Microfinance and sustained economic improvement: Women small-scale entrepreneurs in Ethiopia

Journal of International DevelopmentJ. Int. Dev. 24, S84–S99 (2012)Published online 4 May 2011 in Wiley Online Library(wileyonlinelibrary.com) DOI: 10.1002/jid.1782

MICROFINANCE AND SUSTAINEDECONOMIC IMPROVEMENT: WOMENSMALL‐SCALE ENTREPRENEURS

IN ETHIOPIA

RAKESH BELWAL1*, MISRAK TAMIRU2 and GURMEET SINGH3

1Faculty of Business, Sohar University, Sohar, Oman2Department of Management, Addis Ababa University, Addis Ababa, Ethiopia

3School of Management and Public Administration, University of South Pacific, Suva, Fiji

Abstract: Women entrepreneurs account for a sizable majority of small‐scale entrepreneursin Africa. A minor change in their capitalization could assure their participation in diverseproductive activities and has a large impact on their lives and families, as well as on the economy.While their access to credit is impeded profoundly because of the regulatory constraints imposedby formal financial institutions, on one hand, the informal sector interest rates as high as 300 percent are literally untenable, on the other. The paper investigates the contribution ofmicrofinance tothe economic improvement of women small‐scale entrepreneurs in Addis Ababa. The researchassesses the impact of credit and saving services on the economic improvement of women small‐scale entrepreneurs by using secondary data and a quantitative analysis based on questionnairesand interviews. The study probes financial facets such as income, savings, credit, financialservices, family obligations and access to education. It concludes that women entrepreneurs whoobtain microfinance face a number of problems. The study exposes the overall environmentconstraining women entrepreneurs on financial fronts and suggests some measures of relief toameliorate the situation. Copyright © 2011 John Wiley & Sons, Ltd.

Keywords: microfinance; women Entrepreneurs; Ethiopia; Africa

1 INTRODUCTION

1.1 The Need for Microfinance

Microfinance refers to the provision of financial services to the rural and urban poor whoare self‐employed. The financial services provided to low‐income clients, including the

*Correspondence to: Rakesh Belwal, Faculty of Business, Sohar University, PB 44, Sohar, PC 311, Oman.E‐mail: [email protected]

Copyright © 2011 John Wiley & Sons, Ltd.

Women Entrepreneurs in Ethiopia S85

self‐employed, generally include credit, savings and technical assistance (Hailemichael,2004; Rao and Bavaiah, 2004). Microfinance is wider than microcredit as it includes savings,credit, insurance and others (Kirkpatrick and Maimbo, 2002). In Ethiopia, on an average,60 per cent of the microfinance portfolio represents loans for on‐farm investments whereasincome‐generating activities and petty trading account for about 40 per cent (Pitamber, 2003).In most of Africa, explosive growth in microcredit delivery is creating new

opportunities for many households (Nelson and Temu, 2005) especially through channelssuch as microfinance institutions (MFIs), credit unions and village banks (Holt, 1991 citedby Pitamber, 2003: 7). Channels of microcredit delivery such as Accumulating Savingsand Credit Associations have largely benefited women groups in Kenya. They surpass themainstream MFIs in terms of deposits, outstanding loans and savings accounts andprovide a fully sustainable model independent of donor funding (Johnson, 2004).Women’s associations and development groups like Mpigi Women’s Development Trusthave also been found effective (Snyder, 2000).Microsavings occupy an important place in the agenda of microfinance communities in

Africa (MicroSaveAfrica, 2011). Compulsory savings that act as collateral and arewithheld by the MFI are the most common (Dejene, 1999 cited by Pitamber, 2003).Entrepreneurs, who lack necessary resources but who want to be involved in income‐generating activities, are mostly benefited by the services offered by the MFIs (Schafer,2001). Participatory methods are focused on monitoring, evaluating and assessing theimpact of MFIs in Africa (Mayoux and Chambers, 2005).Ledgerwood (2000) argues that women have attracted special attention of MFIs.

