Tadael Wakgari

ADDIS ABABA UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS

MASTERS OF BUSINESS ADMINISTRATION PROGRAM
Determinants of Performance of Employees Savings and Credit associations

in Ethiopia (A case study of ETHIO TELE COM)
A Thesis Submitted for the Partial Fulfillment of the Requirements for Degree of
Masters of Business Administration (MBA) in Finance.
By: Tadael Wakgari
Adviser: Abebaw Kassie (PhD)
June, 2017 G.C
Addis Ababa
Ethiopia
Determinants of Performance of Employees Savings and Credit associations in Ethiopia
DECLARATION
STUDENT’S DECLARATION
This is my original work and has not been presented for a degree in any other university.
Sign: ……………………………………….. Date: ………………………
Tadael Wakgari Wakuma
REG NO: - GSE/1476/07
ADVISOR’S DECLARATION
This Project has been submitted for examination with my approval as university advisor
Sign: ……………………………………...... Date: ………………………….
Adviser: Abebaw Kassie (PhD)
EXAMINERS’ DECLARATION
The thesis prepared by Tadael Wakgari with the title “Determinants of Performance of
Employees Savings and Credit associations in Ethiopia (A case study of ETHIO TELE COM)”
and submitted in partial fulfillment for Masters of Business Administration in Finance, complies
with the regulations of the university and meets the accepted standards with respect to originality
and quality
Internal Examiner: Alem Hagos (PhD). Signature ……………..Date………………….
External Examiner: Demis Dea (PhD). Signature ……………...Date…………………
TADAEL WAKGARI i
ACKNOWLEDGEMENT
Let me first of all thank God for his enduring mercies and favor. I am grateful to my advisor Dr.
Abebaw kassie (PhD) for his honest full guidance, support and consistent instructions he gave
me to ensure that I complete this study. Also I acknowledge all my lecturers who covered all the
course work required to complete this program. My sincere thanks also to the University of
Addis Ababa for that it gave me a chance to join this program. I also have a great thank to W/r
Hamelmal Mahiteme (manager of ETC ESCA) for her ingenuous support in providing me every
information and documents that used to complete the study.
Additionally I wish to express my earnest thanks and appreciation to my colleagues at work for
taking up my duties when I was busy to complete this research report. Finally I would like to
highly appreciate the immense assistance that I received from several other people whom I have
not mentioned here, may the almighty lord bless you exceedingly.
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Table of Content
Contents
DECLARATION.................................................................................................................................. i
ACKNOWLEDGEMENT .................................................................................................................... ii
Table of Content ...................................................................................................................................... iii
List of Tables ............................................................................................................................................. v
List of Figures ....................................................................................................................................... vi
ABBREVIATIONS AND ACRONYMS ........................................................................................... vii
ABSTRACT ....................................................................................................................................... viii
CHAPTER ONE ....................................................................................................................................... 1
INTRODUCTION .................................................................................................................................... 1
1.1. Background of the Study............................................................................................................... 1
1.2. Statement of the problem .............................................................................................................. 4
1.3. Objective of the study ................................................................................................................... 5
1.3.1. General objective of the study .................................................................................................. 5
1.3.2. Specific objective of the study .................................................................................................. 5
1.4. Research Questions ....................................................................................................................... 5
1.5. Research Hypothesis ..................................................................................................................... 6
1.6. Significance of the study ............................................................................................................... 6
1.7. Scope and Limitation of the Study ................................................................................................ 7
1.8. Organization of the paper.............................................................................................................. 7
CHAPTER TWO ...................................................................................................................................... 8
LITERATURE REVIEW ......................................................................................................................... 8
2.1. Introduction ................................................................................................................................... 8
2.2. Conceptual and theoretical issues ................................................................................................. 8
2.2.1. SACCOs in Ethiopia ............................................................................................................... 10
2.2.1.1. Legal framework of SACCOs ............................................................................................. 10
2.2.1.2. Objectives of SACCOs ....................................................................................................... 11
2.2.1.3. Contribution of SACCOs to the livelihood of their members............................................. 12
2.2.1.4. Perspectives of the SACCOs............................................................................................... 12
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2.3. Overview of empirical literatures ............................................................................................... 13

2.3.1. Loan management ............................................................................................................... 19
2.3.2. Saving capacity of members ............................................................................................... 19
2.3.3. Technology adoption........................................................................................................... 19
2.3.4. Literacy status of workers and members ............................................................................. 20
2.3.5. Performance of ESCA......................................................................................................... 20
2.4. Conceptual Framework ........................................................................................................... 21
2.5. ...................................................................................................................................................... 22
2.6. Conclusions and knowledge gaps ........................................................................................... 22
CHAPTER THREE ............................................................................................................................ 24
RESEARCH METHODOLGY........................................................................................................... 24
3.1. Introduction ............................................................................................................................. 24
3.2. Research Design...................................................................................................................... 24
3.3. Population and sample ............................................................................................................ 25
3.3.1. Population ........................................................................................................................... 25
3.3.2. Sample Frame ..................................................................................................................... 25
3.3.3. Sampling techniques and sample size ................................................................................. 25
3.4. Data Collection Instrument and Procedures............................................................................ 27
3.4.1. Reliability and validity test ................................................................................................. 27
3.5. Data analysis and interpretations ............................................................................................ 28
3.5.1. Analytical Regression Model .............................................................................................. 29
CHAPTER FOUR ............................................................................................................................... 30
DATA RESULTS, ANALYSIS AND DISCUSSION ....................................................................... 30
4.1. Introduction ............................................................................................................................. 30
4.2. Questionnaires return rate ....................................................................................................... 30
4.3. Demographic characteristics of respondents........................................................................... 30
4.3.1. Distribution of respondents by gender ................................................................................ 30
4.3.2. Distribution of respondents by Age .................................................................................... 31
4.3.3. Distribution of respondents by marital status...................................................................... 32
4.3.4. Distribution of respondents by educational level ................................................................ 32
4.3.5. Distribution of respondents by nature of experience .......................................................... 33
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4.3.6. Distribution of respondents by nature of status in the association ...................................... 33

4.4. Descriptive Statistics ............................................................................................................... 34
4.5. Correlations Analysis .............................................................................................................. 35
4.6. Trend Analysis ........................................................................................................................ 36
4.7. Regression Analysis ................................................................................................................ 38
4.8. Tests for Multiple Linear Regression Model Assumptions .................................................... 39
4.8.1. Assumption One.................................................................................................................. 39
4.8.2. Assumption Two ................................................................................................................. 40
4.8.3. Assumption Three ............................................................................................................... 40
4.8.4. Assumption Four ................................................................................................................. 41
4.8.5. Assumption five .................................................................................................................. 42
CHAPTER FIVE ................................................................................................................................ 45
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION.................................. 45
5.1. Introduction ............................................................................................................................. 45
5.2. Summary of findings............................................................................................................... 45
5.3. Conclusion .............................................................................................................................. 46
5.4. Recommendation .................................................................................................................... 46
5.5. Suggestion for Further Research ............................................................................................. 47
REFERENCES ................................................................................................................................... 48
APPENDICES .................................................................................................................................... 50
APPENDIX I: Time frame and schedule of activities to accomplish the study.................................. 50
APPENDIX II: The questionnaire used to collect primary data ......................................................... 51
List of Tables
Table 1: profile of respondents ................................................................................................................... 26
Table 2: case processing summary.............................................................................................................. 27
Table 3: Reliability Statistics ...................................................................................................................... 28
Table 4: Respondents by Gender ................................................................................................................ 31
Table 5: Respondents by Age ..................................................................................................................... 31
Table 6: Respondents by marital status....................................................................................................... 32
Table 7: Respondents by level of education ............................................................................................... 32
Table 8: Respondents by experience ........................................................................................................... 33
Table 9: Respondents by nature of status.................................................................................................... 34
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Table 10: Descriptive statistics ................................................................................................................... 34

Table 11: Correlations................................................................................................................................. 35
Table 13: Regression Model Summary ....................................................................................................... 38
Table 14: Analysis of variance.................................................................................................................... 39
Table 15: Heteroscedasticity Test: White test............................................................................................. 40
Table 16: Breusch-Godfrey Serial Correlation LM Test ............................................................................ 41
Table 17: Correlation matrix between explanatory variables ..................................................................... 42
Table 18: Regression Model Coefficients ................................................................................................... 43
List of Figures
Figure 1: Conceptual Framework ............................................................................................................... 22
Figure 2: Normality Test Result.................................................................................................................. 41
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ABBREVIATIONS AND ACRONYMS
ACCOSCA African Confederation of Cooperatives Saving and Credit Association
EASCA Employees Saving and Credit Association
ENTACCS Ethiopian National Thrift and credit cooperative society
ETC Ethiopian Telecommunications Corporation
FDRE Federal Democratic Republic of Ethiopia
LS Literacy Status of workers and members of the association
LM Loan Management of the association
PESCA Performance of Employees saving and Credit Association
SACCOs Savings and Credit Cooperatives
SACCODO Savings and Credit Cooperatives Development Office
SNNP South Nations Nationalities and Peoples
SC Saving Capacity of members of the association
TA Technology Adoption of the association
WOCCU World Council of Credit Unions
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ABSTRACT
Employee saving and credit associations (ESCAs) were financial sector operating behind a wall
in Ethiopia. The members were dramatically benefited from the associations as a source of
financing and investment for several years with a little general public recognition. The sectors
are primarily established for the interest of their members, saving, loan financing and an extra
dividend on the idle cash saved within the association. The number of cooperatives in general
currently approaches 1,500, excluding a small unions and voluntary cooperative not licensed.
The study was aimed to determine to what extent the loan management, saving capacity of
members, technology adoption, and Literacy status of workers and members had affected
performance of ESCAs. As a sample case study ETC ESCA was used. It has 7,200 members
from those for 379 sample size questionnaires were distributed and 361 were actually collected
and analyzed. The study was facilitated by use of primary data and secondary data. The study
adopted descriptive research design and inferential statistics in which multiple regression
analysis was applied to the data to examine the effects of explanatory variables on performance
of ESCAs. The main finding of the study is that; explanatory variables such as Loan
management, Saving capacity of members, Technology adoption, and Literacy status of workers
and members have positive significant effect on performance of ESCAs. But Saving capacity of
members has no significant effect on performance of ESCAs. All explanatory variables have
strong positive correlation with the performance of ESCAs.
Keywords: Saving, Credit, Performance, Loan management, saving capacity, Technology

