Outcomes of an Ethiopian Microfinance Program and Management Actions to Improve Services

Management decision making in MFIs is becoming increasingly tied to collecting information about social performance. This paper examines the impact of participation in an Ethiopian microfinance program on indicators of socioeconomic status including wealth, income, and home or land ownership. A survey assessing these outcomes was conducted in May 2003 in two predominantly rural sites in Southern Ethiopia and included 819 households. The article discusses management decisions made as the result of survey findings about socioeconomic status and food security to increase retention rates and to facilitate client savings. Additionally, the management was prompted to increase the number of female clients and raise the proportion of female loan officers. This paper illustrates how data from routine monitoring and evaluation can be linked to MFI management decision making, which ultimately results in providing better microfinance services. Microfinance programs focus on expanding local economic activities and improving the standard of living of their clients by providing financial services needed to establish small businesses. Microfinance can be defined as “the provision of banking services such as savings, credit and money transfer to poorer Journal of Microf inance Volume 7 Number 1 80 people who cannot access ordinary mainstream banking services” (Wilson, 2003). While the primary goal of most microfinance institutions (MFIs) is improving the economic status of poorer segments of the population, most service providers aim for a broader impact of enhanced well-being. Because households function as social and economic units, microenterprise programs have a unique opportunity to impact the economic, social, and general well-being of households. Microfinance is typically viewed as an economic development strategy, and it is a particularly relevant approach in countries where disadvantaged groups tend not to benefit from involvement in the formal economy. In most developing nations, the majority subsists on income from microenterprise activities; the microenterprise sector is estimated to account for 20% to 70% of all employment in many developing countries, illustrating the importance of the informal economy in the subsistence of impoverished populations throughout the world (Wilson, 2001; Waters, 2001). Microfinance is a logical approach to development because it functions at the grassroots level, can be sustainable, is capable of involving large segments of the population, and builds both human and productive capacity. This paper assesses the outcomes of an Ethiopian microfinance program in terms of household income, wealth, and food security. If microfinance programs operating in Ethiopia and similar contexts are successful at increasing household wealth and incomes, then it is likely that the livelihoods of poor populations can gradually be improved in many locations. Additionally, the paper explores data from an impact evaluation and discusses management actions taken by the MFI in light of the evaluation results. Shannon Doocy is a Research Associate in the Department of International Health, Johns Hopkins Bloomberg School of Public Health. Email address: sdoocy@jhsph.edu Dan Norell is a Team Leader for Microenterprise Development, World Vision US. Email address: dnorell@worldvision.org Shimeles Teffera is a Technical Officer for the WISDOM Microfinance Institution. Email address: wisdom@telecom.net. et Gilbert Burnham is an Associate Professor in the Department of International Health, Johns Hopkins Bloomberg School of Public Health. Email address: gburnham@jhsph.edu Outcomes of an Ethiopian Microf inance Program Volume 7 Number 1 81 WISDOM Microfinance Institution and Survey Sites The World Vision microfinance affiliate in Ethiopia, known as WISDOM, was established in 1999. The institution is headquartered in Addis Ababa and currently operates 15 branch offices throughout the country. In the 2003 fiscal year, WISDOM had US$2,055,873 in disbursed loans and 12,157 active clients; 25% (N=2999) of clients were women. The average outstanding loan size during the period was US$141. In May, 2003, an assessment of the WISDOM lending program was conducted to examine its impact on clients in the context of prolonged drought and food insecurity. The Adama and Sodo branches of WISDOM were selected to participate in the assessment because (1) they serve regions that are among the most drought-affected in Ethiopia, and (2) the branches were relatively Figure 1: Map of Ethiopia & Survey Sites mature, having been operational for more than four years, which allowed for the inclusion of clients that have been borrowing from the institution for longer periods of time (Figure 1). The Sodo branch is located in Wolayita, in the State of Southern Nations, Nationalities, and Peoples Region. The Sodo branch had 2,517 clients when the survey was implemented; as a result of differences in branch size, three quarters of the sample (N=614) was concentrated in the Sodo survey site. The remaining sample (N=205) was drawn from the areas served by the WISDOM branch in Adama. The Adama branch of WISDOM is located in the East Shewa Zone of the Oromiya Regional State, approximately 100km southeast of Addis Abba. At the time of the assessment, the Adama branch had 745 active clients. The branch serves the Districts of Adama and Boset and the city of Nazreth.