Livelihoods through micro-enterprise services?

This paper analyses the issue of micro-finance services in rural Ethiopia. The paper points out that while micro-finance services continue to expand in Ethiopia as a poverty reduction strategy, there continues to be several constraints on both the supply and demand sides to its realising its fullest potential.

On the supply side, for instance, obstacles include poorly designed policies and regulations, organisational behaviours, and a limited capacity of institutions to implement them, among other things. Furthermore, the poverty reduction focus of most rural microcredit programs means that credit is usually rationed in order to reach more people. This rationing mechanism in regulations and polices, while targeting the poorest and the disadvantaged, tend to leave out other who might also have the demand for it. Furthermore, many organisations tend to replicate the Grameen methodologies without doing much to customize it to local realities.

On the demand side of microfinancing, obstacles include poor communications and infrastructure systems in the rural areas. Furthermore, many clients have few skills in business development, and many are also wary of venturing into non-traditional business activities. Women also face several obstacles to access and utilisation due to gender inequities in a male-dominated patriarchal society of Ethiopia.

The author gives several recommendations for narrowing the chasm between the supply side and the demand side. They include the following:

• there are several charity-oriented NGOs involved in the microfinance business who operate without a license. Some of their business practices including subsidised interest rates, is damaging to the business industry
• saving mobilisation in rural areas should be highly encouraged, without such deterrents caps on interest rates. This is especially vital due to the risky situation of life in rural areas
• it would be highly beneficial to diversify the lending away from the current "group methodology" into such methods as village banking, and individual lending . This is because group lending tends to miss the very poor, and usually has no place for those who qualify to borrow on an individual basis
• government needs to give more focus to developing infrastructure in the rural areas especially road networks, if microfinance operations are to remain viable
• in addition to credit, opportunities must be created for the poor to receive marketable skill development
• while many microfinance programs pay special attention to women, a good portion of the credit they receive goes to their male counterparts. It is therefore important for planners to explore factors that limit women’s access to and benefit from credit, and how to mitigate these

Source:
Eldis