adoption, and Literacy status.
vii
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i
CHAPTER ONE
INTRODUCTION
1.1. Background of the Study
Savings and credit cooperatives (SACCOs) are association of people who have come together
with common a goal at improving their livelihood economically. They are an important part of
the financial sector in Ethiopia proving savings and credit services to a large portion of the
population ("Microfinance house," 2006). The first cooperative society in the world was formed
in 1944 in a village of England known as Rochdale, by a group of people referred to as the
Rochdale pioneers, when Britain was undergoing the industrial revolution (KNFC Website).
SACCOs first appeared in South Germany in 1846 when there was Agricultural crisis and
drought in Europe (Birchall, 2004).
The first SACCO Society, in Africa, was introduced in Ghana in 1959. The SACCO was
intended to assist villagers improve their economic conditions (Ng'ombe&Mikwamba, 2004).
English speaking nations were the first to adopt SACCOs. The first entrants into SACCO
community include Ghana, Uganda, Nigeria, Tanzania, and Kenya. Most of the Non-English
speaking nations in Africa started appreciating SACCOs in 1960s, with major influx into
SACCO community in 1970s (Mwakajumilo, 2011).
The formation of SACCO in Africa grew tremendously to the extent that the African countries
formed a continental association of SACCOs, Africa Confederation of Cooperative Society
Savings and Credit Association (ACCOSSCA), in 1965. ACCOSSCA was formed with the
principal objective of promoting the SACCO principles, offer SACCO insurance, and educate
members on SACCO issues (Ng'ombe and Mikwamba, 2004). There are 28 countries in Africa
that have established SACCOs (Savings Plus, 2010).
In Ethiopia modern cooperatives was started in 1960 (Federal Cooperatives Agency, 2012).
During this time organizing, registering and controlling of saving and credit cooperative were
duties and responsibilities of the Ministry of Public Development under proclamation number
241/58 issued in 1966. Even though the number of saving and credit association who have
formed a national association during the Imperial regime were 16 up to 1978 there were 60
TADAEL WAKGARI 1
saving and credit cooperatives with a total membership of 13,200 and they have been able to
accumulate a total capital of birr 4,056,732. These cooperative were also establishing an
organizational body at national level called the Ethiopian National Thrift and credit cooperative
society (ENTACCS) in 1972/3. It is by the proclamation number 147/91 issued in 1998 that
SACCOs started to be recognize and function in accordance to the free market economy. Then
after, the regional states were encouraged to from their own cooperative’ organizing and
registering offices in live with the country’s federal government structure. Out of the 779
cooperatives organized and registered by the national bank of Ethiopia 422 of them were handed
to Addis Ababa cooperatives organization and promotion Bureau.
Accordingly, the cooperatives organization and promotion Bureau, took the study and
responsibility of organizing, registering follow - up and controlling activities of the SACCOs’
and started to give all necessary technical and professional support to these cooperatives
beginning 1999. Within the last ten years time 2,336 SACCOs’ are organized in Addis Ababa
with a total membership 220,000 and their saving has reached around one billion birr.
Even though, modern ESCAs in Ethiopia have established starting1960s, and they grew very
slowly until 1978. One reason behind such slow growth was the political and social instability
which followed the 1974 uprising ESCAs, have been growing fast since 1978. Nowadays several
numbers of ESCAs are operating from smaller scale to larger investments areas in each
organization. Thus, it is no doubt that ESCAs goes beyond loan provision to the members, but
creating a large scaled investment to the economy. ESCA sector is favorable because of cheap
administration cost, lowest miscellaneous expenses and easy access of loan to the members with
few requirements. The number of cooperatives in general currently approaches 1,500, excluding
a small unions and voluntary cooperative not licensed. From that ETC ESCA was organized in
1961 E.C with 601 members in Br 70,000 capital. Currently it has 7,200 members and Br
306,293,767.73 capital amount.
Employees saving and credit associations (ESCAs) was established for the purpose of savings
and credit in Ethiopia. It is practicable at the work place where by employees save certain
percentages of their income salary which gives them the entitlement to borrow money for
reasons they consider important to raise the living standards of their household (in most cases
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these include the buying of fixed assets like house, car, machinery to start a business, higher
education, marriage, medication of family members, and others.) ESCAs have been in operation
in Ethiopia for more than half a century. They were categorized under savings and credit
cooperatives (SACCOs) and designated as semi-formal financial institutions. They are outside
the control of the central authorities with respect to ownership of assets and management.
As a semi-formal financial sector, the SACCO can establish a link between the information (the
Iqqub and Iddir) and formal sector. ESCAs encourage employees to save a small percentage of
their monthly income as a compulsory membership contribution though it’s saving account
services and also grants loans at a minor interest rate to all its members. Some of ESCAs are
growing at very fast and performing well.
They are established within governmental organizations and private businesses, and play a
significant role in mobilizing deposit and in allowing employees access to loans at a cheap
(small) interest rate. There deposit collection and loan payable recoveries are integrated to each
organization payroll system, hence reducing administrative costs. The fact that they are protected
by operational rules of organizations reduces their credit risk, because an employee cannot
default as long as he earns salary every month. In the event of default, loans are recovered from
earnings of guarantors who work in the same organization. ESCAs also involve in the investment
market by buying shares of different financial and non financial firms in the country.
The ESCAs, as potential sources of savings in the country, need serious study. The existing
literature highly limited to only few studies on farmers unions and other agricultural related
unions. Similarly the government also highly attempted to expand union and farmers
cooperatives on the rural areas of the country while very little attention is given to ESCAs. Based
on this reality the researcher had needed to assess the determinants of performance of ESCAs
existing in Ethiopia.
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1.2. Statement of the problem
Even though ESCAs has been providing service in Ethiopia for more than half a century, for the
reason that various challenges that impacts on their performance they have not been able to
perform well as compared to the other financial institutions. One of the justifications of the
advancement of a financial institution is one that is profitable and has financial sustainability to
serve the special needs of its customers. This can be possible if and only if an organization
smoothly perform its activities by reducing difficulties that might impact on performance. Hence,
this basic reality pressed on the researcher to assess factors that can determine performance of
employees saving and credit associations.
Mvula, (2013) presented a report on common issues affecting financial performance of SACCOs
in Malawi and pointed out that the issues affecting performance of SACCOs are inadequate
capital, poor asset quality, poor governance, poor profitability, poor liquidity and
noncompliance. Mudibo, (2005) discussed some of the factors affecting performance of
SACCOs as weak regulation, limited product and services, low marketing and poor image.
On the other hand Ergetew, (2015) has done his assessment on determinants of the financial
performance of saving and credit cooperative unions in south Wollo zone and pointed out
liquidity level of the SACCO unions are fairly high. SACCO unions are highly leveraged. Their
profitability rate is below the minimum required rate and financial growth trend of most of the
unions also good. Abayneh, (2011) discussed on factors influencing saving and credit in the case
of saving and credit cooperatives of North shewa Zone Amhara national regional state and find
out factors that mostly influence the saving of people in saving and credit cooperatives are
marital status, consumptions plane, awareness, trust and loan use. But educational level, income
and family size are not significantly influence the cooperative saving and credit. Nigusie, (2015)
assessed on determinants of Savings and Credit Cooperatives Societies outreach in Addis Ababa
and had seen the relationship between income per capital of the country and dividend are
positive, and there is a negative relationship between interest rate on borrowing and loan size.
However in the above studies the impacts of technology adoption, management of loan, saving
capacity of members and Literacy status of workers and members that can affect performance of
ESCAs have not been identified.
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Studies on ESCAs in Ethiopia are limited; especially there has been no sufficient literature about
how and to what extent the loan management, saving capacity of members, technology adoption,
and Literacy status of workers and members had affected performance of employees saving and
credit associations.
1.3. Objective of the study
1.3.1. General objective of the study
The study aimed at detaching on determinants of performance of employees saving and credit
associations in Ethiopia. The study would also provide knowledge about ESCAs.
1.3.2. Specific objective of the study
The study was guided by the following specific objectives.
a) To identify the effect of management of loan on performance of employees saving and

credit associations.
b) To examine the effect of saving capacity of members on performance of employees
saving and credit associations.
c) To assess the effect of technology adoption of the association on performance of
d) To identify the effect of Literacy status of workers and members on performance of
1.4. Research Questions
The study answered the following questions:
How does management of loan is determinant of performance of employees saving and

credit associations?
How does saving capacity of members can be determinant of performance of employees
saving and credit associations?
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How does technology adoption of the association influence performance of employees

How does Literacy status of workers and members determine performance of employees
1.5. Research Hypothesis
In order to achieve the objective of the study and to answer the above questions, the following
hypotheses were formulated and tested the determinants of performance of ESCAs.
i. H0: There is no dependence between performance of ESCAs and loan management.

ii. H0: There is no dependence between performance of ESCAs and saving capacity of
members of the association.
iii. H0: There is no dependence between performance of ESCAs and technology
adoption of the association.
iv. H0: There is no dependence between performance of ESCAs and Literacy status of
employees and members.
1.6. Significance of the study
It is clear that ESCA plays an important role in credit provision to employees/ members/ of
thrifts and further investment in other forms of business. Hence, the study is expected to have the
following significance; for practitioners, decision makers and policy implementers, it gives
insight on factors that determine performance of ESCAs and help on how to increase
performance of the association, take corrective on deviations and serve the interest of their
members. For academicians and other researchers, it will drop light on ESCAs performance
factors and might be used as a source of other researches and reference for related studies. For
policy makers, it might be used as a reference in developing policies related with the association
and how to appreciate their expansion considering their current service to poor community. And
any organization employees of mutual interest to form ESCA with less experience will found this
study as base line to practice and operate in the sector.
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1.7. Scope and Limitation of the Study
Saving and credit union in Ethiopia are vast in number in which most of the cooperatives are
established voluntarily in private under different sectors. Ethiopian government paid special
attention to farmer’s cooperative under agricultural sector and other saving and credit union in
urban areas. Laterally, about 25% of the cooperatives all around the country are organized by
rural farmers in production of coffee and other sectors. Employees saving and loan association is
one among the cooperatives lacking required attention from federal cooperative agency. Hence
this paper was aimed to assess some variables that determine performance of employees saving
and loan associations, such as loan management, saving capacity of members, technology
adoption, and Literacy status of employees and members. This study is limited to one case. That
is, Ethiopian Telecommunication employees saving and credit association.
The scope of the study is limited to the determinants of performance of saving and credit
associations in relation with the above mentioned variables and selected organization ESCA. The
study used only five years audited financial statement as secondary data to trend analysis. Thus,
the finding of the study is limited to determinants and any conclusion and recommendation is
related to ESCAs and cannot be used for other financial institutions. The researcher was not able
to capture all the information in all ESCAs in Ethiopia. The researcher was able to visit only one
ESCA because there are many ESCAs in Ethiopia.
1.8. Organization of the paper
The final report of the research paper was organized as follows. The first Chapter was comprised
introduction part of the paper explaining the background of the study, statement of the problem,
objectives and research questions and hypothesis used in the study. All theoretical perspectives
review literature, empirical literature review and conceptual frame work of the study presented in
the second chapter of the report while third chapter of the paper presented the methodology
followed in the study to achieve the objective of the study and the forth chapter discussed on data
presentation, analysis and interpretation. Finally the fifth chapter finalized the study by Summary
of Findings, conclusion and recommendations.
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CHAPTER TWO
LITERATURE REVIEW
2.1. Introduction
The purpose of this literature review is to establish the framework for the study and highlights
the apparent strengths and weaknesses of the previous studies, which in turn, help in clearly
identifying the gap in the literature and formulating the research question for the study. This
review has four parts; the first part deals with the conceptual and theoretical issues related with
research topic, the second part reviews the relevant preliminary studies on the history and the
determinants of performance saving and credit cooperatives the third one is about conceptual
framework, and operationalization of Variables. The last part deals with conclusion on the
literature review and knowledge gaps.
2.2. Conceptual and theoretical issues
A Savings and Credit Cooperative (SACCO) is a type of cooperative whose objective is to