Webster and Fidler (1996, cited by Tesfaye, 2003) have identified social benefits thatwomen gain from participating in microfinance programs. These benefits include feelingless marginalized, having higher life aspirations, being more likely to use contraceptivesand being less likely to marry at an early age. A comprehensive study in Kenya, Ugandaand Tanzania found that accessing microfinance services enhances risk management,empowers women and reduces their vulnerability to risk (Cohen and Sebstad, 2005).Furthermore, it enables people to adopt more proactive modes that reduce the stress causedby depleted savings and borrowing or selling of the assets and equips them to deal with theshocks caused by the financial crunch (Cohen and Sebstad, 2005).Despite the growth in microfinance, although demand for rural financial services in

Africa remains unmet and substantial, formulae for providing these services remainunderdeveloped (Nelson and Temu, 2005). Some tend to caution against such optimismand argue that microfinancing is associated with some negative impacts (Christopheret al., 2006). The success of microfinance in any country is affected by broader financialpolicy. Nissanke and Aryeetey (1998) argue that although liberalization and institutionalreforms have been part of African governments’ policy agendas since 1980s, the keyperformance indicators are still not affected.A total of 26 MFIs are functioning in Ethiopia, particularly looking at women‐headed

households (AEMFI, 2006). The review of 20 MFIs functioning in Ethiopia is presented inTable 1. Most MFIs cater to both urban and rural clients. A majority of them focus onwomen (with a pronounced target of 70–75 per cent for women) offering individual orgroup loans in the areas of agriculture, petty trade, services, construction, householdmanufacturing, micro and small enterprise and employee loans (AEMFI, 2002).Annual lending rates charged by MFIs in Ethiopia vary between 6.5 and 24 per cent and

are uneven across MFIs. These rates further attract service charges ranging from 2 to 4 percent. In comparison with other African countries, these rates are lower in Ethiopia (Mosley

Copyright © 2011 John Wiley & Sons, Ltd. J. Int. Dev. 24, S84–S99 (2012)DOI: 10.1002/jid

Table

1.Review

ofmicrofinanceinstitu

tions

operatingin

Ethiopia

Nam

eof

institu

tion

Total

no.of

clientsserved

Participants

Loanservices

Annuallendingrate

Maxim

umloan

size

Max

loan

term

1AddisCreditand

Savings

Institu

tionS.C.

30,000

(allurban)

18%

men,

82%

wom

enIndividual

loan,cooperativeloan

andloan

tocommunity

‐based

organizatio

ns

6.5%

plus

additio

nalannual

servicecharge

of3%

forterm

loans;10%

plus

additio

nal

3%forinstalmentloans.

5000

Birr

24months

2Amhara

Credit

andSaving

Institu

tionS.C.

262,880credit

andover

50,000

voluntary

saving

clients

70%

men,

30%

wom

enInstalmentloan,end‐term

loan,

packageloan

andinputloan

15%,18%,18%

and15%,

respectiv

ely

5000

Birr

12months

3AfricaVillage

Financial

ServicesS.C.

3037

(1745urban

and1292

rural

clients)

40%

men,

60%

wom

enAgriculturalloan,manufacturing

loan,

serviceloan

andtradeloan

13%

or16%

basedon

the

levelof

thebusiness

ofthe

clientswith

3%to

4%annual

servicecharge

5000

Birr

12months

4ASS

EERMicro

Finance

S.C.

4234

(1215

urbanand

3019

rural)

5%men,

95%

wom

enPetty

tradeloan,serviceloan

and

anim

alhusbandryloan

12%

with

4%servicecharge

Birr1000

forall

typesof

loans

12months

5Benishangul‐

Gum

uzMicro

Finance

Institu

tionS.C.

5000

ruralclients

Dataunavailable

Agriculturalloan

(cropproductio

n,anim

alhusbandry),petty

trade,

handicraftandprocessing,

constructio

nandservice

12.5%

with

2.5%

additio

nal

servicecharge

(declin

ingrate)

5000

Birr

12months

6BusaGonofa

Micro

Finance

S.Co.

6148

(1967urban

and4181

rural)

21%

men,

79%

wom

enGeneral

purposegrouploan

and

employee

loan

24%

with

Birr2

service

charge

andBirr3

asotherfees

1750;1/3of

employee’s

monthly

salary

12months

7DECSIS.C.

Morethan

200,000(20%

urbanand

80%

rural)

61%

men,

39%

wom

enGeneral

loan,agricultu

ralloan,

civilservantloan,agricultu

ral,input

loan

andmicro

andsm

all

enterprise

loan

15%

formonthly

instalments

and18%

forend‐term

instalments

5000;five

times

monthly

salary

but<8000

Birr;

and30,000

12,12,8,

24and36

–48

months,

respectiv

ely

8ESH

ETMicro

Finance

S.C.

7119

(2098urban

and5021

rural)

68%

men,

32%

wom

en6‐month

loan,9‐month

loan

andannual

loan

24%

1500

Birr

6,9,

and

12months,

respectiv

ely

9Gasha

Micro

8386

30%

men,

Non‐seasonalgrouploan,seasonal

13%

with

3%additio

nal

10,000

Birr

12months

S86 R. Belwal et al.


