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Microcredit faced with rural exodus in Ethiopia

source : Africa Renewal

Her name is Aselefech Desalegn and she’s in the headlines of Africa Renewal, a UN publication that deals with development in Africa. After leaving her parents’ village fifteen years ago, this young lady settled in the town of Bishoftu, 45 km from Addis Abeba. She started work as a hotel cook and became a customer of a microfinance institution to set herself up in business and increase her revenue. She was a street vendor of charcoal and eggs, later switching to baking enjera, the national bread, which she now sells to hotels. As a result, unlike around 3.7 million of her compatriots who depend on the UN’s World Food Program for help, not only does Aselefech Desalegn have enough to pay for her children’s education on her own but she also regularly sends some money to her parents, who still live in their native village.

In Ethiopia, microcredit has strongly grown over the last 10 years and now concerns more than 600,000 borrowers. The Buusaa Gonoffa microfinance institution, of which Aselefech Desalegn has become a regular customer, lends to borrower groups at an interest rate of 18% to 30% per year on a “group-liability basis – every member of such a group is liable for those who may fail to repay. The system is modelled on that of the borrower groups devised by Muhammad Yunus in Bangladesh.

In this country of 88 million inhabitants, microcredit’s potential remains enormous, especially in rural areas where Microfinance Institutions are few and far between. According to Baptiste Ast, microfinance specialist with PlaNet Finance, “some microfinance institutions are scared of venturing into rural areas.” He considers that it would be useful for the government to have a more incentive policy but, all the same, “it would be naïve to believe that microfinance can eradicate hunger and poverty on its own,” warns Baptiste Ast.