CHAPTER THREE

METHODOLOGY

3.0 Introduction

This chapter presents the methods employed in data collection and analysis. Specifically the
research design, study population, sample size, sample design, data sources, data collection
procedures, Data collection instruments, data processing and analysis.

3.1 Research Design

The study opted to descriptive research design where both qualitative data will be employed to
gain an in depth understanding of credit rationing on loan repayment performance of VISION
FUND Micro finance. Qualitative data helped to draw conclusions and recommendation; if
further enabled the understanding of effectiveness and efficiency of the credit rationing while
quantitative design will be used to evaluate facts from the field

3.2 study population

The population of the study was consist of 70 respondents who be in position to give first hand
information relating to the relationship between credit rationing and loan repayment performance
in Vision Fund, Soroti as a case study. They will include loan officers, loan assistants,
microfinance members and clients.

3.3 sampling size

The sample size of 70 resp0ondents was used because they are relevant to the study questions.

Table 1: shows the composition and response rate of respondents

Respondents No. of samples Percentage%

Loan officers 4 6
Loan assistants 6 9
Microfinance members 20 28
customers 40 57
Total 70 100

Source; Primary data.

3.4 sampling Design

The research used stratified random sampling technique during the study. Stratified random
sampling is a process of sample selection which involves dividing the population into none
overlapping groups called strata or selecting the sample from stratum using a simple random
technique. The choice was made in order to enable the researcher to get adequate representation
of the whole population. With a stratified random sampling, the sample can be kept small
without losing its accuracy. Besides this, the characteristics of each stratum can be estimated and
hence comparison between the variables is easily made. This is because it is not possible to
survey the entire population due to financial and time constraint.

3.5 Data Types and sources

The researcher used both primary and secondary data sources to obtain data for the impact of
credit rationing on loan repayment performance. Primary data will be collected by the use
questionnaires and secondary data was got from reports and the internet.

3.5.1 Primary Data

This is where data was collected from VISION FUND microfinance, SOROTI because the
sources select has first hand accurate and reliable data.

3.5.2 Secondary Data.

The source comprised of a review of compiled reports, journals, text books and previous research
of successful researchers. This aimed at supplementing on the primary data to enable the
researcher obtain information.

3.6 Data collection Methods

The major techniques that were used to collect data from the respondents were the use of semi
structured questionnaires which are largely closed ended questionnaires. This was done with the
help of the researcher or a chosen person’s guide to cater for persons who are in hurry or those
who might not understand what exactly the question meant and those that the researcher thought
should provide more information that questionnaires ask for.

Questionnaires

These are formalized sets of questions with mainly closed ended or structured questions and a
few open ended or unstructured questions on credit rationing and loan repayment performance
which the researcher organized in various copies and gave them to selected respondents who
read and wrote especially customers and employees of VISION FUND microfinance, SOROTI
to provide appropriate answers. The method is advantageous because it gives time for
respondents to answer it easily in their free time, it is less costly in terms of time since it requires
a tick or a few expressions and it will enables the researcher to acquire more data from the
respondents.

Interview method

This method required the researcher to design interview questions, similar questions were asked
to each respondents and answers were written down by the researcher. This method gives first
hand information is collected, there is low chance of biasness in the data collected and it creates
close relationship between the researcher and the respondents.

Interview guides

These were formalized set of questions with mainly open ended questions which remained with
the researcher, whereby she read the questions to the selected respondents and recorded their
answers. They were administered to respondents who could read and write. The method is
beneficial because it answers were obtained immediately the questions were asked and recorded,
held attentions of respondents which enabled them to provide reliable information and questions
were clarified and obtained appropriate answers.

Documentary review
This is where the researcher was assessing data on already used microfinance documents which
she already had access to especially receipts and vouchers and then newspapers data on credit
rationing and loan repayment performance were used. This method gives appropriate data was
obtained from existing used documents inform of forms, reports receipts and vouchers among
others, detailed data on study variables ,and credit rationing and loan repayment performance
was obtained.

Interview

This was face to face interaction of the researcher and some selected respondents especially
some customers who could not read and write to obtain data on credit rationing. The researcher
read the questions to the respondents and then recorded their answers during the exercise. this
method gave detailed data was obtained as respondent expressed their opinions on the study
variables, attention of respondents was had and provided reliable answers and physical friendly
approach from the researcher to the respondents enables her to obtain appropriate answers from
them.

