Salient features behind Informal Financial Institutions: The Case of Edget Behibret Equb and Ras ZeSilasse Former Students Iddir

Abstract

Although Ethiopia’s formal financial sectors are undeveloped, it has a rich tradition in local, community-based revolving savings and credit associations and insurance societies. ‘Equb’ and ‘Iddir’ respectively offer a source of credit and insurance outside the formal sector. They are entrenched in Ethiopian society. The social institutions in Ethiopia equb and iddir are widely used in both rural and urban areas within different cultures in the country. Ethiopia has low rates of financial inclusion but it has a large untapped market for financial services. The objective of this research was to assess the factors behind wider acceptance of informal financial institutions in Ethiopia the case of EdgetBehibretequb and RasZesilasie former studentsiddir. This descriptive study depended more on qualitative data from the written documents of the iddir and equb and interview results from the administrators of the informal financial institutions. SPSSwas also used as a tool to analyze the quantitative data collected from members of the institutions by using questionnaires. The findings revealed that the factors like reliability of the institutions, their saving aspect, convenient time, strong network and dissemination of information, need for social attachment, taking personal conditions into account, fast delivery of benefits and the structure and procedures simplicity contribute much to the wider acceptance of the informal financial institutions. The result suggests that both the iddir and the equb should improve their services for the future to be fit with the dynamic world and transmitted to the next generation. Other formal and informal financial institutions have much to learn from the RasZesilasie former studentsiddir and EdgetBehibretequb. Another implication of the study is that the formal institutions need to make researches in order to adopt the acceptable features.