Financial Service Providers Capacity Assessment

These activities focus on food, nutrition, and livelihoods security of Productive Safety Net Program (PSNP) households. Financial services are key to reaching the development goal of improving the livelihoods of PSNP households. The two activities are working to increase beneficiaries' access to and usage of financial services that will enhance the economic well-being of PSNP IV households. The Financial Services Capacity Assessment exercise was commissioned by CRS Ethiopia to enable the activities to work with reliable information in structuring financial linkages between financial service providers (FSPs) and PSNP households by addressing identified capacity gaps. This will enhance activity outcomes at the household level while creating sustainable relationships between FSPs and PSNP households. The assessment focused on two types of FSPs: Microfinance Institutions (MFIs) and RuSACCOs/RuSACCO Unions. Five RuSACCO Unions operating in the activities' operation areas of MCS and Hararghe Catholic Secretariat (HCS) were considered in the assessment. A total of 67 RuSACCOs (35 in MCS and 32 in HCS areas) were included in the assessment. The assessment identified all MFIs in target woredas whose capacity was assessed. The assessment results showed that most MFIs had strong indications of operational and financial capacity. However, they had poor management information systems (MIS) and no Digital Financial Services (DFS) to make up for their low presence in geographically remote areas where PSNP households are mostly located. The assessment also identified capacity gaps in the RuSACCO Unions and RuSACCOs, including limited financial management and accounting skills, inadequate risk management practices, and limited access to financial services. The assessment concluded that addressing the identified capacity gaps is crucial to enhancing the economic well-being of PSNP households. Recommendations were made to strengthen the capacity of MFIs and RuSACCO Unions/RuSACCOs, including providing training on financial management and accounting, risk management, and digital financial services. Additionally, recommendations were made to improve the management information systems of MFIs and to increase access to financial services for PSNP households. The assessment results will inform the development of financial linkages between FSPs and PSNP households, with the goal of enhancing activity outcomes at the household level while creating sustainable relationships between FSPs and PSNP households. The assessment will also inform the development of strategies to address the identified capacity gaps and to improve the financial inclusion of PSNP households.