The Effects Of Savings On The Performance Of Micro Finance Institutions. A Case Study Of Finance Trust Limited Of Mogadishu-Somalia.

TABLE OF CONTENTS

DECLARATION ..................................................................................................................................... i

APPROVAL ........................................................................................................................................... ii

DEDICATION ....................................................................................................................................... iii

ACKNOWLEDGEMENT ...................................................................................................................... iv

TABLE OF CONTENTS ........................................................................................................................ v

LiST OF ABBREVIATIONS ............................................................................................................ ix

CHAPTER ONE ..................................................................................................................................... 1

1.0 INTRODUCTION ....................................................................................................................... 1

1.1 BACKGROUND OF THE STUDY ................................................................................................... 1

1.1.2 Background of the Case Study ........................................................................................................ 2

1.2 STATEMENT OF THE PROBLEM .................................................................................................. 3

1.3 PURPOSE OF THE STUDY ............................................................................................................. 4

1.4 OBJECTIVES OF THE STUDY ....................................................................................................... 4

1.5 RESEARCH QUESTIONS ................................................................................................................ 4

1.6 SCOPE OF THE STUDY .................................................................................................................. 4

1.6.1 THE GEOGRAPHICAL SCOPE .................................................................................................... 4

1.6.2 THE SUBJECT SCOPE ................................................................................................................. 5

1.6.3 THE TIME SCOPE ........................................................................................................................ 5

1. 7 SIGNIFICANCE OF THE STUDY ................................................................................................... 5

1.8 ORGANISATION OF THE STUDY ................................................................................................. 5

CHAPTER TWO .................................................................................................................................... 7

LITERATURE REVIEW ........................................................................................................................ 7

2.0 INTRODUCTION ....................................................................................................................... 7

2.1 SAVINGS OVERVIEW ................................................................................................................... 7

2.2 SAVINGS PRODUCTS IN MICRO FINANCE INSTITUTIONS ............................................ , ......... 7

2.2.1 PERSONAL AND BUSINESS BANKING .................................................................................... 9

2.2.2 CORPORATE AND INVESTMENT BANKING ......................................................................... 10

2.2.3 SAVING RELATED BENEFITS ACCRUING TO MICROFINANCE INSTITUTIONS ............. 11

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2.3 OTHER FACTORS THAT CONTRIBUTE TO THE PERFORMANCE OF MICROFINANCE

INSTITUTONS: ..................................................................................................................................... 12

2 .3 .1 Financial Assets ............................................................................................................................ 12

2.3.1.1 Financial assets at fair value through profit or loss ..................................................................... 12

2.3 .1.2 Loans, Advances and receivables ............................................................................................... 13

2.3 .1.3 Held to Maturity ........................................................................................................................ 13

2.3 .1.4 Available for sale ....................................................................................................................... 13

2. 3 .I. 5 Irnpainnent of financial assets .................................................................................................... 14

2. 3.2 PROPERTY EQUIPMENT .......................................................................................................... 15

2.3 .3 INCOME TAX ............................................................................................................................. 15

2.3 .4 LEASES ....................................................................................................................................... 16

2.3.5 EMPLOYEES .............................................................................................................................. 16

2.3 .6 BORROWINGS ........................................................................................................................... 16

2.3 .7 OFFSETTING ofliabilities and financial assets ............................................................................ 17

2.3.8 SALE AND PURCHASE P.GREEMENTS ................................................................................... 17

2.3.9 ACCEPTANCE AND LETTERS OF CREDIT .................................................................... ,,, ...... 17

2.4 INTANGIBLE ASSETS - GOODWILL .......................................................................................... 17

2.4.2 PRO VISIONS .............................................................................................................................. 18

2.5 SHARE CAPITAL .......................................................................................................................... 18

2.5 .I Share issue costs ........................................................................................................................... 18

2.5 .2 Dividends on ordinary shares ........................................................................................................ 18

2.6 THE RELATIONSHIP BETWEEN SAVINGS AND THE PERFORMANCE OF MICROFINANCE

INSTITUTIONS ................................................................................................................................... 18

2.6.1 CAPITAL ADEQUACY: ............................................................................................................. 19

2.6.2 CREDIT RISK ............................................................................................................................. 20

2.6.3 CREDIT RELATED COMMITMENTS ....................................................................................... 20

2.6.3 CONCETRA TION OF RISK ........................................................................................................ 21

2. 6.4 CURRENCY RISK ...................................................................................................................... 21

2. 6.5 INTEREST RATE RISK .............................................................................................................. 21

2.6.6 LIQUIDITY RISK ........................................................................................................................ 21

2.6.7 FAIR VALUES OF FIANANCIAL ASSETS AND LIABILITIES ...............................................