3.7 data collections procedures

The researcher identified a research topic as the impact of credit rationing on the loan repayment
performance and submitted it to supervisor for approval then she wrote a proposal that guide her
in writing the questionnaires and interview guide. She then got an introductory letter from the
research coordinator of Uganda College of commerce, Tororo which she presented to the
management of VISION FUND microfinance, SOROTI for permission to obtain data in their
firm. The researcher distributed the questionnaires to different respondents and picked them later
when fully filled and then complied, analyzed and computed the data in organized manner. The
first draft of research was compiled and submitted to the supervisor for approval and after
approval with few adjustments the final copy was complied, bind and submitted to the supervisor
who in turn handled to the researcher supervisor for final submission to UBTEB.

3.8 data processing and analysis

3.8.1 Data processing

The collected data was sorted, coded, edited and put in table using frequencies and percentages.
3.8.2 Data analysis.

Quantitative data was got by concluding views and opinions of respondents. The quantitative
data was analyzed using the Pearson’s correlation coefficient as a statistical method explained by
the following formula.

R = n∑xy-∑x∑y

√ [[n∑x2-(∑x)2][n∑y2-(∑y)2]

R=Pearson’s correlation value

X=independent variable value

Y=dependent variable value

∑=summation of values

N=number of pairs observed

 Chapter four

Data presentation, analysis, interpretation and discussion of findings

4.0 Introduction

This chapter presents data and gives interpretations and analysis of the findings. The
interpretation and analysis of the findings was used to clearly give a solution to the problem in
this chapter, percentages and frequencies, tables were used to analyze the data.

4.1 Demography of the respondents.

The study based on the study population of 70 respondents consisting of a cross section of loan
officer’s loan assisatnats, microfinance members and clients. The population of the study will be
in position to give first hand information relating to the relationship between credit rationing and
loan repayment performance in VISION FUND microfinance, SOROTI as a case study.
However, the researcher managed to get all the70 respondents. This was due to the easy schedule
of the microfinance meetings. The data was sought about sex, age group, length of stay in the
Sacco, educational level and position of the respondents in the microfinance.

4.1.1: Demography of the respondents

Response Frequency Percentage%

Male 53 76
Female 17 24
Total 70 100
Source: Primary data

Table 2 shows that 76% of the respondents are males and 24% are female. This implied that the
majority of respondents are males.
Table 4.1.2: Age bracket of the respondents

Responses Frequency Percentage%

Below 30 years 40 57
31-40 years 18 26
Above 41 years 12 17
Total 70 100
Source: Primary source

The results in table 3 indicate that the majority of the respondents (57%) are below 30 years,
26% are between 31-40 years, while 17% are above 40 years.

Table 4.1.3: Academic qualification of the respondents

Responses Frequency Percentage%

Masters 0 0
Degree 35 50
Diploma 20 29
Certificate 15 21
Total 70 100
Source: Primary data
Majority of the respondents (50%) revealed that they had attained degrees, 29% noted that they
had attained diplomas and only 215 passed certificates and none had masters. This implies that
the respondents had the knowledge of what the study was about.

Table 4.1.4: The position of respondents in the microfinance

Position Frequency Percentage%

Loan officer 4 6
Loan assistant 6 9
Microfinance members 20 28
Clients 40 57
Total 70 100

Source: Primary data

Results in table 5, shows that 6% are born officers, 9% are loan assistants, 28% are microfinance
members, and 57% are clients of microfinance. This implies that VISION FUND microfinance
has more clients to run the business.

Table 4.1.5: Duration of respondents in VISION FUND microfinance

Years Frequency Percentage%

Less than a year 10 14
1-3 years 36 51
4-6 years 18 26
Above 6 years 6 9
Total 70 100
Source: Primary data

Regarding the experience of most of the respondents, 14% have worked for less than 1 year 515
for 1-3 years, 265 for 4-6 years and 9% for above 6 years. This implies that they were the
respondents with the right information needed for the study
4.1.6: Credit rationing behavior is influenced by borrower‘s observable characteristics.

