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The effectiveness of Internal Control in Organization, Case Study AziCCUL

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The concept of microfinance is not new. Savings and credit groups that have operated for centuries include the “susus” of Ghana, “chit funds” in India, “tandas” in Mexico, “arisan” in Indonesia, “cheetu” in Sri Lanka, “tontines” in West Africa, and “pasanaku” in Bolivia, and in Cameroon we have the “Njangi in the south West, North West and the West regions, and is practice commonly found all over the world. Formal credit and savings institutions for the poor have also been around for decades, providing customers who were traditionally neglected by commercial banks a means to obtain financial services through cooperatives and development finance institutions.

One of the earlier and long-lived micro credit organizations providing small loans to the rural poor with no collateral was the Irish Loan Fund system, initiated in the early 1700s by the author and nationalist Jonathan Swift. Swift’s idea began slowly but by the 1840s had become a widespread institution of about 300 funds all over Ireland. Their principal purpose was making small loans with interest for short periods.

At their peak they were making loans to 20% of all Irish households annually. In the 1800s, various types of larger and more formal savings and credit institutions began to emerge in Europe, organized primarily among the rural and urban poor.

These institutions were known differently as People’s Banks, Credit Unions, and Savings and Credit Cooperatives. The concept of the credit union was developed by Friedrich Wilhelm Raiffeisen and his supporters in Germany.

Their altruistic action was motivated by concern to assist the rural population to break out of their dependence on moneylenders and to improve their welfare. From 1870, the unions expanded rapidly over a large sector of the Rhine Province and other regions of the German States.

The cooperative movement quickly spread to other countries in Europe and North America, and eventually, supported by the cooperative movement in developed countries and donors also to developing countries. In the Asian contient, notably In Indonesia, the Indonesian People’s Credit Banks (BPR) or The Bank Perkreditan Rakyat opened in 1895. The BPR became the largest microfinance system in Indonesia with close to 9,000 units over operations.

However, in the early 1900s, various adaptations of these models began to appear in parts of rural Latin America. While the goal of such rural finance interventions was usually defined in terms of modernizing the agricultural sector, they usually had two specific objectives: increased commercialization of the rural sector, by mobilizing “idle” savings and increasing investment through credit, and reducing oppressive feudal relations that were enforced through indebtedness.

In most cases, these new banks for the poor were not owned by the poor themselves, as they had been in Europe, but by government agencies or private banks.

Over the years, these institutions became inefficient and at times, abusive. As such, between the 1950s and 1970s, governments and donors focused on providing agricultural credit to small and marginal farmers, in hoping raise productivity and incomes.

These efforts to expand access to agricultural credit emphasized supply-led government interventions in the form of targeted credit through state-owned development finance institutions, or farmers’ cooperatives in some cases, that received concessional loans and on-lent to customers at below-market interest rates. These subsidized schemes were rarely successful. Rural development banks suffered massive erosion of their capital base due to subsidized lending rates and poor repayment discipline and the funds did not always reach the poor, often ending up concentrated in the hands of better-off farmers.

Meanwhile, starting in the 1970s, experimental programs in Bangladesh, Brazil, and a few other countries extended tiny loans to groups of poor women to invest in micro-businesses. This type of microenterprise credit was based on solidarity group lending in which every member of a group guaranteed the repayment of all members.

These “microenterprise lending” programs had an almost exclusive focus on credit for income generating activities (in some cases accompanied by forced savings schemes) targeting very poor (often women) borrowers. However, within this context,

  • The ACCION International,

An early pioneer was founded by a law student, Joseph Blatchford, to address poverty in Latin America’s cities. Begun as a student-run volunteer effort in the shantytowns of Caracas with $90,000 raised from private companies, ACCION today is one of the premier microfinance organizations in the world, with a network of lending partners that spans Latin America, the United States and Africa.

In India The SEWA Bank.

In 1972 the Self-Employed Women’s Association (SEWA) was registered as a trade union in Gujarat (India), with the main objective of “strengthening its members’ bargaining power to improve income, employment and access to social security.” And in 1973, to address their lack of access to financial services, the members of SEWA decided to found “a bank of their own”.

It is notable that four thousand women contributed share capital to establish the Mahila SEWA Co-operative Bank. Since then it has been providing banking services to the poor and illiterate population, and self-employed women which over time has become a viable financial venture with today around 30,000 active clients.

And in Bangladesh The Grameen Bank.

In Bangladesh, Professor Muhammad Yunus addressed the banking problem faced by the poor massive through a programme of action-research. With his graduate students in Chittagong University in 1976, he designed an experimental credit programme to serve them (this contribution in MFI won him the Worlds Noble price award). It spread rapidly to hundreds of villages.

Through a special relationship with rural banks, he disbursed and recovered thousands of loans, but the bankers refused to take over the project at the end of the pilot phase. They feared it was too expensive and risky in spite of his success.

Eventually, through the support of donors, the Grameen Bank was founded in 1983 and now serves more than 4 million borrowers. The initial success of Grameen Bank also stimulated the establishment of several other giant microfinance institutions like BRAC, ASA, Proshika, etc.

Through the 1980s, the policy of targeted, subsidized rural credit came under a slow but increasing attack as evidence mounted of the disappointing performance of directed credit programs, especially poor loan recovery, high administrative costs, agricultural development bank insolvency, and accrual of a disproportionate share of the benefits of subsidized credit to larger farmers.