Financing

S.C.

70%

wom

engrouploan

andindividual

loan

annual

servicecharge

10Meket

Micro

Finance

Institu

tionS.C.

2298

55%

men,

45%

wom

enAgriculturalloan

andpetty

tradeloan

20%

forallloan

types

5000

Birr

12months

11Meklit

Micro

Finance

Institu

tionS.C.

3600

40%

men,

60%

wom

enSmallmerchandizing

business

loan,

petty

tradeloan,household

manufacturing

andprocessing

loan,servicedeliv

erybusiness

loan,agricultu

ralloan

and

emergencyloan

14%

and2%

servicecharge

forpoor

and22%

lending

rate

and2%

servicecharge

foreconom

ically

activ

e

5000

Birr

12months

12Metem

amen

Micro

Financing

Institu

tionS.C.

1700

(1580

urban;

and120

semi‐urbanand

ruralclients)

42%

men,

58%

wom

enGroup

loan

(villagebanking)

24%

flat

1800

Birr

9months

13OmoMicro

Finance

Institu

tionS.C.

70,286

62%

men,

38%

wom

enAgriculturalloan,petty

tradeloan,

handicraftloan

andserviceloan

15%

forallloan

typesandno

otheradditio

nalcharges

2500

Birr

2–5years

14Oromiyaa

Credit

andSavingS.C.74,104

54%

men,

46%

wom

enAgriculturalloan

(cropproductio

n,anim

alhusbandry,

etc)

and

tradeloan

11.5%

with

3%additio

nal

servicecharge.There

isalso

amem

berfeeof

Birr10

perclient

2000

Birr

12months

15PEACEMicro

Finance

S.C.

16,874

ruralclients

38%

men,

62%

wom

enAgriculturalloan

and

non‐agricultu

ralloan

Non‐agriculture

15%,

agricultu

ralloan

18%

5000

Birr

12months

16Shashem

eneIddirs

Yelim

atAgar

Micro

Finance

Institu

tionS.C.

1864

(1504urban

and360rural)

53%

men,

47%

wom

enMicro

andsm

allbusiness

loan

(petty

trade,

food

anddrinks,processors,

carttransport,sm

allh

otels,tearooms

etc.),oxen

loan

agricultu

ralloan

(handicrafts,cattlefattening,cereal

vending,

etc.)

13%

(flat)forallloan

types

andno

otheradditio

nal

charges

5000

Birr

12months

17SID

AMA

Micro

Finance

Institu

tionS.C.

12,318

(3218urban

and9100

rural)

52%

men,

48%

wom

enGeneral

loan,micro

business

loan,

agricultu

ralloan

andserviceand

handicraftsloan

15%

5000

Birr

12months

18Specialized

Financial

and

10,524

(7644,

urban;

1299

semi‐urban;

31%

men,

59%

wom

enGroup

loan

16%,flat

5000

Birr

12months

(Contin

ues)



Table

1.(Contin

ued)

Nam

eof

institu

tion

Total

no.of

clientsserved

Participants

Loanservices

Annuallendingrate

Maxim

umloan

size

Max

loan

term

Promotional

Institu

tionS.C.

and1141

rural)

19WasasaMicro

Finance

S.C.

3958

(21%

semi‐

urbanand79%

ruralclients)

49%

men,

51%

wom

enAgriculturalloan(crops

anim

alrearing,

cattlefattening),trade(petty,grain

storageandselling,cattleselling,

smallshops,etc.),semi‐urbanmicro

enterprise

loan

andem

ployee

loan

24%

foralltypesof

loans

5000

Birr

11months

20Wisdom

Micro‐

financing

Institu

tionS.C.

12,000

72%

men,

28%

wom

enAgriculturalloan,businesses

loan

and

enterprise

loan

12.5%

with

2%servicecharge

5000

Birr

12months

Source:

Com

piledafteranalysisof

data

availableon

www.bds‐ethiopia.net/index.htm

l(accessedon

Novem

ber10,2006).




