By Andualem Sisay, Africa Renewal

Bishoftu – At the outskirts of this town, 45 kilometres south of Addis Ababa, the Ethiopian capital, Aselefech Desalegn fights the flames she uses for baking enjera, Ethiopia’s staple flatbread. Like millions of poor Ethiopian women, she is also constantly battling to feed her children.

In recent years her livelihood has been supplying enjera to hotels in the town. “Except for the chair you see over there, all you see in the house comes from Buusaa Gonofaa,” she says, referring to the microfinance organization that has helped fund her home-based business.

Fifteen years ago Aselefech left her poor parents behind in a nearby rural settlement and moved to this town (which was previously called Debre Zeit). Since many rural families in Ethiopia harvest but once a year, it has become common for rural youth like Aselefech to either migrate to urban areas or even to Middle Eastern countries where they work as house maids.

After getting her first 500 birr (about US$30) loan from Buusaa Gonofaa seven years ago, Aselefech started selling charcoal and eggs on the side roads of Bishoftu. “Although I earned better than in my previous job as a cook in a hotel, I couldn’t resist the heat and rain on the street. The business also took me away from my kids,” she recalls. So after three years she switched to baking enjera and distributing it to hotels. That has enabled her to be close to her children, even though the heat from the fire remains a challenge.

Aselefech is now among Buusaa Gonofaa’s regular clients, with access to $455 in loans, repayable at either 9 per cent interest over six months or 18 per cent per year. From the profits selling enjera, she can not only take care of her children, but also send money back to her family to help them obtain food and to fatten their cattle.

Group liability

Microfinance institutions in Ethiopia give loans to poor people on a “group liability” basis, since the poor generally do not have property to use as collateral. Every member of such a group is liable for those who may fail to repay.

It was not easy for Aselefech to find enough people like her to form a group, since many people are not willing to take on liability for others. But Aselefech finally managed to form a group of 13 members. Each has different business ideas, but most buy goods from far away and sell them at a higher price near where they live.

Buusaa Gonofaa was established in 2001 and currently has 50,000 clients around the country. It gives out loans of up to $852 for individuals belonging to a group. Most are poor rural clients. “We increase the loan amounts to our clients by looking into their previous track records,” says Getachew Mekonnin, head of Buusaa Gonofaa’s marketing and social performance section.

Members of a group are expected to finish repaying their loans at interest rates ranging from 18 to 30 per cent per year. It is mandatory for clients to deduct a portion of their debt each week.

‘Scared of going rural’

In Ethiopia’s 2008/09 fiscal year, there were 28 microfinance institutions in the country, with cumulative assets of $375 million. There now are 31 microfinance institutions, a dozen years after the first one was licensed. As of 2010, they had extended $108 million in loans to nearly 660,000 borrowers.

The potential is much greater, but such institutions have limited capacities and fear the risk of lending to poor households, especially in rural areas. “It is quite obvious that some microfinance institutions are scared of going rural,” says Baptiste Ast, a senior microfinance expert at PlaNet Finance, an international non-governmental organization. Such groups need training and capacity building, he says.

From his experience in Africa and elsewhere, Mr. Ast believes that governments and international donors can adopt tougher laws or regulations to oblige microfinance institutions and banks to extend more rural financing. “One could also imagine that incentives like tax exemptions could help spread [lending] in rural areas,” he emphasizes.

“Rural microfinance is still very new and has a lot of potential, given that the majority of people in Africa still live in rural areas,” say Mr. Ast. “One can be optimistic about the impact that innovative loan and crop or livestock micro-insurance products would have on smallholder farmers,” helping protect them against shocks like droughts or floods.

Uncertain financing

Some studies have recommended that the government allow foreign investors to provide microcredit in Ethiopia, as they do elsewhere in the world. That would mean scrapping a law that now prohibits them from involvement in the sector.

According to a study by the country’s microfinance association, the core capital resources of most Ethiopian microfinance institutions currently come from foreign NGOs or local government bodies. These microfinance institutions are legally required to be set up as shareholder companies and to be regulated by the central bank.

Ethiopia’s severe inflation rate, which currently stands at around 40 per cent, is often cited as a major obstacle to the expansion of the country’s microfinance institutions. Industry players worry that this makes the real interest rate on deposits highly negative, discouraging savings and eroding the saving capacity of potential depositors.

Global growth

It is estimated that nearly 3 billion people in developing countries have little or no access to formal financial services. But such access could be a powerful instrument for reducing poverty and enabling poor people to build their assets, increase incomes and reduce their vulnerability to economic stress. Formal financial services such as savings, loans and money transfers enable poor families to invest in enterprises, improve nutrition and living conditions and provide for the health and education of their children.

