HAWASSA UNIVERSITY

AWADA BUSINESS AND ECONOMICS COLLEGE

DEPARTEMENT OF MANAGEMENT

ASSESSMENT OF THE ROLE OF FINANCIAL INSTITUTION IN

PROMOTING INVESTEMENT (A CASE OF WEGAGEN BANK
YIRGALEM BRANCH)

A RESEARCH PROPOSAL SUBMITTED TO DEPARTMENT OF

MANAGEMENT FOR THE PARTIAL FULLFILMENT OF BACHLOR OF
ARTS (BA) DEGREE IN MANAGEMENT

Prepared By: ABDULSELAM BEYAN

ID NO: 0014/13

ADVISOR; Mr. LANSO

NOVEMBER 10, 2016/ec

HAWASSA ETHIOPIA

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Acknowledgement
First and foremost, I would like to thanks the Almighty God for his kindness, for giving me the
patience, endurance for my stay in the university and to accomplish this research proposal.

Besides I should like to record my sincere thanks to my family to their love, courage,
inspirations, material and moral support during my stay in the university.

My special thanks goes to my advisor Mr Lanso for his comments on initial draft of the chapters,
for his constructive suggestions on a variety of material inclusion in the paper, continuous follow
up, unforgettable guidance and advice Last but not least, my heartfelt thanks to my friends for
their ideal support, respondents of the questionnaire, Yirgalem investment office and Yirgalem
city investment office managers and workers and authors of the references that I use in this task.

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ABSTRACT
This research conducted in Wegagen Bank Yirgalem branch which operates banking services.
The main purpose of the study will to assess the role of financial institutions has in promoting investment
with particular reference to Wegagen Bank, in Yirgalem branch.in addition to that strategies used by
bank in promoting investment and examine the financial services bank extends to investors in Yirgalem.in
order to achieve this objective census of 7 employees working for the bank and 14 investors who take
loan from bank. To achieve the objective of the study data will be collected from both primary and
secondary sources through questionnaires. Data will be organized by using tables and descriptive
analyses methods will apply. The researcher collect data through questionnaires and interview from
selected the employees of the Wegagen bank Yirgalem branch. Currently financial institutions are widely
used in bank for investment, because the most of the bank activities are depends on finance; the result
indicates that the role of financial institution at this bank leads t to improvement of investment.

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Acknowledgement………………………………………………………………………………..…Ⅰ
Abstract……………………………………………………………………………………..Ⅱ

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

1. INTRODUCTION.......................................................................................................................1

1.1 Background of the study............................................................................................................1

1.2. Statement of the Problem..........................................................................................................4

1.3. Research Questions...................................................................................................................5

1.4 Objectives of the Study..............................................................................................................5

1.4.1 General objective....................................................................................................................5

1.4.2 Specific objectives of the Study.............................................................................................5

1.5. Scope of the study.....................................................................................................................6

1.6. Significance of the study..........................................................................................................6

1.7 Organization of the paper..........................................................................................................7

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

2. LITERATURE REVIEW............................................................................................................8

2.1 THEORETICAL LITERATURE REVIEW..............................................................................8

2.1.1 AN OVERVIEW OF INVESTMENT....................................................................................8

2.1.2 Types of investment................................................................................................................9

2.1.3 Importance of investment.....................................................................................................10

2.1.4 Objective of investment........................................................................................................10

2.1.5 An over view of financial institution....................................................................................12

2.1.6 Investment constraints..........................................................................................................14

2.1.7 Role of Financial institutions................................................................................................15

2.1.8 Contributions of the private sector to the economy..............................................................15

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2.2 Empirical literature review......................................................................................................17

2.3 RESEARCH KNOWLEDGE GAP.........................................................................................18

CHAPTER THREE.......................................................................................................................19

3. RESEARCH METHODOLOGY..............................................................................................19

3.1 RESEARCH DESIGN.............................................................................................................19

3.2. Target population....................................................................................................................20

3.3. Sampling Technique...............................................................................................................20

3.3. Sample Size Determination....................................................................................................20

3.4. Types and Source of Data.......................................................................................................20

3.5. Methods of Data Collection....................................................................................................21

3.6. Methods of Data Analysis And Interpretation .......................................................................21

References......................................................................................................................................40

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 CHAPTER ONE
1. INTRODUCTION
1.1 Background of the study
Financial institution can be broadly defined as an organization which may be either for- profit or
nonprofit, which takes money from clients and places it in any of variety of investment vehicles
for the benefit of both the clients and organization (Zeller, 2003 and Nugent, 2001).