and Rock, 2004; Cohen and Sebstad, 2005). There are provisions of monitory penalties fordefaulters, which are imposed in the form of either time‐bound repayments or finesimposed by the local administration or courts. Many MFIs are not financially sustainableand are unlikely to achieve growth and massive outreach without continual subsidies(Helms and Reille, 2004). In 1998, the National Bank of Ethiopia (NBE) removed allinterest rate ceilings in the financial sector. A significant political pressure exists to keepinterest rates low but without any official ratification of ceiling.Amha (2000b) analyses that although the repayment rates of MFIs in Ethiopia are

relatively better (94–100 per cent), it does not present the true picture of efficiency andfinancial health. The limited data on loan ageing, write‐offs, lost reserves and adjusted costof subsidies affects the portfolio quality‐estimation procedures. On the contrary, a studyby the African Development Board found the performance of the Ethiopian MFIsimpressive despite their smaller current outreach (Gobezie, 2001; Pitamber, 2003).This paper aims to assess the contribution of microfinance to the economic

improvement of women small‐scale entrepreneurs in Addis Ababa and has been groupedinto five sections. After the introductory account, the second section states the researchproblem in terms of purpose, scope, methodology, demographic profile and samplingtechniques. The third section reveals the findings arrived after analysing the responsesfrom three different groups of respondents. The fourth section deals with discussion andpolicy implications, and the final section presents the research conclusions.

1.2 Women Small‐Scale Entrepreneurs and Microfinance Institutions

Small‐scale enterprises in Ethiopia are estimated to employ 1.5 million people—characterized by a higher proportion of women (Desta, 1999). With a high rate of femaleheads of households in both urban and rural areas (35% and 20 per cent, respectively),women have inevitably become major actors in this sector. A survey conducted by theCentral Statistics Authority in 1996 in 48 towns indicated that 65 per cent of the informalsector activities are owned and run by women. Limited education, few formal employmentavenues, low skill levels and poverty are the major reasons for their increased participationin small‐scale enterprises in Ethiopia (Berger 1996 cited by Reta, 2000). Women small‐scale entrepreneurs face a number of constraints such as lack of capital and access tocredit, technical and managerial know‐how and limited knowledge of markets and rawmaterials. Gender discrimination faced in moving out of the homes and lack of access toeducation and skills impede women’s income in Ethiopia, Eritrea, Sudan and Chad(Mayoux, 1999). This contrasts with the situation in Cameroon, Zimbabwe, Zambia,South Africa, Kenya and Uganda, where women play prominent roles in agriculturalproduction and informal sector marketing (Mayoux, 1999).Small‐scale enterprises constitute the bulk of the private sector in Ethiopia (Andualem,

1995). However, the small‐scale entrepreneurs use small amounts of money and littleknow‐how and generate low profits and savings. As a result, there is a little injection ofearnings (as capital) back to the business (Desta, 1999). Ninety per cent of start‐up capitalusually comes from personal savings or kinfolk—in the form of grants or loans,moneylenders and microfinance services. Moneylenders are usually inaccessible to thepoorest, for the rate of interest is as high as 300 per cent. Credit institutions demand forcollaterals such as physical assets and property documents (Desta, 1999). For individualcredit, the borrowers need to bring personal guarantee or collaterals such as title deeds of a



house or vehicle, deposits in banks, negotiable instruments and merchandise. Onlygovernment employees can give personal guarantees. For groups and associations, socialcollateral is required by which every member is held responsible for any risk of defaultthat may occur, in addition to personal guarantee or collaterals.In Ethiopia, the present MFIs are informal, quasi‐credit [non‐governmental organization

(NGO) and government projects] or formal financial outlets (MFIs and banks). Theinformal financial sector primarily includes commercial moneylenders, Arata Abedari;community based organizations such as Ekub, a system of forced saving, with financesecured through traders, friends and relatives; and Iddir, informal associations wheremembers save for funeral costs.Proclamation No. 40 of the Government of Ethiopia in 1996 enacted a specific law on

MFIs and recognized them as private share companies. Most MFIs that have been legallyregistered by the NBE operates in Addis Ababa. These MFIs have delivered financialservices to about 900,000 (mostly poor) clients since 1996, out of a potential market ofapproximately 6 million. A study conducted by the International Fund for AgriculturalDevelopment in 2001 indicated that the industry, with a network of 500 branches, hasrecorded remarkable growth: a loan portfolio of about $33.5 million, net savings of about$16 million, outreach to nearly 500,000 rural households and over 40 per cent of femaleclients (EBDSN, 2004).Conventional banks have not been instrumental in financing to the small entrepreneurs.

Their poor branch networks, requirements for collaterals, lack of suitable credit lendingpolicies and trained personnel and high costs of delivering small amounts of credit are themain reasons affecting credit services. NGOs are restricted to credit programs supportingcommunity‐based savings and credit cooperatives under Proclamation 40/96 and areprohibited from dealing directly in credit and saving activities. They have started operatingin a formal way (through MFIs) with group‐based (group guarantee) credit delivery thatavoids collateral, however, with the loan ceiling of Birr (ETB) 5000 ($1 = ETB9) for bothgroups and individuals.Non‐suitability of commercial banks and the credit schemes of NGOs were the main

reasons for the establishment of MFIs to provide financial services to poor households(EBDSN, 2004). Amha (2000a) found that MFIs are facing problems of loan losses, weakmanagement and information system and others. Absence of dividends to shareholders ontheir invested capital, because of its re‐investment in the business, is also affecting theinterest of few private investors (Luccini, 2005).

