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Last month my roommate Katy persuaded me to join her on a visit to the most advanced Fistula Hospital in the world. Before meeting Katy, I had never heard of Fistula. Being well informed about maternal health issues, Katy knew this was an important visit, one that we could not pass up.
First I had to understand what Fistula was. With a little googling, I discovered that 5% of childbirths result in obstructed labour around the globe. Obstructed labour occurs when the baby gets stuck, and can eventually cause Obstetric Fistula: a tear in the mother’s birth passage where urine and/or feces flow uncontrollably. The tragic result is a woman debilitated by her condition, emitting a repugnant odor. She eventually becomes ostracized from her husband, family and community and remains in a state of isolation. Some die.
In many developing nations, pregnant women acquire Obstetric Fistula because of impoverished rural environments and the low status of women. Nine thousand women in Ethiopia develop fistula annually. The statistics are distressing but the reality is that the pioneering Hamlin Fistula Hospital offers hope and renewed futures for affected women. My visit, accompanied by the lovely and knowledgeable Sisay, revealed a calm facility in the heart of cacophonous Addis Ababa. The hospital grounds were decorated with flowers. Patients drifted down forested paths, an aura of tranquility surrounding them. During the tour, I observed the post-op ward, maternity room, craft shop, Oprah Centre, physiology unit, and patient classroom.
As we wandered the spacious property, Sisay divulged nuggets of information. I learned how dedicated the hospital was to treating patients holistically. Some examples…
– 95% women return to their previous lives after fistula surgery; however, the remaining 5% are persuaded to undergo a second and much more life-altering surgery. The surgery changes them to excrete externally into a bag that they must carry with them at all times. As women cannot return to their villages, the hospital permanently hires them as nurses. I saw at least seven nurses working industriously, their bags discretely hidden beneath their neat red aprons.
– Surgery and treatment is entirely free for patients. This improves the likelihood of women traveling from extreme rural locations to Addis Ababa
– Occupational therapy and group discussions are used to lift the stigma and shame women are burdened with prior to surgery. At the craft shop, I purchased several hand woven baskets that pay directly to the patient who made the item
– A midwifery education program is in its fourth year. The program trains rural midwives who will live in far-reaching communities to permanently strengthen maternal health
– To symbolize restored dignity, women that have completed recovery are given a new dress and paid transport home
One woman I saw on our walk hobbled past us with an awkward gait, aggressively swinging her left leg forward every second step. Sisay commented that she had been abandoned in a shed for three years before arriving at Hamlin, suffering severe physiological injuries to her legs and feet. She had occupied Hamlin for the past three years and would eventually move on to their long-term rehabilitation centre. Her story is included in the bestseller Half the Sky (Katy highly recommends it!)
I guess one of the strangest and sobering realizations is the knowledge that if Katy or I ever bear a child and have complications, we will never have to suffer from fistula. Fistula can be prevented. Fistula was eradicated from the United States in 1880. It is a condition from history. If I have an obstructed labour, there will be doctors surrounding me and a c-section performed immediately. Fistula is a reality that I will never know. For this reason and the positively radiant tour of Hamlin, I contributed to their deserving hospital.
You can learn more at their website hamlinfistula.org
In the rural areas of Amhara, rice farmers live a hand-to-mouth existence. Having enough money to afford inputs for farming, school and household expenditures, particularly before harvest time is a significant challenge. Farmers are often forced to sell rice during harvest season when prices are low, which endangers their livelihood and hinders their income potential. As farmers are without savings habits, any surplus income earned following harvest is squandered at the local Saturday market on drinks. This was the previous experience of thirteen rice farmers who, with the assistance of Mennonite Economic Development Associates (MEDA), formed a group known as Addis Alem Village Savings and Loan Association (VSLA).
In 2011, Gizaw, a rice farmer, received MEDA’s training on the benefits of saving and how to form a VSLA within his community. The training covered topics on saving, credit, managing risk, and resolving conflict. MEDA also provided Gizaw with the necessary materials to start saving, which included: a savings box with two locks, thirteen passbooks, four plastic plates, and a bookkeeping ledger.
