Securing Informal Financial Institutions “equb”: Assessment of Legal and Practical Challenges

Abstract

n Ethiopia in general and Tigray in particular informal financial institutions are vast and play significant roles in the socio-economy. Equbs are among the informal financial institutions that are very common throughout the country and they serve both as saving and credit institutions. Equbs have evolved from very small grouping of friends and families for saving and consumption purposes into big institutions with significant financial transactions for commercial activities. Financial transactions of equb associations are traditionally managed through customary laws including the articles of association, guarantee agreement, attendance book and registration book. These customary laws do not give full guarantee to the security of the financial transactions of the equbs. As result of this, a research work was initiated with an objective to investigate the customary laws, legal and practical challenges in ensuring security of financial transactions of the equbs in Kedamay weyane sub-city of Mekelle city in Tigray National Regional State. The research methodology employed descriptive study depended more on qualitative data from the written documents of the equb, government policy, Journals and interview results from the administrators of the selected informal financial institutions, lawyers, and focal group discussions were used to collect data and information so as to enhance the findings. Accordingly, the analysis of the results of the data and information obtained from interviews of members and leaders of 10 equb associations in kedamay weyane sub-city, relevant government officials and legal advisors from Mekelle, revealed that the customary laws including the articles of associations and guarantee agreements lack transparency and this led to abuse the money of the members by the organizers of the equbs. Besides, the equb associations inflict different kinds of social sanctions on defaulting members and leaders of the equb which led to demoralizing and alienation of the defaulters from the society. Moreover, the research work indicated that the big equb associations like that of Rahwa have huge financial transactions which is becoming very challenging in administrating them properly and securely through the common customary laws and these associations need to be secured legally by giving legal personality to the associations through modern governing laws. On the other hand, the small size equbs, which are very significant in number with less defaulting practices are not interested in obtaining legal personality fearing the very bureaucratic nature of the governmental laws.