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Section 6. Finance, money circulation and credit
DOI: http://dx.doi.org/10.20534/EJEMS-17-3-40-44
Esmeralda Dogi, Phd. Candidate Social Insurance Institute, Albania Department of Finance and Accounting Faculty of Economic and Agribusiness Agricultural University of Tirana, Albania E-mail: esmeralda.doci@yahoo.com
Msc. Salko Aida,
Master of Science Department of Money and Finance Faculty of Economy, University of Ljubljana, Slovenia E-mail: aida.salko93@gmail.com Aldona Minga, Phd. Candidate Professor at Fan Nolin University Department of Finance and Accounting Faculty of Economic and Agribusiness Agricultural University of Tirana, Albania E-mail: amrruku@yahoo.it
THE ROLE AND THE IMPACT OF MICROFINANCE IN THE FINANCING OF RURAL AREAS IN ALBANIA
Abstract: The aim of this research project has been the assessment of the economic impact of microfinance on the household economic level in the rural area of Albania.
Keywords: microfinance, household, economic impact, income, expenditure.
Introduction finance program there are two known and widely
The main objective of microfinance is to of- used indicators (Hulme, 2000). fer possibilities to the family economy to improve First, the income, including all the sources of in-
and raise the family consume of goods. To measure come, is considered an important indicator in mea-
the impact of the financial program such as micro- suring the effects and changes after the involvement
financing, we need to measure the results that this on the program. The income is comprised of all the
program has on the agents such as families, firms possible sources for the economic activity of the fam-
or the cities on which this program has been put in ily as the income from selling the agricultural prod-
place. To value the economic effect of the micro- ucts, the salaries ext. Using this indicator however to
adequately measure the welfare of the families can be misleading due to the possible wrong measurements (Coudouel, Hentschel & Wodon 2002).
Secondly, the expenses are also considered an indicator ofthe program. The expenses reflect with reality the consume function, which in theory is a derivative of consume function and the income increase. However, expenses being used as an indicator of the program are a more reasonable approach than using the income. Furthermore the expenses for the consume of goods come as a daily need of the family economy and are a better reflection of their level of living.
The main stated aim of MFIs is to generate a cycle under which microfinance increases the household income and improves the social and economic conditions of the entire community.
Similarly, similar doubts have been raised regarding the impact of microfinance programs on economic and social inequality for women, as donors have to convert microcredit programs into self-financing (self-maintenance) projects (Morduch, 1999).
This pressure can lead to a minimal approach and to the exclusion of non-financial components such as: education and healthcare, which are necessary for the participation of the poor, especially for women. This trend confirms the existence of a potential trade between social and financial goals. (Morduch, 1999). Approximately 500 million poor but economically active people around the world operate on microfinance and small businesses (Women's World Banking Global Policy Forum, 1995). Most microfinance institutions do not have access to the formal banking system due to shortage of collateral, high transaction, low credit costs, and high risk of informal sector action. Microfinance is a unique tool in the development interventions, promoting poverty alleviation for a low but stable state, although most MFIs rely on subsidies (Armendariz de Aghion & Morduch, 2005).
The importance and the effects of the microfinance in rural area of Albania: Albania is a developing country and its economy is based on the
agricultural production, which remains one of the most important sectors of the economy and one that contributes the most in the income generated especially on the rural areas. The agricultural sector is in a difficult and critical condition and needs some huge financing in order to be efficient, as it plays an important role in the economy of our country. The agricultural economy in Albania is important, as it makes for 18 percent of the gross domestic production GDP. That's mainly made of mini-family farms with a small structure of 0.8-12 hectare of land, where the most production is consumed by the farmers who produce them.
In the rural areas is difficult to get loans as there are some conditions and criteria that need to be met. A lot of farmers have fragmented surfaces of land that come as a direct result of the falling of the communist regime and the agricultural co operations. Only the farmers with big surfaces of land can meet the condition to apply and get credit. Due to the high costs associated with loans, the banks prefer to give loans in big sums, while the farmers prefer small loans. As a result the involvement on the microfinance programs is the best way for farmers to get small loans, while the banks don't prefer to give high cost loans in small amounts.
The small percentage weight that the agricultural loans hold, compared to the other loans is also a problem. Each agricultural activity is considered high risk due to the fragile and sometimes unpredictable nature of the production which effects paying off the loan.
To be a good credit client, that is considered low risk, the farmers should have selling contracts, technical services, raw materials etc. Regardless, we can say that there are different ways to create a trustworthy environment and relationship between the loan holders and the financial institutions.
For a lot of farmers the compilation of the financial analysis can be difficult seeing as they don't meet the criteria, and considering the seasonality of their production.
