To fight poverty and improve productivity, small-scale farmers who are facing financial constraints and trapped in a subsistence way of living should be integrated into the market.
To realize this, the role of microfinance and insurance should receive due emphasis. One of the bottlenecks in improving the lives of the poor is lack of access to finance and credit.
According to some documents, one of the various instruments that reduce poverty in rural areas is through facilitating access to credit to the poor. As formal financial institutions failed to reach the poor for collateral requirements, micro finance program that provides services such as credit, saving and insurance is seen as an alternative strategy to reduce poverty.
Currently, both public and private banking and insurance sectors are booming. But, due to the rule of the game, their loan and insurance facilities are not accessible to the low economic groups as they have neither the property that can be utilized as collateral nor the payment for premium, said Mekonnen Abera, an economist.
To improve access to finance both in urban and rural parts of the country, several saving and credit associations have been established. They have also created an opportunity for low-income earners to access such services.
As to him, the the members established the corporation based on rules and regulations to govern its activities. Members are benefiting from credit services as per their saving.
Contrary to the situation in urban areas where it is possible to start small businesses by accessing credit from small micro-finance institutions, it is much difficult in rural areas to utilize these services to expand agriculture as agricultural inputs are expensive even in the case of small-scale farmers.
Hence, it is beyond their capacity to access the required amount of loan. Hence, the involvement of microinsurance enterprises in small farming is essential to boost farmers' morale and inspire them to do their work vigorously.
According to him, with the view to garner the long-term benefit and discharge their corporate social responsibility, private companies in collaboration with the government and stakeholders have been venturing to provide microinsurance services.
Due to its huge significance, such kind of initiative needs to be appreciated and other financial institutions should follow their footsteps.
Providing micro-insurance to small-scale farmers needs the cooperation of all stakeholders and need a firm decision. As it is known, agriculture is practiced in different agro-ecological zones in the country. Some areas get adequate rainfall for production annually, while other areas are vulnerable to frequent drought.
To improve this situation, with the support of stakeholders, microinsurance institutions are striving to support small-scale farmers. With this, small and microfinance institutions are playing an important role in responding to the demand of rural communities.
These institutions are also known for providing insurance services in addition to their direct credit and saving services. Oromia Credit and Savings Corporation S.C. (OCSC) is one of such institutions that is engaged in this endeavor.
The company was established in August, 2004 and initially opened a few branches in some parts of Oromia, providing microfinance services. Approached by The Ethiopian Herald, Director of the Marketing and Communication Directorate at OCSC, Oli Teferi stated that the company is working in a bid to fight poverty by providing insurance to underprivileged members to society in addition its saving and credit services.
The reason for the establishment of the institute was to deliver a financial service that will benefit farmers as banking services are not available in many rural areas across the country, he said.
A national microfinance policy has also been formulated to enable non-banking farmers. As to him, this will help to increase their saving culture and increase their production and productivity through access to credit.
OCSC is a corporation established primarily to work with the Oromia Regional State and other development organizations in the region. Over time, it has expanded its accessibility to almost a total of 394 woredas in the region. Currently, it has also expanded its branches.
While mentioning that the savings and credit amount was only 1.2 million and less than 9 billion Birr respectively when it started its operation, he added that the credit supply has now reached 10 billion Birr.
According to the director, OCSC has been focusing on providing credit to farmers to buy and produce fertilizers and improved seeds. It is working with unemployed urban and rural people, especially those who have graduated from universities and TVETs. The activities have focused on providing them with credit to start their own small business.
He further stated that the corporation is providing insurance services to the farmers. In this regard, there are two types of life insurance for farmers, one of which is loan provision for development and helps the rest of the family not to be burdened with debt when the debtor dies.
This type of life insurance is a type of insurance that can make debt cancelation including interests if the farmer (the debtor) dies without repaying the loan.
The institution's second alternative insurance policy is life insurance that can make debt cancelation for the debtor when the debtor or close partner of the debtor dies before the loan is completed. When farmers apply for a loan, they are recommended to join one of the two alternative life insurances, he noted.
Stating that they are providing insurance service for the farmers even in rural areas as the people have no other option, he added that the corporation in collaboration with other financial sectors has set a plan to offer crop insurance and pet insurance in the near future.
"As Oromia Financial and Savings Corporation is a financial institution, it will continue to strengthen its activities in the insurance sector. We will also expand our services by studying additional insurance services," he noted.
On the contrary, the Director has mentioned that there are some problems that threaten the corporation and other similar financial institutions. As to him, debt reimbursement has become a serious problem these days. If the debtors are not able to repay the loan responsibly, the burden will fall on the next generation and closes the door of opportunity on others.
Moreover, the lending institutions and the national economy will suffer if the borrowers are unable to repay the loan. Debt settlement is a challenge, especially for young people. Adding to the point that the problem is particularly observed among the youths, he called upon youths to repay their loans on time including the government's revolving fund.
According to Oli, the society must realize that saving is one of the best mechanisms to avoid poverty. In particular, Oromia Credit and Savings SC is a financial institution that uses modern technologies to promote saving. When the public uses this institution for savings, they will benefit from access to credit and insurance services too, he asserted.
The provision of micro-insurance services both for small-scale sedentary farmers and pastorals need to be promoted. "Because in our context, both ways of life are vulnerable to natural hazards.
Besides averting such risk and vulnerability, it can transform the sectors to have a meaningful role in the economy," Mekonnen recommended.