Response Frequency Percentage

Strongly agree 30 43
Agree 15 21
Strongly disagree 0 0
Disagree 0 0
Not sure 25 36
Total 70 100

Source: Primary data

According to the above table 43% of the respondents strongly agreed that rationing behavior is
influenced by borrower’s observable characteristics, while 36% were not sure.

Table 4.1.7: Credit rationing behaviour is categorized into screening evaluation and
quantity rationing state

Response Frequency Percentage%

Strongly agree 25 36
Agree 154 21
Strongly disagree 0 0
Disagree 18 26
Not sure 12 17
Total 70 100
Source: Primary data

According to the table above, 64% of the respondents strongly agreed that credit rationing
behavior is categorized into screening evaluation and quantity rationing state, while 21%
disagreed about the idea.

Table 4.1.8: Credit rationing originates from a leaders inability to classify applicants
Response Frequency Percentage%
Strongly agree 25 36
Agree 15 21
Strongly disagree 0 0
Not sure 18 26
Total 12 17
70 100
Source: Primary data

There is strong evidence (56%) that credit rationing originates from a leaders inability to classify
loan applicants, while 17% were not sure.

Table 4.1.9: The value of collateral influences credit rationing

Response Frequency Percentage%

Strongly agree 50 72
Agree 12 17
Strongly disagree 8 11
Disagree 0 0
Not sure 0 0
Total 70 100
Source: Primary data

As shown in the table 72% of the respondents strongly agreed that the value of collateral
influence credit rationing while 11% strongly disagreed.

4.4 Loan repayment performance

Table 4.1.10: There is a loan repayment default due to lack of business knowledge.

Response Frequency Percentage%

Strongly agree 45 64
Agree 15 21
Strongly disagree 0 0
Disagree 10 14
Not sure 0 0
Total 70 100
Source: Primary data

According to the table above, 64% strongly agreed that there is loan repayment defaults due to
lack of business knowledge, while 14% disagreed.

Table 4.1.11: VISION FUND microfinance monitors and enforces loan repayment

Response Frequency Percentage

Strongly agree 30 43
Agree 15 21
Strongly disagree 0 0
Disagree 0 0
Not sure 25 36
Total 70 100
Source: Primary data

As shown in the table above, 43% of the respondents strongly agreed that the VISION FUND
microfinance monitors and enforces loan repayment while 36% are not sure.

Table 4.1.12: Inability of borrowers to repayment of loans collected influence loan

repayment performance

Response Frequency Percentage%

Strongly agree 30 43
Agree 15 21
Strongly disagree 0 0
Disagree 0 0
Not sure 25 36
Total 70 100
Source: primary data

According to the table above, 43% of the respondents strongly agreed that inability of borrowers
to repayment of loans collected influence loans collected influence performance, while 36%
were not sure.

Table 4.1.13: Borrower’s characteristics determine loan repayments that affect the
willingness of payment

Response Frequency Percentage%

Strongly agree 50 72
Agree 12 17
Strongly disagree 8 11
Disagree 0 0
Not sure 0 0
Total 70 100
Source: primary data

As shown above, 72% of the respondents noted that borrower’s characteristics determine loan
repayment that the willingness of payment, while 11% strongly disagreed factor during
repayment.

4.5 Relationship between credit rationing and repayment performance

Table 4.1.14: Effective credit rationing enhances loan repayment performance

Response Frequency Percentage

Strongly agree 47 67
Agree 13 19
Strongly disagree 0 0
Disagree 10 14
Not sure 0 0
Total 70 100
Soursce: primary data

From table 4.2.14, 47% of the respondents strongly agreed that effective credit rationing

Enhances loan payment performance, while 14% disagreed about the relationship.

Table 4.1.15: VISION FUND microfinance apply credit rationing to slow the demand for
the credit hence reflecting high loan repayment performances

Response frequency Percentage%

Strongly agreed 58 83
Agree 12 17
Strongly disagreed 0 0
Disagree 0 0
Not sure 0 0
Total 70 100
Source: primary data

Table 4.2.15 showed that all the respondents (100) accepted that VISION FUND microfinance
apply credit rationing to slow the demand for credit hence reflecting the highly payment
performances.

This implied that VISION FUND microfinance apply credit rationing to slow the demand for
credit to improve on the high loan repayment performances.