2 STATEMENT OF THE PROBLEM

2.1 Purpose, Scope and Methodology

The study examines the contribution of microfinance services to the economicimprovement of the women in the Kirkos and Bole sub‐cities of Addis Ababa,Ethiopia. The research assesses the impact of the credit and saving services on theeconomic improvement of ‘women small‐scale entrepreneurs’ by using quantitativeanalysis. The study is based on individual responses of women entrepreneurs,representatives of small‐scale women entrepreneur association and credit and savingworkers of Addis Ababa. The three target groups from whom data were collected inthree phases are as follows:



Small‐scale women entrepreneurs in Kirkos sub‐citySmall‐scale women entrepreneur association in Bole sub‐cityCredit and saving workers of the Addis Credit and Saving Institution (ADCSI)

Data were collected using questionnaires, focus group interviews and generalinterviews. The impact of MFIs on women entrepreneurs is the major research problemwhere a focus has been made on the contribution of MFIs in raising income, savings,employment, access to medical facilities and education among women small‐scaleentrepreneurs. Women’s views on the overall credit and saving services have also beensecured to evaluate whether or not they have been benefited economically from theservices of MFIs.

2.2 Demographic Data and Sampling

There are 54.2 per cent jointly headed, 13.7 per cent female‐headed and 32.1 per cent male‐headed households in Addis Ababa. Over 65.2 per cent of the population is economicallyactive. But, much of the work that women do within the household is not considered aseconomically active (Addis Ababa Women’s Affairs Office, 2005). The city is dividedinto 10 districts or sub‐cities that are further divided into kebeles (Table 2). The studyincludes low‐income women entrepreneurs in the two sub‐cities (Kirkos and Bole). Thecondition of women in the Kirkos sub‐city is the poorest whereas in the Bole sub‐city, it iscomparatively better. Kirkos has 43 per cent of the households below poverty line (KirkosSub‐City Women Affairs, 2004), and 42 per cent of the households are female headed.Bole on the other end is the posh area of the city where the rich, expatriate and diplomatslive. The data regarding percentages of households below poverty line for Bole are notavailable.Women who receive credit and saving services were also the clients of ADCSI. Hence,

the operational reports of ADCSI were used to study the number of women beneficiariesof credit and saving services. As of June 2002, in the Kirkos sub‐city, a total of 2916people (2470 women) were clients of ADCSI. The number of women clients who exitedthe program was 636, and by June 2003, there were 1834 women clients. These clientsparticipated for at least 3 years. Inadequate loan amount, failure in business, increased debt

Table 2. Sub‐cities in Addis Ababa by population and number of Kebeles (2007)

Name of sub‐city Number of kebeles Population

Arada 10 303,810Addis Ketema 9 320,389Lideta 9 296,073Kirkos 11 318,508Yeka 11 304,550Bole 11 298,000Akaki‐Kaliti 8 182,502Nifas Silk‐Lafto 10 304,550Kolfe‐Keranio 10 261,235Gullele 10 333,998

Source: http://www.addisababacity.gov.et/index.php?option=com_content&view=article&id=96&Itemid=93



burden, unattractiveness of loans, perceiving loan as charity and lack of attention by MFIswere identified as major reasons for exiting credit services.Selection of 86 of the 1834 women from the Kirkos sub‐city was performed using

simple random sampling. The questionnaire contained 46 structured questions classifiedinto seven parts: general demographic information, income, saving, employees hired torun their business, access to medical facilities (self and family), access to education (selfand children) and comments. The demographic characteristics in the Kirkos sub‐cityshowed that 21 were single, 29 were married, 18 were divorced and another 18 werewidowed. With regard to education level, 17 were illiterate, 21 completed grades 1–4, 17completed grades 5–8, 19 completed grades 9–12 and 12 completed grade 12. Fifty‐eightwomen had school‐age children and relatives with them, and 28 did not have children.Forty‐eight women had school‐age relatives dependent on them.Women affairs’ offices in the kebeles of the Bole sub‐city were contacted to cover low‐

income women entrepreneurs involved in business activities by using credit and savingservices. Focus group interviews were conducted with 40 women of the Kebele‐10Betegel Women Small‐scale Entrepreneurs Association who were the recipient of creditand saving services. Interviews were also conducted with the credit and saving workers ofthe ADCSI in the Kirkos and Bole sub‐cities to assess the contribution of the credit andsaving services in their economic improvement.

