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Ethiopia: The Self Help approach was introduced in the country to multiple partners in December 2002. Since that time, the Managers of 12 organisations that have been implementing the approach have been meeting regularly for a Forum meeting once every 6 months. The meetings have been facilitated by DED, who have been coordinating the process. In their fourth meeting in December 2004, the members decided to set up a task force. The main tasks given to the Task Force was:
The task force has done commendable work in the past few months as far as the first two tasks are concerned: 1. Legal Registration: There are three options available in the country for legal registration. They are:
The framework of the above options does not readily fit to register the CLA or the Federation of the people's institution that the partners are building. In all three cases, the involvement / interference of the government is very high. The task force has been meeting senior officials in the Ministry of Justice and Federal Cooperatives promotion office The government officials have tried to understand the Self Help concept. They have suggested that the Cooperative framework would be the closest. They had also indicated that they are willing to study as to how other countries like India is handling this issue and indicated the possibility of coming up with a new framework to suit the Self Help approach. The taskforce members are however clear that in the Cooperatives Act, there is too much of government interference and would not suit the Self Help approach. Some of the similarities and differences between the two are: Similarities:
Differences:
Some of the officials are very open and appreciative about the Self Help approach. They do not see much of a problem for the government to come up with an alternate legal framework for the registration of People's Institutions like the Self Help approach. One of the states in India (Andhra Pradesh) has come up with a new Act called the "Mutually Aided Cooperative Societies Act 1995". A copy of this Act has been handed over to the officials. Some of the comments in the Act are as follows: [Comment: This Act came into force, on 1st June 1995, even as the Andhra Pradesh Cooperative Societies Act, 1964 was and continues to be in force. Obviously, a distinction was being sought to be made between the cooperatives that were under the purview of the 1964 Act, and those that were to come under the purview of this Act. This Preamble helps distinguish between the two types of cooperatives. Not all, but many of the cooperatives which were registered under the 1964 Act came into existence, not of their own volition, but as a result of government policy and intervention. They, therefore, had government aid and not mutual aid as their foundation. They were instruments of government policy, not instruments of their members, for their own good. They were channels for distribution of scarce resources, and, therefore, were at times monopolies - not competitive, nor business minded. The Government, and other financial players were part owners, and, therefore, ownership, management, and controls did not rest fully with members. Under the 1964 Act, too, there were cooperatives which were true agents of their members, and that is the reason why this Act also provides for such cooperatives to choose voluntarily to come under the purview of this style="BACKGROUND-COLOR: lightblue"> Act. Many court judgments have suggested that cooperatives are not creatures of the will of their members, and this Preamble makes clear that associations registered as cooperatives under this Act are indeed creatures of their members, working for their betterment.] [Comment: Under most state cooperative laws, since cooperatives are seen as instruments of government policy, and as channels for distribution of scarce government resources, the registering authority has the power to refuse to register a cooperative on the grounds that it might not be financially viable, or that its existence was likely to affect the viability of another cooperative already in existence. Under the1995 Act, since cooperatives are seen as agents of their members, the registering authority has not been given any discretion in refusing registration. Time limits have been fixed for registration or refusal to register to be communicated to the applicants. The Registrar has only to ensure that the provisions of the Act have been adhered to by the applicants for registration, and that the name they have proposed for their cooperative is not already in use by another. The right to freedom of association, guaranteed by the Constitution of India, is respected and provided with the necessary legal framework, where those associating desire such a legal framework for their association.] [Comment: In keeping with the spirit of liberalisation, the 1995 Act does not give the Government the power to make Rules. A cooperative under this Act is guided by the provisions in the Act (including the cooperative principles], its byelaws, and any understanding or contract that it enters into with various parties including the Government. The above section, therefore, requires cooperatives to think through a long list of provisions for inclusion in their