The Role of Micro Credit to Reduce Women’s Poverty in Ethiopia: The

Case of Three Selected Microfinance Institutions

By: Haimanot MinwuyeMA thesis at Graduate School of International Studies,

Ewha Woman's University, 2012 Presented at KOICA- Ethiopia Alumnae meeting on

Nov 26, 2016 at Ellile International hotel, Addis Ababa

Presentation Outline

1. Background2. Methodology3. Result 4. Conclusion5. Recommendation

Background

Every day, 1.2 billion people cannot fulfill their

basic needs.

The majority of these people are women & children (International Fund for Agricultural Development, 2009: 6).

Women are the majority of the 1.5 billion people

living on $1 a day or less

Poverty is becoming a critical problem.

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70% of the world’s poor are women (UNDP,

1995; UN 1996).

The incidence of poverty among women is

increasing and many researchers came to call

the trend as “feminization of poverty.”

The situation of women in Ethiopia is not

different from women elsewhere.

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• Many causes for the feminization of poverty

– lack of access to land & credit

– lack of income, assets, employment opportunities, skills, education,

health & infrastructure (USAID 2012).

– growth of female headed households,

– intra household inequalities,

– bias against women & girls,

– population growth, deteriorating environment & low productivity as

well as economic crises

– Gender based division of labour & etc (Moghadam ,2005).

Cntd.

• improving access to credit for women has been

underlined to solve women’s poverty problem since

1995.

• Hence, MFI have evolved & Expanded

• The popularity of Microfinance has increased after

Muhammad Yunus ( Grameen Bank) established a rural

project in Bangladesh and become successful in

reducing poverty.

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• following the Grameen bank model, many microfinance

institutions all over the world were established

• The main aim of these institutions was to provide

microcredit services to the poor who were excluded by

formal financial systems & exploited by local money

lenders.

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• A number of studies have discovered the success of MFI in

improving the wellbeing of women and their families eg.

• profits from Grameen financed businesses were increasing

borrowers’ consumption by 18% per year, and

• that the percentage of Grameen borrowers living in

extreme poverty was reduced by 70% within 4 years of

joining ( World Bank cited in Latifee 2003: 6 ).

• In Tanzania/Zanzibar too the income and asset values of

borrowers were found increasing almost twice than that

of non-borrowers (Mohamed 2003 cited in Beyene

2008).

Does Microcredit really help the poor to lift out of poverty?

• Studies on Ethiopian MFIs give much focus on financial performance & profitability of the institutions than their social impact e.g Yirsaw (2008), Ejigu (2009)

• The available social impact studies (eg. Getaneh (2004, 2006 & 2007), Bekele (N.d.), Daba (2003), Borchgrevink et.al (2003) are not comprehensive either

• Hence, this research is conducted to give a comprehensive view of the major MFI in light of their role in helping women to reduce poverty.

Methodology

• Research Method- Qualitative • Research design- Case Study • Data Source-Secondary• Data Analysis-InterpretiveLimitation of the research • Lack of primary data• Information constraint (missing data) did not enable

the researcher to fully enrich the finding.

Result

• impact assessment of the MFIS was examined

through two main pillars

• Outreach to the poor

• Welfare impact

Outreach to the poor

• Outreach means how many clients are being served

• breadth and depth of outreach

• Breadth of outreach was measured by the number of

active clients ( or accounts that are active at a given point

in time.

• Depth of outreach helps to understand client’s poverty

level & was measured by

– average outstanding balance /GNI per capita.

– Percentage of women borrowers

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• Literature indicates that average outstanding loan

balance below 20% of per capita GNI is considered as

an indication that clients are very poor (Rosenberg,

2009: 4)

• average outstanding loan balance per capita GNI of the

selected MFIs is more than 20% which is an indication

that the selected MFIs did not give much focus on

clients poverty level and hence women.

Depth of Outreach : Average outstanding loan balance per capita GNI 2006-2009

• MFIs high level of average outstanding loan balance

implies that the MFIs did not target the poor people

which is also in contrary to the very establishment of

MFIs; providing credit for the poor people.

