Micro-credit financing has been a great deal of assistance for people who envision improving a lifestyle. It has been practised in Eritrea since 1996, and for the last decade and a half; it has been operating as an autonomous organization under the umbrella of the Ministry of National Development. Saving and Microcredit Program (SMCP) is a component of Eritrean Community Development Fund providing financial services to people.
The vision of SMCP is to improve the livelihood of clients organized under its supervision. It allows an efficient micro finance for vast area coverage. Promoting the private sector in the country is the core objective of this institution. To this effect, it encourages development and expansion of small enterprises by assisting individuals to increase their income generating ability and by helping them contribute their part in food security as well as the overall economy.
SMCP gives financial service in various parts of the country. The SMCP of the Northern Red Sea region (NRS) with its 18 active finance team members, gives saving and micro credit services in three branches: Massawa, Afabet and Assab. The SMCP in NRS has 13 sub regions, 145 administrative zones and 82 village banks. The Massawa branch provides loan services to the sub regions of Massawa, Foro, Gel’alo and Shi’eb. The Afabet branch includes the sub regions of Afabet, Nakfa, Karora and Adobha while the Assab branch serves the sub regions of Assab, Ara’eta, central Denkalia and Southern Denkalia. Overall, there are around 5770 clients, 2861(49.6%) of these figure are women.
Out of 2,606 villages in Eritrea, 1247 (47%) have access to SMCP services. Village banks (VBs) are formed by groups sponsored by the institution. Each village bank can have between 35 and 105 members. All branch offices provide savings and loans through this system of VBs. It is believed that about 538 VBs are in operation nationwide.
Meanwhile, according to the head of the SMCP branch of Massawa, Mr. Tesfay Kiflemichael, the main activity of the institution is giving loans and collecting money owed from people. SMCP performs its activities through three categories of loans. These are the Individual Loan that includes Small Business Loan (SBL) and Irrigated Agricultural Loan (IAL), the Group Loan such as Micro/ Small Business Loan (MBL) and Small Seasonal Agricultural Loan (SSAL) as well as the Unrestricted Employees Loan (UEL).
According to the region’s 2017 semiannual report, SMCP’s Massawa branch had a 32.6%, Afabet 38 % and Assab 29.8% outstanding loans of the 2017 first six month plan. In return, within the six months alone, the branches have managed to collect the loans and keep operating the SMCP program. On the other hand, clients reserved around 5,141,335.92 Nakfa as savings in the institution. It is fair to say an institutional and public progress have been made.
The MBL is presented to business men monthly and the SSAL is provided to farmers in summer, the rainy season. One hundred ninety five creditors have received a total of 1,057,000 Nakfa to conduct their small business activities. The SBL of 1,325,000 Nakfa is also granted to individuals for the conduct of similar activities. The fact that agricultural irrigation activities are minimal in the sub regions, the five clients of SSAL had only 200,000 Nakfa loans in the first half of the year.
Members of SMCP in the NRS region personally travel from town to town for the collection of loans. The mobile team members are organized to gather the amounts of money people need to return in an agreed payback period. However transportation is a major problem undermining efficiency of the program.
The SSAL is paid back depending on the agricultural yields farmers get. These group loans are provided in cash to those who ask and are collected back with the same procedure. Group loan cycle extends from 6,000 to 20,000 Nakfa which is spread out into five different loan cycles. The solidarity group configuration serves as loan guarantee, and hence no collateral. Reports of the institution indicate that there are about 16,898,407.98 individual with 9,120,764.54 Nakfa outstanding group loans. When clients reach the ceiling loan of Nakfa 20,000, they are informed of their eligibility for individual loans.
Individual Loan assists individuals engaged in any economic activity that generates profits and has the possibility to pay back the credit. Anyone who complies with the terms of credit is eligible to apply for such loans. The loan cycle of this category starts from Nakfa 30,000 and extends up to 150,000 which is spread out into eight different loan cycles, and the minimum loan size should not be less than 7,000 Nakfa. Individuals with business licenses pay back through bank account transfers. Mr. Tesfay said that these clients return the loans on monthly basis as they are able to earn from their businesses.
The third category of loan is the Unrestricted Employees Loan (UEL) or Instant Loan which was introduced in 2006. UEL belongs to employees of the governmental and private organizations. It is named unrestricted because the money borrowed can be made an expense without any restriction. For the 85 creditors in the NRS SMCP, around 709,526 Nakfa was provided as a loan in the first half of the year. The repayment is made on a monthly basis from the salaries of these employees and the loan term can extend from one up to two years. The maximum loan size allowed is the equivalent of the employee’s six month salary and shouldn’t exceed 20,000 Nakfa.
SMCP’s income is mainly generated from the interest rates paid by its clients. The NRS SMCP made a gross profit of 537,814 Nakfa in the first half of this year. Interest rates are 16% for individual and group loan categories. To introduce uniform installments or repayments of its clients, SMCP uses the Declining Balance Method while calculating interests. Due to this interest calculation, at the end real interest doesn’t exceed 10% for those clients who make payments on their loans regularly. For the Instant loan, SMCP charges 7% per year at a flat interest rate; 1% is considered a loan risk coverage in an event client passes away.
Given its scarcities, NRS SMCP conducts its activities in remote areas efficiently and looks forward to adding two village banks increasing creditors number from 4353 to 5445. The institution has also plans to lend 2.1 million Nakfa until the year ends, with 29 million outstanding loans so far. It expects a return of 4.12 million Nakfa by increasing the payback rate by 3%. The institution conducts its financial operations by working together with different stakeholders within the region and in doing so; it works with sub regional heads to improve the payback culture of the people.