Addis Alem VSLA
Gizaw recognized the vulnerability of his livelihood and the serious lack of saving in his community and as a result, established the Addis Alem VSLA. In Amharic, Addis Alem means “new world,” or “appreciating what new thing you have,” which reflects the farmer’s change in mindset towards saving. Gizaw led the formation of the group and trained the thirteen members on VSLA methodology. The VSLA collectively agreed to each save three birr and one birr weekly for the regular savings and social fund respectively. Regular savings is used towards small loans to members and investment, while the social fund is used for emergency purposes. After one year of weekly saving, Addis Alem accumulated 2000 Birr inregular savings and 547 Birr in the social fund.
The group decided to invest 2000 Birr from their accumulated savings into two plots of land. They planted rice and expect the harvest to generate 15,000 Birr in earnings, including next year’s collected savings. Addis Alem plans to store the rice for up to six months and sell the crop when the price of rice is high. Farmers have the confidence to store their rice because the risk is shared between members and the business is an additional stream of income. Previously, members never stored rice because they required cash for monthly expenses. Addis Alem’s investment overcomes the frequent need for cash by using regular group savings to support costs. In addition, members have realized other benefits from group saving including a reduction in community disputes, improvement in social life, and renewed interest in microfinance institutions.
“We care for each other. If a member gives birth or is sick, we will use money from the social fund” – Addisie, VSLA Secretary
“We benefited remarkably from VSLA. We understand that our livelihood is dependent on agriculture and there are risks associated with nature such as hail and flood. In such cases, we can take out our savings and use it for household consumption. Without VSLA, there would be no way for us to pay for our living expenses” – Alamrew, VSLA Member
Building Resilient Livelihoods
The most enduring impact of Addis Alem is how it has changed members’ perception of saving. Before VSLA, members never saved but now each member understands the importance and necessity of saving. They have experienced how saving positively impacts their farm, family and future. Consequently, the group plans to continue saving and investing in the coming years:
“In the future, we hope to increase our rice production and own milling equipment so that when our children grow up, they will have something to develop our business with. Our children will see how we saved and they will learn from our experiences and be able to expand our business further”
Sustainable and Replicable Impact
Addis Alem demonstrates how Ethiopian farmers can build group trust and combine resources to save and invest productively. Since Addis Alem is self-managed, it will continue to save and invest in the years to come, functioning independent of MEDA. Moreover, MEDA has replicated the VSLA model by forming fifty VSLAs in one year. The rapid establishment of VSLAs can be attributed to MEDA’s simple, non-bureaucratic and low cost approach to forming savings groups. MEDA’s involvement ends after one year, and 98% of VSLAs have agreed to continue saving autonomously, ensuring sustainable impact. Through MEDA’s intervention, VSLAs can form quickly, establish trust, build savings habits, and ultimately strengthen income potential and develop resilient livelihoods.
Working with consultants has its perks. Not only do they offer a fresh analytic perspective, but they also provide advanced industry knowledge. Most recently I was introduced to the “5 Cs of credit approval” applied to rural entrepreneurs in developing Ethiopia. Each “C” is used to assess whether a loan applicant is eligible for credit:
When evaluating an applicant, it’s essential that the individual is trustworthy, honest and reliable. You must determine their willingness to repay and entrepreneurial zeal. The challenge here is to gauge their proclivities through indirect questions:
The majority of owners do not keep a formal record of their financials, forcing the loan officer to depend on the individual’s oral account of the business. To evade false information, verify numbers with competitors and speak with the applicant on multiple separate occasions. If the character is questionable, rejection is the only reasonable decision.
Assess the business’s capacity to repay. Primarily, the cash inflows and outflows are the lifeblood of the company. Without cash or profitable operations, the company will fail to repay. Management, technical and labour capacity also contribute to the health of the business. Examine:
Most if not all small and medium enterprises deal in cash. Credit is seldom used but informal lending is practiced. Typically, cash is the critical factor. Incorporating household expenditures in the income statement is advisable to be conservative. Businesses with less than 6 months experience are unlikely to be approved. In the case of microfinance loans, analyzing the character and capacity to repay is enough.