pool savings for the members and in turn provide them with credit facilities (Lari, 2009). Other
objectives of SACCOS are to encourage thrift amongst the members and also to encourage them
on the proper management of money and proper investments practices. Whereas in urban areas
salary and wage earners have formed Urban SACCOs, in rural areas, farmers have formed Rural
SACCOs. There are also traders, transport, jua-kali and community-based SACCOs. It can be
designated as semi-formal financial institutions. They are beyond the control of the central
authorities with respect to ownership of the assets and management. In Ethiopia the oldest
SACCOs were established in the late 1960s, and they grew very slowly until 1978. One reason
behind such slow growth was the political and social instability which followed the 1974
uprising. SACCOs have been growing fast since 1978. However, the rate of growth is not same
for all co-operatives. Some of them are growing at very fast rates. The SACCOs, as potential
sources of savings in the country, need serious study. Otherwise, it can be said that SACCOs in
Ethiopia are yet untouched by researchers. Savings and credit co-operatives are also known as
TADAEL WAKGARI 8
credit unions, thrift and credit co-operatives or savings and credit associations. They are
defined as follows:
Thrift (saving) and credit co-operative is a free association of people with a common bond
who save and lend money to one another at low interest rate for productive and provident
purpose, (ACCOSCA), 1969, P.3).
Credit union is a co-operative financial organization owned and operated on a not-for –profit
basis by its members according to democratic principles. Its purpose is to encourage savings, to
use pooled funds, to make loans, and to provide other related services to members and families.
A credit union is part of a co-operative financial system and adheres to the operating principles
for credit unions as set forth by the world Council of Credit Unions (ACCOSA, 1990) from these
definitions it can be inferred that a SACCO, generally speaking, has three basic purposes: to
promote thrift, to provide a source of credit at a slow interest rate, and to teach people the wise
use of their money and the efficient management of their limited pooled resources (kibirige,
1980, p.7).
A SACCO has several unique characteristics which promote the self-help, member-owned and
directed principles of co-operativism, service to members, social goals and leadership potential
of its members. Some of these unique characteristics are discussed by ACCOSA (1969),Kibirige
(1980, p.15) and ACCOSCA (1990). One characteristic is a common bond; Individuals, who
have something in common, whether based upon working together, belonging to the same
organization or living together in the same geographical areas, know one another.
Thus, they have already established a common bond that can be built upon to address economic
and social needs. The common bond is necessary to develop mutual confidence among the
members to help one another and to trust the decisions made on their behalf by their elected
leaders. The different types of common bond are:
• Work –place/ employee common bond which is based upon individuals who
have the same employer;
• Association common bond which is characterized by individuals who belong
to a religious, social or educational group;
TADAEL WAKGARI 9
• Residential common bond which is based upon a geographical or political sub

–division such as a sub-location, district, town or one or more villages.
The basic goal of saving and credit association is to encourage thrift among its members not to
make profit, and not to supply charity, but to provide services. Members are paid dividends on
shares and interest on savings/ deposits. SACCOs grant loans to members who might not quality
for credit elsewhere and who cannot afford the high loan rates offered in either the informal
sector or by other types of financial institution. However: the loan committee will refuse a loan
applicant if the purpose for the borrowing is not far any worthwhile purpose or it does not
improve the member’s economic status. The committee has to be careful not to grant loans to
members who cannot afford to repay them (ACCOSCA, 1990). It is said that lending is based
upon the ‘three Cs’ of credit: character, capacity and collateral. Other characteristics of SACCOs
are provision of financial services (e.g. financial counseling to members), the principle of ‘pay
him first’ (i.e. realizing that saving for tomorrow is better than borrowing for tomorrow), and
developing members’ leadership potential, initiative and capabilities to improve their outlook on
life. In addition, it should be noted that SACCOs are based on the principles of voluntary entry
and withdrawal; democratic control; political, racial and religious neutrality. SACCOs are
different from banks in that they are owned by all members who have a voice in their operations,
whereas banks are owned by shareholders and are generally interested in big loans to rich people.
Banks always ask for security, while credit unions consider good character and ability to pay in
granting. SACCOs are promoted not only for money; they contribute to the promotion of total
human development. SACCOs develop people’s minds by providing motivation, creating
initiative, promoting self- development and self-reliance and providing leadership. They also
develop material well-being by raising the living standards of members, making possible regular
savings and wise use money, providing loans at low interest rate and by making possible
economic emancipation of members (kibirige, 1980, p.18).
2.2.1. SACCOs in Ethiopia
2.2.1.1. Legal framework of SACCOs

Saving and credit cooperatives in particular and cooperatives in general have passed through
various charges due to continuous political changes in country. Every new government came to
TADAEL WAKGARI 10
the country was interested to promote cooperatives in its own way with no deep analysis on
strong and weak points. The main reason for such radical change was believed to be that
government change in the country has never been made in peaceful way. Hence, activities of the
going government were grossly considered disgraceful so that new governments were interested
to start afresh. During the command economy, promotion and registration of cooperatives were
given to different ministries.
Accordingly, promotion and registration of savings and credit cooperatives were given to
National Bank of Ethiopia (central bank). Issuance of proclamation N. 147/98 by the incumbent
government has given the power to respective cooperative promotion offices under different
regional offices. The cooperative promotion structure in National Regional states have different
names and the way they are structured is not uniform either. In the same Regions the office is
named as cooperative Agency (OROMIA, SNNNP.), in Addis as cooperative promotion and
regulation department, in Afar, Somalia and Gambella as cooperative bureau. The accountability
of the offices also differs from Region to Region. In Oromia, it is organized under mass
organization (hezebaderejajet) which is one sector that reports to the Regional cabinet meetings,
in Amhara it is under the regular and Agricultural development bureau, while in Addis it is under
the bureau of trade and industry. In most of these offices including the Federal Cooperative
Agency, the activities are departmentalized under promotion, market, supervision and Audit,
legal services and support activities. Promotion department is again divided into major teams like
Agricultural and non-agricultural cooperatives. Promotion of saving and credit cooperatives is
undertaken mostly under then on-agricultural cooperative team. The marketing department again
can be subdivided into market development, development, effort, loan follow up (for agricultural
input and crop loans). The promotion department is divided into teams based on the types of
cooperatives while the market is on major marketing and credit activities (DagnewGessese Half
a century development of savings and credit cooperatives in Ethiopia, status, challenges and
future prospects, April, 2007).
2.2.1.2. Objectives of SACCOs
WOCCU defines savings and credit cooperatives as democratic member–owned financial

cooperatives exist to serve their members and communities through provision of convenient and
TADAEL WAKGARI 11
affordable financial services. This definition tells that the primary objectives of SACCOs is not
profit making. However, SACCOs use excess earnings to offer members more affordable loans,
a higher return on savings, lower fees or new products and services. Hence, SACCOs have to
charge rates on loans that cover all costs (cost of fund, operation costs, administration cost and
cost of provision) paying competitive salary to its employee and contribution to increase capital
are also vital to growth and success. As cooperatives have been operating on the same founding
principles and use similar model by-laws, SACCOs in Ethiopia too have been operating with the
same objective. However, SACCOs make profit and pay dividend to its members while giving
service to its members.
2.2.1.3. Contribution of SACCOs to the livelihood of their members
Prior to the issuance of proclamations of cooperatives societies, the provision of financial

services to the poor has been going on for several years by projects designed by government
ministries and departments and non-governmental organizations. The key government ministries
that were frequently involved in designing and operating credit schemes were the ministry of
agriculture for rural areas and the ministry of trade and industry for urban areas. Several
international and indigenous non-governmental organizations also used to operate micro credit
schemes as a component of their integrated programs. These programs had benefited many of
their immediate beneficiaries and their families. They also introduced the very concept of saving
and credit as well as micro credit, microfinance and market led approaches to offering financial
services for the poor. These efforts by governmental and non-governmental organizations had
serious limitations since these attempts were not structured and were carried by volunteers
without training.
2.2.1.4. Perspectives of the SACCOs
Today SACCOS are operating under the new cooperatives’ proclamation no. 147/97 of 1998.
This new proclamation has tried to give solutions to the previous SACCO’S organization and
practices. Because of this, it has created a suitable environment for their development and
working conditions. This proclamation has:-
TADAEL WAKGARI 12
• Included all the major and relevant principles adopted by international corporative
Alliance (ICA)
• Gave full freedom, independence, power & authority to the cooperatives to decide there
are own affairs and work without government interference but with support based on
their request.
• Gave full right to form their associations at local (primary), region (union) & national
(federation) level.
• SACCOs can be organized at all sectors including government or private employees, or
based on residential (community) areas on voluntary bases.
• Previously, SACCOs were organized by different government offices, but now they are
organized, registered and assisted by the legally organized government body i.e.
cooperatives organization and promotion offices established by this proclamation.
2.3. Overview of empirical literatures
The most important studies related to this thesis are reviewed and summarized as follows:
Clement (2003) was discussed on the contribution of SACCOs financial stewardship to growth
of SACCOs in Kenya. The main objective of the study was to investigate the contrition of the
financial stewardship on the growth of SACCOs’ wealth with a view to improving their
operations for the benefit of the members and the country. The study used a descriptive survey.
The methodology used was census study. Data were collected from primary and secondary
sources by questionnaire and assessing recorded document respectively. The data collected were
analyzed using both descriptive and inferential statistics. The study employed multiple linear
regressions model. The study tested for normality using Shapiro Wilk test (numerical method).
The study looks at loan management, institutional strengths, and Innovativeness of SACCO
Product are an important determinants of growth of SACCOs’ wealth.
Faith Ngugi (2015) look at factors affecting growth of SACCOs within the agricultural sector in
Kenya. The broad objective of this study is to find out the factors affecting growth of SACCOs
within the Agricultural sector in Kenya. The study adopted descriptive survey. The data collected
through interview and questionnaires were analyzed using both descriptive and inferential
TADAEL WAKGARI 13
statistics. ANOVA Test and Adjusted R square were computed as the preliminary test for
multiple linear regression model adopted in the study. Income levels, competition from financial
institutions, management skills as well as support from the technology can affect the growth of
SACCOs.
Kipngetich (2015) studied about the effect of credit risk management on financial performance
of savings and credit co-operative society in kenya. The study was aimed at analyzing the effect
of credit risk management on financial performance of savings and credit co-operative society in
Kenya. A cross-sectional descriptive research design has been used in this study. The study has
employed purposive sampling technique in identifying the SACOOs. And Secondary data was
used. The data collected were analyzed using inferential statistics. One-Sample Kolmogorov-
Smirnov Test was used to ascertain the normality of the study variables before employing linear
regression that requires the assumption of normality. The findings confirm that there is a
statistically significant and insignificant influence of Capital Adequacy and Management
Efficiency respectively on Financial Performance of SACCOs.
Jared, Charles and Willy (2013) assessed on the challenges facing deposit-taking savings and
credit cooperative societies’ regulatory compliance in kenya. The main objective of the study
was to assess the challenges that face SACCOs in meeting their regulatory requirements. The
study adopted a descriptive survey design with Purposive sampling to sample 5 SACCOs and
simple random sampling to draw employees from each of sampled SACCOs. The data was
collected by questionnaire and personal interviews from primary data source. The data collected
were analyzed using descriptive and statistics. Majority of the deposit taking SACCOs in this
region were agricultural based and had challenges in regulatory compliance at various levels in
terms of capital, credit management, liquidity ICT and governance.
Ronald (2015) discussed on the effect of internal factors on performance of SACCOs in kenya.
The general objective of the study was to; assess the effects of internal factors on performance of
SACCOs. In this study descriptive survey research design and Stratified random sampling design
was used. The primary data was collected through questionnaire. The researcher determined
reliability by use of Cronbach’s alpha. Descriptive statistics was used to analyze the data. No
TADAEL WAKGARI 14
model was used. The study find out those internal factors such as internal capital, technology and
managerial abilities had positive influence on performance of SACCOs.
Ergetew (2015) studied about the determinants of the Financial Performance of saving and
Credit Cooperative Unions in South Wollo Zone. The general objective of the study is to assess
the determinants of financial performance of saving and credit cooperative unions. The research
is descriptive and analytical in nature. The secondary data collected were analyzed by using
simple statistical analysis like percentages, tables, and financial ratio analysis tools such as
liquidity ratios, leverage ratios, profitability ratios, and trend analysis of balance sheets. Liquidity
level of the SACCO union is fairly high but in a decreasing rate. The leverage ratio of SACCO
unions is highly leveraged. Their profitability rate is below the minimum required rate.
Duncan (2014) looks at the effect of SACCOs societies regulatory authority’s regulations on
financial performance of SACCOs to determine the effects of SASRA regulations on financial
performance of SACCOs in Nairobi. The study adopted descriptive research design. The study
was facilitated by use of secondary data. A cross-sectional study analyzed the data collected by
applying multiple regression models. ANOVA Test was computed as the preliminary test for
multiple regression model adopted in the study. The study revealed that the major variation in
financial performance of SACCOs could be accounted to changes in size, liquidity, non-
performing loans, CAR compliance, managerial quality and cost of income.
Edna (2015) discussed on factors influencing performance of SACCOs to establish the