Common examples of financial institutions are banks, insurance companies, credit associations,
micro finance, financial and economic firms.

Investment can also classified as private investment and public investment, private investment is
most often used as a general term for investment that comes from an individual or group rather
than from a large organization (Keith and wilborn, 2004).

Private investment is money investment by company, individual, investor, financial organization

rather than by a government entity. Private investment goods include purchase of computer
equipment and inventories. But in public investment the money exchange come from a
government entity. Public investment goods include investment in machinery, building,
operating expenditure on training, hospital, building roads (Maroon, 2014).

Investment determines the economy`s future productive capacity and ultimately growth in the
standard of living by increasing personal wealthy. Investment can attribute to higher overall
economic growth and prosperity, these process of investing helps to create financial market
where can raise capital. The issues of investment promotion ranks high among the priorities of
socioeconomic development, given the growing need for employment creation and poverty
alleviation(Nugent, 2001).He further noted that there is also an urgent need to create a strong
competitive investment environment that is able to play leading role in the development process.
The issue of investment promotion ranks high among the priorities of socio economic
development, given the growing need for poverty reduction. However, there appears to be limit
evidence that confirms the contribution of financial institutions for promoting investment. So,

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financial institution face many challenge and government control on a country level, and
structure impediments, such as imperfect

Information and other market failures (MichaelEt.al, 2008). To this end; this study will
significantly place as its main focus, the Assessment of financial institutions role in promoting
investment in Ethiopia, particularly in Yirgalem by using Wegagen bank as case study.

1.2. Statement of the Problem

Financial institution on investment promotion is one of the approaches that the government has
focus its attention in recent years in pursuit of its long term vision of providing sustainable
financial services to majority of countries population for investment. In Ethiopia also, before the
current financial and banking restructuring took place, most of financial services for rural and
urban investment were offered by the few licensed commercial banks (Tsehaye and Mengstu
2001).

The realization of the above shortcoming led to the Government`s decision to initiate deliberate
action to facilitate alternative approaches in the creation of a broad based financial system
comprising of a variety of sustainable institutions with wide outreach and offering diverse
financial products. The government`s choice of financial institutions was influenced by the
conviction that, given adequate attention, financial institutions have the potential to contribute
considerably to the promotion of investments in the country because it is more adapted to the
needs of the entrepreneurs/ investors (Moti and Sharma 1998).

According(MichaelEt.al,2008),Now a day financial institution face many challenge and

government control on a country level, and structure impediments, such as imperfect information
and other market failures.

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Therefore, it will worth assessing the contribution of financial institutions in promoting
investment. In this regards, the researchers will be decided to undertake the study to
investigate the contributions of financial institutions in promoting investments in case of
Wegagen Bank Yirgalem Branch. All previous researchers did not asses contributions of
financial institutions in promoting investment. So this is one of the gaps to be filled and that
problem will inspire the 1.2. Statement of the Problem
Financial institution on investment promotion is one of the approaches that the government has
focus its attention in recent years in pursuit of its long term vision of providing sustainable
financial services to majority of countries population for investment. In Ethiopia also, before the
current financial and banking restructuring took place, most of financial services for rural and
urban investment were offered by the few licensed commercial banks (Tsehaye and Mengstu
2001).

The realization of the above shortcoming led to the Government`s decision to initiate deliberate
action to facilitate alternative approaches in the creation of a broad based financial system
comprising of a variety of sustainable institutions with wide outreach and offering diverse
financial products. The government`s choice of financial institutions was influenced by the
conviction that, given adequate attention, financial institutions have the potential to contribute
considerably to the promotion of investments in the country because it is more adapted to the
needs of the entrepreneurs/ investors (Moti and Sharma 1998).

According(MichaelEt.al,2008),Now a day financial institution face many challenge and

government control on a country level, and structure impediments, such as imperfect information
and other market failures.