3 FINDINGS

3.1 Findings from Structured Interviews Conducted in the Kirkos Sub‐city

Women were asked about their income before and after their becoming recipients of creditand microsaving services. Sixty‐three per cent were earning even before they receivedcredit services (Table 3). Concerning responses to the level of income before and afterloans, 46 respondents (53 per cent) were earning even before they received credit andsaving services, 39 per cent of them earned less than 100Birr monthly, 28 per cent earned100–200Birr, 15 per cent earned 200–400Birr, 11 per cent earned 400–600Birr and7 per cent earned 600–1000Birr.After the respondents received credit and saving services, earnings increased as

shown in Table 4, with 24 per cent of them earning less than 100Birr, 46 per cent earning100–200Birr, 21 per cent earning 200–400Birr and 9 per cent earning 600–1000Birr permonth in comparison with the earlier status.By comparing monthly income before and after participation in the microfinance

program, monthly earnings of women entrepreneurs were found to have increased by

Table 3. Sources of income and income‐generating activities before loan

Income beforeloan

Number % Income‐generatingactivities before loan

Number %

Yes 54 63 Yes 46 53No 32 37 No 40 47Total 86 100 Total 86 100

Source: interview data.



100–200Birr. Concerning savings before getting access to credit, 31 per cent (27)responded that they saved whereas 69 per cent responded that they could not save(Table 5). Out of 27 who saved, 59 per cent saved less than 100Birr, whereas 41 per centsaved 200–400Birr.After becoming a recipient of credit, 73 per cent (63) began saving, whereas 27 per cent

did not. Of the 63, 70 per cent saved less than 100Birr, 19 per cent saved 100–200Birr,6 per cent saved 200–400Birr and 5 per cent saved 400–600Birr per month (Table 6).Although a lower proportion of women (27 per cent) were saving without taking anycredit, more women (73 per cent) resorted to savings after getting access to credit. Table 7shows the responses of women and their dependence in running their ventures. Although85 per cent (39 out of 46) were working without assistants before getting loans, thepercentage decreased to 71 (61 out of 86) after obtaining credit and saving services.

Table 4. Level of income before and after loan

Monthly income Before loan After loan

Number % Number %

Less than 100Birr 18 39 21 24100–200Birr 13 28 39 46200–400Birr 6 13 18 21400–600Birr 4 9 – –600–1000Birr 3 7 8 9More than 1000Birr 2 4 – –Total 46 100 86 100


Table 5. Availability of saving before and after loan

Saved funds Before loan After loan

Number % Number %

Yes 27 31 63 73No 59 69 23 27Total 86 100 86 100


Table 6. Levels of saving before and after loan

Saved funds Before loan After loan

Number % Number %

Less than 100Birr 16 59 44 70100–200Birr – – 12 19200–400Birr 11 41 4 6400–600Birr – – 3 5600–1000Birr – – – –>1000Birr – – – –Total 27 100 63 100




Table 8 shows that a higher proportion (66 per cent) of women started paying for theirmedical facilities after getting the credit services.Out of 57 respondents having access to microfinance, as well as to medical facilities,

only 70 per cent said that they paid their medical expenditures from their income (Table 9).Forty‐six per cent of women entrepreneurs (who have not completed their high school)

continued their education, and 33 per cent had some additional education (Table 10).Finally, the women were asked to rate the microfinance services and their suggestions

for the overall effectiveness of the credit and saving services. Nearly 40 per cent stressedthe need for improvement in the services offered. Although 43 per cent considered theservices okay, 17 per cent of the remaining considered them as barely acceptable. The

Table 7. Women working alone in their enterprises

Women workingalone

Before loan After loan

Number % Number %

Yes 39 85 61 71No 7 15 25 29Total 46 100 86 100


Table 8. Women’s access to medical facilities

Access to medicalfacilities

Before loan After loan

Number % Number %

Yes 50 58 57 66No 36 42 29 34Total 86 100 86 100


Table 9. Women paying medical expenditures from their income‐generating activities

Paid medical expenditures from income‐generating activities Number %

Yes 40 70No 17 30Total 57 100


Table 10. Women’s access to high school and further education

Continued high school education Number % Access to further education Number %

Yes 34 46 Yes 4 33No 40 54 No 8 67Total 74 100 Total 12 100




women raised the concern that MFIs do not provide the loans for the requested amountsand slash the amount without any explanations. Women did not like the group guaranteeprovisions and desired of their self responsibility for paying their individual loans. Thewomen expected personal guarantees to be given by anyone, without restricting it to thegovernment employees. They considered the current rates of interest on loans as high andasserted that higher interest rates lower the repayments.