Depth of Outreach : Percentage of women borrowers

• Though ACSI shows a steady increase in its trend of

female outreach

• DECSI & OCSSCO shows unpredictability which makes it

difficult to analyze.

• However, on average it is possible to conclude that all

the selected microfinance institutions have narrow

outreach for women clients.

Breadth of outreach: number of active clients

• the number of total active borrowers is increasing except

DECSI shows a decline in 2006 due to environmental

crises that occurred in the region and clients were reserved

from borrowing due to the fear that they may not pay the

loan back.

• OCSSCO in 2008 & ACSI in 2009 also experience a

• decline in total number of active clients due to the global

financial crisis that challenged the institution’s financial

capacity to extend service.

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• Generally, data both from breadth & depth of outreach

indicators show MFIs did not take the very

disadvantages position of women into consideration

which is in contrary to the experiences of Grameen

Bank which is mentioned as successful in reaching

women and help them free from poverty.

MFI welfare Impact

• Microfinance is expected to improve the living standard of

clients through increasing income, asset, saving as well as jobs.

• A study conducted by Samuel & Negash (2010) on DECSI

shows that household food expenditure was in average lower for

DECSI credit participants than non participant neighbors.

• Household items and jeweler purchase was also significantly

lower for DECSI loan participants relative to non-participants.

Cntd • Getaneh (2001) study of ACSI clients (119 women and 361

men) shows that 79.2% of clients have had some kind of savings which they hold either in cash (57.9%) or in kind (21.3%) and more women were found saving in cash than in kind.

• In addition, of those who said, they save in cash, 34% save at home, 8.9 % in Bank and the rest in other alternatives.

• This indicates that the MFI did not motivate clients to save in the Bank, MFI or women have little to save and that is why they prefer to save at home.

• Literature shows that the poor will save at home when the amount of savings is very small and is not enough to invest in productive resources (Sunita 2003).

• The fact that majority of women interviewed save in cash and they save

at home implies that women are using the money for consumption

purpose than other productive activities.

• The poor have to save to buy clothes and also participate in social life

such as religious activities, funerals, and other ceremonies.

• saving at home leads clients to misuse their savings as they can take the

money anytime they feel a need than using it for other income

generating activities and future business developments.

• Related to this, Beyene (2008) has found out that women in Ethiopia

use the money they borrowed from MFIs for daily consumption and

consequently they do not have enough savings that can help them to

establish medium enterprises.

Table 4: Women’s Saving culture in ACSI

Source: Getaneh 2001: 27

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• a study done by Tesfaye (2003) on the impact of

DECSI on women in Tigray region has also found that

only 13.4 % of clients reported that their income has

increased due to the loan while 48% responded that

their income stayed the same (p.24).

• This is also an indication that the credit service

provided by DECSI did not change the majority of

client’s income level.

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• Daba (2003) study on the impact of OCSSCO on borrowers

income level, household diet, access to education,

employment opportunities and saving has found that

• the majority of women clients reported average yearly

income of between 1001-2000 Ethiopian birr

• which is very low in relation to the cost of living and only

one woman was found having more than 4000 birr.

• as the income level increased the number of women has

decreased.

Table 5: OCSSCO Clients Income Level (in Eastern Wollega Zone).

Source: Daba 2003: 35

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• Dinkayehu (2006) study on the role of the OCSSCO in

improving the living standards of the poor people 42 % their household income has increased 40 % their overall income has decreased. 37.5 % their family members attending school has in-

creased 32.5% said it has decreased. 53.5% said their employment opportunities did not im-

prove 46.5% said it was improved.

• One can understand from these figures that there is no

significant variation between those who said their

• income has increased and those who said their income

has decreased as well as those who said their schooling

has increased and /or decreased.

• These all figures show that MC does not contribute

• much for clients to increase not only in their income

• level but also in employment opportunities as well as

• in children’s education.

• Generally, the available limited data on microcredit’s welfare

impact show that all the three MFIs did not contribute much

for helping women to increase in their income, employment

and saving so as to escape from poverty.

• However, clients were found improving their household diet

and consumption.