Therefore, it will worth assessing the contribution of financial institutions in promoting

investment. In this regards, the researchers will be decided to undertake the study to investigate
the contributions of financial institutions in promoting investments in case of Wegagen Bank
Yirgalem Branch. All previous researchers did not asses contributions of financial institutions in
promoting investment. So this is one of the gaps to be filled and that problem will inspire the
researcher to conduct the study. And the other point of that the researcher keen interest to study
the problem on this topic is for a reason that no similar study so far been done on this level in
Yirgalem branch particularly in Wegagen Bank as far as to the researcher knowledge. Therefore,

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this point inspired the researcher will be conducted to contributions of financial institutions in
promoting investment in Wegagen Bank Yirgalem branch in 2020.

1.3. Research Questions

1. Which strategies are used by Wegagen bank in promoting investments in Yirgalem?
2. What financial services are extended by Wegagen bank to investors in Yirgalem?
3. How degrees of liquidity affect the bank lending policy and investment returns affect the bank
capital?
4. Which sector is more affected by the service of the bank in Yirgalem branch?

1.4 Objectives of the Study

1.4.1 General objective

The General objective of this study will be assessed the role of financial institutions in promoting
investment in case of Wegagen Bank Yirgalem branch.

1.4.2 Specific objectives of the Study

The specific objectives will be:-

1. To know the strategies used by Wegagen Bank in promoting investments.

2. To examine the financial services Wegagen Bank extends to investors in Yirgalem
3. To investigate how liquidity affects Bank lending capacity and examine how return on
investment affect the capital of Wegagen Bank.
4. To examine the sector which affected by the service of bank in Yirgalem Branch.

1.5. Scope of the study

The study will be conducted in southern Part of Ethiopia specifically, at Dale werade zone in
Yirgalem town, the researcher`s scope will be assessed the role of financial institution in
promoting investments and to study about the role of financial institutions in promoting
investment in case of Wegagen Bank Yirgalem branch among banks at the Ethiopia level is very
important. However, due to time, financial and other constraints, the study will be geographically
delimited to Yirgalem town will be concerned one bank.

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1.6. Significance of the study
The study will have significance to shows financial institutions how to increase financing for
investment in the economy. Financial institutions may also able to understand their impact on
investment in the economy and which strategies they can deploy in order to increase investment
in the country. Generally the study will be expected to have a great importance both for the
financial institution (the bank) that can get the necessary details about problem that related to
their role. On the other hand, the investors increase their awareness about the financial
institutions product and it may also enable the investors to use of idle resources. It might be help
for other researcher will take as a base to conduct further research and to imitate the concerned
bodies to the appropriate policy measure for smooth operation of their respective institution in
promoting investment activities to attain ultimate objective.

This study will also help for other researcher who conducts their research on the same title. The
study will have of a great importance to the researcher due to the broad knowledge and
understanding that may achieved from the research and led him to attainment of a Bachelor`s
degree in Accounting and finance. To the researcher with special interest in financial institutions
and investment, this study will also very significant because it will serves as a good platform of
research effort on other issues within the confines of financial institutions.

1.8 Organization of the paper

The paper will be organized in to five chapters. The first chapter will be dealt with introduction
of the paper including background of the study, scope of the study limitations of the study and
organization of the study, chapter two will be dealt with literature reviews, chapter three will be
dealt with methodology of the study, chapter four will be dealt with data presentation, analysis
and interpretation and chapter five will be dealt with conclusion and recommendations.

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 CHAPTER TWO
2. LITERATURE REVIEW
This chapter reviews the theoretical and empirical literature on the role of financial institutions in
the investment. This review of the literature will be established the framework for the current
study. Which in turn, help in clearly identifying the gap in the literature and formulating research
questions for the study?

2.1 THEORETICAL LITERATURE REVIEW

2.1.1 AN OVERVIEW OF INVESTMENT

An investment is commitment of fund or capital to purchase financial institution. Investment is
purchase of goods that are not consumed but generally investment is application of money for
earning more money. Investment also means savings and savings made through delayed
consumption (Cleary and Tones, 2004).

According to Economic investment is the utilization of resources in order to increase income or

production output in the future. An amount deposited in to a bank or machinery that is purchased
in ant libation of earning income in the long run. Investment any physical or tangible asset, for
example, a building or machinery and equipment on the other hand, finance professionals define
investment money utilized for buying financial assets like bonds stocks, bullion, real properties
and precious items. An investment is any vehicle in to which fund can be placed with
expectation that it will generate positive income and expand its asset (Bodie et al., 2007).

