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Reaching the poor through micro-credit and finance

The eradication of poverty and the promotion of sustainable development represent two of the most important goals of the world in the 21st century. Poverty alleviation is one of the primary goals of the Eritrean government. Under sustainable development all citizens can have the opportunity to satisfy their basic needs in an appropriate way.

Achieving this goal requires attention to a variety of objectives. Among other things, the micro-credit program is one of the instruments that help to alleviate poverty among poor communities. Capital is needed to foster economic development and microcredit is a key strategy in poverty alleviation. It makes self-employment possible and helps families emerge from the vicious cycle of poverty.

International agencies and governments have implemented numerous initiatives to address poverty alleviation, but the results from these policies are limited. Among all the failed experiences, however, there is an astounding success – the microcredit program designed by Dr. Yunus for Grameen Bank.

Although planned development projects can be funded from different sources, the best way proved to be effective for small scale borrowers is the money loaned from the micro-credit institutions with low interest rate. The government of Eritrea assists citizens by providing loans in order to help them become self-sufficient and productive with the basic aim of narrowing the gap between the rich and the poor.

The main goal of microcredit programs is to compensate for the inadequacies of regular financial institutions by providing small loans in selected economic sectors. Flexible repayment procedures and reasonable interest rates are features of the program. A small amount of money can contribute significantly to poverty alleviation as attested to by the many successes, particularly amongst women, in different villages and in remote areas.

These loan projects begin in small scale that prove to be stepping stones in improving the standard of living of many individuals, especially the needy ones, who are allowed to access loan easily in their local area through branches that stretch up to the sub-zone and village administrations.

In Eritrea, the service of microcredit loan started many years ago at the sub-zonal level. The Areza sub-zone is one of them.

The manager of micro-credit loan banks in Areza sub-zone, Mr. Hailab Isaak says “the credit service of Areza sub-zone branch was instituted in 1995 to upgrade selected villages from small credit service institutions to village banks, with the aim of helping people who live on subsistence to improve their living standards”.

According to Mr. Hailab, the institution gives preferential loans in four sectors, and these are agriculture, business, bars and restaurants and other small service sectors.

The institution’s deposit was 300 thousand Nakfa but now it has lowered to 200 thousand Nakfa after the change of currency. Areza sub-zone’s credit institution has lent upto 5 million Nfa until 2016. Mr. Hailab also indicated that they give advice and information to their customers about the institution.

The Empowerment of women is associated with the empowerment of a society. If women are independent and able to participate in different sectors of the economy, they play a key role in enhancing the living standards of their family and the society as a whole. While clarifying this, Mr. Hailab says “most of our customers are females and repay their debt at the required time. They cover almost 85% of our customers and are also very productive. Almost all of them engage in business activities and many of them had been awarded for their success”.

While clarifying the difference between village banks and small crediting institutions in the Debub region, Mr. Hailab says “the money of village banks comes from the village itself while the micro-credit institutions are governmental. We lend the village banks at 10% interest rate. In turn the village banks lend money at 16% interest rate to their clients. The 9% is an income to the village bank. Moreover, the village itself is a beneficiary- it can fund its projects independently by itself. Areza sub-zone, for instance, can fund itself financially and is now saving. It has up to 2 million Nakfa deposit”. Areza village bank is one of the two village banks in Debub region.

Mrs. Fyori Andebrhan, the managing director of Areza village bank, clarifies their financial operation system as follows: “we lend money to our clients who need fund at their initial stage of investment. Although it has now been reduced to 15 thousand Nakfa, we normally lend up to 50 thousand Nakfa to those who prefer to engage in trade and have trade license and 10 thousand to those who don’t.

Clarifying the debt service procedure, Mrs. Fyori says “our customers start to repay their debt in small amount from the first month they borrow. The contract has an 18 month limit. Those who borrowed 15 thousand Nakfa, for example, deduct 833.35 Nakfa from their debt monthly. The interest rate is at 17% from the initial month until the debt is repaid completely. One who borrowed 15 thousand Nakfa, for example, has 216.55 Nakfa interest for a month. Thus, until he/she pays back fully, the sum total of interest reaches 1050 Nakfa. If we count based on that balance, the interest rate goes down while the debt is being repaid”.

The village bank lends up to 10 thousand Nakfa to those who prefer to engage in dairy cattle reproduction based on a 3-year contract that is repaid every 6 months. Once a customer pays the debt back completely, he/she is allowed to borrow more money for the second time. Similarly, the bank lends up to 5 thousand Nakfa to those who prefer to engage in sheep and goat reproduction for an 18- month contract. Here, the village bank asks the borrower to repay his debt after waiting for 9 months; that is until the sheep/ goat gives birth and the offspring matures, so that the customer can pay his debt by selling from the produce.

About the saving service, Mrs. Fyori “All of the members identified in our institution mobilize savings, which is one of the major advantages. We advise them that they have to save money while they are borrowing and we save their money according to the percentage they give us. We also conduct virtual study on their collateral security, such like house, property, livestock…etc. If a customer asks for a 15 thousand loan, we advise him/her that he/she needs a 1500 Nakfa property.”

“In order to prevent our customers from failure in their investment, the village bank carries out the necessary supervision. There is a committee with five members from within the village, and this committee examines those who ask for loan and gives advice. Then they report to the manager of the village bank. Thanks to this procedure, we haven’t experienced any problem and the customers consider the institution as their own” Mrs. Fyori adds.

When we asked her about the number of customers they have, she replied “I’m not exaggerating if I say half of the village is a beneficiary. If someone repays his/her debt before the deadline of the contract, the customer is allowed to borrow more. This is determined by the committee. The committee passes resolutions at the weekly seminars held with the customers”.

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