Think Big but Borrow Small

There is usually too great a focus on commercial banks when often times the same gaps can be filled by microfinance institutions. Not many are as informed about this though. Thus the government must take the initiative to show that there are alternative sources of financing to engage in, writes Belay Abera (, a public health professional and researcher.  

Experiences around the world, and mainly in developing countries, have shown how microfinance institutions can help lift people out of poverty.

The idea is to provide the low-income group of society with small loans to start and operate a business. The borrowers are able to save money and pay back the loan over time. The idea behind microfinance is to empower borrowers by helping them build a business which can create income and growth.

Although this definition can apply to larger financial institutions, the microfinance case is different. Its importance in a nation such as Ethiopia cannot be understated. Although our banks’ networks are growing through brick-and-mortar investments and technological advances, there is still a large segment of the population that they cannot reach. Microfinance institutions have helped fill this void.

Add to this the fact that banks generally do not provide the kind of small loans that the microfinance institutions can, due to high administrative costs. Microfinance provides individuals with lower-income with a way to build savings and work toward becoming part of a country’s official economy.

The history of such institutions dates back to the 1970s, with a Bangladeshi economist, Muhammad Yunus, who helped develop a research project in his native country. He began by studying the lives and activities of low-income people in small villages. He said these people taught him a whole new kind of economics.

He loaned twenty-seven dollars of his own money to a group of women to buy the materials they needed to make the products they sell. The women wanted to work and earn money, but they needed money to get started. Yunus observed that every woman paid back the loan on time. More importantly, he found that there was a profit to be made.

He created the Grameen Bank project with the aim of extending banking services to people that otherwise would not have received it.

The program was designed to help people in Bangladesh gain employment and learn to earn and save money. The project started in one village. Then it was successfully repeated in others. In nineteen eighty-three, the project was turned into an independent bank owned mainly by its borrowers.

Yunus won the Nobel Peace Prize in 2006 for his work with Grameen Bank. When he accepted his award, he stated that poverty goes against human rights. He said that people are resigned to the fact that poverty will always exist; thus it does. But he said if people changed their mindset, there could be a world without it.

Many organisations provide microcredit mainly for poor women. This is partly because women are often more excluded from financial services and educational opportunities than men. Women also usually spend their money in ways that improve their families’ nutrition, health and education. Additionally, women are known to be better than men in repaying their debts on time.

Microfinance is now common in Ethiopia. There were 35 microfinance institutions by the end of the last fiscal year. These institutions provide money mainly to those that cannot afford to do as such from commercial banks. The loans comparatively have higher interest rates than banks but also serve as an alternative, less bureaucratic (as a result of the amount of credit), means of getting funding.

Of course, people who want a loan need to develop a business plan. The business proposal needs to have a recording system. With this, they can get a loan from a registered microfinance institution. The institution trains the borrowers how the business goes through, how to cover the loan repayments and to make a profit.

In this manner, the institutions have been able to give credit worth over 32 billion Br last year alone. They have also amassed an aggregated asset of almost 50 billion Br.

Of course, the microfinance institutions have not been without there challenges. Like the larger financial institutions, they grapple with the lack of innovation and a skilled workforce. Most unfortunate, though, is how behind these microfinance institutions have been in promoting and marketing their services.

Few people know of them in urban as well as rural areas. They do not invest in expensive TV, radio and billboard advertisements that commercial banks do.

This should not be the case. An initiative has to be taken by the government to introduce people to these alternative sources of financing. The importance of saving, for that very same resource to be used as a source of investment for the nation’s dreamers, should not be underestimated. It helps us become less dependent on foreign aid and debts.

Often times the means to addressing many of Ethiopia’s problems can be found right here. The trick is to be able to use them smartly and efficiently. The same must be applied to financial resources – a great deal of which microfinance institutions can help us uncover.

By Belay Abera
Belay Abera (, a public health professional and researcher.  

Published on Jun 02,2018 [ Vol 19 ,No 944]



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