MFI related deaths hike
© By Ankober Zuta , Blogger of Debre Birhan Blogspot
12-03-2011
Her eyes glitter.
“Well it is a long story” she says creaming her strawberry lips by her tongue. Cracking due to the blazing sun and lack of lip balm, ‘chap sticks’, Senayet’s lips were still as deliciously beautiful as Angelina Jolie’s.
‘Well it is a long story. I had taken a loan of 5000 birr ($300) to kick start my business from a local government owned Micro Finance Institution” Senayet explains. I am utterly taken by her unspeakable chocolate beauty. I am trying to recollect my attention to the issue. Hahaha
“And then?”I ask.
“And then what?” she replies my question by question.
“I mean what got you into this business; cleaning of a Hotel? “I enquire again.
“I told you. I was unable to repay the money I borrowed from the Micro Finance institution. Therefore, they took my property which I showed as a collateral as I was unable to repay my loan within the agreed time”.
I had met beautiful Senayet , 9 years ago when I was 11 years ago when I was studying at Bahir Dar University, around 550KM from the Capital, Addis Abeba. I and my friends used to get along with her as she had a long curly hair, beautiful face and engaging character. I still recall her everything and stories.
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A ventured undercover investigative reporting between this writer and an associate in Ethiopia reveals these untold facts about the ‘killing aspect’ of these ‘poor saver’ micro finance institutions.
Andhra Pradesh, one of India’s most populous states, and Banagladesh, both famed for prospering the poor via micro finance institutions, saw their rough times as the institutions were hit with reports of embezzlement, repressiveness and firing of Mohammed Yunus as Managing Director of the Grameen Bank. But What does it look like in the Ethiopian case?
Foreign Participation
Monetary and Banking Proclamation No. 84/1994 of the Ethiopian Business Law precludes a foreign national from undertaking banking business in Ethiopia, and no person is permitted to own more than 20% of a banking company’s shares. Financial foreign investment, including the banking business in whatever form, is prohibited.
Our investigation done on 10 micro finance institutions (MFIs), said to be founded by Non Governmental Organisations (NGOs) reveals the indirect involvement of foreigners in micro finance in Ethiopia. The first investigation was done on all MFIs in Ethiopia which don't have government support and depend on donor support as their major source of funding. Gasha Micro-Financing S.C, which pulls 80% of its funding/ownership from NGOs, Asser Micro-Financing S.C, which pulls over 97% of its funding from NGOs, Meklit Microfinance Institution S.C, which pulls 91% of its funding/ownership from NGOS and two other Institutions had the direct and indirect involvement of foreigners. The seed money of most of these MFIs were garnered from foreign NGOs .These NGOs still have shares and stocks within the MFIs making them beneficiaries from dividends of profits.
The foreign ownership and breach of Proclamation No. 84/1994 is further explained in the fact that these NGOs administered by Ethiopia personnel are accountable partially to these funders.
The Ethiopian government usually states the reason for banning foreign involvement in the financial sector saying it is due to the fact that foreign bank competition with infant domestic banks may be detrimental to the domestic banks rather than making them efficient. However, except the government owned ‘independent’ MFIs, the few true MFIs which are fully owned and run by individuals members/shareholders such as AGAR, Wisdom Micro-Financing Institution S.C, Africa Village Financial Services S.C and Meeket Microfinance Institution S.C have been going through unfair competition and regulatory up and downs.
Party machine MFIs
The MFIs we section in this category are all owned and run by regional governments and party members of the ruling Ethiopian People’s Revolutionary Party (EPRDF).These are namely Amhara Credit and Saving Institution S.C, Addis Credit and Saving Institution S.C., Benishangul Gumuz Micro finance S.C, Dedebit Credit and Saving Institution S.C., Diredawa Micro finance Institution S.C, Omo Micro finance Institution S.C, and Oromia Credit and Saving Institution S.C. They all act and reach the mass and international community as ‘independent’ MFIs , however, the populous we interviewed in the Amahra and Oromia region perceive them rather as ‘partial’. These MFIs received their major funding (seed money) from their respective regional governments and endowments . The regional governments and their top cadres are the major shareholders in these MFIs making them the highest profit makers out of these so called ‘pro poor’ MFIs.
Mekonnen Yelewumwosen, the CEO of ACSI and Dr.Woldaye Ameha, of The Association of Ethiopian Microfinance Institutions (AEMFI) are the two big fame and money makers out of these MFIs.