3.2 Findings from Focus Group Interview Conducted in the Bole Sub‐city

Women small‐scale entrepreneurs, who were involved earlier in home‐based earningactivities (e.g. baking injera, the local bread, or working as common labourers or maids),did not find improvement in their earnings after receiving the loans. This happened mainlybecause the money they earned was used to pay the loans back.Furthermore, the women lacked funds to hire a sufficient number of workers. Their access

to medical facilities remained limited, because they utilized most of their income in business‐related purchases and in paying the loans back. Free medical services given by the healthcentres were their only resort. Most women did not see improvement in their education,although 46 per cent continued with their secondary education and another 36 per cent withsome other education. By commenting about the risks in the business, they stated that theirbusinesses are insured only till they finish paying their loans back. They were of the opinionthat the period of their insurance should be extended and be made lifelong.The women rated themselves lower in socio‐economic status and ambitions in

comparison with men. Family responsibility, household obligations and lack of supportconstrained them in confronting challenges imposed by the external environmental. Somerepresentative themes (quotes) in this regard are as follows:

(1) ‘Women account for almost half of the population, but we are at the bottom in terms ofeducation, employment, and economic status. Entrepreneurship is a forced choice—arising out of emergent family responsibilities rather than ambition.’

(2) ‘We don’t see our growth in micro and small‐scale sectors because of the lack of supportfrom family and the government, access to financial and non‐financial resources, andmanagerial know‐how.’

(3) ‘One of the major obstacles to entrepreneurship is the unavailability of suitable marketsfor outputs. The working premises provided by the government are not suitably locatedand force us to sell our goods at low prices. Better locations attract higher rents. Irregularand erratic supply of raw materials affect us adversely too.’

(4) ‘Household obligations are major obstacles and limit the amount of time we candedicate in productive activities.’

(5) ‘Banking and financial institutions differentiate between female and male fordisbursement and sanction of loans, and rate us inferior.’

3.3 Findings from Interviews with Credit and Saving Workers in the Kirkos andBole Sub‐cities

Interviews were conducted with credit and saving workers. These workers made follow‐upvisits to women entrepreneurs to ensure that they pay their loans on time. Their mainconcerns were as follows:



(1) ‘After taking loans, women are expected to pay them back as early as possible andbecome short of working capital. They opt for bigger loans initially but hurry up topay them back even with incomes from the other sources. They do this to avoid therisk of high rates of interest and associated penalties.’

(2) ‘The women enthusiastically jump into any ventures once they get the loan. Theydon’t even look for professional advice or market research. Women need to getprofessional advice to start their businesses and also to find attractive markets.’

(3) ‘Women entrepreneurs face difficulty in acquiring market‐related skills and havelimited access and control over productive resources; in addition, they are unable torecruit and hire skilled laborers and rely more on their relatives who might not possessappropriate skills.’

(4) ‘Household chores, low levels of education, low affordability, social expectationanticipating girls to assist their mothers in domestic activities, hinder businessactivities of women.’

(5) ‘Most women tend to engage in activities that are home‐based and less risky. Suchlow risk activities generally yield limited returns.’

(6) ‘Women are mostly unaware of business support services and business opportunities.They need to be made aware of business opportunities and support services offered byboth government and non‐governmental organizations.’

(7) ‘We at microfinance institutions help such women who solicit relatively smaller loans,since a high administrative and handling cost prevents commercial banks fromgranting small loans to entrepreneurs.’

4 DISCUSSION AND POLICY IMPLICATIONS

The study finds that women are gaining increased attention of MFIs in Ethiopia. The trendis largely true for Africa (Mayoux, 1999). However, the expansion of MFI services towider women segment is not very clear. The findings reveal that most womenentrepreneurs who took MFI services were involved in income‐generating activitiesbefore becoming their clients. The majority had income from small businesses whereasothers had it from house rents, pensions and salaries from the additional work that theytake. This raises the concern whether or not MFIs really target the poorest of the poor(Hulme and Mosley, 1996; Mosley and Hulme, 1998). Furthermore, credit services couldnot bring any major changes to school‐age children and dependents of these women,because education was free in government schools. The second important thing is theextent of MFI services to women. Loans from MFIs have made meagre but positivecontributions in their savings abilities (Tables 3, 4 and 6).Savings can be used for either consumer expenditures or investments. If savings are