Investment in finance the purchase of products or other items of value with expectation of
favorable future return. Investment as the buildings of factors used to produce goods and
investment one makes by going to college or university both examples of investment in
economic sense according to business theories. Investment in buyers a physical asset like stock
or production equipment in expectation that this will helps business to prosper in long run (Dash,
2009).

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2.1.2 Types of investment
Capital investment is defined as the expenditure that may be incurred by a business organization
in order to purchase machineries and other fixed assets. This expenditure is normally beneficial
as it lays the foundation for future investments of similar kind capital investment is venture
capital in the business circles. An important aspects of capital investment is capital spending.
Capital spending is normally performed for categories that are expected to last for more than a
single year (Maps of World, 2015).

1. Equity investment

Equity investment refers to the trading of stocks and bonds in share market. It is also referred to
as the acquisition of equity or ownership participation in the company. An equity investment is
typically and ownership investment, when the lakeshores owns asset of company. In this kind of
investment there is always a risk of investor not earning expected amount of money (Akinsulaire
2003).

2. Stock investment

The process of stock investment enables the stock traders or investors stock traders or investors
that have same of best growth opportunities over long period of time. Stock investment also
comes with largest amount of risks they are categorized as either being international or domestic
(Keynes, 2008).

3. Cash investment
Cash investment symbolize short term instruments and offer more strength and protection for
investments unlike stocks, cash investment offer slimmer changes for growth and also with come
with short term obligation usually few than go day’s that provide are turn in the form of interest
payments, generally cash investment offer allow return compared to other investments. They are
associated with very low levels of risk (Dodd frank, 2002).

4. Domestic and foreign investment

Domestic investment is debt, equity and derivatives securities of us based companies and foreign
investment is debt, equity and derivative securities of foreign based companies.

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2.1.4 Importance of investment
People invest to improve their welfare or to increase their monetary wealth both current and
future by holding cash to get the opportunities to earn on that cash, investors are usually
interested only in monetary beliefs to be obtained from investors by foreign consumption today
and invest in the saving, investments are useful saving resources than bank deposits. Due to low
rate of interest in fixed rate. Some factors are people are planning today for the comfortable life
after retirement (Dera and Ghazi khan, 2001).

2.1.5 Objective of investment

An investment objective in regard to personal financial planning is the purpose a particular
portfolio serves for individuals or investment advisory client’s financial needs. Once the
objective is determined, it will then dictate what particular asset classes and security types are
needed to fulfill the purpose of portfolio (Relly and Brown, 2009).

Investment is sacrifice of certain present value for uncertain future regard and their primary
investment objectives such as safety, income and Growth of capital (Dash 2009).These objective
are mutually excluding sense that a single security cannot maximize two or more of these
primary objectives so that if you wish to maximize safety, you have to be willing to make some
sacrifices with respect to income and growth potential. Secondary investment objectives is
liquidity or marketability and tax minimization they are considered to secondary in the sense that
investors should not allow them to dominate primary investment consideration on the other hand
if makes good sense to house and follow tax avoidance strategies with in context of any
investment (Cleary and Tones,2004).

1. Speculation
An investment approaches those higher risks in return for the potentially higher rewards.
Investors who seek investments to cause on maximizing capital appreciation and not concerned
in the generation of current income. Aggressive growth investment will assume high market
risks. The most aggressive investment objective category. This investment approach seeks
maximum gain and accepts maximum risks. Investors who seek investment focused on
speculation seek the highest gains without regard to holding period and accept the potential of
the entire loss of thin principal in return for the potential gain (Dash 2009).

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2. Growth
Investor who seeks investments primarily focused on achieving high capital appreciation with
little emphasis on the generation of current income. Investors using this approach expect to level
higher than average increases in revenues and returned and accept a higher risk (Keynes 2000).

3. Growth & income

For investors who seek both higher returns from capital appreciation and some current income by
investing the portfolio primarily in growth equities which produce little or no current income and
income producing investment of all grades, while recognizing and accepting the increased risks
associated with investment of this type investors accept some risk and greeter volatility their
income objective (Marcus, 2001).

4. Income
Investors who seek investment primarily focused on the continued receipt of current income
while recognizing and accepting market &issues risks inherent investment of this type. Investors
in the category are usually seeking income above the market average, but carry higher risks and
can be more volatile than the general market (Marcus, 2001).