byelaws. Keeping in mind other provisions in the Act, the byelaws may additionally include the financial year which the cooperative wishes to adopt, and also provide for the internal dispute settlement mechanism. Model byelaws have not been provided for, as uniformity and standardisation are anathema to owning of responsibility for one's enterprise. In fact, this Act does not provide for the classification of cooperatives, and every group of cooperators is free to design its cooperative with such objectives, such activities, and such financial and management structure as appear appropriate to it. Potential cooperators are expected to think through issues and have byelaws of their choice, so that they can take full responsibility for the success or failure of their cooperative.] One of the officers appreciated the efforts made in India to give people a voice and decision making powers. He suggested that in this whole effort of bringing a new legal framework in Ethiopia, the government should be involved right from this stage. He was willing to participate in the meetings of the Task Force on a regular basis. This is a very positive step. The officers are also willing to go to the field and meet some groups. Some of the task force members feel that CLA representatives should also be involved in the task force right from this stage, since we are basically working for their rights. This suggestion was later turned down at the Forum meeting. Other members felt that this is still very premature to get the grass root level people involved. There is also a suggestion that a legal expert be contracted to follow through the process such that legal/technical points that arise during the lobbying process can be sorted out professionally. 2. Linkages with Micro Finance Institutions: The task force members have collected a booklet with a compilation of MFIs in Ethiopia. The task force has also had discussions with the Executive Director of the Association of Ethiopian Micro Finance Institutions. He has visited India and seen how MFIs work with Self Help groups. He has been very open and has encouraged MFIs in the association to cooperate with the people's Institutions. The heads of three MFIs traveled with the task force members to Nazareth to see some of the SHGs and CLAs. They were very impressed and are quite open to work with the groups. DED had organised a half day Task Force meeting with 5 select MFIs at CRDA on July 05, 2005. Perhaps due to short notice, only one of them turned up. After giving a overview of the SHG concept, the official from the MFI was asked to give some information about the MFI and the possibility of working with SHGs/CLAs. The MFI was a part of an NGO before 1998. Due to a government ordinance that NGOs cannot give out credit, the MFI was formed in 2000 as an independent unit. They mainly operate in rural areas. 80% of their 6000 clients are from rural areas and over 80% are women. The loan portfolio is over ETB 3.0 million (~USD 350,000). Legally it is a Share company and falls under the category of a non-banking financial company. The total assets of the organisation are over ETB 6.0 million (~USD 700,000). They are able to fully cover their operational costs and will soon be profitable / sustainable. The vision of the organisation is that every Ethiopian should be able to access finance. Some of the operating parameters are:
Some of the selection criteria developed through experience is:
Linkage with Self Help groups: Working with Self Help groups seem quite attractive for the MFI for the following reasons:
The director of the MFI had a very interesting analysis. He used the term Hot money for one's own saving and Cold money for money from external sources, especially grants from donor funds. He said that SHG members are those who have learnt to use hot money well. This will help them in the long run to be accountable with money from whatever source it comes. People who start with cold money do not proceed very far. As far as working with SHGs are concerned, he said, "I have a business opportunity and I would like to seize it". He would prefer working with the SHGs directly and not through the CLAs. The SHG members according to him are the primary beneficiaries and the collateral will be strongest at that level. Some of the aspects he will look for are:
He said that perhaps his MFI can work out a unique interest rate for SHGs, which is lower than the normal rate. In the 24% per annum rate a big component is to absorb bad debts. He feels that this will not be required for SHGs. They already work on a 15% interest rate for wage employed clients. The task force members asked him if it will be possible for his MFI to open branches where there are SHGs. He said that it will depend on the critical mass. They normally work on the basis of one Credit officer for 400 clients. We also asked if his MFI could serve the purpose of a bank, where SHGs could deposit their money. He sees no problem with this. They already offer this service to other client groups. He even thinks that they can offer a different savings product and even give a higher interest than the existing 8%. Another comment that he made was; he sees no conflict between "Business" and "poverty alleviation". In fact both go hand in hand. Unfortunately, NGOs as a whole are not good in financial discipline. They therefore do not lead their beneficiaries very far in the field of business, which is very important for development. Overall, the meeting was very enlightening and encouraging. 