accessibility & help

Micro-loans combat poverty in Djibouti

19 February 2010

Goats roam among market stalls© InfoThe British Red Cross has launched its first micro-loan programme anywhere in the world in Balbala, a slum on the outskirts of Djibouti Ville, the capital of Djibouti.

Around 60 per cent of Djibouti’s population are unemployed and many of the residents of Balbala live below the poverty line and have no, or very limited, means of income. The Red Cross programme is lending money to small groups of people. This helps spread the risk as the group will collectively be responsible for making repayments. The first loans were given out on 2 February and in this phase the programme will help up to 100 people. In March, it will expand to reach a further 900 people.

Djibouti, one of the smallest countries in Africa, has a population of around one million, with the majority living in and around the capital, including a massive 30 per cent living in Balbala. As one of the poorest countries in the world, 75 per cent of Djiboutians live in relative or extreme poverty. An estimated 200,000 people are migrants, fleeing drought, civil war or persecution from the bordering countries of Somalia, Eritrea and Ethiopia.

Vulnerable population

With frequent droughts, Djibouti has limited sources of water and produces very little of the food required to feed its own population, so almost everything is imported at great expense. The economic recession and rising food prices hit Djibouti hard. Although now slightly reduced from the hugely inflated levels of 2008, prices have still not returned to normal.

Unable to save any money each month, many of Balbala’s residents are hugely vulnerable to crises – whether it’s increasing food or water prices, or a sickness in the family and the need to pay for healthcare – so their situation is very precarious.

The British Red Cross formed a partnership with the Red Crescent Society of Djibouti (RCSD) in July 2009, and the micro-loan programme will support the most vulnerable people living in Balbala, primarily households with an income of less than £60 a month. Each person in the programme will receive a loan of £180.

Red Cross support

Fiona McSheehy, British Red Cross programme officer, said: “In most situations we would prefer to give cash grants as opposed to loans. However, in certain situations it is not appropriate. In Djibouti, there are a number of micro-credit companies, including some which are supported by the government. They are doing good work in helping people who are struggling to cope and we didn’t want to undermine this. In Djibouti, people understand the concept of micro-credit and they do not expect to receive handouts.”

Using a local loan provider, Caisse Populaire d’Epargne et de Credit (CPEC), loans provided through this programme, which is part-funded by the American Red Cross, will enable some Balbala residents to strengthen small income-generating activities, improving the household’s quality of life and bolstering resistance to hardship.

Sandra Hu, programme manager in Djibouti, explained: “Our programme focuses on the most vulnerable people who do not qualify for micro-credit through other channels. We prefer group loans to individual loans because if one member fails to make a repayment the rest of the group will have to pay for them. We are hoping that the peer support and mutual responsibility should help reduce the default payment rate. The group members are self-selected based on trust and affinity which is fundamental for a well functioning loan group.”
 

Community projects

Woman crouching in purple dress© InfoHawa Rableh (50) said: “Not being able to save any money – this is my struggle. With a loan from the British Red Cross and the Red Crescent Society of Djibouti I would be able to extend my business, selling fruit and juice as well. I would then be able to save money and help my children get training."I want them to be teachers or to have another professional job so they can help themselves.”

Without the involvement of the Red Cross, local banks were unwilling to provide loans to residents of Balbala as they were deemed not creditworthy. All the money collected from repaid loans will be used for community projects in the same communities where loans were administered, and beneficiaries will be able to decide what they want the money to be spent on.

Read about cash grants in our tsunami recovery programme

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