2.1.6 An over view of financial institution

Many types of business such as insurance companies 'investment broker expand and credit card
companies have become involved in financial services previously completed to bank. To
expand in financial services such as investments insurance and real states. Increased capital has
brought about the opening of many limited service, office, sometimes called non-bank. These
limited services, office specialize in particular banking activity such Banks as saving or
personal loans (Kappor, 2000).
Financial institution and markets are separable, in practice, because the market are often created
and operated by financial institution. Creation and operation of financial institution are the
responsibility of financial institution managers. Managers are responsible for the proper
financing of the financial institution, difficult task in our very competitive and uncertain
financial market. Financial institutions play important role in the money and capital markets.
Financial institution to facilitate the saving and borrowing process and so doing maximize the

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wealth of institutions owners. Unlike non- financial business with enter the money and the
capital market to satisfy any of their own needs, institutions deal in the financial market to
satisfy the need of other business (Robert, 2008)

1. Banks
Bank is a financial institution that provides banking and financial services to their customers. A
bank is generally understood as an institution which provides fundamental banking services such
as accepting deposit and providing loans. There are also non-banking institutions that provide
certain banking services without meeting the legal definition of bank. Banks are the subset of the
financial services industry. A banking system also referred as a system provided by the bank
which offers cash management services for customers, reporting the transactions of their
accounts and portfolios throughout the day (Kapila, 2001).

2. Micro finance
The word micro finance industry has developed from the history of micro credit programs
initially money micro finance institution of freed only micro loans which means it provides
only loans and saving service which was called micro credit. But today the name changed to
micro finance which covers broader range of products and services from credit and saving to
insurance and money transfer.
Generally micro finance refers to the provision of broad of financial and non- financial services
to low income clients such as loans saving facility, payment service, and money transfer, micro
insurance marketing of client's product and services and business development services Micro
finance provides banking and insurance service but it does not mean that micro finance
institution provides all banking and insurance service or those formal financial institution rather
it provide some of the service and product undertaking by banks and insurance companies Even
though few micro finance institutions are being involved in managing there as on fund of
social security authority and money transfer, the provision of credit and saving product are the
two most important financial products or services delivered by all micro finance institution in
Ethiopia (wolday, 2001).

Loan products of micro finance institution in the country can be divided into two general
categories agricultural or micro business loans. The agricultural loans are loans for the

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agricultural inputs, livestock production bee keeping, etc. The loans are usually term loans, the
principal and interest are paid at the end of t he loan term which varies from one week to one
year for all (Wolday, 2002).

3. Depository institution

Deposit taking institution that accept and manage deposits and making loans include banks,
building societies, credit unions and trust companies soon.

4. Contractual institution

Contractual savings institutions include national provident funds, life insurance companies,
private pension funds, and funded social pension insurance systems. They have long-term
liabilities and stable cash flows and are therefore ideal pension funds, and funded social pension
insurance systems. They have long-term liabilities and stable cash flows and are therefore ideal
providers of term finance, not only to government and industry, but also to municipal authorities
and the housing sector. Except for Singapore, Malaysia, and a few other countries, most
developing countries have small and insignificant contractual savings industries that have been
undermined by high inflation and inhibited by oppressive regulations and pay-as-you-go social
pension insurance systems.

Contractual savings institutions play a much bigger role in the financial systems of developed
countries. In some countries, such as Switzerland, the Netherlands, and the United Kingdom, the
resources mobilized by life insurance companies and pension funds correspond to well over 100
percent of annual GDP.

The authors provide an overview of the structure and the state of development of contractual
savings institutions in both high- and low-income countries. They also identify a number of
operating characteristics that define the social, economic, financial and regulatory implications
of different types of contractual savings institutions. The authors emphasize the fundamental
objectives for reforming the contractual savings and pension systems (Dmitri and Michael,
19991).

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5. Investment institutions
Investment banks, brokerage firms, Private financial institution one entities like banks and
dredge funds that are owned entirely by shareholders, without a government stake these entities
are still subject to government regulation and oversight but they operate with different and
mission in mind. Unlike public institutions which place a public service mission after
development oriented public financial institution one owned wholly or in part by the government
and may include multiple government investors in case of organization like the World Bank
(Vittas and skully 1991).

