Despite few reservations in some corners, the overall consensus is that microfinance provides a vehicle to help the poorest segment of a society by helping individuals and communities establish or grow income-generating ventures. Through this way, it helps alleviate poverty in a given country and support the local economy.
After its famous success in Bangladesh, Ethiopia issued its first microfinance legislation in 1996 with the sector growing steadily ever since.
‘Aggressively growing’
Teshome Kebede, Director of Association of Microfinance Institutions (AEMFI), says that Ethiopia’s microfinance sector is growing aggressively. MFI became a thing within the last two decades, which before that was just a novel idea, he continued, “we now have about 39 licensed microfinancial institutions”.
They now have about five million clients, with a total capital of reaching 15 billion Birr, while their total asset reached 77 billion. Their loan portfolio is now at 55 billion Birr.
As a result, access to finance is hugely expanding, and the community’s culture of saving and using the services of microfinancial institutions is growing as well. Likewise, the number of actors that gives outreach access is increasing.
His view is also shared by a very recent study carried out by Solomon Bezuayehu, Hitoshi Kusakari and Masahiro Sumimoto, on the performance of Ethiopia’s MFIs, where they concluded that Ethiopian MFIs have good performance with respect to outreach compared with both the regional average performances and those of the 10 biggest economies in Sub-Saharan Africa.
As for Teshome, the sector is aggressively growing because there is conducive working environment for the sector to grow. As the government sees the sector as one important tool to reduce poverty, it gives huge attention and support through various means.
Further deliberating on this, he mentions that the government through Development Bank of Ethiopia (DBE), provides bank loans with low interest to shore up rural finance, which has positively affected the growth of the sector and the service they provide to their customers.
The National Bank of Ethiopia has also issued a directive in 2015 that dictates the minimum paid up capital of MFI to be reached 10 million by June 202a. And according to him, this will help to strengthen those MFIs that are slightly behind the curve so that they are able to make their impact felt in the sector, thereby further strengthening the overall sector.
‘Room for improvement’
According to Tezera Kebede, CEO of Peace Microfinance |Institution, a private MFI, despite the sector’s growth, there is room for improvement, especially in terms boosting their capital.
As to him, there should be a change in the ownership structure of most MFIs from nominal style that is prevalently used within the sector to a system that allows them to build their capital and be open for other Ethiopian individuals.
Currently, there is an improvement in the regulatory environment (this new law that has been passed) by which it allows foreign nationals (meaning Ethiopians who might have lived elsewhere), to get into the financial sector.
He also argues MFIs outreach should be further improved. “We live in a country where we have 100 plus million people. And among the population 20 percent might need microfinancial service. From this demand, we might not surpass 6 million people. That is very small.”
One issue for this, according to him, is the fact that there is weak awareness regarding the benefits and opportunities MFIs provide, because the promotion cost is a little costly and it has not done well. Also, people lacked awareness in MFIs because it is a recent phenomenon as well.
‘Powerful and handy’
But, most importantly, he points out the need of using technology within the sector in order to improve its outreach, which is powerful and handy.
“While the usage of the tech has been good so far, it is still not enough”, he says, “Getting out of the traditional payment system and coming to the digital system cannot be done overnight.
” Hopefully in the future it is possible to integrate with banks and other financial institutions and things will get improved in time. The financial infrastructure can be improved in gradual basis and the policy is there.
This shared by Teshome as well. He argues that the MFIs should promote and expand their outreach by using and embracing technology. MFIs should add new services that the times demand, expand their outreach by using new technologies and penetrate further into remote areas.
There are those that have started alternative mobile, internet banking, which should be followed by the rest of the MFIs.
In addition, both believe that the sector can even grow more by spearheading some improving measures both in the sides of the institutions and the government.
The Ethiopian Herald April 22/2020
BY ROBEL YOHANNES