Table 4.1.16: Vision Fund used credit rationing to improve on loan repayment
performance

Response Frequently Percentage %

Strongly agree 31 44
Agree 16 23
Strongly disagreed 19 27
Disagree 0 0
Not sure 4 6
Total 70 100
Source: primary data

According to the above table, 44% of the respondents strongly agreed that microfinance use
credit rationing to improve on loan repayment performance, While 6% were not sure.
Table 4.1.17: Credit rationing imperfect information leads to poor to loan repayment
performances

Response Frequency Percentage %

Strongly agree 21 30
Agree 2 3
Strongly disagreed 0 0
Disagreed 39 56
Not sure 8 11
Total 70 100
Source: primary data

The above table showed that 30% of the respondents strongly agreed that credit imperfect
information lead to poor repayment performance, While 11% were not sure

4.6 Conclusion

According to the findings above, credit rationing is mostly used in Vision Fund to improve on
loan repayment performance. For example the majority of the respondents 44% of the strongly
agreed and 23% agreed that microfinance use credit rationing to improve on loan repayment
performance, 27% strongly agreed and 6% were not sure

CHAPTER FIVE

DISCUSSION OF FINDINGS, RECOMMENDATIONS AND CONLUSION

5.0 Introduction
This chapter presents the discussion of findings as analyzed in chapter four. It also presents the
information in accordance to the objectives on credit rationing and loan repayment performance
in VISION FUND microfinance. Included is the conclusion relating to the findings,
recommendation and areas for further research.

5.10 Summary of the findings

Findings from the study indicates that loan repayment performance is very well seen to be highly
attributed to the level of credit rationing carried out by the management of Vision Fund amidst
internal and external factors like sensitization and education, economic and political stability
among others. The general characteristics of the respondent gives a clear impression that loan
repayment performance is at a fore front of the microfinance objectives. Majority of the
employees are equipped with the knowledge regarding credit rationing improvement and loan
repayment performance. With that 50% are university degree holders, 21% certificate and 29%
hold diplomas.

5.1.1 Summary of findings on credit rationing

Findings indicated that credit rationing behavior is influenced by borrower`s observable

characteristics; majority of the respondents (43%) said that credit behavior is influenced by
borrower`s characteristics. Findings show that 64% of the respondents strongly agreed credit
rationing behavior is categorized into screening evaluation and quantity rationing state. This
findings are in line with Lapper (2008) who said that the bank`s credit rationing behavior may
theoretically be influenced by a number of factor which include the borrower`s observable
characteristics like age, gender, wealth, experience, credit history and firm

Characteristics like business experience, risk profile, earnings and loan characteristics like
amount demanded loan maturity, collateral offered, and interest rate.
There is strong evidence of that credit rationing originates from a lenders inability to classify
loan applicants. However, most respondents agreed that credit rationing is employed in VISION
FUND microfinance.

5.1.2 Summary on loan repayment performance

From the findings, it shows that 64% strongly agreed that there is loan repayment defaults due to
lack of business knowledge. Findings show that 43% of the respondents strongly agreed that the
Sacco monitors and enforces loan repayment knowledge, inability of borrowers to repayment of
loans collected influence loan repayment performance. This was in agreement with Amendariz
and Marduch (2010) who said that the most wide spread product, microcredit, has standardized
features short-term duration, small weekly installments, starting right after loan disbursement,
compulsory savings, progressive lending and zero tolerance policy towards default. These
features are indeed efficient for enhancing clients; monitor the use of funds or enforcement
repayment.

From the findings, it can be generally concluded that VISION FUND microfinance ensures
appropriate credit rationing for VISION FUND microfinance. 725 of the respondents noted that
borrower’s characteristics determine loan repayment that affect the willingness of payment.

5.2.3 Summary of findings on credit rationing and loan repayment performance

Results from analysis of findings revealed that credit rationing function has effect on the loan
repayment performance of Vision Fund. Findings show that 47% of the respondents strongly
agreed that effective credit rationing enhance loan repayment performance, since the majority of
the respondents accepted.