2.1.7 Investment constraints

Investments constraints include liquidate need, an investment time horizon, tax factors, Legal
and regulatory factors both an investment process and financial markets are highly regulated and
subject to numerous laws. At times, these legal and regulatory factors constrain the investment
strategies of individuals and institutions. Regulations constrain investment choice available to
someone in a fiduciary role. A fiduciary trustee supervises an investment portfolio of third party
such as trust account or discretionary account. Unique needs and preferences this categories
covers individual and sometimes idiom syncretism concerns of each investor some investor may
want to exclude certain investments from their portfolio solely on the basis of personal reference
or for social consciousness resource (Fedahunsi, 1997).

2.1.8 Role of Financial institutions

Banks provide a number of important financial services. Loan provides business with expansion
capital secured loan is one this is guaranteed by some form of asset such as building and
property. An unsecured loan is not backed in the same way. A bank will lend a business a given
sum for a specified period. The business will then repay the capital sum in installment with
interest added. The rate of interest on unsecured loan is higher than for rewind loans. Business
account services an able a business to transact its day to day affairs. Businesses are able to use
bank service such as standing orders and direct debit to pay water. Electricity business rates and
regular bills Overdraft facilities enable a business to have a short period of credit to smooth out
each flow difficulties. The business arranged an overdraft limit with its bank and is promoted to
borrow up to the arranged overdraft ceiling.

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Interest is only charged on the amount overdrawn each day cheque, credit card and bank
statement enables the business to keep a regular check on its accounting position and also an
important economic role performed by financial institutions includes, Promoting the overall
saving of economics, Surveying the existing savings is a more efficient manner so that those in
great need get priority in allotment, Creating credit and deposit money for facilitating the
transaction of trade and distribution in the economy and Channeling saver from investors
(Gomez, 2008).

2.1.9 Contributions of the private sector to the economy

Bank plays important role in the financial system they lend directly to company they under take
long term funding and investment through secularization and covered bond issuance, they use
their securities affiliates to participate are under writing debit securities issued by companies,
using bank balance sheet and they participate in derivatives markets including swamps and
certificate of deposit which affect cost of capital. Today functional banking system reverberates
through all of these channels and may be associated with delivering and high risk-premiums. In
particular the shift from originate and hold to originate and distribute approach may be
endangered the fundamentals of found bank business model. Any national strategies to achieve
millennium development goals need to include a clear frame work for private sector growth.
Private enterprise can contribute directly to the goals through core pursuits such as increasing
productivity and job creation or seeking opportunity for service delivery through public-private
parents. In all this activities companies need to adhere to high standards of responsible corporate
government and citizenship. However companies and their leader can also take action to support
the goals more broadly by contribution to millennium development goal based policy design by
advocating publicly for the goals and pursuing various models of corporate philanthropy
(Atkinson, 2012).

1. Increasing productivity and creating jobs.

In a market based economy private firms contribute to poverty reduction through many channels.
They reduce income poverty when productivity raises job opportunity increase and competition
for workers drive up wages. Technological advance in the manufacturing industries tend by
raising productivity of workers to increase firm growth and then increase a demand for jobs. By
producing essential goods and services in large scale production they can also help to keep the

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price of essential goods and services down increasing the fact effective incomes of developing
people a point under scored by the commotion on the private sector and development. As firm
growth they provide larger source of tax revenues to government which in turn supports
increased public investment .At a broadly level of poverty reduction private enterprises are vital
to supporting overall technological advance the long term driver of the economic growth.
Technological learning for production occurs at the level of interposes both public and private.
This becomes more important as countries reach middle income status and need to develop their
technological base to compete internationally. Manufacturing enterprise also spread innovation
outward to the agricultural and services sectors (Atkinson, 2012).

2. Contributing to police design

Many developing countries have legacies of political tension between the private sector and the
public sector often reflecting past ideological battles. As centered elements of our recommended
strategy for open nations process to develop millennium development goal based poverty
reduction strategies researcher recommended that the local private sector contributed to the
development of these programs alongside civil society development partners and the multilateral
agencies (Atkinson, 2012)

3. Saving and investment

Investment may be regarded as utilization of saving of a country for further creation of wealth.
Investment plays central role in the process of economy do not save for production. Their saving
have to be mobilized for productive purposes then only it will lead to capital formation, which is
the very core of economic growth saving it the excess of income over consumption thus,
something out of the consumption is kept aside for the creation of capital or wealth investment in
the process of applying such saving to the creation of specific forms of capital (dash 2009).