determinants of performance success/outcomes adopted by Unaitas SACCOs in Kenya. This
study adopted a case study method. The researcher used quantitative techniques in analyzing the
data. Descriptive analysis and inferential statistics were employed. ANOVA Test was computed
as the preliminary test for multiple regression model adopted in the study. The study concluded
that Organizational subculture, organizational structure, organizational leadership capacity and
organization rewarding practices influence the Performance of SACCOs.
Njihia and Muturi (2016) studied about factors Affecting Financial Performance of Savings and
Credit Co-Operative Societies. The main aim of the study is to investigate the factors that mostly
affect the financial performance of Savings and credit societies. This study was employed
descriptive research design. Secondary data was used. The inferential statistics was applied to
TADAEL WAKGARI 15
establish a casual effect relating independent variables to the dependent variable. The
significance of linear regression model used was tested by the use of ANOVA statistical model
which is the Analysis of Variance. The following factors that are membership size, dividend
policy and loan default affects the financial performance of SACCOs.
Hannah (2015) assessed on the determinants of the Financial Performance of Savings and Credit
Co-operatives in the Banking Sector in Kenya. The general objective of this study was to
establish the determinants of financial performance of savings and credit co-operatives in the
banking sector. This study adopted a descriptive survey design. Stratified sampling technique
was used to obtain a sample for the study. Secondary data was collected from the annual reports
and the questionnaires were issued to the respondents. To check the validity and reliability of the
questionnaire a pilot test was conducted. The data collected was both qualitative and
quantitative. Linear regression model and ANOVA statistical model test was used. The study
sought to establish the influence of competition, operating costs, internal politics and saving
culture on the financial performance of SACCOs in the banking.
Nigusie (2015) discussed on the determinants of Savings and Credit Cooperatives Societies
outreach in Addis Ababa. The general objective of this research is to identify and examine the
Determinants of Saving and credit cooperatives outreach in Addis Ababa. The research followed
exploratory research design. The study used secondary data source. The panel data parameters
can be estimated using fixed effect or random regression models. There is a positive relationship
between income per capital of the country and dividend. And there is a negative relationship
between interest rate on borrowing and loan size.
Abayneh (2011) studied about factors influencing saving and credit in the case of saving and
credit cooperatives of North shewa Zone Amhara national regional state. The study analyzed
factors influencing saving and credit of saving and credit cooperatives in North Shewa Zone,
Debre Birehan city and woreda Amhara region Ethiopia. Mixed method approach of both
qualitative and quantitative is adopted. The data is gathered through both interview and
questionnaire methods. The sample population is selected by random sampling method. Both
primary and secondary source of data were used. In order to analyze the data both descriptive
and inferential statistics were used. Factors that mostly influence the saving of people in saving
TADAEL WAKGARI 16
and credit cooperatives are marital status, consumptions plane, awareness, trust and loan use. But
educational level, income and family size are not significantly influence the cooperative saving
and credit.
James (2013) discussed on factors influencing financial performance of savings and credit
cooperative societies in Kenya. The aim of this study was to establish the factors influencing
financial performance of savings and credit cooperative societies. Descriptive research design
was used in this study. Data was collected using Interviews/Secondary data sources and
questionnaires. Piloting is the study carried out before the actual study as a way of testing the
effectiveness of researchers’ data collection instruments and the procedures used. The SACCO
showed good operational and financial performance with increasing growth but there was
weakness in it product diversity. The data analysis showed that the SACCO should also review
their interest rates to ensure that their rates are competitive. The default rate in the SACCO also
showed a threat to the future financial performance of the SACCO hence the need to put in place
policy measure to reduce default rates. There was a positive correlation between duration of loan
repayment and retaining of customers.
Azeb (2003) did her assessment on saving and credit association in Ethiopia (in case of two
studies) to examine the general performance of saving and credit association. The case study
method is employed. Both primary and secondary data sources are used. To collect primary data
interview was used, where as to assessing the document were employed for secondary data
sources. The study lack clear findings, but to state some findings. The study says leaders lack
enterpruenal ability to use the money at hand and they fail to exploit non risk investments.
Meaza (2008) studied about loan management in ESCA (case study of AAU). The study deals
with the components of loan management in credit association and its effects such as: - loan
processing, loan permitting, loan collection, and the benefits and limitations of saving and credit.
Descriptive kind of method was adopted the primary and secondary data sources were used
through questionnaire and interviewing data collection tools. To collect data the respondents
were selected randomly. The method of data analysis was more descriptive. 50% of the members
have come across with difficulties in getting guarantee. No significant problems regarding speed
and curtsey and cooperativeness. To improve maximum loan amount the association should
TADAEL WAKGARI 17
invest more. The respondents recommended that the loan interest should be lower than the rate
currently charged.
To summarize the views from the literature review indicate nothing and if there operationalized
by different factors about loan management, saving capacity of members, technology adoption,
and Literacy status of workers and members in relation with performance of SACCOs. Even
though SACCOs are regarded as one of the tools that contribute to poverty alleviation, there are
numerous constraints impacting on their performance. The review has found that the loan
management, institutional strengths, and Innovativeness of SACCO Product are important
determinants of growth of SACCOs’ wealth. Income levels, competition from financial
institutions, management skills as well as support from the technology can affect the growth of
SACCOs. There is a statistically significant and insignificant influence of Capital Adequacy and
Management Efficiency respectively on Financial Performance of SACCOs. SACCOs had
challenges in regulatory compliance at various levels in terms of capital, credit management,
liquidity ICT and governance. Internal factors such as internal capital, technology and
managerial abilities had positive influence on performance of SACCOs. Financial performance
of SACCOs could be accounted to changes in size, liquidity, non-performing loans, CAR
compliance, managerial quality and cost of income. Organizational subculture, organizational
structure, organizational leadership capacity and organization rewarding practices influence the
Performance of SACCOs. The following factors that are membership size, dividend policy and
loan default affects the financial performance of SACCOs. The study sought to establish the
influence of competition, operating costs, internal politics and saving culture on the financial
performance of SACCOs in the banking. There is a positive relationship between income per
capital of the country and dividend. And there is a negative relationship between interest rate on
borrowing and loan size. Factors that mostly influence the saving of people in saving and credit
cooperatives are marital status, consumptions plane, awareness, trust and loan use. But
educational level, income and family size are not significantly influence the cooperative saving
and credit. There was a positive correlation between duration of loan repayment and retaining of
customers. Also the previous study discussed that leader’s lack enterpruenal ability to use the
money at hand and they fail to exploit non risk investments.
TADAEL WAKGARI 18
Finally loan management, saving capacity of members, technology adoption, and Literacy status
of workers and members are feasible independent variables and performance of ESCA is
dependent variable for this study, for the reason that they are not as much detached by other
researchers in this sector. Hence, the variables identified by the researcher were discussed as
follows:-
2.3.1. Loan management
According to JoEtta Colquitt (2007), credit risk arises whenever a lender is exposed to loss from
a borrower, or counterparty who fails to honor their contracted debt obligation, as agreed, in a
timely manner. For lenders who extend credit in the form of loans, credit risk is inherent in all
their business activities and is an element in virtually every product and service that is provided.
Loan management process includes loan evaluation, loan disbursement, loan repayment, and
loan protection from default risk.
2.3.2. Saving capacity of members
Domestic savings are generally classified in three types, such as, voluntary savings,
involuntary savings & forced savings. Voluntary saving relates to voluntary abstinence from
consumption by private individuals out of personal disposable income and by companies out of
profits. Involuntary savings is brought through involuntary reductions in consumptions. Forced
Saving comes as a result of rising prices and the reduction in real consumption. Depending on
time frame also, the savings can be categorized as short, medium and long term savings. Savings
can also be from foreign and domestic sources, from the private public sources and at the
individual and institutional level. (National Saving Mobilization Strategy of Government).
2.3.3. Technology adoption
According to Venkatesh et al. (2003) the technological innovations need to be accepted and
actually used. For Dias (2002) the electronic way represents a new model in the dissemination of
the information and should be explored on a full way. The studies about the users behavior have
always been one of the most difficult areas and research in relation to the information systems,
TADAEL WAKGARI 19
one of the failures cause, partial or total, of the information systems implementations is its not
acceptance by the users, as well as its under spending or misuse.
These days, information technology (IT) is universally regarded as an essential tool in enhancing
the competitiveness of the economy of a country. It is commonly accepted today that IT has
significant effects on the productivity of firms. These effects will only be fully realized if, and
when, IT are widely spread and used. Hence, this variable is operationalized by involvement of
the association in utilization of social media, website, internet, and intranet to enhance their
performance.
2.3.4. Literacy status of workers and members
Education is known to be a major determinant of living standards. Information on education and

literacy status is essential for planning, commitment to what was planned and evaluation of what
is going on in the association. Low education levels accompanied by low literacy rates are some
of the characteristics of developing countries. This could be operationalized by assessing the
relationship between levels of education of members with their efficiency specially defaulters.
2.3.5. Performance of ESCA
Performance is one of the words which definition is very flexible as everyone places the concept
that suits best, and letting the context take care of the definition. Nevertheless in general terms
performance can be seen as the result of activities (e.g. of an organization) over a given period of
time. Performance measurement is the process of quantifying the efficiency and effectiveness of
past action. More concrete performance measurement is the process of measuring how well
organizations are managed against their targets and the value they generate for their stakeholders.
(Dr. Stefan J. Illmer, June 2011).
Researchers have developed a number of contextual performance concepts. On a very general level, one
can differentiate between two types of contextual performance behaviors which aim primarily at the
smooth functioning of the organization as it is at the present moment, and proactive behaviors which
aim at changing and improving work procedures and organizational processes. Hence, in this thesis
TADAEL WAKGARI 20
performance of employees saving and credit association is used as dependent variable of the study. And
this variable was operationalized by deposit mobilized, loan defaults, income, Loans issued, employees
and members satisfaction and efficiency.
2.4. Conceptual Framework
Conceptual framework involves forming an idea about the relationship between variables in the
study and showing the relationship graphically or diagrammatically (Mugenda & Mugenda
2003). The study proposed that the performance of ESCAs is influenced by loan management,
saving capacity of members, technology adoption, and Literacy status of employees and
members. The dependent variable in this study is the performance of ESCAs while the
independent variables are made up of loan management, saving capacity of members, technology
adoption, and Literacy status of employees and members. Thus the researcher had examined the
independent variables in relation to dependent variables to determine the extent to which these
factors impact upon the performance of ESCAs in Ethiopia. The conceptual framework is based
on the idea that performance of ESCAs is determined by the desired independent variables.
TADAEL WAKGARI 21
Figure 1: Conceptual Framework