• Borrowing to smooth consumption is not bad, as it can help

people survive hard times.

• But, borrowing for consumption can also lead for

indebtedness.

Why is the low contribution of MFI’s on Women’s poverty in Ethiopia

1. Interest rate

• The selected Microfinance institutions charge high interest

rate compared to the private & commercial banks which is

in contradiction to the main aim of establishing MFI.

• the high interest rate will have a negative impact on the

poverty reduction capacity of the micro-loan as it did not

result in saving.

B/ Loan Size and Repayment Schedule

Loan Size cont.

Loan Size cont.

C/ Type and nature of business women are engaged

• significant change is not observed in the ability of

women in participating in profitable business.

• Women borrowers in all the selected MFIs were

engaged in traditional activities, activities that they

learn from their families, neighbors and/ or may be

friends.

• Tesfaye (2003) study of the impact of DECSI in Tigray region found that the main occupation in which borrowers were engaged was – farming 58.3% – preparing and selling beverages (such as Tella & Araki, 34.0 %,– animal fattening 23.6% & in buying and selling grains and other

agricultural products 18.9%– in private micro business 33.9%

• In addition, Meehan (2001) study on DECSI shows that 72 percent of women who had received the loan use it for cereal trading.

• livestock trading which has high return was an exclusively male activity while coffee trading and beer making were exclusive to women (Meehan, 2001)

• Similarly, Dinkayehu (2006) study on clients of OC-SSCO shows that major types of business activities clients were engaged after the loan was – 15.5% local drinking preparation, – 11.5 % selling Injera, – 15% wood/metal work, – 4% textiles, – 0.5% beauty salon,– 3% agricultural activities, – 1% animal husbandry, and 21.5% retail trade.

• women engagement in preparing and selling

beverage is tedious and have very low return. Hence,

the profits generated by engaging in this kind of

business activities are insufficient for women to step

over the poverty in any sustainable way.

• OCSSCO report in 2012 shows that small and medium

enterprise outreach trend by the company is declining

while its total loan disbursement trend is increasing

• This implies that clients are taking the loan for other

purposes than for business development

• Getaneh (2007) study on the impact of ACSI in Amhara region has concluded that the loan that has been taken for ‘micro-enterprise’ purposes has been used for consumption activities.

• Of the 689 clients he collected the data; about 128 have used the money away from microenterprise.

• In addition, some differences have been observed between men and women clients

• women were focusing on food: purchase of food for the household, purchase of cloth for household members, giving money for spouse or other household members, making reserves for loan repayment or other emergencies, pay loans taken from other sources and etc.

• Moreover, absence of strong business development or skill up-grading educational programs were constraints that limit clients from engaging in income generating activities (P. 17).

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Conclusion

the selected MFIs concentrate on agricultural lending ( purchase of

livestock followed by purchase of farm input) than business

( Wolday, 2008).

Thought MFI focused on providing loan for agricultural purpose

e.g buying ox, the loan size was not sufficient compared to the

price of farm inputs to be purchased.

The institutions did not provide sufficient training for their clients.

The evidence shows that clients lack business knowledge and skill.

Consequently, they are engaged in low profitable businesses.

There is high average outstanding balance per capita

GNI which shows that there is selection bias.

MFIs lend for the better of people than the poor.

there is low outreach for women, Hence, women still

lack access to MFI.

Though there are some positive contributions on

welfare status , it is not sufficient

There is high interest rate and the size of the loan is

small.

"Poor people didn’t create poverty. It's the system

that created the poverty. And, if we want to end

poverty, we have to change the system." 

Professor Muhammad Yunus 

(

http://www.microcreditsummit.org/about-the-summits.html

).

Recommendation

• Providing large amount of loan with low interest rate

and make rural people to use their land as collateral

will help

• lending should go to small and medium businesses

capable of creating jobs not to the subsistence

activities in the informal sector.

• There has to be ways to provide business development

skill.

Cntd.

MFI need to expand their outreach for women

Comprehensive research is needed to examine the welfare

impact of MFIs particularly on women.

Thank You !!!