2.2 Empirical literature review

In spite of the above theoretical recognition of role of financial institution and their contribution
to the promotion of investment, there appears to be limited empirical evidences available and
most of them generally focused on the role of financial institutions in investment. As a result
slight studies had been done on the contribution of financial institution in investment. One line of
inquiry points to financial institutions and their role in investment on information costs. Rajan

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and Zingales (1998) argued that well developed financial markets and institutions help affirm to
overcome problems of moral hazards and adverse selection, thus reducing the firms cost of
raising money from outsiders. This researcher will be used under this view; firms in less
financially developed countries are likely to exhibit lower levels of firm’s investments because
of financial constraints.

Consistent with this prediction, several studies find financial development to be positively
related to the level of industry and or firm growth rate (kang et al, 1998).According to Mead,
Lied helm (2000) and Swierczek (2003), the main role that financial institution plays in
developing countries is not promoting investment but their contribution on employment creation,
which contribute to economic growth, as well as to information, finance and institutional
support. The argument that small businesses in Africa are crucial in the role they play in
employment creation and general contribution to economic growth is not new. Although this
may be true, the vast majority of new enterprises tend to be one-person establishments (Mwega,
20004).This has tended to ensure that the journey of the small and medium enterprise
entrepreneur in many instances is short-lived, with the statistic of the role of financial institution
(Rogerson, 2005).

A study by Hall (2006) has identified two primary causes of small business failure appear to be a
lack of appropriate management skills and inadequate capital both at start-up and on a continuing
basis. According to Allen and Gregory (2006) the presence of small and large or state owned
financial institutions effect on credit availability through comparative advantages in the different
lending technologies. In particular, greater presence of state owned institutions and lesser
presence of state owned institutions are likely to be associated with significantly credit
availability in developing nations because foreign owned institutions appear to have advantages
in some of the lending technologies, and state owned institutions appear to be generally
disadvantaged.

Moreover, Allen and Gregory (2005) strongly suggested that” worse” lending policy reduces
credit availability indirectly. The research undertaken in Tanzania by surveying 160 financial
institutions showed that high tax rates, corruption, and regulation in the form of licenses and
permits, are found to be the most important constraints to operations of financial institutions
(Fjeldstad et al, 2006 cited in Mulugeta, 2011).

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2.3 RESEARCH KNOWLEDGE GAP
The above empirical review of literature emphasizes that all the studies so far conducted are
mainly focusing on the role of financial institutions, determinant factors of investment promotion
such as worse lending policy, and the problem that financial institution faces in promoting
investment in country level in general. The researchers will also observe in the review of
literature that there are no studies conducted mainly to identify the problems related to the role of
financial institution in its capacity of promoting investment through establishment of effective
investment office and by holding sufficient large number of its asset in the form of cash for the
purpose of liquidity practices with reference to Wegagen Bank Yirgalem Branch. Thus, the
researcher will fill appropriate to take up the present study Entitled “Assessment of the role of
financial institution in promoting investment a Case Study of Wegagen Bank in Yirgalem
Branch” To Assess the role of financial institution and thereby to recommend courses of action
that are assumed to promote the investment growth and to curtail difficulties that financial
institutions is expected to face.

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 CHAPTER THREE
3. RESEARCH METHODOLOGY

3.2 Research design

The preceding chapter tried to present the literature review along with the knowledge gap that
this study is filled in. The purpose of this chapter is to discuss the research methodology along
with the detailed methods used in the study. Research design refers to the way the study is
designed, that is, the method used to carry out a research. Depending on the nature of the
research problem and the research perspective, a research design will depend on the attitude of
quantitative or qualitative or mixed approaches. According to Creswell (2003), quantitative
research uses a review of the existing literature to deductively develop theories and hypotheses to
be tested. Well designed and implemented quantitative research has the value of being able to
make generalizations, for a broader population, based on findings from the sample.

Similarly, Creswell (2003) described qualitative approach as it uses the philosophical assumption
of social constructivism worldview that provides an understanding of social reality based on the
subjective interpretation. Besides, the third approach is mixed research approach that seeks a
practical knowledge claim philosophy that consists of both quantitative and qualitative
approaches. In general, the choice among the three research approaches is guided by mainly the
research problem apart from the underlying philosophy of each research method.

That is, whether the research problem will depend on a framework developed deductively
through a review of the literature and prefigured information to be collected in advance of the
study or to allow it to emerge from participants in the project or both. Thus, in order to achieve
the objectives stated in the previous chapter, bearing in mind the nature of research problem and
the research outlook, this study was employed mixed approach to assess the role of Wegagen
Bank Yirgalem Branch in promoting investments.

