Review of Microfinance Industry in Ethiopia :  Regulatory Frameworks and Performance.: Occasional Paper No.2

Publication Date: Aug 2000
Published by: Addis Ababa , Ethiopia : Association of Ethiopian Microfinance Institutions
Document Type: Case Study (Microsoft Word)

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How has the microfinance industry performed in Ethiopia?

This paper discusses the development of the microfinance industry in Ethiopia. The author states that the objectives of the paper are to:

• Review the development of the microfinance industry in Ethiopia;
• Assess the regulatory frameworks of the industry;
• Analyze the performance of microfinance institutions (MFIs) in Ethiopia;
• Identify problems and recommend interventions by the government and NGOs to improve access to financial resources by the poor.

The paper states that:

• The National Bank of Ethiopia can now license, supervise and regulate various kinds of financial institutions;
• New regulations have allowed the establishment of private financial institutions, thus breaking the state monopoly;
• The Government has taken the initiative to establish a sound regulatory framework to facilitate the development of the microfinance industry;
• Many NGOs, who provide microcredit services in Ethiopia, are in transition from highly subsidized programs to finance-based systems.

Some of the challenges are, lack of:

• Finance;
• Business information;
• Access to appropriate technology;
• Lack of adequate infrastructure;
• Discriminatory regulatory practices.

The paper states that the microfinance industry in Ethiopia:

• Focuses entirely on the poor;
• Is efficient, but unprofitable because of low interest rates;
• Has a favorable macro policy environment and regulatory environment to promote sustainable microfinance activities.

It concludes by listing the challenges to the regulatory environment:

• Limited loan size;
• Limited support to micro and small enterprise development; Weak legal system.