Source: Researcher, 2013
INDEPENDENT VARIABLES
Loan management
(loan evaluation, loan DEPENDENT
disbursement, loan repayment, VARIABLERE
and loan protection)
Saving capacity of members

(voluntary savings, involuntary Performance
savings & forced savings)
(deposit mobilized, loan
defaults, income, Loans issued,
Technology adoption employees and members
(social media, website, internet,
satisfaction and efficiency)
and intranet)
Literacy status of workers

and members (level of
education in relation to
2.5.
commitment to job and loan
default reduction)
2.6. Conclusions and knowledge gaps
This Literature review describes the relevant conceptual and theoretical issues including savings
and Credit cooperatives background, the legal framework of SACCOs in Ethiopia, Objectives of
SACCOs, contribution of SACCOs to the livelihood of their members, perspectives of SACCOs
that form the background of this study, Overview of empirical literatures, and Conceptual
Framework. Based on the discussion, SACCOs are promoted not only for money; they contribute
to the promotion of total human development. SACCOs develop people’s minds by providing
motivation, creating initiative, promoting self-development and providing leadership. They also
develop material well-being by raising the living standards of members, making possible
economic emancipation of members. Also it is determined that the basic goal of a saving and
TADAEL WAKGARI 22
credit cooperatives is to encourage thrift among its members, not to make profit, and not to
supply charity, but to provide services.
A review of past studies on saving and credit cooperatives, their determinants in relation with
performance indicate interesting findings as discussed under empirical review of studies. For
instance, while the proposition for financial and operational aspects have a number of
considering factors mainly supported by empirical work which is widely conducted in developed
countries particularly in USA, Germany and UK. On the other hand, in developing countries
there have been a relatively studies on SACCOs carried out Uganda, India, Kenya and Malawi.
More specifically, in the case of Ethiopia to the knowledge of the researchers almost there is few
study on such issues. This encourages the researcher to assess on the determinant factors of
performance of savings and credit cooperatives societies in Ethiopia by looking at their historical
development.
TADAEL WAKGARI 23
CHAPTER THREE
RESEARCH METHODOLGY
3.1. Introduction
This section discussed about methodology of the research adopted in order to actualize
objectives of the study. The research design, data sources, data collection method, research
procedure and data analysis technique that was used are included in the chapter.
3.2. Research Design
Descriptive study and inferential statistics was employed. Even if, descriptive study design is
concerned with describing the characteristics of a particular individual, or of a group the
researcher used explanatory style to inference and explain in detail. Descriptive research is
therefore concerned with specific predictions, with narration of facts and characteristics
concerned with individuals, group or situations. The advantage of the design is that it allows
flexibility in data collection and also makes use of open ended and closed questions which would
allow the respondent to give extra information freely.
According to Kothari (2005) descriptive research design includes surveys and fact finding
enquiries of different kinds. The major purpose of descriptive research is description of the state
of affairs as they exist at present. In descriptive studies the researcher must be able to define
clearly, what he/she wants to measure and must find adequate measures of findings along with a
clear cut definition of "population" he wants to study. The designs in such studies focus attention
on the following: formulating the objective of the study, designing the methods of data
collection, selecting the sample, collecting the data, processing and analyzing the data and
reporting the findings.
This method of investigation had allowed the researcher to explore determinant factors that
influence ESCAs’ performance in Ethiopia by collecting and analyzing data in order to describe
some phenomenon in its current status.
TADAEL WAKGARI 24
3.3. Population and sample
3.3.1. Population
Federal cooperative agency is expected to administer cooperatives and employees saving and
credit associations, while licensing is made by districts or <<KifleKetama>>. Hence, the target
population will be all employees saving and credit associations in Ethiopia.
3.3.2. Sample Frame
Because of there is rarely enough time or money to gather information from everyone or
everything in a population, the researcher would become subject to finding of a representative
sample (or subset) of the population. The researcher selected informants only from employees
saving and credit association of ETC in Addis Ababa. ETC employees saving and credit
association has 7,200 members.
3.3.3. Sampling techniques and sample size
The study had acquired a convenience sampling technique to select research samples from the
population. The reason why researcher used convenience sampling is as its name implies,
convenience sampling refers to the collection of information from members of the population
who are conveniently available to provide it. Convenience sampling is the best way of getting
some basic information quickly and efficiently.
For the purpose of this study the researcher selected one ESCA based on its size, years of
operation and their role in investments. ETC ESCA is one of the largest associations in Ethiopia.
As per Yamane (1967) formula developed for sampling size, using 95% confidence levels with
5% level of precision the total of 379 workers and members of ETC ESCA had selected to
distribute the questionnaire.
TADAEL WAKGARI 25
The sample size was calculated based on Yamane’s formula (Yamane, 1967).
n= N/1+Ne²
Where, n = the sample size
N = the size of population
e = 5% the level of precision
Then, n = 7,200/1+7,200(0.05)² = 378.9474
Hence, by approximating the sample size result 378.9474 that is obtained by the above formula
the total sample size is 379. And it is divided to workers and members of the association as
follows:-
Table 1: profile of respondents
Description of respondent Number of Samples

type
Number of Distributed Number of Collected Variation
questionnaires questionnaires
Administrative workers of 10 9 1
the association (Manager,
Officers, Accountants, etc)
Members 369 352 17
Total 379 361 18
NB: - The variation made was 4.7% of the sample size that was not collected from the
respondents because of the selected respondents lost paper of the questionnaires before collection
date. To collect primary data the researcher used similar questions for both members and
workers of the association in the questionnaires.
TADAEL WAKGARI 26
3.4. Data Collection Instrument and Procedures
The researcher used both primary and secondary data sources. Primary data was collected from
employees and members of the sampled ESCA using questionnaires to obtain perceptions of the
respondents. Original information was collected from a first-hand experience. Primary data was
received first hand from instruments such as questionnaires where a person collected the data
using drop and pick approaches.
The data collection instrument that was used in this study was the questionnaire for primary data
source. A likert scale questionnaire is a set of questions that seeks to find out information about
variables. This is because the type of data source is original and would be collected specifically
for the study. The researcher used self-administered questionnaires for primary data as the data
collection instrument. The questionnaires was comprised questions in order to give the
respondents room for airing well thought information adequate to base good judgment.
Questionnaires are instruments for data collection that are defined to elicit written respondents
from the subject in the study. The advantage of using the questionnaire sourced from members
and workers of the selected ESCA is that; the data obtained was easy to process and analyze
statistically (Saunders et al., 2007).
Secondary data was collected through examining the documents and archival records of the
selected employees saving and credit association.
3.4.1. Reliability and validity test
To check validity and reliability for the questionnaires the researcher used SPSS statistical
software analyzing method, Cronbatch’s Alpha. And the result was discussed as follows:
Table 2: case processing summary
N %
Cases Valid 361 100.0
Excluded 0 .0
Total 361 100.0
a. List wise deletion based on all variables in the procedure.
TADAEL WAKGARI 27
Table 3: Reliability Statistics
Cronbach's Alpha N of Items
.851 31
As showed in the above table reliability statistics for the questionnaires was resulted 85.1%
based on all variables in the procedure. Thus, the result implies that the questionnaires were
reliable.
3.5. Data analysis and interpretations
The researcher used questionnaires that enabled him to gather the necessary data used for the
study. The collected data would be used to analyze the determinant factors influencing ESCAs’
performance in Ethiopia. Descriptive statistics method was applied to analyze the data by
calculating the percentages, mean and standard deviation. This will be done using Statistical
Package for Social Sciences (SPSS) computer software. SPSS was used to generate tabulated
reports, charts, and plots of distributions and trends, as well as generate descriptive statistics and
more complex statistical analyses.
Inferential statistics was applied through the use of multiple linear regression analysis to
establish the nature of the existing relationship between the research variables. Finally, to get
reliable results from the study, the researcher tested for the five multiple linear regression model
assumptions by using the results analyzed by EVIEWS-8 statistical analyzing software. Among
them the major ones are: test for constant variable, heteroscedasticity, autocorrelation,
multicollinearity and normality was addressed based on the theoretical concepts of the
assumptions and results of the statistical analyzing software.
TADAEL WAKGARI 28
3.5.1. Analytical Regression Model
The multiple linear regression equation for the study was took the following form;
PESCA = βο + β1 LM + β2 SC +β3 TA + β4 LS + εit
Where;
LM Loan Management of the association
SC Saving Capacity of members of the association
TA Technology Adoption of the association
LS Literacy Status of workers and members of the association
PESCA Performance of Employees saving and Credit Association
εit Stochastic Error term with value 0
βο constant term of the regression equation
β1, β2, β3, β4 coefficients of the independent variables of the study
TADAEL WAKGARI 29
CHAPTER FOUR
DATA RESULTS, ANALYSIS AND DISCUSSION

4.1. Introduction
This chapter presents the study findings based on objectives to identify the determinants of
performance of employees saving and credit associations in Ethiopia, These data were collected
from the ETC ESCA. Multiple linear regressions were used to determine the effects of loan
management, saving capacity of members, technology adoption and Literacy status of workers
and members on performance of employees saving and credit associations.
4.2. Questionnaires return rate
Out of the 379 questionnaires distributed for this research 361 were filled and returned giving a
response rate of 95.3 %. This is an indication that the respondents took this research seriously
and they had trust with the researcher. According to Mugenda (2003), 50% response rate is
adequate, 60% good, above 70% is rated very good. Therefore in this study there was almost
excellent response on the return of the questionnaires.
4.3. Demographic characteristics of respondents
The researcher was interested in the distribution of respondents by gender, age, marital status,
and level of education, work experience and their nature of status in the association. These
characteristics are further discussed in the following sub-themes.
4.3.1. Distribution of respondents by gender
Gender was a matter of concern in this study because male and female have different ideologies
on matters of savings and credit. The researcher wanted to establish how savings and credit in
ESCAs can be influenced by an individual gender status. The findings are presented in table 4.
TADAEL WAKGARI 30
Table 4: Respondents by Gender
Frequency Percent Valid Percent Cumulative