Less important than Character and Capacity, Capital refers to what is financing the business. Basically, a balance sheet:
Typically the more equity, the better the indication that the entrepreneur is committed to the success of the business (although my supervisor argues the opposite – anyone know a study on whether equity or debt financing is more correlated to default?). Most applicants lack debt so the balance sheet is simply constructed by plugging for equity.
Assets the applicant is willing to pledge to the borrower in order to secure the loan. Obtain the market, historical, marketability and psychological values of the assets like buildings, land, equipment and vehicles. Certain assets, regardless of their actual worth, can be advantageous to secure because of their perceived psychological value. For example, a processing machine may have a low resale value but in seizing the machine, the processor cannot conduct business thereby motivating them to repay responsibly. Surprisingly, assets tend to appreciate in value because of Ethiopia’s high inflation. A well-used year old machine may be worth more today than at the time of purchase. Collateral can be a make or break factor for banks because collateral ensures the bank will recover the costs of default. Unfortunately, if entrepreneurs lack brick (or other non-mud) buildings, it is very difficult to obtain a loan. To overcome insufficient collateral, banks can partner with a third party through a credit guarantee agreement. MEDA has one such agreement with an Ethiopian bank.
The external environment impacts the applicant. Market factors, economic indicators, inflationary risk, competition, politics and legislation, and other conditions should be taken into account.
Applying the 5 Cs
I’m working with a bank and two loan applicants and will post about it soon. The descriptions above are brief, and are simply intended to be a starting point and guiding structure to appraising a client.
Last week I had the fortunate opportunity to travel to the orderly and refreshing Bahir Dar. The sweet Lake Tana air and busy Bajajs welcomed me on my drive to the Summerland Hotel (which I would warmly recommend – just don’t sleep under the blanket or eat their chicken sandwich)
Honeymooners come swoon by the lake’s shallow banks, while the city booms with the industrious sounds of construction. Sometimes I have to blink a few times and recite to myself I am in Ethiopia. I am in Ethiopia. And I have to stop from thinking except that this place looks nothing like it! Flowers in a multitude of colours I could not begin to name freckle the city’s wide boardwalks. Bright bertukans (oranges) and mooz (bananas) radiate bountifully from the market stands. Bahir Dar is a breath of sprightly air.
As I visited Bahir Dar for MEDA purposes, I had the pleasure of meeting the field staff. I also received the pleasure of eating a sheep, which I saw as a lifeless lamb in the office garden at 10, a carcass being skinned and sliced at 10:30, and scrumptious morsels on a bed of injera by 12:30. The concept of eating something so connected to a living thing disturbed me but not enough to deter me from the tender meat. The experience revealed some truth of what we eat when we consume meat. For the staff, the slaughtered lamb was a symbol of celebration in moving to a new office.
As for my assignment, I can not express through writing how thrilled I was to work on a business plan for Ato (Mr.) Belay, a rice processor. Ato Belay is investing in improved processing equipment, not only to increase his production but also to benefit farmers. My Ethiopian coworker, Alem, and I interviewed Ato Belay to collect his financial data. I was so delighted to put my accounting skills freshly acquired from business school to work that I stayed up all night making elaborate financial statements and projections. Only to discuss the statements the following morning with Alem and have them reasonably simplified. After finalizing the business plan, Ato Belay sent the business plan to the local government office. He hopes to get approved for increased land acquisition in order to support his soon-to-arrive new processing machine. I sincerely hope the proposal is sufficient. Ultimately, Ato Belay will be responsible for creating financial statements, which is why MEDA intends to train rice processors in bookkeeping.
Working with MEDA has been a busy unpredictable but mostly informative first month. I am interning at the main office for the EDGET project, which stands for Ethiopians Driving Growth Entrepreneurship and Trade, also meaning progress in Amharic. EDGET is a pro-poor five-year project, funded by the Canadian government with the objective of raising the incomes of 10,000 weavers and rice farmers.
Theoretically speaking, raising income is a strategy to improve food security. We hope rural Ethiopians will become more resilient against famines and less dependent on food aid programs as a result of EDGET interventions.
There are many different facets to such an ambitious project, and I am primarily focused on financial services. Financial services supports EDGET’s objective by employing financial interventions, like the Village Savings and Lending Associations (VSLAs).