Results from Spearman`s correlation coefficient between credit rationing and loan repayment
performance of VISION FUND microfinance establishes the effect of the credit rationing on
performance of loan repayment. The findings are in agreement with Stiglitiz (2001) analyzes,
due to the credit rationing, among loan applicants who appear to be identical some receive a loan
and others don’t even if they offered to pay a higher interest rate, or there are identifiable groups
of individual who with a given supply of credit are unable to obtain loan at any interest rates,
even though with a large supply of credit, they would which force Vision Fund to use credit
rationing to improve on loan repayment performance.

5.2 Conclusions

Considering the discussion above, credit rationing in will be seen to decrease due to the weak
relationship implying that credit rationing. If Vision Fund microfinance is not greatly attributed
to the credit rationing aspects carried out by the management and employees of Vision Fund,
credit rationing has been achieved fundamentally due to the advent of credit rationing expertise.

Conclusively, credit rationing is a worthwhile to venture and putting in more resources to

enhance and frame a better loan repayment in Vision Fund and other departments that share the
strategies for their better being and optimism.

5.3 Recommendations.

The following measures and suggestions should be taken into consideration so that credit
rationing can foster loan repayment in Vision Fund.

 The Vision Fund should mention the existing credit rationing so as to influence
borrowers behaviors to repay loans.
 Management should be trained on how to screen their clients and be aware of the defaults
in then customers.
 Management should ensure strict adherence to the Vision Fund policies and guidelines
regarding the loan repayment performance.
 The benefits that accrue from application of credit rationing should be adequately
analyzed.
 The organization should ensure that the embracement of credit rationing assists in
establishing better loan repayment performance and relationship.

5.4 Limitations of the study and Delimitation

Most respondents were not willing to give out some vital data that they considered confidential
however, the researcher overcame this problem by assuring them the purpose of the study that
was purely academic.
The researcher faced problem of slow responses since Vision Fund was very busy where most
workers are all the time serving customers and had less time to attend to the researcher but the
researcher tied to solve this by giving more time to the employees and clients.

The exercise required a lot of fund which were insufficient during the study. However, the
researcher solved this by seeking more finance from friends and other family members.

The researcher also faced a problem of limited literature views especially on loan repayment
performance. However the researcher managed to consult other successful researchers and
visiting libraries of neighboring institutions and schools.

5.5 Area for future research.

The following area has not been addressed by this research report and is therefore open to any
willing researcher for further studies about the marketing system.

 The impact of credit rationing on organizational performance.

 The role of managers on the performance of microfinance intuitions.
 Relationship between credit rationing and performance of SMEs.

5.6 examining the impact of credit rationing on loan repayment oerfiamcance in VISION FUND
microfinance,SOROTI.

THE EXAMINATION OF THE IMPACT OF CREDIT RATIONIGN ON TH A LOAN

REPYAMNET OF PR IDE MICROFINANCE WAS PERFORMED using pearson’s correlation
coefficicent which was performed to establish the relationship between the credit rationing and
loan repayment of VISION FUND microfiance.the correlation was from tbale 9 credit rationing
originates froma lenders inability to classify loan applicants (x) and table 11 there is loan
repayment defaults due to lack of business knowledge (y).these ranging from strongly
agree(SA),agree (A),strongly disagree (SA),DISAGREE (D)and not sure (NS).

Table 2:pearson’s correlation on the impact of credit rationing on laon repyamnet performance in
VISION FUND microfiance ,SOROTI.

Details X Y X2 Y2 XY
SA 25 45 625 2025 1125
A 15 15 225 225 225
SD 0 0 0 0 0
D 18 10 324 100 180
NS 12 0 144 0 0
Total 70 70 1318 2350 1530
Source:primary data.

R = n∑xy - ∑x∑y

√[∑x2-(∑x)2][n∑y2 –(∑y)2]

R= 5[1530] – [70x70]

√[5x1318-702][5x2350 -702]r

R= 2750

√-5160

R = -0.328

From the information ,it can be observed that there is aweak negative relationship between credit
rationing and loan repayment in VISION FUND microfiance,SOROTI with a correlation of -
0.328.

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Uganda college of commerce,tororo

The impact of credit rationing on loan repayment performance

In pride microfinance in iganga

Questionnaire.

Dear respondents

I am guuto Magdalene a student of Uganda college of commerce tororo,accounting and finance

deparment,pursuing a diploma in Uganda diploma in business studies (udbs).

