MFIs serve over 5 million loan customers –20X the estimated 250,000 loan clients served by commercial banks in 2020.
As of September 2020, there were 39 MFIs (41 as of Jan 2021) that mobilized total savings deposits of ETB 42.7 billion and outstanding credit of ETB 62.1 billion and total assets of ETB 92.2 billion.
Despite the MFI sector’s growth and contribution to the financial sector, less than 50% of Ethiopian households and microenterprises can be reached through MFIs. The other half must either develop a relationship with a formal banking institution or rely on internal or informal sources of capital.
Approximately 59% of Ethiopians reside more than 5 kilometers from the nearest financial institution. Rural communities have much lower access to financial services.
Access to finance was highlighted as a major impediment to development by 40% of the firms polled in a World Bank Enterprise study, far outnumbering any other constraint (e.g., constraints related to electricity, tax rates, etc.) As a result, Ethiopia ranks low in terms of credit availability (15), compared to regional peers Kenya (90), Nigeria (85), and Rwanda (95). It is also behind more volatile African countries such as Chad (30) and the Democratic Republic of the Congo Domestic (30).
Small businesses tend to find it difficult to ‘graduate’ from MFIs to commercial banks, which prefer to lend to larger, less risky clients and are reluctant to issue small loans (on average, bank loans are ETB2.7 million per borrower).
In 2020/21, Ethiopia’s microfinance industry had a gross loan provision of 68.5 billion ETB and a total savings of 50 billion ETB. In a similar fiscal year, the industry supplied 14 thousand ETB loans per borrower, while borrowers saved approximately 10 thousand ETB.
Five (12 percent) of Ethiopia’s 41 MFIs accounted for 82 percent of total capital, 91 percent of deposits, 87 percent of the credit, and 86 percent of assets among all MFIs combined. Amhara (ACSI), Dedebit, Oromiya, Omo, and Addis Credit and Savings Institution. Most of these MFI are transforming into Banks.
As of Sep 2020, the value of total savings (ETB 42.7 billion) stood at 69% of the value of outstanding credit (ETB 62.2 billion).
Microenterprise loans account for 92 percent of all borrowers and 84 percent of total MFI loan value. Household loans account for 10 percent of the total outstanding loan value and 8 percent of total loan volume.
Agriculture, manufacturing, and construction are the top three recipients of MFI loans in terms of sector.
The average loan term among MFIs tends to be short, about 12-18 months. The average interest rates across all products and all MFIs at the end of 2020 was ~18 %. Interest rates for MFI loans range from a subsidized rate of 8% for Youth Revolving Fund to a 36% rate for SME loans. MFIs use a declining interest calculation method to incentivize early repayment.
We extract the above information from USAID FINANCIAL SERVICES ECOSYSTEM ANALYSIS IN ETHIOPIA
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