The basic tenets underlying the traditional directed credit approach were debunked and supplanted by a new school of thought called the “financial systems approach”, which viewed credit not as a productive input necessary for agricultural development but as just one type of financial service that should be freely priced to guarantee its permanent supply and eliminate rationing.

The financial systems school held that the emphasis on interest rate ceilings and credit subsidies retarded the development of financial intermediaries, discouraged intermediation between savers and investors, and benefited larger scale producers more than small scale, low income producers.

Meanwhile, microcredit programs throughout the world improved upon the original methodologies and defied conventional wisdom about financing the poor.

First, they showed that poor people, especially women, had excellent repayment rates among the better programs, rates that were better than the formal financial sectors of most developing countries.

Second, the poor were willing and able to pay interest rates that allowed microfinance institutions (MFIs) to cover their costs. In the1990s, these two features – high repayment and cost-recovery interest rates – permitted some MFIs to achieve long-term sustainability and reach large numbers of clients.

Another flagship of the microfinance movement is the village banking unit system of the Bank Rakyat Indonesia (BRI), the largest microfinance institution in developing countries. This state-owned bank serves about 22 million micro savers with autonomously managed microbanks.

The microbanks of BRI are the product of a successful transformation by the state of a state-owned agricultural bank during the mid-1980s. However, the 1990s saw growing enthusiasm for promoting microfinance as a strategy for poverty alleviation.

The microfinance sector blossomed in many countries, leading to multiple financial service firms serving the needs of microentrepreneurs and poor households. These gains, however, tended to concentrate in urban and densely populated rural areas.

It was not until the mid-1990s that the term “microcredit” began to be replaced by a new term that included not only credit, but also savings and other financial services. “Microfinance” emerged as the term of choice to refer to a range of financial services to the poor, that included not only credit, but also savings and other services such as insurance and money transfers.

However, it is notable that the revolution in MFI can be attested to by ACCION‟s role in commercial banking where ACCION helped found BancoSol in 1992 in Bolivia, where the first commercial bank in the world dedicated solely to microfinance.

Today, BancoSol offers its more than 70,000 clients an impressive range of financial services including savings accounts, credit cards and housing loans – products that just five years ago were only accessible to Bolivia’s upper classes. BancoSol is no longer unique as more than 15 ACCION affiliated organizations are now regulated financial institutions.

Today, practitioners and donors are increasingly focusing on expanded financial services to the poor in frontier markets and on the integration of microfinance in financial systems development.

The recent introduction by some donors of the financial systems approach in microfinance – which emphasizes favorable policy environment and institution-building – has improved the overall effectiveness of microfinance interventions.

But numerous challenges remain, especially in rural and agricultural finance and other frontier markets. Today, the microfinance industry and the greater development community share the view that permanent poverty reduction requires addressing the multiple dimensions of poverty.

For the international community, this means reaching specific Millennium Development Goals (MDGs) and by the UN in education, women’s empowerment, and health, among others.

Presenting some Innovations in Financial Services for the Poor:

For Microfinance, this means viewing microfinance as an essential element in any country financial systems. There has been an increasing revolution in the desire to give funds to poor so as to empower them.

  1. CCACN (Central de Cooperativas de Ahorro y Crédito Financieras de Nicaragua) is marketing its “Agriculture Salary” savings product to farmers.

There has been an increasing revolution in the desire ti give funds to the poor to empower them. The goal of the product is to smooth the flow of income from the proceeds of an annual or semi-annual harvest.

Each credit union works with its farmers to identify their individual expenses and determine a monthly “salary” (portion of harvest proceeds on deposit combined with an above-market interest rate) to be withdrawn from the credit union. In its infancy stage, the credit unions have noted an interest from agriculture-based clients in such a savings management program

  1. Caja los Andes in Bolivia offers four loan repayment options that fit the cash flow of various agricultural activities, including an end-of-term payment for both principal and interest that fits single crop activities, and unequal payments at irregular intervals for farmers that have planted several crops with different harvesting periods. Flexibility is also provided in loan disbursements, and farmers can receive the sanctioned loan amount in as many as three installments.


The word internal control has lots of definitions and mean different things to people. Hence, confusion arises mainly with business people, and sometimes with others such as legislator. The aspect misses communication and different expectations cause problems within an enterprise.

Problems will tend to compound if the term is not clearly defined. Thus, it is with great importance for company executives and employees to clearly understand what is referred to as Internal Control.


The following research questions are formulated below, which are;

  1. Do effective internal controls affect the performance of MFIs?
  2. How does the effective control environment influence the performance of MFIs?
  3. How does internal control affect the management of Micro-Finance institutions?
  4. Does internal control affect the management of micro-finance institutions?
  5. To what extend has Internal Control aided AZICCUL in the realization of its goals?
  6. To what extend has ICS help determine the financial performance of the institutions of AZICCUL?
  7. How does risk assessment affect the performance of MFIs.


  1. To examine the extent to which AZICCUL has achieves its goal with the aid of the ICS,
  2. And also to verify if they complied with applicable laws and regulations and procedures.
  3. Identify the major element of the internal control system used and to determine whether some or all are integrated in internal control of AZICCUL.
  4. Identify the types of internal controls used by AZICCUL, and also the features of good internal systems.
  5. To identify and provide adequate safeguard over the enterprise assets both tangible and intangible.

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