Microfinance and Microenterprise Development Project

The target group for this project consists of approximately 200,000 people, or roughly 30,000 households. This includes approximately 150,000 people living in rural areas and an additional 50,000 in the peri-urban and urban areas of the capital city. About 8,000 Djiboutian households will benefit directly from the project through access to improved and reliable financial services, either as members of savings and credit associations (SCAs) or through the provision of non-financial assistance to microenterprises.

Poverty among potential beneficiary households is attributable to:

• The effects of the protracted political and social unrest that has affected the country
• A limited asset base
• Lack of access to reliable financial services, which are essential for scaling up and diversifying income-generating opportunities
• Frequent and severe periods of drought in predominantly low-input, low-output rainfed farming systems
• Restricted opportunities for marketing and commercialization of agricultural and locally produced goods
• Lack of access to essential rural and social infrastructure.

This situation is further aggravated by falling employment levels in the capital since, up to now, urban employment and remittances to rural areas had always been a fundamental coping strategy for rural households. The worsening national economy has been hit even further by the reduced size of the French military base and the challenging structural-adjustment programme negotiated with the International Monetary Fund.

The project will improve beneficiaries’ access to regular, reliable financial resources so that they may, inter alia, adopt improved technologies and undertake a wider range of income-generating activities in rural, peri-urban and urban areas, thereby improving their household incomes. At present, beneficiaries have no access to any financial services, owing to their inability to meet the conditions set by the formal financial sector.

Women will be able to participate in the SCAs, which will allow them to take up and/or scale up trading and commercial activities that would be otherwise beyond their reach due to lack of working capital. Increased incomes and the provision of savings services will enable beneficiaries to cope better with external shocks and help them to engage in sustainable economic activities as a means of coping with and reducing poverty. This aid will be enhanced by project assistance in the development and adoption of a national microfinance strategy and related legal framework, the first of its kind in the country.

The project will support the establishment and development – with necessary technical and financial assistance – of a network of SCAs managed by local communities, with a view to building up confidence and creating/reinforcing a culture of credit discipline. The very structure of self-reliant, member-owned and -managed community-based SCAs, as proposed under the project, will empower beneficiaries to participate in the selection and approval of credit applications.

Source: IFAD