Percent
Valid Male 173 47.9 47.9 47.9
Female 188 52.1 52.1 100.0
Total 361 100.0 100.0
Out of the 379 respondents who participated in the study 173(47.9%) were males, 188(52.1%)
were females. This implies that majority of ESCA members are females probably because
females do not own collaterals like land and other fixed assets as much as males does hence the
females end up joining ESCAs because they use group guarantee mechanisms to secure loans.
4.3.2. Distribution of respondents by Age
The researcher sought to establish the age distribution of respondents so that it can be ascertained
how age disparity affects the membership of SACCOs and appointments in ESCA management.
The findings of this study are presented in table 5.
Table 5: Respondents by Age

Percent
Valid 20-25 37 10.2 10.2 10.2
26-35 144 39.9 39.9 50.1

36-45 145 40.2 40.2 90.3
46-60 35 9.7 9.7 100.0
Total 361 100.0 100.0
Table 5 shows that out of the 379 respondents who participated in this study, 37(10.2%) fell in
the age bracket of 20-25 years, 144(39.9%) fell in the age bracket of 26-35 years, 145(40.2%)
were in the age bracket of 36-45 years while 35(9.7%) fell in the age bracket of 46-60 years
respectively. This implies that majority of ESCAs members are in the age bracket of between 36
and 45 years probably because this is the age of young adults who seek money from financial
institutions to establish their homes and educate their children.
TADAEL WAKGARI 31
4.3.3. Distribution of respondents by marital status
The researcher sought to establish the marital status of respondents with the aim of establishing
how it affects the saving and credit culture.
Table 6: Respondents by marital status

Percent
Valid Single 167 46.3 46.3 46.3
Married 194 53.7 53.7 100.0

Total 361 100.0 100.0
Table 6 shows that 194(53.7%) were married while 167(46.3%) were single. This implies that
married people have more financial demands as compared to single because they need to educate
their children and establish their families.
4.3.4. Distribution of respondents by educational level
Level of education was a matter of differences among respondents in holding diploma, first
degree and second degree. The researcher wanted to establish how savings and credit in ESCAs
can be influenced by an individual educational status. The findings are presented in table 7.
Table 7: Respondents by level of education

Percent
Valid Diploma and below 49 13.6 13.6 13.6
First Degree 249 69.0 69.0 82.5
2nd degree 63 17.5 17.5 100.0
Total 361 100.0 100.0
Table 7 shows that majority of the respondents are first degree holders 249(69%). This implies
that people who are holder of first degree have more financial demands as compared to the
others, because they need to continue second degree education.
TADAEL WAKGARI 32
4.3.5. Distribution of respondents by nature of experience
Nature of experience was a matter of duration of respondents in serving the corporation. The
researcher wanted to establish how savings and credit in ESCAs can be influenced by
respondents’ job experience.
Table 8: Respondents by experience

Percent
Valid Less than 2 years 26 7.2 7.2 7.2
2 to 5 years 137 38.0 38.0 45.2
6 to 10 years 76 21.1 21.1 66.2
more than 10 years 122 33.8 33.8 100.0
Total 361 100.0 100.0
Table 8 shows that out of the 379 respondents who participated in this study, 137(38%) fell in
the experience bracket of 2-5 years.
4.3.6. Distribution of respondents by nature of status in the association
The researcher sought to establish the nature of status either worker of the association, member
or managerial position. This was supposed to enable the researcher to get varied responses from
the different categories.
TADAEL WAKGARI 33
Table 9: Respondents by nature of status

Percent
Valid Managerial 19 5.3 5.3 5.3
Worker 9 2.5 2.5 7.8

Member 333 92.2 92.2 100.0
Total 361 100.0 100.0
4.4. Descriptive Statistics

In section 4.4 the study present the research finding on the descriptive statistic in the data
collected.
Table 10: Descriptive statistics
LM SC TA LS PESCA
N Valid 361 361 361 361 361

Missing 0 0 0 0 0
Mean 3.5341 3.2161 3.6560 3.0340 3.4997
Std. .75820 .66151 .93433 .62640 .77519
Deviation
Minimum 1.20 1.00 1.00 1.00 1.00
Maximum 5.00 5.00 5.00 4.86 5.00
From the findings, the study found that there was mean of 3.5 out of 5 questions for a variable
Loan Management, 3.2 out of 6 questions for the Saving Capacity of members, 3.7 out of 5
questions for Technology Adoption, 3.03 out of 7 questions for Literacy Status of workers and
members of the association, 3.5 out of 7 questions for Performance of Employees saving and
Credit Associations. That is, except mean for Literacy Status of workers and members of the
association the other variables of the study have a mean of greater than half of their questions.
This implies that the majority of respondents were almost agreed in concepts of the questions
asked for the desired variables except for Literacy Status of workers and members.
TADAEL WAKGARI 34
4.5. Correlations Analysis
The study presents the research finding on the Pearson product moment correlation. Pearson
product moment correlation was conducted to determine the strength of relationship between the
study variables.
Table 11: Correlations
LM SC TA LS PESCA
LM Pearson 1 .274** .291** .211** .493**

Correlation
Sig. (2-tailed) .000 .000 .000 .000
N 361 361 361 361 361
SC Pearson .274** 1 .240** .429** .259**
Correlation
Sig. (2-tailed) .000 .000 .000 .000
N 361 361 361 361 361
TA Pearson .291** .240** 1 .161** .348**
Correlation
Sig. (2-tailed) .000 .000 .002 .000
N 361 361 361 361 361
LS Pearson .211** .429** .161** 1 .280**
Correlation
Sig. (2-tailed) .000 .000 .002 .000
N 361 361 361 361 361
PESCA Pearson .493** .259** .348** .280** 1
Correlation
Sig. (2-tailed) .000 .000 .000 .000
N 361 361 361 361 361
To discuss the correlation of the study variables, the researcher conducted a Pearson Product
Moment correlation. From the findings on the correlation analysis between performance of
employees saving and credit association and independent variables, the study found that there
was positive correlation coefficient between PESCA and loan management as shown by
correlation factor 0.493**, the study also found a positive correlation between PESCA and saving
TADAEL WAKGARI 35
capacity of members as shown by correlation coefficient of 0.259**, association between PESCA

and technology adoption was found to have positive relationship as shown by correlation
coefficient of 0.348**. The study also found a positive correlation between PESCA and literacy
status of workers and members as by correlation coefficient of .280**
4.6. Trend Analysis

Additionally, other than the primary data collected through questionnaires the researcher had
tried to assess through examining the documents and archival records of the association to collect
the secondary data. ETC ESCA is one of the biggest associations in Ethiopia. It was organized
in 1961 E.C with 601 members in Br 70,000 capital. Currently it has 7,200 members and Br
306,293,767.73 capital amount. The association incurs 5% interest rate for members’ saving and
collects 8.5% interest rate from borrowers. Its spread margin is 3.5% with maximum borrowing
capacity of Br 300,000 and minimum members’ saving amount of 14%. Collection of saving
and loan of members’ are directly associated with payroll of the corporation. To protect loan
default while lending the association guaranteed by two witnesses of the borrowers.
Table 12: Secondary data (in birr)
Descriptions Years (E.C) Growth

2004 2005 2006 2007 2008 rate
Total Saving 264,526,539.51 286,362,137.60 321,560,372.63 374,311,839.19 390,523,940.30 9.2%
Total loan 283,324,538.63 293,805,025.77 307,724,062.20 364,550,262.09 409,888,259.64 8.7%
issued
Net profit after -2,656166.78 -981,970.51 946,694.10 4,193,592.60 12,632,216.30 44.4%
Tax
Total loan 379,110.08 379,110.08 379,110.08 379,110.08 379,110.08 0%
default
Efficiency of Fair Fair Good Very good Very good
the association
in performing
its annual plan
TADAEL WAKGARI 36
Members and Good Good Good Very good Very good
workers
satisfaction
Source: ETC ESCA Employees saving and credit association annual report and audit report.
An improvement in members and workers satisfaction is because of an increment in maximum

borrowing capacity for borrowers and an increment of salary for workers with good facilitation
of working environment. In case of an improvement in efficiency of the association in
performing its annual plan is because of there is hiring of well educated workers with almost
good salary that arise from an improvement in profit of the association.
The negative profit result recorded on 2004 E.C and 2005 E.C were arise from the termination
of about 3,500 employees from the corporation on 2003 E.C, from those terminated employees
about 1,000 are members of the association and they had compensated by Br 9,410,757.02.
During this time the amount of composition was directly deducted from income of the year 2004
E.C Br 6,002,148.15 and 2005 E.C Br 3,408,608.87 as expense of the fiscal years.
The amount of default Br 379,110.08 was resulted from those terminated 29 members of the
association was disappeared with their witnesses on 2003 E.C. Other than this the association
didn’t face additional amount of default.
In 2007 E.C and 2008 E.C because of there was high requisition of loan by members, the
association was donated by the corporation the amount of Br 50,000,000 in both years.
To summarize, as showed in the above table 18 the data recorded for the described items were
implying that the association was performing well. That is, an increment in loan issued and
profitability, and minimization of loan default throughout the desired years were the result of
proper loan management; an increment in saving amount was the result of saving capacity of
members; an improvement in efficiency, satisfaction of workers and members of the association
could be the result of technology adoption and literacy status. Hence, from the above discussion
it is possible to understand independent variables of the study have positive correlation with the
performance of employees saving and credit association, similar to the correlation analysis result
discussed for the primary data.
TADAEL WAKGARI 37
4.7. Regression Analysis
In this section the study presents the research findings on the relationship between various
independent variables on the regression model and the dependent variable performance of
employees saving and credit association. The study was conducted multiple regression analysis
to test the influence among predictor variables by using statistical package for social sciences
(SPSS) to code, enter and compute the measurements of the multiple regressions.
Table 123: Regression Model Summary
Model R R Square Adjusted R Square Std. Error of the

Estimate
1 .562a .315 .308 .64502

a. Predictors: (Constant), Literacy Status, Technology Adoption, Loan Management,
Saving Capacity
Adjusted R squared is coefficient of determin ation which tells us the variation in the
dependent variable due to changes in the independent variable, from the findings in the above
table the value of adjusted R squared was 0.308 an indication that there was variation of 30.8%
on performance of ESCAs due to changes in loan management, saving capacity of members,
technology adoption, and Literacy status of workers and members at 95% confidence interval.
This shows that 30.8% changes in performance of ESCAs could be accounted for by changes in
loan management, saving capacity of members, technology adoption, and Literacy status of
workers and members.
R is the correlation coefficient which shows the relationship between the study variables, from
the findings shown in the table above there was a strong positive relationship between the study
variables as shown by 0.562.
TADAEL WAKGARI 38
Table 134: Analysis of variance
ANOVA
Model Sum of df Mean F Sig.
Squares Square
1 Regression 68.217 4 17.054 40.991 .000b
Residual 148.113 356 .416

