By Yared Seyoum
One of Ethiopia's largest Savings and Credit Cooperative Organizations (SACCO), Awach, saw a surge in withdrawal requests from customers after revising its vehicle loan policy last month. The cooperative had decided to only finance brand new vehicles, rather than used ones aged less than 20 years.
This prompted many existing customers who had been saving to buy used vehicles to try and withdraw their deposits.
In the days following Awach cooperative's announcement that it would only finance new vehicles, its branch offices were flooded with customers rushing to pull their savings.
The change in vehicle loan terms, limiting used car financing, caught many existing savers off guard. Many had been accumulating deposits for years with plans to access an Awach loan to purchase a used vehicle.
Now faced with the new restrictive criteria and unable to afford the more expensive new cars, their savings goals were no longer attainable. Two customers explained their decisions to withdraw.
"I was planning to buy a 1.5 million birr worth of vehicle but the new policy requires a brand new car, whose cost is minimum two million birr," said 27-year-old Seifu Habtemariam, who had saved 220,000 birr.
Tesfaye Asrat, a father of two, had saved 160,000 birr hoping to access a 1.5 million birr loan. "With the new policy, It is obvious that there is no way I would afford buying a brand new vehicle. Thus, I have no options but to withdraw my money,” he told BirrMetrics.
However, withdrawing the money was no simple task. Awach management had instituted a two month waiting period for members seeking to access their deposits. This was likely an attempt to stanch the bleeding of withdrawals and avoid a liquidity crisis.
"They told me I'd have to wait two months to get my money out," said Tesfaye, adding to the frustrated chorus of members left in limbo by Awach's shifting policies and restrictions.
According to an Awach official, vehicle loans now make up over 50 percent of the cooperative's outstanding credit, going against its strategic goal of equal financing across sectors.
In response, Awach amended its policy to allow loans for vehicles up to 10 years old, aiming to meet customer needs while better balancing its portfolio. Marketing officer Nato Mengistu said 1.6 billion Birr has been set aside for loans until June 2024 under the revised terms.
"We expect our new revision will meet the expectations of our members," Nato told BirrMetrics.
However, Tesfaye remains unsatisfied, commenting "I still can't achieve my original vehicle plans." Seifu also plans to "invest elsewhere."
Savings and credit cooperatives (SACCOs) have proliferated in Ethiopia in recent years, providing an important source of financing for many. They fall under the regulation of the Ethiopian Cooperative Agency but lack oversight from the central bank.
Like Awach, most SACCOs operate by collecting savings deposits from members. These funds are then deposited with commercial banks to be allocated as loans to cooperatives associates. Awach itself holds around eight billion birr in member deposits.