consumed, they should improve the quality of life. But, the small increase in income didnot improve their lives. Although a higher proportion of women started paying for theirmedical facilities after getting the credit services, to some of them, this payment wassupported by their husbands or relatives. Their own incomes were insufficient to cover themedical expenditures. This means that the income contribution from MFI‐supportedventures did not increase their access to medical facilities and education and they remaineddependent on other sources (Tables 8, 9 and 10).On the investment front, there was no evidence of business growth except paying the loans

back. The majority of women entrepreneurs were constrained by manufacturing‐related



and market‐related contingencies. In particular, women micro‐entrepreneurs in Ethiopia areoverburdened with family responsibilities, and overcoming such constraints is crucial fortheir success.A majority of the women were sole workers in their ventures before resorting to MFI

assistance. Access to credit services reduced the proportion of women working alone intheir ventures (Table 7). Although loans from MFI enabled them to hire assistants(Table 7), most of the employees were their relatives and were not skilled. It appears thatEthiopian women wish to extend a helping hand to their kin and trust them more incomparison with others. The tendency precludes the employment of skilled workers andreduces the productivity of their ventures.Traditionalmoneylenders charging exorbitant interest rates and ‘in kind’ credit also function

as important sources for small traders and farmers. Thus, ‘informal sector funding’ remainssignificant in spite of the availability of MFIs, commercial banks and other formal entities.The discussion indicates that a majority of the aforementioned constraints are arising

out of institutional barriers. The aforementioned observations are in line with thearguments of Fogel et al. (2006) who claim that the institutional constraints that seemtrivial in developed economies can impede entrepreneurship throughout a region, acountry or a civilization in developing economies. Some of the factors identified by theminclude economic stage of development; rules, regulations, property rights and legalrequirements; transactional trust; market environment; and culture. Hence, credit formicroenterprise development and a special support for women in both financial and non‐financial services (such as insurance, training, development) are necessary as investing inwomen offers the most effective means to improve health, nutrition, hygiene andeducational standards for families (Aguilar, 2006).Altogether, credit and saving services in Addis Ababa have largely been unable to affect

to a great extent the income of women small‐scale entrepreneurs. MFIs need to secure betterinteractions with clients and need to expose them to planning tools and basic bookkeepingand ‘business’ organization. Women entrepreneurs need to know how to use the loanseffectively and to know which ventures to become involved with. The personal guaranteesystem needs revision. Not only government employees but also other individuals workingin private or non‐governmental organizations should bemade eligible to offer guarantees forwomen applying for loans. Negative perceptions towards group guarantees should betackled. MFIs should not decrease the amount of loan unilaterally. This should be inconsultation with the client. Although the interest rates charged by MFIs in Ethiopia arelower than those of the rest of Africa, the repayment periods need to be prolonged to offerproper leverage to their businesses, especially the working capital. Women small‐scaleentrepreneurs should be offered the option of extending insurance coverage beyond the loanrepayment period. The reach of MFIs in Ethiopia is limited in the sense that they operatemainly in and around Addis Ababa. Expansion to remote areas to serve the poorest of thepoor should also be a further action.

5 CONCLUSION

Women entrepreneurs account for a sizable majority of small‐scale entrepreneurs in Africaand are estimated to employ 1.5 million people in Ethiopia. As the majority of the informalsector activities are owned and operated by women, a small change in their participation indiverse productive activities can have a large impact in improving their lives, their families



and the economy. Although their access to credit is impeded profoundly because of theregulatory constraints imposed by formal financial institutions, the rates of interest prevalentin the informal sector make them literally untenable. There is a need to look into institutionaland other factors that constrain women entrepreneurship in the region.From the structured interview and focus group discussions with the women small‐scale

entrepreneurs, it can be inferred that credit and saving services have contributed partiallytowards incomes and savings of women entrepreneurs. However, the income so secured hasnot resulted in any qualitative improvement in their lives other than the repayment of loansand maintaining businesses already established. The services have not contributed much intheir business growth, as the women could not create employment opportunities for othersexcept some family members. On the personal front, they could not utilize the income fortheir personal care, medical costs and education. In sum, except some minor improvements,credit and saving services extended by MFIs in Ethiopia have been unable to affect to anygreat extent the income of women small‐scale entrepreneurs so far. Appropriate productsand policy measures for most basic and extended MFI services are needed to benefit womenentrepreneurs. Effective dealing with intuitional and other constraints is necessary toimprove their income, health, education, financial and educational status.

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Microfinance and sustained economic improvement: Women small-scale entrepreneurs in Ethiopia