Small and medium-sized enterprises play a pivotal role in job creation for the semiskilled unemployed, women, disabled and supply products to the market. Help to attract foreign and domestic investment and serve as a hub for creativity and innovation.
Most enterprises are engaged in wood and metalwork, weaving, food and beverage production, poultry, urban agriculture, milk production and in municipal work on beatifying the city.
From time to time, enterprises increase their job creation capacity, but they also face a shortage of workplaces and market chains and a lack of securing sufficient loans to expand their production. So far, microfinance institutions play a pivotal role in providing credit to the enterprises. To strengthen the microfinance institutions’ provision of credit to the small-scale enterprises, the Development Bank of Ethiopia provided loans to the microfinance institutions. The refunding capacity of the enterprises also is increasing, and this indicates that their performance is excellent.
The emerging economy countries recent history indicates that the role of small and medium size enterprises in boosting the economy is immense. Therefore, replicating their achievement here is essential.
Recently Solomon Zegeye, a consultant specialized on microfinance, said that the financial inclusion scheme initiated by the microfinance institutions played a pivotal role in the creation of jobs and stimulating the economy.
In an interview with local media he said that, cognizant of the vigorous efforts of microfinance institutions in stimulating the economy, paying attention to the sector is found to be essential.
The Government of the Federal Democratic Republic of Ethiopia has understood the irreplaceable role of the sector and provides support in terms of loans and consultation for the promotion and growth of micro- and small-scale enterprises.
He also said that they are significant vehicles to address the challenges of unemployment, economic development, and fair distribution of wealth in the country. To this effect, the government has prepared a National Micro and Small Scale Enterprise Growth and Promotion Strategy that notifies an organized approach to tackle the problems and encourage the expansion of middle and small-scale enterprises /MSEs/.
The government has issued declaration no.49/96, which focused on supporting the business of microfinance and the national MSEs development strategy. Microfinance has a new idea to eradicate extreme poverty, safe and truthful area to keep money in small amount, and enabled the poor to get financial and other services. The provision of credit, other financial and nonfinancial services to the people with low income is among the services given by the entrepreneurs.
The Development Bank of Ethiopia also gave recognition to the various microfinance institutions and provided capacity building trainings to the enterprises.
Job creation supports the effort to reduce poverty. Microfinance plays a vital role in addressing small-scale farmers’ and pastoral communities’ financial needs by providing loans. They also helped them to improve their utilization of finance in an appropriate manner. Therefore, for the continuation of their effort, microfinance institutions must strengthen their contact and experience sharing. To that end, providing policy advocacy is essential.
Teshome Abebe is the Chief Executive Officer of Dire Microfinance. As to him, his institution provides various types of credit and saving products and among others, conventional loan and saving products, interest free loan and saving products and machinery lease or lease finance.
The conventional loan products include, group loan, individual loan, cooperative loan, housing loan, consumption loan and vehicle loan.
It also provides interest free loan such as Murahaba and Ijira.
He further said that, lease financing is focusing on machinery financing. Among the conventional saving products voluntary, mandatory, child, joint, and house to house and box savings can be mentioned. On the other hand, joint time deposit and checking account can be comprised here.
Interest free trade also combines Wadia or deposit saving and Mudareba which is investment savings. Side by side with these activities, it has been implementing digital finance including banking system, Dire mobile wallet service and Tele-birr services.
According to Teshome, when Dire Micro-finance prepared its establishing rules, it has made considerations to reach people with disability and women. It provided credit to create their job and broaden their trading activities and strengthening their market value chain.
Reducing their financial shortcomings and enhancing their benefit in this regard is part of the institution objectives.
In order to access loan, people with disability and women are required to save money through their own credit associations. Upon saving 20 %, they will be eligible to acquire the credit. In addition with ten percent savings, they can obtain collateral lease financing which enables them to obtain working machine through credit.
The government employee can obtain loan up to 80 thousand birr without necessarily bring a guarantor. But for the future they are advised to start saving to obtain the loan in the proper manner.
With regard to increasing women’s borrowing capacity, they have better experience in refunding the borrowed money in which others can draw lesson. Dire Micro-finance planned to raise the amount of loaned money to women up to 60 percent. In this regard, the institute accomplished its 100 percent plan.
The demand for credit from the small and medium size scale enterprises also is increasing while it was possible to change the living condition of the members of the enterprises to the better.
People with disability are now able to conquer their desperate situation of living and are pursuing decent living. Most of the men are now engaged in woodwork, metalwork and merchandise.
Members of the enterprises demand credit in groups and individually and get response from the micro finance institutions. Disabled are provided some vocational and technical courses with the collaboration of technical colleges.
After their accomplishment they come to the microfinance and will be served to obtain credit and start their own business.
According to Teshome, the Dire Microfinance institution interest rate when it provide loan to the customers is 18 percent. Some microfinance set their interest rate up to 20 and 21 hence, his institution rate is relatively better compared to the others.
He further said that, the institution purchased money from banks by 8 and 9 percent interest rate and it provides to the members of the credit and saving association members by 6 and 7 percent interest rate and it has a duty to refund the money to the bank therefore, it properly handle the loaned money and scrutinized how and in what way the resource is allocated.
Bringing the loan from other banks has its own cost hence, the interest rate is set by considering the balance of payment and its gained profit and in such a way supporting the disable is possible.
As to Teshome, if civic associations provide guarantee to the micro finance institutions, it would have been possible to provide more loan to the disabled customers. But till now no civic associations show interest to provide guarantee. The institute has resource limitation and had it obtained support from none governmental organizations, it would have been provide more support to the disabled and women.
The exceptional matter that the Dire Microfinance is working is that, it has various products which provide the customers and the lease finance can be mentioned here in these regard.
To the customers engaged in the manufacturing sector without the requirement of collateral by saving only 20 percent will obtain the machine and 80 percent of the loan is covered by the institute.
The microfinance institute also provides inputs that can be used in the production process to the customers. The loan repayment time also can be extended until they become strong enough to repay the loan.
BY ABEBE WOLDEGIORGIS
THE ETHIOPIAN HERALD WEDNESDAY 14 MAY 2025