Established as private share companies, Regional governemnt owned Ethiopian MFIs nominally state ‘the dividends are not distributed to shareholders’ however; there were tangible cases of dividend distribution to the major shareholders. Some of the big names in the MFIs business also own larger shares in various private and governmental MFIs.
“Most the above listed MFIs operate closely with Kebele Administrations, with some of them having offices shared with Kebele administrations. They have showed high level of dependency on Kebele authorities than operating independently. All of them call customers for loan appraisal, disbursement and collection, which 53 resulted into overlapping of service providers and looting of customers.” A recent report revealed.
We have also been able to document words of discrimination, coercion and repayment harassment from clients who weren’t willing to support or join the ruling party or were unable to repay on time.
“My application for credit was evaluated by Credit and savings Committee, which is composed of two Kebele (Governmental district office) Committee members and three representatives from various community associations (including the women and youth associations, elders) and one ACSI employee. It really gave me unease because I had fallen out with the Kebele official once when he tried to force my wife to vote for him in the local elections. As can be expected ,they didn’t approve my credit application” Kagane (not a real name), farmer in Finote Selam, Northern Ethiopia laments .Credits are given to coopertaive assocations or individuals making the major form of evaluation criterion 'political opinion' than other logistical requirements.
Failure of Loan Repayment
There is a short period of loan, that is, a maximum of 12 months and group guarantee and possessions are taken as collateral and loan size of 5000 Birr for micro credits. "The step in getting back loans from the poor farmers has two steps," a researcher explains. "It begins with family and group pressures. If this fails the MFIs revert to using Kebele Courts."
The Kebele Courts have been used by the state apparatus to punish dissenters and failed debtors. Headed by untrained party loyal jury, these Social Courts pass decisions that includes confiscation of the property of the debtor to settle repayments and even arrest. In both the studied regions; Amhara and Oromia, credit clients have expressed their dissatisfaction, resentment at the ‘irrational’ and ‘nepotistic decisions’ of the Courts.
Although not officially recorded, up to 100 clients of government owned MFIs have committed suicide since 1996.Thousands went into a life of begging, prostitution or lost their properties due to severe measures taken by the Kebele Courts as most failed or ‘refused ‘to pay loans on time .Besides these punishments, many of those who failed to repay their loans recount of being subjected to severe and continuous psychological trauma by the Committee, Group and Court members, portarying them as indecent and ‘milkers’ to their peers.
Does micro finance really work for the poor?
There are many success stories of Ethiopians who have succeeded in making their own fame and wealth out of the credits they received from these MFIs. Lives have been truly changed. Out of these successes most have gradually been recruited by the ruling party to serve both as cases of successful capitalists for the Western neoliberal donors and double agents within their communities. Regardless, of this merits, MFIs demerits have been unreported by most media making them saintly and perfect.
“The regime uses MFIs to present itself as a capitalist, liberal government, pro poor, and socially responsible as well while it fundamentally uses them as grassroots organisations of spying and controlling the community.” Says an Ethiopian, Associate Professor of Development Studies, opting to remain anonymous.
MFIs are sarcastically described in the colloquial of clients and non clients of MFIs in Amhara and Oromia regions respectively as ‘Wedo Eda’,‘Eyayu Gedel’ and ‘Bollo Senee’ both literally translated as ‘entering a hole’. This describes how MFIs are viewed within the local community, explaining their ‘suicidal’ nature.
Wrap up
According to the Ethiopian Ministry of Foreign Affairs report of 2006 on 26 MFIs in Ethiopia the combined outreach in terms of number of clients accessing both credit and saving products in September 2006 reached close to 1.5 million. Outstanding loans and saving mobilized respectively reached over two billion and close to 755 million birr. This shows how increasingly penetrative and useful options of micro and small finance ,MFIs have become, still with the disadvantages and negative impacts sugar coated.
In general outlawed foreigners involvement; feelings of resentment, favouring ,manipulation and discrimination and enrichment of few by MFIs ; abusive and extrajudicial and inhuman decisions and enforcements by Kebele (District) Courts dominate the untold stories of Ethiopian MFIs resulting in the suicides and total bankruptcy of the MFIs clientele that were unable to payback their loans.
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I have no idea where Senayet is at now; alive or dead. But that young lady of early 20s was destroyed due to her mere inability to repay her loans to a governmental MFI. She could still be cleaning those big, dark and hot offices of the Hotel.
___© DebreBirhanBlogspot________________________________________________________________
Tariku Chimdesa contributed to this story by doing two weeks undercover observation and study from Ethiopia.