Abstract:
The main objective of this study was to develop Linear Programming model to help OCSSCo,
Burayu branch to maximize its profit by optimally allocating loan funds to prospective loan
seekers. The specific objectives of this project work were to formulate, solve, analyze and
interpret the results. The sensitivity analysis of the linear programming model also analyzed.
Secondary data were collected from Oromia Credit and Saving Share Company, Burayu
branch. It was in the form of document and recorded data. The collected data was formulated
as linear programming model. Then after optimal solution of the model has been obtained by
using the theory of simplex method and a computer package, Quantitative Method for
Windows version 4. It was observed that if Oromia Credit and Saving Share Company, Burayu
branch disburse a total of 33,077,127 Birr to loan seekers, a profit of 3,117,387 Birr will be
obtained. The sensitivity analysis of the formulated linear programming problem has been
carried out using the output of QM for windows. The effect of changing interest rate for a loan
on optimal solution of the LP model has been analyzed. Also, the effect of changing the
allocated fund for a loan or group of loans on optimal solution of the LP model has been
analyzed. Ranges in which the LP parameters (interest rates, percentage allowed for a loan or
group of loans) vary keeping the optimal solution unchanged have been obtained. A linear programming approach has been recommended for loan allocation problems in microfinance
and other financial institutions whose interest is mainly maximizing profit. A goal
programming or multi objective linear programming approach may be used for loan
allocation problems by incorporating some attributes for loans with low or no interest in to
objectives. This is left for future research.