Total 216.330 360
a. Dependent Variable: Performance of Employees saving and Credit Associations
b. Predictors: (Constant), Literacy Status, Technology Adoption, Loan Management,
Saving Capacity
From the ANOVA statistics above, the study established the regression model had a significance
level of 0.000 which is an indication that the data was ideal for making a conclusion on the
population parameters as the value of significance (p-value) was less than 0.05. It indicated that
loan management, saving capacity of members, technology adoption, and Literacy status of
workers and members significantly influence performance of ESCAs. The significance value was
less than 0.05 indicating that the model was significant.
4.8. Tests for Multiple Linear Regression Model Assumptions
This sub-section presented the tests for multiple linear regression model assumptions. To get
reliable results from the study, the regression model of this study was tested for multiple linear
regression model assumptions. Among them the major ones are: test for constant variable,
heteroscedasticity, autocorrelation, multicollinearity and normality assumptions. To test the
assumptions the researcher used EVIEWS-8 statistical analyzing software result of the primary
data collected. Accordingly, they were discussed as follows:-
4.8.1. Assumption One
The errors have zero mean (E (ε) = 0) or constant variable

The first assumption states that the average value of the errors should be zero. According to
(Brooks 2008) if the regression equation contains a constant term, this presumption will never be
TADAEL WAKGARI 39
violated. Therefore, since from the regression result table the constant term (i.e. β0 = 0.767) was
included in the regression equation; this assumption holds good for the model.
4.8.2. Assumption Two
Homoscedasticity (variance of the errors is constant ( = <∞

Heteroskedasticity is a systematic pattern in the errors where the variances of the errors are not
constant. When the variance of the residuals is constant it is referred as homoscedasticity, which
is desirable. To test for the absence of heteroscedasticity white test was used in this study. In this
test, if the p-value is very small, less than 0.05, it is an indicator for the presence of
heteroscedasticity (Gujarati 2004).
But from Table 15 presents three different types of tests for heteroscedasticity. Since the p-
values of all the three tests are considerably in excess of 0.05 it’s a clear indicator that there is no
evidence for the presence of heteroscedasticity. Hence, the model passed the second test.
Table 14: Heteroscedasticity Test: White test
F-statistic 4.630527 Prob. F(14,346) 0.1328
Obs*R-squared 56.96476 Prob. Chi-Square(14) 0.0549
Scaled explained SS 86.68598 Prob. Chi-Square(14) 0.6750
4.8.3. Assumption Three
Covariance between the error terms over time is zero (cov (ui, uj) = 0)
This assumption states that covariance between the error terms over time or cross-sectionally, for
that type of data is zero. That is, the errors should be uncorrelated with one another. If the errors
are not uncorrelated with one another it is an indicator for the presence of Autocorrelation or
serial correlation (Brooks 2008). According to Brooks (2008), presence/absence of
autocorrelation is by using the Breusch–Godfrey test (shown in table 16).
The result of the statistic labeled “obs*R-squared”, which is the LM test statistic for the null
hypothesis of no serial correlation shows a p-value of 0.4350 (which is far greater than 0.05)
which strongly indicates the absence of autocorrelation.
TADAEL WAKGARI 40
Table 15: Breusch-Godfrey Serial Correlation LM Test

F-statistic 0.820074 Prob. F(2,354) 0.4412
Obs*R-squared 1.664866 Prob. Chi-Square(2) 0.4350
4.8.4. Assumption Four
Normality (errors are normally distributed ~ ,

Normality assumption of the regression model can be tested with the Jarque- Bera measure.
Normal distribution is not skewed and is defined to have a coefficient of kurtosis 3. Jarque-Bera
formalizes this by testing the residuals for normality and testing whether the coefficient of
skeweness and kurtosis are zero and three respectively. If the probability of Jarque Bera value is
greater than 0.05, it’s an indicator for the presence of normality (Brooks 2008).
The normality tests for this study as shown in Figure 2 the kurtosis is close to 3, skewness close
to 0 and the Jarque-Bera statistic has a p-value of 0.05133 which is greater than 0.05 implying
that the data were consistent with a normal distribution assumption.
Figure 2: Normality Test Result
80
Series: Residuals
70 Sample 1 361
Observations 361
60
Mean 2.06e-17
50 Median 0.039624
Maximum 2.316787
40 Minimum -2.047226
Std. Dev. 0.641475
30 Skewness -0.152640
Kurtosis 4.129587
20
Jarque-Bera 10.5949
10 Probability 0.05133
0
-2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5
TADAEL WAKGARI 41
4.8.5. Assumption five
Multicollinearity Test
According to (Churchill and Iacobucci 2005), multicollinearity is concerned with the relationship
which exists between explanatory variables. When there exists the problem of multicollinearity,
the amount of information about the effect of explanatory variables on dependent variables
decreases and as a result, many of the explanatory variables could be judged as not related to the
dependent variables when in fact they are.
How much correlation causes multicollinearity, however, is not still clearly identified. Many
authors have suggested different level of correlation to judge the presence of multicollinearity.
While (Hair, et al. 2006) argued that correlation coefficient below 0.9 may not cause serious
multicollinearity problem. (Malhotra 2007) stated that multicollinearity problem exists when the
correlation coefficient among variables is greater than 0.75. This indicates that there is no
consistent agreement on the level of correlation that causes multicollinearity.
Therefore, in this study correlation matrix for four of the independent variables is shown below
in Table 17. The result of the estimated correlation matrix shows that the highest correlation of
0.428856 which is between independent variables saving capacity of members and literacy status
of workers and members of the association. Thus, there is no correlation above 0.75 and 0.9
according to (Malhotra 2007) and (Hair, et al. 2006) respectively. Hence, the researcher
concluded that there is no problem of multicollinearity.
Table 16: Correlation matrix between explanatory variables
LM SC TA LS
LM 1.000000 0.273912 0.290683 0.210509
SC 0.273912 1.000000 0.240253 0.428856
TA 0.290683 0.240253 1.000000 0.160726
LS 0.210509 0.428856 0.160726 1.000000
TADAEL WAKGARI 42
Table 178: Regression Model Coefficients
Model Unstandardized Standardized T Sig.

Coefficients Coefficients
B Std. Error Beta
1 (Constant) .767 .235 3.270 .001
Loan .402 .048 .393 8.333 .000
Management
Saving Capacity .046 .059 .040 .791 .430
Technology .166 .039 .200 4.302 .000
Adoption
Literacy Status .183 .060 .148 3.019 .003
a. Dependent Variable: Performance of Employees saving and Credit Associations
The established regression equation was

Y = 0.767 + 0.402 X1 + 0.046X2 + 0.166 X3 + 0.183X4
The above regression equation revealed that loan management, saving capacity of members,
technology adoption, and Literacy status of workers and members to a constant zero,
performance of ESCAs would stand at 0.767, a unit increase in loan management of the ESCAs
would lead to increase in performance of ESCAs by a factors of 0.402, a unit increase in
technology adoption would lead to increase in performance of ESCAs by factors of 0.166 , also a
unit increase in Literacy status of workers and members would lead to increase in financial
performance of ESCAs by a factor of 0.183. But a unit increase in saving capacity of members
has no effect on performance of ESCAs.
At 5% level of significance and 95% level of confidence, loan management had a 0.000 level of
significance; saving capacity of members had showed a 0.430 level of significance, technology
adoption had a 0.000 level of significance while Literacy status of workers and members had
showed 0.003 level of significance. Hence, the most significant factor is loan management and
the next one is Technology Adoption. Except saving capacity of members the variables were
significant (p<0.05).
TADAEL WAKGARI 43
Therefore, the researcher rejected the null hypotheses such as; there is no dependence between
performance of ESCAs and loan management. There is no dependence between performance of
ESCAs and technology adoption of the association. And there is no dependence between
performance of ESCAs and Literacy status of employees and members.
And not rejected the null hypothesis there is no dependence between performances of ESCAs
and saving capacity of members of the association.
This shows that, a unit increase in loan management, technology adoption, and Literacy status of
workers and members would lead to increase in performance of ESCAs by 40.2%. A unit
increase in technology adoption would lead to increase in performance of ESCAs by 16.6%. And
a unit increase in Literacy status of workers and members would lead to increase in performance
of ESCAs by 18.3%. That is, loan management, technology adoption, and Literacy status of
workers and members have a positive significant effect on performance of employees saving and
credit associations. But saving capacity of members has no significant effect on performance of
TADAEL WAKGARI 44
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION

5.1. Introduction
From the data collected and analysis made in previous chapter, the following discussions,
conclusion and recommendations were made. The responses were based on the objectives of the
study. The researcher had intended to determine the effects of the explanatory variables on
performance of employees saving and credit associations.
5.2. Summary of findings
The objective of the study was to determine to what extent the loan management, saving capacity
of members, technology adoption, and Literacy status of workers and members had affected
performance of employees saving and credit associations. The study adopted descriptive research
design study and inferential statistics in which multiple regression analysis was applied to the
data to examine the effects of explanatory variables on performance of ESCAs. The study was
facilitated by use of primary data and secondary data.
The study revealed the findings that variation in performance of ESCAs could be accounted to
change in loan management, saving capacity of members, technology adoption, and Literacy
status of workers and members. The study showed that there was a strong relationship between
performance of ESCAs and loan management, saving capacity of members, technology adoption,
and Literacy status of workers and members as shown by strong correlation coefficients. There is
highly significant positive relationship between loan management, saving capacity of members,
technology adoption, and Literacy status of workers and members and performance of ESCAs.
An adjusted R squared 0.308 has an indication that there was variation of 30.8% on performance
of ESCAs due to changes in loan management, saving capacity of members, technology
adoption, and Literacy status of workers and members at 95% confidence interval. This shows
that 30.8% changes in performance of ESCAs could be accounted for by changes in the desired
explanatory variables of the study.
TADAEL WAKGARI 45
From the regression equation, there was a positive relationship between loan management,
saving capacity of members, technology adoption, and Literacy status of workers and members
and performance of ESCAs. This shows that, a unit increase in loan management, technology
adoption, and Literacy status of workers and members would lead to increase in performance of
ESCAs. That is, loan management, technology adoption, and Literacy status of workers and
members have a significant effect on performance of employees saving and credit associations.
But saving capacity of members has no significant effect on performance of ESCAs.
5.3. Conclusion
From the findings the study established that loan management is positively significant to
influence on performance of ESCAs thus the study concludes that loan management had positive
influence on performance of ESCAs.
The study also revealed that technology had a positive effect on performance of ESCAs.
Additionally this study concluded that literacy status of workers and members is one of the
explanatory variables that has positive significant effect on performance of employees saving
and credit associations. Finally, loan management, technology adoption, and Literacy status of
workers and members have positively significant effect on performance of ESCAs. But saving
capacity of members has no significant effect on the performance of ESCAs.
5.4. Recommendation
Based on conclusion of the findings, the study recommends that the management on ESCAs
should consider proper loan management that effectively operated by loan evaluation, loan
disbursement, loan repayment, and loan protection. This will reduce default and enhance loan
collection of the association. Adopting technologies also should be considered by the association.
This will allow the management to create a comprehensive understanding that can be creates
better decisions and it helps to avoid information asymmetry among workers and members.
The study also recommends that it is very crucial that the association to hire and accept as
membership should be well educated persons. That is, they can be more committed to the desired
TADAEL WAKGARI 46
jobs of the association and performs as per the plan of the association to optimize ESCA’s
performance.
Finally to optimize its performance a given employees saving and credit association should give
big concern to loan management by following well organized credit procedure. And give big
accent to technology adoption by utilizing the necessary technological packages that can support
its performance and enhancing literacy status of workers and members through training and other
options.
5.5. Suggestion for Further Research
Explanatory variables of this study can explain performance of ESCAs at an extent of 30.8%, as
showed by the result of an adjusted R squared 0.308. This implies that there are about 69.2%
other than explanatory variables loan management, saving capacity of members, technology
adoption, and Literacy status of workers and members which can determine performance of
ESCAs. Thus researcher ought to recommend that a study should be done on the factors that can
determine performance of employees saving and credit associations to find out other factors
different from explanatory variables of this study.
TADAEL WAKGARI 47
REFERENCES
ACCOSCA Addis Ababa, 1-13 April (Nairobi), 1990. Saving and credit co-operative
Development Office, In-country training programme.
Araya, 1983. The development of saving and credit co-operatives in Ethiopia. Senior
essay paper, department of economics in AAU.
Amare Bahiru, 2005. The performance of saving and credit cooperatives in Ethiopia.
Begashaw, 1978. The economic role of traditional saving and credit institution in
Ethiopia.
Kothari 2005. Performance Matched Discretionary.
Clement, Ambrose and Jagongo (PhD), 2003. The Contribution of Sacco Financial
Stewardship to Growth of SACCOs in Kenya.
Faith Ngugi, 2015. Factors affecting growth of SACCOs within the agricultural sector in
Kenya.
Kipngetich, 2015. Effect of credit risk management on financial perfomance of savings
and credit co-operative society in Kenya.
Jared. Charles and Willy, 2013. The challenges facing deposit-taking savings and credit
cooperative societies’ regulatory compliance in Kenya.
Ronald ObureHezron, 2015. Effect of internal factors on performance of SACCOs in
Kenya.
ErgetewTemecheMolla, 2015. Determinants of the Financial Performance of saving and
Credit Cooperative Unions in South WolloZone.
Duncan, 2014. The effect of SACCO societies’ regulatory authority’s regulations on
financial performance of SACCOs in Nairobi.
Edna, 2015. Factors influencing performance of SACCOs in Kenya.
Njihia and WillY, 2016. Factors Affecting Financial Performance of Savings and Credit
Co-Operative Societies.
Hannah, 2015. Determinants of the Financial Performance of Savings and Credit Co-
operatives in the Banking Sector in Kenya.
TADAEL WAKGARI 48
Nigusie, 2015. Determinants of Savings and Credit Cooperatives Societies outreach in

Addis Ababa.
Abayneh, 2011. Factors influencing saving and credit in the case of saving and credit
cooperatives of North shewa Zone Amhara national regional state.
James, 2013. Factors influencing financial performance of savings and credit cooperative
societies. acase of capital sacco, meru county, Kenya.
Azeb, 2003. Saving and credit association in Ethiopia (in case of two studies).
Meaza, 2008. Loan management in ESCA (case study of AAU).
Gujarati 2004. Basic Economics
ETC ESCA Employees saving and credit association annual report and audit report.
Banjerjee, B. (2005). Financial policy and management accounting. 7th Edition,
Mumbai: PHI Learning Pvt. Ltd.
Beck, T., Levine, R. & Loayza, N. (2000). Finance and the sources of growth. Journal of
Financial Economics.
Benninga, S. & Czaczkes, B. (2000). Financial modeling. 2nd Edition, Cambridge: MIT
Press.
Brooks 2008. Chris-Brooks-Introductory Econometrics for finance
TADAEL WAKGARI 49
APPENDICES
APPENDIX I: Time frame and schedule of activities to accomplish the study
2016/2017 G.C
SN Task to be Implementation period Remark

performed
Oct Nov Dec Jan Feb Mar Apr May Jun
1 Research topic
preparation
2 Topic selection
3 Research
proposal
preparation
4 Approval of the
proposal
5 Questionnaire
preparation
6 Data collection
7 Data
presentation,
analyzing and
interpretation
8 Report writing
9 Final report
10 Presentation and
defense
TADAEL WAKGARI 50
APPENDIX II: The questionnaire used to collect primary data
ADDIS ABABA UNIVERSITY COLLEGE OF BUSINESS AND ECONOMICS
Masters of Business Administration Program Questionnaire to be completed by Management,

workers and members of ETHIO TELE COM Employees Savings and Credit association.
Dear Respondents,
I, the undersigned, am conducting a research on ‘’ Determinants of Performance of

Employees Savings and Credit associations in Ethiopia’’. This is conducted in partial
fulfillment of the Masters of business administration. The study is intended to examine factors
that determine performance of employees savings and credit associations in Ethiopia in the case
of ETHIO TELE COM. In this regard, the questionnaires are designed to obtain pertinent
information, which is believed to be pedestal for the accomplishment of the research objectives.
I kindly request your cooperation in completing the questionnaire attached herewith. I would like
to assure you that the information provided in this survey will be used for the stated purpose and
will be kept confidential. Please don’t hesitate to contact me through the under mentioned
address should you have any queries about the subject
Thank you in advance for your cooperation and assistance, despite your work burden.
Kind and warm regards,
Tadael Wakgari
MBA Candidate
Mobile phone number: - +251911927574
Email address: - whwakuma@gmail.com
The questionnaire has two parts. The first part focuses on the demographic aspect of the
participants. The second part consists of five sub sections soliciting answers related to examine
factors that determine performance of employees savings and credit associations.
TADAEL WAKGARI 51
Part I: The Profile- Please indicate your information
Tick (√) the answer and fill the blanks when necessary
1. Gender : Male Female
2. Age: 20-25 26-35 36-45 46-60
3. Marital status: Single Married
4. Educational level: Diploma and below First Degree 2nd degree
5. Years of experience: Less than 2 years 2 to 5 years
6 to 10 years more than 10 years
6. Status Managerial Worker Member
Part II: Please indicate your level of agreement or disagreement with each statement by putting
a tick “ ” mark using the following five measurement scale:
Strongly disagree Disagree Neutral Agree Strongly agree
1 2 3 4 5
Section A
Loan management
Level of agreement
SN Description
1 2 3 4 5
1 Proper loan management system will enhance
TADAEL WAKGARI 52
performance of the association.
2 The association has proper loan evaluation structure.
3 The association has an effective loan disbursement

system.
4 The association has an effective loan repayment system.
5 The association has an effective loan protection system.
Section B
Saving capacity of members
Level of agreement
SN Description
5 4 3 2 1
1 Saving capacity of members has positive impact on
performance of Employees saving and credit association.
2 Saving capacity of members has negative impact on
performance of Employees saving and credit association.
3 Saving capacity of members has no impact on performance
of Employees saving and credit association.
4 Voluntary savings can enhance deposit of the association.
5 Involuntary savings can enhance deposit of the association.

6 Forced savings can enhance deposit of the association.
TADAEL WAKGARI 53
Section C
Technology adoption
SN Description Level of agreement
5 4 3 2 1
1 Technological innovations need to be accepted and actually

used by the association to enhance performance.
2 Using social media supports performance of the association.
3 Using website supports performance of the association.
4 Using internet supports performance of the association.
5 Using intranet supports performance of the association.
Section D
Literacy status of workers and members
5 4 3 2 1
1 Literacy status of workers and members of the association
has positive impact on performance of the association.
has negative impact on performance of the association
has no impact on performance of the association
4 More educated worker is more committed to the desired jobs
of the association than less educated.
5 More educated member is more committed to loan
repayment than less educated.
TADAEL WAKGARI 54
6 Less educated worker is more committed to the desired jobs

of the association than more educated.
7 Less educated member is more committed to loan repayment
than more educated.
Section E
This section attempts to assess performance of employees saving and credit association
5 4 3 2 1
1 The association has experienced an improvement in
profitability.
2 The association has experienced an improvement in total
deposit.
members satisfaction.
4 The association has experienced an improvement in internal
processes.
5 The association has experienced an improvement in workers
satisfaction.
increasing amount of loan issued.
7 The association has experienced an improvement in reducing
amount of loan defaults.
Thank You!!!
TADAEL WAKGARI 55

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ADDIS ABABA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

Determinants of Performance of Employees Savings and Credit associations

By: Tadael Wakgari

Adviser: Abebaw Kassie (PhD)

June, 2017 G.C

Sign: ……………………………………….. Date: ………………………

Tadael Wakgari Wakuma

REG NO: - GSE/1476/07

Sign: ……………………………………...... Date: ………………………….

Adviser: Abebaw Kassie (PhD)

Internal Examiner: Alem Hagos (PhD). Signature ……………..Date………………….

External Examiner: Demis Dea (PhD). Signature ……………...Date…………………

TADAEL WAKGARI iii

2.3. Overview of empirical literatures ............................................................................................... 13

4.3.6. Distribution of respondents by nature of status in the association ...................................... 33

Table 10: Descriptive statistics ................................................................................................................... 34

ABBREVIATIONS AND ACRONYMS

ACCOSCA African Confederation of Cooperatives Saving and Credit Association

EASCA Employees Saving and Credit Association

ENTACCS Ethiopian National Thrift and credit cooperative society

ETC Ethiopian Telecommunications Corporation

FDRE Federal Democratic Republic of Ethiopia

LS Literacy Status of workers and members of the association

LM Loan Management of the association

PESCA Performance of Employees saving and Credit Association

SACCOs Savings and Credit Cooperatives

SACCODO Savings and Credit Cooperatives Development Office

SNNP South Nations Nationalities and Peoples

SC Saving Capacity of members of the association

TA Technology Adoption of the association

WOCCU World Council of Credit Unions

TADAEL WAKGARI vii

Keywords: Saving, Credit, Performance, Loan management, saving capacity, Technology

1.1. Background of the Study

1.2. Statement of the problem

1.3. Objective of the study

1.3.1. General objective of the study

1.3.2. Specific objective of the study

The study was guided by the following specific objectives.

a) To identify the effect of management of loan on performance of employees saving and

1.4. Research Questions

The study answered the following questions:

How does management of loan is determinant of performance of employees saving and

How does technology adoption of the association influence performance of employees

1.5. Research Hypothesis

i. H0: There is no dependence between performance of ESCAs and loan management.

1.6. Significance of the study

1.7. Scope and Limitation of the Study

1.8. Organization of the paper

2.2. Conceptual and theoretical issues

A Savings and Credit Cooperative (SACCO) is a type of cooperative whose objective is to

• Residential common bond which is based upon a geographical or political sub

2.2.1. SACCOs in Ethiopia

2.2.1.1. Legal framework of SACCOs

2.2.1.2. Objectives of SACCOs

WOCCU defines savings and credit cooperatives as democratic member–owned financial

2.2.1.3. Contribution of SACCOs to the livelihood of their members

Prior to the issuance of proclamations of cooperatives societies, the provision of financial

2.2.1.4. Perspectives of the SACCOs

LM Pearson 1 .274 .291 .211 .493