Village Savings and Lending Associations
The VSLA model was pioneered by CARE in Ethiopia and is a low cost, effective and sustainable method of educating low income, often illiterate groups to practice saving and lending together. VSLA is well suited for Ethiopia, considering 83% of the population lives in rural areas and 70% of adults are illiterate.
What is VSLA?
The village saving and lending association is a group of 10 – 20 self-selected individuals who agree to save a predetermined amount each week. As the pooled savings grow, members can take out loans and pay interest to the group, allowing the fund to expand further.
In the case of EDGET, community promoters introduce the concept, initial training, and startup materials to the project’s target weavers and farmers. After 9 – 12 months, the VSLA graduates the program and chooses to either divide the accumulated savings between members and stop, or continue saving as a group, independent of MEDA.
Why does VSLA Work?
The members are decision makers in every aspect, and create an association flexible to them. Members can easily respond to the specific needs of the group, such as sudden deaths or unforeseen business risks.
Some members are already a part of informal credit groups, like Iqqub or Iddir. VSLA is a natural extension of such programs, adapting easily to the rural environment.
Typically, credit is perceived as high risk, while savings is a readily adopted practice.
Aside from a few startup materials (2 bowls, cash box and notepad), there are no operating costs. Note, the community promoters typically receive payment for upfront training and in-kind payment for follow-up.
The group is voluntary and small, allowing for transparency, accountability and most importantly trust.
Acts as a common ground to share community issues, encourage income-generating activities, and eventually apply for microfinance institution (MFI) membership.
VSLAs are independently operated, long after NGOs have left.
From the project’s inception (February 2011) until October 2011:
50 VSLA groups were formed. (More recent figures will be coming soon for 2012)
In 39 groups assessed:
|Savings Mobilized From…||Amount Ethiopian Birr (ETB)
$1 CAD = 16 ETB
|Amount per Group|
|Social Fund Contribution||7242||186|
|Fines & Interest||705||18|
|Total (savings + social + fines)||58,375||1497|
Some groups are engaged in income generating activities (such as commerce of various grains, making and selling local drinks) with the savings fund. Others have decided to use the fund for lending to group members, thereby earning interest.
One question that immediately emerged in my mind … How can these weavers (or farmers), who live a hand-to-mouth existence, save even a few birr weekly?
Understanding the issues that weavers currently face helps answer this question…
1) No Concept of Saving
Since these weavers have had elementary or no education, and positively no financial literacy training, they have no concept of frequent saving.
2) Immediate Household Spending
When weavers receive profits from traders, they immediately spend their earnings on household consumption, perhaps fitting a drink or two of tej (locally produced honey beer) in too.
So how does the VSLA model remove the immediate spending habit?
As is the case with Grameen bank and other successful microcredit schemes, social pressure lies at the center of successful group saving. Nobody wants to be the neighbour who doesn’t have his/her life together and misses a payment.
An important aspect of VSLAs that must not be overlooked, is the need to mobilize savings. If the fund is not used for anything, the savings group is unnecessary. So another question I had … What if members want to take out loans at the same time?
Potential borrowers need to submit their loan proposals to the group. Each proposal is disseminated between members, and a democratic vote is cast to determine the most deserving candidate.
What about Microfinance Institutions – Isn’t it their role to provide financial services to the poor?
VSLAs are complementary to MFIs. MFIs are not designed to lend to extremely poor clients, where income is inconsistent, repayment rates are poor, and loan amounts are so small that they are unprofitable. Rather, MFIs are better suited to accommodate growing entrepreneurs, whose income is expected to rise significantly and has greater access to capital. VSLAs accommodate clients lacking collateral and who are exposed to high risks in generating income.
One indication that the VSLA model is working effectively is that there is a growing demand for VSLA in the project areas. Since the first year, more low income earners want to join VSLAs. Unfortunately, MEDA does not have the resources (or strategic capacity because our target is farmers and weavers) to meet the demand. This is a bittersweet outcome, as illiterate poor entrepreneurs do want to improve their financial literacy to live out better livelihoods.
If you’re interested in supporting EDGET click here.