3.3. Target population

There are total numbers of 7 employees, who are working in the Wegagen bank currently, and
there are 14 investors who take loan from Wegagen bank so, total populations of Wegagen bank

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is 21. From this total, researcher will be taken total number of investors who take loan from bank
and the sample of 7 employees of the bank is important because by using sample of the
employees and target population of the investors the researcher will be collected accurate and
reliable information from the respondents for the purpose of inquiry.

3.4. Sampling Technique

The researcher will be used census sampling method. The reason of use these sampling method the total
employee of the organization only 21 that means the total employee of the organization less than 30 . The
researcher will be conducted all member of the population to reliability and detailed information.

The respondents will be selected with non- probability sampling design that means Judgmental
sampling is used and considered to gather primary data. The study will be used this sampling
because management and employees of the bank are the only that can provide sufficient and
accurate information for the study that means the study will be excluded those not having the
knowledge about the topic will be selected

3.5. Sample Size Determination

To conduct a research with whole employees are time taking and financially difficult. Taking
this factor in to account; it will necessary to use personal judgment since it is possible to
determine how large the population is. So, that sample size will be selected from total population
is 11 Out of 21 populations, 7 from employees and 14 from investors. Those respondents are
general manager one(1), one credit risk managers, one auditor ,two customer service officers
and one loan officers of the bank and one cashier those that are messengers, guards and
organization car driver are excluded. Structurally designed questionnaires and interviews will be
distributed to the respondents and the primary data will be collected from those respondents.

3.6. Types and Source of Data

To achieve the objectives of this study, both primary and secondary data will be used. The
primary data will be collected from our respondents and secondary data will be collected from
Audited financial Statements of the Wegagen bank covering the period from 2013 to 2017 G.C.
to assess the role of Wegagen Bank in promoting investment.

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 3.7. Methods of Data Collection
This study will be carried out on the role of financial institutions in promoting investment.
Researchers will be used structured questionnaires and interview to collect primary data and
reviewed the audited financial statement of the bank from the year of 2012 to 2016. The
questionnaires involve close ended and open ended questionnaires. Close ended questionnaires
include “Yes” or “No” answers, as well as the objective chooses and Open ended
questionnaires include the respondent free suggestion or comment. The questionnaires were
prepared in own word which is distributed to the investors and employees of bank. The
questionnaires will be collected from 5 employees of the bank and from 12 investors. This shows
that the response rate is 81% and there are about 19% non-response rate due to the repeated
attempt of the researchers will be failed to collect the four questionnaires that will be physically
distributed to the employees and investors.

3.8. Methods of Data Analysis and Interpretation

The researcher will be used descriptive analysis to analysis the collected data. The reason to use
descriptive type is to describe and analyze the information obtained through questionnaires and
interview from purposely selected employees of the organization and investors. Therefore, the
researchers will be analyzed and presented collected data by using percentage and table.

4. Time and Cost Budget Schedule

4.1 TIME BUDGET it describes the plan of assessing the ongoing progress toward achieving the
research objectives. It specifies how each project activity is to be measured in terms of completion, the
time line for its completion. In order to perform my task in timely manner and to monitor my project
progress and to provide timely feedback for my research modification or adjustment I provide the

following time plan. Year 2016

Activity Week1 Week1 Week2 Week3 Week3 Week4 Week4 Week4 Week.5
Mon Fri Mon Fri Mond Sund Fri Sund Sat

Topic xx
selection

Preparation of xx xx
proposal

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Collection of xx xx xx xx
useful
material

Data xx x
collection. x

Data analysis xx xx xx
and writing of
final research

Research xx
submission

Presentation xx
of final
research

4.2 COST BUDGET

This shows how much it will cost to conduct the research. I have stated cost of every budget
items that should be quantitatively shown typically, my proposal cost budget reflects costs such
as: - personnel consumable supplies, travel, communication, publication and so on

No Items Quantity Per unit cost Total cost (birr)

1 Paper 1 packet 150 150

2 Pen 2 5 10

3 Flash disk 1 50 50

4 Transportation 50

5 Internet 5hr 10 25

6 Typing 25 pages 5 125

7 Printing 30 pages 2 60

8 Miscellaneous expense 100

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 Total 570

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