To meet that need, microfinance has been growing rapidly over the past 15 years, and currently reaches some 130 million clients worldwide. According to the World Bank’s International Finance Corporation, the global growth of microfinance has been driven by many factors, including the transformation of microfinance providers, the sizable supply gap for basic financial services, the expansion of funding sources and new technologies.

Many experts agree that when done responsibly, microfinance can have a significant development impact and improve the lives of people such as Aselefech. But other initiatives are also needed. “One would be naive to think that microfinance alone can eradicate hunger and poverty,” cautions Mr. Ast. “This is a very good tool to empower people, especially women. But it cannot be considered as the miracle solution.”

Poverty’s causes in Ethiopia could be varied. In October 2011, for instance, 12.4 million people are being taken care of with the help of international food aid, not Ethiopian resources. Yes famine has been avoided, because in over 260 districts of the country, these people receive food aid or financial support. This total figure combines the 7.8 million beneficiaries in those structurally food inadequate districts and supported through the Productive Safety Net Project (PSNP) and the 4.6 million victims of the current drought.

The annual PSNP budget, for instance in 2009, was $2.1 billion in cash and 500 metric tons of cereals, estimated at $360 million. The World Bank provides 17 percent of the overall requirements in cash. The US is the largest contributor of food, to be distributed by WFP. The contribution of the Ethiopian government is estimated at $54 million in staff time devoted to the program. The rest is financed by donor contributions, with a horizon spanning to 2014.

Donors like this project, because it has made coordination of their inputs easier and smoother. However, when one contemplates the future of these people their graduation from such a program to become self-supporting citizens is not clear. The WFP refers to this success of saving lives as revolution from food assistance to food aid (http%3a//www.wfp.org/content/revolution-food-aid-food-assistance-innovations-overcoming-hunger…)

This brings me to the question whatever happened to the UN’s Millennium Development Goals (MDGs), whose Goal 1 aims at eradicating extreme hunger and poverty? This is the eleventh year in the 15-year stretch of the program.

In all the international reports, it has been acknowledged that Ethiopia has made significant progress. It means that it is one of the 10 or 11 Sub-Saharan African (SSA) countries that are seen as being on track. However, the reports also have disclosed, against government claims, in some of the goals Ethiopia has been a laggard.

REDUCING EXTREME HUNGER & POVERTY

• In SSA, only Kenya and Mauritania have taken the crown, according to the joint IMF/World Bank report entitled Global Monitoring Report 2011: Improving the Odds of Achieving the MDGs. Ethiopia, along with the Central African Republic and Ghana, is reported to be on track. In fact, it can be seen in Fig 1.3 of the table in that report that Ethiopia is amongst the countries, with less than 60 percent of the proportion benefitting from reduced poverty.

• The assessment by the United Nations in its actual MDG Report –THE MILLENNIUM DEVELOPMENT GOALS REPORT 2011—is so conclusive in stating, “Based on current trends, sub-Saharan Africa will be unable to meet the hunger-reduction target by 2015.” Drought visits Ethiopia in cycles, as was the case lately in 2003, 2005, 2008/09 and at present. In years of severe drought and famines, the number of aid dependents jumps between 12-15 million people. When the drought is over, the affected communities emerge with their assets destroyed, one of the reasons why rural poverty is deep-rooted. On top of that, agriculture has not been enjoying productivity growth. There is the problem of appropriate disease resistant seeds and the supply of fertilizers in some form.

UNIVERSAL PRIMARY EDUCATION

On universal primary education, Tanzania is the only SSA country that has achieved the target. The UN report also gives recognition that in SSA Benin, Burkina Faso, Ethiopia, Guinea, Mali, Mozambique and Niger have made considerable progress, with net enrolment ratios in primary school having increased by more than 25 percentage points from 1999 to 2009. The report ambivalently states Burundi, Rwanda, Samoa, Sao Tome and Principe, and Togo either have achieved or are nearing the completion point.

PROMOTING GENDER EQUALITY AND EMPOWER WOMEN

In SSA, Gambia, Ghana, Kenya, Madagascar, Malawi, Mauritania, Rwanda, Tanzania, Uganda, Zambia and Zimbabwe have already achieved the target, according to the joint report of the IMF and World Bank. It also recognizes Benin, Burkina Faso, Comoros, Ethiopia, Guinea, Sierra Leone and Togo as being on track to achieve the goal. The UN Report also acknowledges the improvements in 2010 in Ethiopia, Madagascar and Tanzania.

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