Am carrying out a research study on “the impact of credit rationigni on laon repayment
perfoamnce”,you have been selected to volunteer in the study as a respondent.your viewas will
be kept and tretated as confidential only for the study. I appreciate evry contribution that you
make in furthering this research endeavor,thank you for your time and cooperation.

Section a:background of the respondents.

1. Gender:male female
2. Age bracket
a)below 30 yaers b)31-40 years c)above 41 years

3. academic qualification:

a)masters b) Degree

c Diploma d Certificate

If others specify

4.Position held

a) loan officer
b)Loan assistant

c) Sacco member

d) Client

If any other specify

5. How long have you worked with pride microfinance?

Less than a year 1-3 years 4-6 years Above 6 years

SECTION B: CREDIT RATIONING

1. Please tick the appropriate information and factors that influence credit rationing

Statements Strongly Agree Not sure disagree Strongly

agree disagree
Credit
rationing
behaviour is
influenced by
borrower’s
observable
characteristics

Credit
rationing
behaviours is
categorized
inot screening
evaluation
 and quantity
rationing
state.
Credit
rationing
originates
from a
lender’s
inability to
classify lona
applicants.
Value of
collateral
influence
credit
rationing

Section c: loan repayment perfoamnce.

1. Please tick the most appropriate level of loan repayment perfoamnce.

Leve of loan Strongly agree Not Disagree Strongly

repayment perfoamnce agruee sure disagiree
There is loan
repayment defaults
due to lack of business
knowledge.
Microfinance monitor
and enforce loan
repayment.
Inability of borrowersa
 to repay amount of
loans collected
influence loan
repayement
perfoamnce.
Borrowerl’s
characterics determine
loan repayment that
affects the willingness
of payment.

Section d:the relationship between credit rationing and loan repayment perfoamnce.

1. Please tick what is the appropriate relationship between credit rationing and loan
repayment perfoamnce.

Relationship Strongly Agree Not Disagree Strongly

agree sure disagree
Effective credit
rationing enhances
loan repayment
perfoamnce
Microfinance apply
credit rationing slow
the demand for
credit hence
reflecting a high loan
repayment
perfoamnce.
Microfiance use
credit rationing to
improve on loan
 repayment
perfoamnce.
Credit rationing
imperfect
informationlead to
poor loan repayment
perfoamnce.

Thank you for your cooperation.

Appendix B: Proposed budget

Proposed budget

Particulars Amount
Typing and printing 130000
Binding 50000
Photocopying 15000
Transport 30000
Airtime 5000
Miscellaneous 15000
Total 255000
TIME FRAME

Time Period Activity

April 2018 Identification of the research problem
May 2016 Formulation of the research topic and approval
by the academic supervisor
May - June 2018 Writing of chapter one, two and three
June - July 2018 Writing and distribution of questionnaires to
the case study
August 2018 Collection of the questionnaires to the case
study
September – October 2018 Writing of chapter four and five
December 2018 Submission of the final research report to
UBTEB

ABSTRACT

The research topic was to investigate on the impact of credit rationing on loan repayment
performance in pride microfinance, Iganga.

The report contained the cover page, declaration, acknowledgement, list of tables, and list of
figures and abstract

Chapter one includes introduction, background of the study, statement of the problem, objectives
of the study, research questions, scope of the study, significance of the study,statement of the
problem,objectives of the study,reaserch questions,scope of the study,significance of the study.

Chapter two; this chapter covers a related literature review on the study variables covering the
meaning of credit rationing,factors of credit rationing,loan repayment perfoamnce and the level
of loan repayment,relation between credit rationgin and loan repayment and the conclusion

Chapter two; This chapter covers a related literature review on the study variable covering the
meaning of credit rationing, factors of credit rationing, loan repayment and the level of loan
repayment, relationship between credit rationing and loan repayment and the conclusion.
Chapter three; introduction, research design, the study population, sampling design, data, sources
which included both primary and secondary source,, data collection instruments, which included
questionnaire, interview guide, documentary review, interview, data analysis and presentation,
study sample and limitation of the study.

n∑xy - ∑x∑y
R=
√[ n∑x2 – (∑x)2][n∑y2 – (∑y)2]
R= Pearson’s correlation coefficient value
X=independent variable value

Y= dependent variable value

∑=summation of values

N=number of pairs observed