400 clients in a place should not be very difficult for the People's Institution we are trying to build. One CLA is made up of nearly 20 members. Any location where there are 3 to 4 CLAs could be a location for this MFI to set up a Loan Officer. The General Manager of another MFI in Ethiopia was invited to the Manager's Forum meeting and asked to share about the possibilities of working with the Self Help groups / Cluster Level Associations. This MFI operates in Amhara, SNNPR and Oromia regions of Ethiopia. They plan to extend operations to Tigray, Afhar and Benishangul regions. This is 6 of the 9 regions of Ethiopia extending to even remote regions. This MFI is operational since mid - 2004 and is operationally and financially self-sufficient. According to the General Manager, a MFI programme has the Mind of a Banker and a Heart of a Social Worker. This MFI offers the following Loan products: - Agricultural loans, repayment in 8 to 12 months Interest rates vary from 12.5% to 15% per annum. The higher 15% pa is for the long term agricultural loans. This is in the context of a 9.5% pa interest rate offered by nationalized banks and 24% pa by some MFIs. Nearly 60% of their clients access loans at 12.5%. This MFI also offers 3 saving products. They are; regular savings, contractual savings and demand savings. They have a micro-insurance scheme covering death benefit. They are considering a health insurance scheme. The operating methods are through:
- Community / village banking system, where groups of 20 to 35 members are formed. Main focus has been on women and children. Majority of the clients are rural based. This General Manager was one of those who visited the Self Help project at Nazareth and had sat together with a SHG and a CLA. He said that in principle he appreciated the concept and will support the groups through micro-finance. Some of the observations that touched him are:
As far as working with the groups is concerned, the MFI would be as flexible as possible. He also feels that working directly with the SHGs would be favourable and not through CLAs. The non-negotiable aspects in their programme are:
He emphasized that the only way the MFI would be able to assess the health of a group before deciding to work together will be based on the records maintained by the group. He cautioned that the groups should maintain their records systematically and in a transparent manner. The MFI will provide orientation to the groups on how to maintain records. Loan officers can also provide technical assistance for marketing of clients' products. They generally do not offer Business Development Services or Enterprise Development programmes. They link with other NGOs for these services, where necessary. The task force had already done a lot of preparatory work. These two meetings with the two MFIs clearly reveal that MFIs are willing and even eager to work with SHGs. Some aspects that stand out clearly are:
To operate a financially viable MFI is a professional job and calls for specialized skills. When good MFIs are already operating in the country, too many new players should not join the band wagon without sufficient reason and preparation. Linkages with banks: Serious discussions have still not taken place with bank officials although it is on the agenda of the task force. There are two aspects that need attention; opening of bank accounts by the groups and accessing loans from the banks. Few Promoting Organisations have facilitated their Self Help groups to open bank accounts without fulfilling the condition of having a legal identity. Accounts have been opened with Dashen bank, Awash bank and Abyssinia bank - all private banks. The banks however complain that the SHG transactions are many and involving very small amounts. This is therefore not financially viable for them. Government banks like Commercial Bank are not willing to open accounts for SHGs since they are not registered. As far as loans are concerned, the present rules controlling banks in Ethiopia stipulates that the minimum loan amount a bank can give is ETB 100,000 (~USD 11,600). This may be too large an amount for the groups at this stage. The task force hopes to take up these two matters with the banking authorities in the near future. Future of Task force: The future of the task force was discussed at the Manager's meeting. The Managers appreciated the good work done by the task force members. When some of them suggested that they should step down, it was decided that the present members continue till the next Manager's meet in November 2005. After that part of the group will be substituted by other members such that the continuity does not beak. An additional assignment was given to the task force by the Managers in the Forum. They will start looking for relevant insurance schemes for SHG members available in the country. This could be life insurance, health insurance, crop insurance, livestock insurance etc.
On the whole, the task force has done commendable work in a short period of 7 months.
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