Catholic Church fund backs Ethiopia microfinance 

The Catholic Church’s Global Solidarity Fund (GSF) is backing a deal to bring microfinance services to Ethiopia’s internally displaced and vulnerable people. 

Ethiopian banks Hibret Bank and Elebat Solutions have signed a memorandum of understanding with a consortium of local religious congregations, supported by the GSF, to provide microlending services to the vulnerable groups. The banks will provide unbanked individuals with smaller loans than banks are usually able to offer, and supply cash loans to those with limited or poor credit histories.

GSF is an an organisation that seeks to develop relationships between the Catholic Church and the private sector to drive global development. The initiative is also supported by the Ethiopian Ministry of Labour and Skills and the MasterCard Foundation.

Hibret Bank and Elebat Solutions have committed to an initiative that seeks to support over 40,000 people with access to microlending services. The two banks are seeking to help those which traditionally have had limited access to formal financial services, including women, rural populations, internally displaced persons, refugees, the homeless, and those with disabilities.

Displaced and unbanked

The number of internally displaced people in Ethiopia has skyrocketed in the aftermath of the two-year civil war in Tigray and nearby regions. The Internal Displacement Monitoring Centre estimates that there were 3.9m internally displaced people in Ethiopia by the end of 2022. A peace deal was signed in November 2022 between the federal government and the Tigray People’s Liberation Front. 

Despite having one of the largest economies in Africa, Ethiopia also has a huge existing unbanked population. According to the National Bank of Ethiopia, the country’s central bank, over 75% of the population is unbanked. Only 10% of households have access to credit, while only 1% of the rural population has a bank account. The World Bank has noted that the vast majority of Ethiopians – approximately 93% – use cash and paper-based transactions for conducting payments.

Microfinance solutions play an important role not only in supporting individuals to live healthier and more stable financial lives, but also in supporting the growth of business and entrepreneurship in underserved communities. The ability to access credit means that marginalised individuals are in a better position to obtain the initial capital needed to set up a small business.

At least in theory, microfinance therefore helps stimulate wider economic growth and employment opportunities. Hibret Bank and Elebat Solutions have also committed to providing training and support programmes to assist individuals in establishing small businesses and microenterprises.

The unemployment rate in Ethiopia is relatively low – about 4% in 2022 according to the World Bank – but population growth means that new jobs will need to be created if this is to be maintained. The working age population is estimated to grow by 2% per year over the next decade, with most of this increase to be concentrated in rural areas. Prompting long-lasting economic growth is therefore crucial if Ethiopia is to preserve its low unemployment rates.

The agreement comes at a time when the Ethiopian government is taking steps to increase the sophistication of Ethiopia’s banking sector. In May the National Bank of Ethiopia announced plans to open up the banking sector to foreign competition and granted a mobile money service licence to Kenyan multinational Safaricom in a bid to drive competition and higher standards.