Microfinance Helps Ward Off
Starvation in Ethiopia

ADDIS ABABA - The image of the "starving Ethiopian" - still firmly anchored in our memories - may be worth reexamining. While most people here continue to perch precariously on the thin line between food security and hunger, a few are finding firmer footing.

One lifeline is the revolutionary concept of microfinance now sweeping Ethiopia. Pioneered by the Grameen Bank in Bangladesh, it provides small loans to those who would not normally qualify for them, usually women.

"It allows people to become self-sufficient," said Nadia Waber of Good Shepherd, an indigenous NGO which works to alleviate poverty among women and children in the capital.

"You can train people as much as you want, but they just go home and sit because there are no jobs. But if you give them a loan they can do something with the money they have in their hands."

The microfinance schemes, still relatively new, tend to share common characteristics. Women join groups which are responsible for safeguarding loan repayments. If a member defaults, the rest of the group is liable. It can either borrow to repay the loan, or decide to pay it back from its own funds and make internal arrangements to recover the money from the defaulter. This creates a peer pressure so powerful that the loan repayment rate is above 95 percent, a figure which would make traditional bankers swoon.

For the poorest, microfinance has a distinct edge over conventional credit. The obvious benefit is accessibility. Poor women have little collateral against which to secure normal bank loans. With micro-credit, no collateral is required.

The "solidarity groups," as they are commonly called, are located in or near villages while traditional banks are usually in urban areas, far from farms and borrowers. The cost of a journey to the bank can outweigh the amount of a loan, even if the loan were forthcoming, an unlikely prospect. Micro-loans can also be tiny, as low as $10, enough to launch a business in a developing country.

These loans allow women - and a few men - a new freedom.

"It is startup capital. They take the loan and wonder what business they can start," said Waber of Good Shepherd. "Many of the women are creative, have ideas, can invest in them, can earn money and learn to save. There is no more hand to mouth existence."

Micro-credit concentrates on women because they are the hardest hit by poverty. They are also considered more reliable.

"Women make up 95 percent of our beneficiaries," said Ejigayehu Teffera, an income generating specialist with the Christian Relief and Development Association (CRDA). "They are not usually the breadwinners. By having access to credit, they can generate income and feed their children." CRDA is an umbrella group of 120 NGOs which acts as a clearinghouse for funds from donors.

"By supporting women we support the entire family. Our scheme is so successful precisely because the women are in charge," said Ejigayehu Teffera.

One of the oldest microfinance programs in the country is run by REST, the largest NGO in the northern province of Tigray. Before it was launched, poor farmers needing money borrowed from rich farmers at interest rates of up to 200 percent. They would plant crops and resell them to their creditors in a dependent relationship reminiscent of feudal serfs and lords in medieval Europe.

Microfinance also faces a number of stumbling blocks. According to Azeh Birke, who raises funds for Good Shepherd, one of the drawbacks is the lack of a tradition of savings in the country.

"Towards the end of the Derg regime [of Mengistu Haile Mariam] everyone had to serve in the army, even the women. Since everyone was involved in the war, there was little life-sustaining activity. The principles and ethics of savings disappeared," she said.

Some experts believe microfinance can fuel dissension within the home, since the man, traditional repository of the family purse, waives some of his power in favor of his wife. Or, men could appropriate a woman's loan, spending the money and forcing an already destitute wife to pay it back. In some circles, there is worry that micro-credit diverts funds from traditional poverty alleviation programs. Some even question whether small loans empower women at all, or whether they just reinforce traditional women's activities in society. Finally, there is the question of whether setting up women as micro-entrepreneurs increases the burden they already carry as unpaid domestic workers in their own families.

Whatever the drawbacks, the million or so people who benefit from microfinancing have taken a few first steps towards self-sufficiency. Theirs are not stories of handouts, but of returns earned on their labor from investing directly in shaping their own future.