Collateral should be calculated based on the amount of the loans, which means that for small loans, should be requested less collateral, but on the other hand for the farmer would work better to get loans without a collateral as a big part of them have small amounts of lands due the their fragmentation.
Development of the infrastructure is a very important element in the development of the agriculture. Farmers depend on the reliable infrastructure to deliver their products and expand their operations. Therefore lack of the infrastructure creates problems not only on delivering the products but also buying raw material, machineries, fertilizers etc.
The presence of Micro-financial institution has made possible easiness in the finance process for a lot of families that live in the rural areas and that is due to:
a. Microfinance institutions have less bureaucratic forms to be filled in the crediting process
b. They have flexibility and velocity
c. Favorable interests rates
d. Low interests and no collateral for sums up to 1.000.000 all
e. Fewer documentations
f. A fast approval of loan
g. Fast allocation of funds (within a week) from the day of the loan approval
Methodology:
The measurement of the impact of microfinance can be realized in different methods but the most common are realized with survey, observations, surveys and participation analysis each of them has the advantages and disadvantages. Nowadays the measurement of the impact of microfinance is not "what methods should we choose" but "what combination of methods should we choose and how we can combine them" (Hulme, 1997). Main objective of the research: The assessment of the impact of microfinance on the level of household income and annual expenditure.
Regarding the objective of microfinance impact on the economic level, it has been carried out taking into account the impact of microfinance on the level of households. Initially, the study was focused
on analyzing the impact of microfinance on the economic level of household units in relation to annual incomes, annual expenditure before and after the loan. The above analyses are based on the methods and procedures for controlling both statistical and econometric hypotheses, using appropriate computer programs such as SPSS.
Data sources: The research project data are based on qualitative data, which were collected through surveys conducted during 2016. In total, 160 individual interviews of MFI customers in Albania were conducted.
Study Analyses: The impact that microfinance has had on family survey participants has been analyzed by the data collected through the survey realized in rural families. Thus, data on annual income, family expenses before and after microcredit are collected.
The impact on the annual income level: In order to analyze the question ofwhether microfinance has had an impact on household income growth, the statistical hypothesis control procedure was used through «paired t-test». Hypothesis F1: Hg: The lending process has not had significant impact on the level of annual incomes{x1 = x2}. H: The lending process has had significant impact on the level of annual incomes {x * x2}
From the table 1. above we can get the following data: ftf = 6.770, while tkr = 0.05; 126 = 1.96, so we can say that with Significance level a = 0.05, tf > tkr, Ho is false and the process of microfinance or lending has had a significant impact on the level of annual income for the families included in the program of microfinance.
The impact on the level of annual expenditures: In order to analyze the question of whether microfinance has had an impact on the level of annual family expenditures, the statistical hypothesis control process was used through "paired t-test". Hypothesis F2: Hg: The lending process has not had significant impact on the level of annual incomes {x = x2}. H : The lending process has had significant impact on the level of annual incomes {x * x2}.
Table 1. - Paired Samples Test
Paired Differences T df Sig. (2-tailed)
Mean Std. Deviation Std. Error Mean 95% Confidence Interval of the Difference
Lower Upper
Annual incomes after the loan Annualincomes before the loan 4.192 6.978 .619 2.966 5.417 6.770 126 .000
Table 2. - Paired Samples Test
Paired Differences t df Sig. (2-tailed)
Mean Std. Deviation Std. Error Mean 95% Confidence Interval of the Difference
Lower Upper
Annual consumption expenditure after the loan Annual consumption expenditure before the loan 1.786 3.177 .280 1.231 2.342 6.363 127 .000
From the table above we can say that: ftf = 6.363, while tkr = 0.05; 127 = 1.96, so we can say that with Significance level a = 0.05, tf > tkr, Ho is false and the process of microfinance or lending has had a significant impact on the level ofannual consumption level for the families included in the program of microfinance.
From the analysis we conclude that the lending process and the participation in microfinance programs have had a significant impact on the level of household income by increasing them and consequently the level of household spending has also increased. Through this analysis we prove the F1 and F2 hypothesis: The impact of microfinance has been significant for the family survey participants influencing the growth of annual income and expenditures of these families.
Results and recommendations: Measuring the impact of microfinance, especially economic and
social impact has not been easy, however, this paper present the use of statistical methods in evaluating the impact of microfinance in the income and expenditure of household families.
The results of the t-test paired statistical analysis concluded that the level of annual pre-credit income for the interviewed households changed after they were included in the microfinance program, affecting their growth. Following this impact, an increase in the level of income is accompanied by an increase in the annual expenditure of households included in the microfinance program.
These results may be useful estimates for different studies at the level of impact measurement of microfinance programs on the economic and social indicators of households in a given country, but also a method of assessment for different microfinance organizations.
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