Development Bank of Ethiopia Provides First Ever Loan to Financial Institutions

Development Bank of Ethiopia Provides First Ever Loan to Financial InstitutionsDevelopment Bank of Ethiopia (DBE), the state policy bank, has for the first time financed a quarter of a billion Birr to four private commercial banks and four microfinance institutions.

The Bank signed a quarter of a billion Birr loan agreement with an interest rate of seven percent with the financial institutions to finance small & medium enterprises (SMEs) early this month.

The loan agreement was signed between Teshome Alemayhu, vice president for lease financing of the Bank, and the presidents of the eight financial institutions.

Awash, Enat, United, and Birhan International were beneficiaries of the loan as were the micro-finance institutions Addis Saving & Credit Association, Amhara Credit & Saving Association, Washa Micro Finance, and Vision Saving & Credit Association.

The loan is aimed at assisting financial institutions to increase access to credit for eligible SMEs with the necessary working capital, according to Kifle Haileyesus, communications director of the Bank, who added that such support will continue into the foreseeable future. Some of the fields of focus are agro-processing, manufacturing, hotel and tourism and construction sectors.

The Bank had received 276 million dollars from the World Bank (WB) and the European Investment Bank (EIB) recently. The policy Bank distributed this to financial institutions based on the proposals they submitted. It was evaluated by consultants from the Western institutions and the DBE, according to Kifle.

Some of the criteria were the performance of the institutions’ loan and profit portfolios and their experience.

“The loan agreement will enable us to satisfy our customers by providing credit access,” according to a source from Birhan.

President of one of the youngest banks in the country, Enat, agrees.

“It will help us reach more women running SMEs, and as new entrants into the market, such loan agreements are very helpful,” Wondessen Teshome told Fortune.

A recent World Bank study on SMEs, which in Ethiopia are estimated to have reached 800,000 up until 2016, found that financing was a key constraint to job creation and growth.

In the previous years, the Bank, which has 2,400 employees in 13 districts, has attempted to boost SMEs, as in 2016, when it agreed to provide interest-free financing for such enterprises.

But this measure by the policy bank goes against the stand the National Bank of Ethiopia (NBE) has taken. Following the devaluation of the Birr by 15pc against a basket of major currencies last October, the central bank had swelled the deposit interest rate and put a 16.5pc credit cap in a bid to reduce the money supply in the market and arrest inflation.

This is taking place as inflation stands at 15.6pc, one of its highest points in half a decade, and credit by private banks has reached over 134 billion Br. Similarly, the policy bank gave 34 billion Br last year, having increased by over seven percent from the previous one.

Sewale Abate (PhD), an assistant professor at Addis Abeba University (AAU), College of Business & Economics, believes this is a good development though, especially for SMEs.

“SMEs were forgotten by banks because they were believed to be risky,” Sewale said. “This will change from now on.”

This is not the first recent decision by the bank – whose gross profit has declined by 21.6pc to 323.8 million Br as its non-performing loans (NPLs) went from 16pc to 25pc of outstanding loans – to increase access to credit. Last month, the Bank’s president, Getahun Nana, issued an internal note, allowing district offices to disburse loans more than their mandate permitted previously. [Addis Fortune]

Inside Ethiopia