities,
micro credit and a second section that assists disabled children and adults. Many disabilities are
the result of the Civil War.
Job creation the process by which the number of jobs in an economy increases. Job creation
often refers to government policies intended to reduce unemployment. Job creation programs
may take a variety of forms. For example, a government may lower taxes and reduce regulation
to make hiring less expensive. On the other hand, a government may hire workers itself, for
example, to build a road.
Still the government of Somaliland is not creating the financial and microfinance institutions
because the microfinance helps poor people and youth and also the microfinance play important
role in economy of country.
Many of the generation of Somaliland were migration in the European country that caused by the
unemployment. As we talk the government has used the tribalism. If you are going the
ministries, the workers are coming in tribalism if you have conversation with the workers.
I would like to make a job creation and reduce the unemployment of Somaliland because the rate
of unemployment is large. Every year many students graduated universities of Somaliland they
are looking a job and the job is not enough for the students, that bring that many of youth and
students were migrated in Europe, they wanted the relax life and job.
I would like to conclude my research to make a job creation and the institutions of the
microfinance, but the government of Somaliland is not making a plainly policy creating a job in
youth and low income people.
5.2 Recommendation
I would like to recommend the following point which I hope will be essential the role of
microfinance in job creation.
The government of Somaliland should be establishing microfinance institutions.
The governments have to plan a creation of job opportunities.
The job creations will eliminate unemployment and increased employment of country.
The microfinance institutions help a society such as youth, women and the low-income
people.
The microfinance institution of Somaliland are little, I would like to expansion in all
regions of Somaliland.
There is no risk microfinance activity.
The job creation will increase economy of the country and income of people.
The governments of Somaliland take part in development of the country such as job
creation and increased household income.
The microfinance institutions will eradicate a poverty that affected a country; I would
like to build a financial institutions and microfinance institutions to own a government
of Somaliland.
The job creation will cause the many people of unemployed to get a new job and
participation a full employment.
Reference
1. Www. Background of microfinance. (www.iilj.org/courses/FDmicrofinanceBackground)
2. Website www.europa.eu/rapid/press-release_IP-12-796_en.htm (July 17, 2012).
3. www.networklearning.org (2014).
4. doses of hope
5. Somaliland population.
6. Website www.dochas.ie/.../2/MicroFinance_literature_review.pdf.
7. Muhammad Ahmed Mazher (2010), Non-Productivity of Microfinance Loans in
Pakistan. Define microfinance.
8.
9. Islamic microfinance (http://www.academia.edu/11027247/A_Shariah_P
erspective_Review_on_Islamic_Microfinance) or Islamic Microfinance - Academia.edu.
10. Kaaba microfinance institution(2013).
11. Authors: Cray, Adam, Nguyen, Tram, Pranka, Carol, Schildt, Christine, Scheu, Julie,
Rincon Whitcomb, Erika, (2011). Job Creation: A Review of Policies and Strategies,
12. Peter Anderson, Employers’ Spokesperson, General discussion on youth employment,
International Labour Conference, 2005
13. Padraig O’Malley African Communist Journal Extracts - No 144 - Second Quarter 1996
14. Pietro Garibaldi is an Associate Professor of Economics at Bocconi University, Milan.
and Paolo Mauro is an Economist in the IMF's Research Department and was in the
European I Department when he coauthored WP/99/109. He holds a Ph.D. in Economics
from Harvard University. April 2000.
UNIVERSITY OF HARGEISA
FACULTY OF ECONOMICS
APPENDICES
AQUSTIONNAIARE ON THE ROLE OF MICROFINANCE IN JOB CREATION
Dear respondent,
I am a student at University of Hargeisa and I am carrying out a research study on the topic the role of
microfinance in job creation as a partial requirement for acquisition of bachelor’s degree...
I humbly seek your opinion on the issues in the questionnaire to facilitate the study about the role of
microfinance in job creation. Your opinion will be highly confidential and used for academic purposes
only.
Name of the researcher……………………………………………………………………………
SECTIION A: Department and respondents profile
1) What is your gender? (Tick as appropriate)
Male
Female
2) What is your age? (Tick as appropriate)
Less than 25 yrs.
26-35 yrs.
36-45 yrs.
46-55 yrs.
Over 56 yrs.
3) What is your marital status?
a) Single
b) Married
c) Windom
d) Divorced
4) What is your level of education?
a) Primary
b) Intermediate
c) Secondary
d) University
e) Others (please specify)………………………..
5) Do you work?
a) Yes
b) No
6) Do you take enough salary? (Tick as appropriate)
a) Yes
b) No
7) What is your work or job? (Tick where appropriate)
a) Manager
b) Assistance
c) Worker
d) Others (please specify)…………………………..
8) What is your level of experience in work?
a) Less than one year
b) 1-3 yrs.
c) 3-5 yrs.
d) 6-8 yrs.
e) Over 8 yrs.
9) Do you have any microfinance institution to take a loan? (Tick as appropriate)
a) Yes
b) No
10) What level of income?
a) $50-$100
b) $150-$200
c) $250-$300
d) $350-$500
e) Other (please specify)……………………..
11) Do you benefit by microfinance institution?
a) Yes
b) No
12) If you obtain loan from MFI’S what made you to seek financial assistance from the MFI’s?
a) Easy loan repayment
b) Good services
c) Other state…………………………………………………..
13) Do you face any challenges as a loan beneficiary from the MFI’s?
a) Yes
b) No
If yes state……………………………..
14) The job creation will increase income of the people?
a) Yes
b) No
15) Do you believe that microfinance participate job creation?
a) Strong agree
b) Agree
c) Strong disagree
d) Disagree
16) Do you thing the microfinance participates increasing income of poor people?
a) Strong agree
b) Agree
c) Disagree
d) Strong disagree
17) Do you thing the microfinance will increase job creation?
a) Strong agree
b) Agree
c) Disagree
d) Strong disagree
18) Do you believe the job creation will increase economy?
a) Strong agree
b) Agree
c) Disagree
d) Strong disagree
19) Do you believe the job creation will reduce unemployment?
a) Strong agree
b) Agree
c) Disagree
d) Strong disagree
20) Will the job creation reduce poverty?
a) Yes
b) No