Micro Credit Programs in Ethiopia

Green Washing or Environmentally Sustainable Development

By Desta Asayehgn, (Ph.D)
Dec. 14 2009

Contrary to the hype about microcredit being the best way to create jobs, increase workers’ productivity, and eradicate poverty,  Banerjee and Duflo argue that, “Although some microcredit clients have created visionary businesses, the vast majority are caught in subsistence activities. Participants have no specialized skills and so must compete with all the other self-employed poor in entry-level activities (2006).” In his critique of the newest financial technology of the Washington Consensus, Flynn argues that while the technologies are new, the rhetoric is familiar and suggests that we may be seeing a new form of green washing or “charity washing” in the making. The risk is that new microfinance technologies targeting people with low incomes will be mistaken as benevolence. Bankers are not in the business of charity. They galvanize their activities to the bottom line generating sufficient priorities to stay in business (2007). In addition, Neff argues that microcredit models have been judged disproportionately from a lender’s perspective (repayment rates, financial liability) and not from the borrower’s. Therefore, according to Neff, microcredits have privatized public safety-net programs and stimulated  governments to cut their budgets on education, public health, and the early livelihood needs of the poor (1996).

Despite the provocative criticisms enumerated above, the idea of microcredit as a key to socio-economic transformation has taken a prominant place in the international sphere. A number of voluntary associations, non-government organizations, friendly societies, savings-and-credit cooperatives, national and regional government organizations, and commercial banking institutions have joined hands in providing financial services to the marginalized sectors of the world’s developing countries. Nonetheless for microcredit programs to alleviate poverty in the long run, the participants need to demonstrate sensitivity to the environment and be involved in environmentally sustainable projects. (See for example, Gehlich-Shillabeer, 2008).

Following the Grameen Bank of Bangladesh’s model that: 1) the poor are bankable, 2) under non-collateral micro-lending, loan repayment rates are very high, 3) microcredit programs are critical anti-poverty tools, and 4) microcredit is a key to socio-economic transformation and could in the long run contribute to environmentally sustainable development; since 1993, Ethiopia has registered and is operating more than 20 microfinance institutions in accordance with Proclamation No. 40/1996.  (See for example, Ageba, 2007.)


Currently, it has been reported by Forbes Magazine that two microfinance institutions operating in Ethiopia are among the top 50 Microfinance Institutions in the World. The Amhara Credit and Savings Institution ranks sixth in the world and Dedebit Credit and Savings Institution (based in Tigray) ranks 31st in the world (Nazret, 2009).  The Forbes Magazine study was focused on the size of gross loan portfolio, efficiency (operating expense and the cost per borrower as a percent of the gross national income per capita of their country of operation), risk (looks at the quality of their loan portfolios, measured as the percent of the portfolio at risk greater than 30 days), and returns (measured as a combination of return on equality weighted for an institution’s over all ranking).

Though instructive, the Forbes’ Magazine study pursues the study from the point of view of the lender. That is, the study is based on anecdotal rather than on a rigorous empirical assessment of the repayment rates and it hardly focuses on whether or not microcredit programs have improved the lives of the marginalized participants or beneficiaries.  The main aim of the present study is therefore to review the existing literature which has burgeoned over the past decades and to investigate the impact of microcredit programs on the participants. Specifically, the study is organized as follows: the first section reviews the methodological issues used by microcredit ventures to measure and target poverty. It is followed by an account of the marginalized participants of microcredit programs that are involved in environmentally-sensitive business ventures. The concluding section of the paper examines the evolution of microcredit programs in Ethiopia and asseses whether or not microcredit programs have incorporated linkages to environmentally sustainable development, all of which draw policy implications for further research.

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