Equbs are a way for people to obtain money for investments or to alleviate financial woes quickly. With many people in Ethiopia having insignificant credit history, it is impossible for a large proportion of the population to obtain bank loans and, thus, many seek an alternative. Without the pressure of having to pay back the loans with interest, equbs present a very attractive proposition, writes YETNEBERK TADELE, FORTUNE STAFF WRITER.
Alemayehu Aseged, 74, has been collecting equb’s since 1978. When he started out it was a way of encouraging his weaver friends to save some money, so that they could expand their businesses.
Each Saturday, the members, then only 30 of them, would each pay 20 Br after spending the day at the market around Kechene Medhanialem Church, in the Arada District. After selling their product all day, they would gather at Alemayehu’s house to give him their contribution and to draw lots to determine who would take home the money for the week.
After 35 years many things have changed, but the one constant is Alemayehu, who is still collecting equbs. He now has 600 members, each contributing 1,000 Br a week individually or, in a group with 120 lots, offering 120,000 Br a week. Some people are also in more than one equb.
Lots are now drawn every week, where someone takes home 120,000 Br. Equb members gather either on Saturday or Sunday, depending on the group they belong to.
“Nowadays people need the money from equb’s to realise their biggest plans,” says Alemayehu, remembering the old days when the weavers used the money they got to pay off small debts or improve their businesses in small ways.
Members today, on the other hand, use the money to build houses or to finance a new business.
Since all members want access to money right away, Alemayehu has developed a system to determine the order in which the equb is given out. In the first five weeks, lots are drawn to determine which members will receive the weekly collection. In the following five weeks lots are sold to members and those that bid the highest will take home the money. After that, draws and sales alternate each week, until all members have had the chance to take home the collection. All the money that is earned from the sale of their turn at the equb is deposited into the bank and eventually distribute among members.
When the time comes to begin a new cycle, which is usually every two years, members are expected to sign a new agreement approved by all members. Equb officials are responsible for the preparation and application of the agreement, and for this duty, they get one pot of the equb from every cycle as compensation.
Samson Ketema, 29, a small taxi (Lada) driver has been a member of Alemayehu’s equb since 2008. When he first joined the equb, he was working as a driver on his brother’s taxi. When the time came for him to get his 120,000 Br lot he bought his own Lada. By the time the equb cycle ended, the seed money he got and the revenue from his taxi allowed him to buy a second Lada.
Still a member of the equb, Samson now also has two Sino trucks, which he rents to construction companies.
“Equb has changed my entire life,” he told Fortune.
In a 2012 masters’ thesis paper, “Why do members join indigenous informal financial institutions?” by Bisrat Agegnehu, a student at the Swedish University of Agricultural Sciences, four equbs are illustrated. Each have annual turnovers equivalent to 0.15pc of the net current deposit maintained by all commercial banks in the country, at the end of August 2007.
According to the study, there are small, medium and large equbs, with the large ones relatively institutionalised, complex, and well organised, in terms of their procedures and practices. They operate on the basis of elaborately written by-laws, the number of participants is high and the cycle life is long, with contributions amounting to a quarter of a million Birr a week.
Alemayehu’s equb, however, is not formalised. Although all members may not know each other, it is enough for a newcomer to be known by five or six participants, who can vouch for their credit-worthiness. These individuals will also be held as guarantors in the event of a default. In some cases, Alemayehu may take the formal approach and sue those that default.
“We have been lucky. I haven’t had such challenges since we all know and trust each other,” says Alemayehu. “There are people in the equb who have stayed for more than 10 years.”
Equbs are highly reliant on the trust that is built among members, and members know that they need to maintain that trust to continue benefiting.
“Using formal institutions for loans is expensive and the procedure is very long and uncomfortable,” says Samson. “In the equb, if a lottery is not drawn for you and you need the money urgently, you can buy it from other members without any procedure and time wastage.
“Which bank can give you such an opportunity?” he added.
Leul Teweldemariam, 45, a merchant and a member of the Ehel Berenda equb agrees with Samson.
“Let alone the expensive interest rate charged by banks and microfinance institutions, the procedure is lengthy,” he says. “There is no freedom to spend the money at the business I want to work on. In banks, every activity is planned and there is a deadline for the repayment and if you fail to do so, they will not compromise or wait until you get money.”
When asked about whether there is competition between banks and equbs, a bank president, who asked to remain anonymous, told Fortune that both equbs and banks work in parallel, since equb collectors deposit the cash they collect into banks. He further explained that most banks lobby equbs to work together and encourage then to deposit their money into current accounts.
“It is not easy for bank to assess the reliability of new customers when they ask for loans,” the bank President told Fortune. “There should be a law that encourages all people to join the banking system. That way we can track their credit history and issue more loans,” he said.
With a gap in the access to loans and the many regulations of banks, equbs like Alemayehu’s will continue to provide funds for the resolution of urgent financial problems and for investments for people without credit histories.
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