Major Steps Towards Improving Credit Access in Eritrea

The importance of credit access in Eritrea — including more modern features of finance associated with world economic development — is significant and pivotal to Eritrea’s poverty reduction strategy. An undeniable, clear and positive correlation exists between increased credit access and the overall level of the money supply circulating in the economy; such a connection in turn drives consumer demand, spurring increased productivity.


By Kerry Baynes | Borgen Project

Credit Access in Eritrea

World economic poverty assessments measure general access to basic needs such as food, clothing, shelter and education. Access to credit, separate from other forms of philanthropic work, provides a systematic, yet rudimentary means of assisting small business enterprises in conjunction with local farmers in Eritrea to attain resources and feed larger populations in the future.

Agriculture accounts for approximately 17 percent of Eritrea’s Gross Domestic Product (GDP) and is the primary source of income for the nation. Estimates are that 80 percent of the total population depend on farming as a livelihood.

This access-to-credit strategy helps provide farmers with the tools to implement enhanced agricultural measures and improved farming techniques that increase production above a basic subsistence level. Food supply is a critical element of the global poverty reduction agenda.

In addition, modernizing the micro-financing process through implementation of a series of reforms, as those instituted in other parts of the region, accelerates private sector growth.

Strategic Focus Points

The fight against poverty is knowledge-based. Elements of the learning curve manifest in terms of money management, planned structural use of capital, outcome aggrandization, stasis development and benchmark triggers, and formulate what are known as strategic focus points for business development.

A 2002 study, published by the University of Groningen, on the problem of credit access in Eritrea suggests that there are at least four reasons for the limited credit access in the East African country: “collateral, conservative lending practices, inadequate business reporting and limited human resource skills related to financial management.”

Local and Global Loans

Credit access, which is determined by the available number of loans, is tight in Eritrea as the newly established country struggled with a ballooning fiscal deficit during the early part of the previous decade.

Fortunately, with technical assistance funding from the International Monetary Fund (IMF), the world’s leading organization on economic and monetary policy formulation, the four major banks essentially curbed the rising fiscal deficit. However, conservative lending practices still restrict bank lending to roughly 30 percent of cash deposits.

With a reported GDP of roughly $3 billion, Eritrea experienced a debt to GDP level at over 100 percent. GDP and production, hampered by drought, inhibited economic performance and marginalized growth, making it difficult to manage economic development.

Presently, stabilizing the economy requires increased production that only new investments in technology can generate. Minimizing inflation is also a key consideration in formulating the perfect balance in the economic equation and must be a primary target for government leaders.

Solutions

Solutions to the credit access in Eritrea problem include policy reforms that increase transparency and, along with it, all the measures associated with improving core business competencies. These structural policy reforms are an important step towards improving credit access and reducing poverty because they provide benchmarks to determine individual credit worthiness.

Credit access acts as one the fundamental means of expanding local farming and land cultivation programs. Recent estimates indicate over half the population in Eritrea still lives in poverty and lacks proper access to food and basic nutrition; improved credit access in Eritrea could change that.

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