Addis Ababa — Today, Awash Bank signed a loan agreement with nine private commercial microfinance institutions (MFIs) – Vision Fund, Nisir, Kendil, Metemamen, Meklit, Dynamic, Wasasa, Harbu and Peace MFI to unlock the access to finance for micro, small and medium enterprises (MSMEs) in Ethiopia.
The ETB 1.5 billion deal is facilitated by the BRIDGES program, which is part of the Mastercard Foundation’s Young Africa Works strategy in Ethiopia and is implemented in partnership with First Consult.
Today’s agreement is part of ETB 5.5 billion the Bank has pledged to disburse over the next three years on flexible terms such as low interest rates, eased and flexible guarantee options, including own loans (without collateral) as part of its commitment to serve young entrepreneurs and MSMEs in Ethiopia and which is expected to benefit over 110,000 MSMEs and support nearly 220,000 jobs .
In Ethiopia, loans from banks are highly collateralised, typically requiring real estate collateral valued at up to 200% of the requested loan amount. Banks also lack an effective business model to meet the credit needs of young entrepreneurs and MSMEs. This limits the access of young entrepreneurs and MSMEs to formal bank credit services as they do not have assets that can be used as collateral to obtain loans.
On the other hand, Microfinance Institutions (MFIs) have business models with alternative and flexible collateral options such as group guarantee schemes, personal guarantees, land certificates, vehicles/bajaj, machinery and equipment. ‘other movable property to provide loans to businesses in the agricultural and agricultural sector. MSME sectors. In Ethiopia, MFIs have over 5.5 million active borrowers. As such, they are in the best position to reach small businesses with credit services. However, they are seriously facing lack of loanable funds/cash to reach more individuals and MSMEs in Ethiopia.
In 2020, the National Bank of Ethiopia (NBE) introduced a mobile collateral registry guideline to increase the flow of finance to individuals in the agriculture and MSME sectors. The directive obliges all banks to allocate at least 5% of their annual credit disbursement to individuals in these sectors against movable property as collateral. Banks can disburse the loan directly to borrowers or MFIs on a wholesale basis for MFIs to sell the loan to individual entrepreneurs and MSMEs against collateral. While this directive is meant to bring a fundamental change to the flow of capital to agricultural enterprises, which are the most credit constrained sectors in the Ethiopian economy, and solves a major bottleneck for MFIs to acquire loanable funds, directive compliance is slow and reluctant
In one of its interventions, the BRIDGES program helps partner banks and MFIs establish and operationalize wholesale credit facilities in which MFIs use bank loans to lend to MSMEs using movable assets as collateral. BRIDGES has facilitated the process of matching banks with MFIs by conducting thorough due diligence of private commercial MFIs on, among other things, their risk category, debt absorption capacity, governance structure, experience in financing against movable property and their network of agencies. BRIDGES also provides technical support to MFIs in their loan utilization efforts, verifying whether they have lent the loan against collateral, and providing other technical support, such as financial product development and portfolio management for efficient use of bank funds.
Today’s agreement between Awash Bank and MFIs will establish longer-term business relationships between commercial banks and competent MFIs, not only for funding sources, but also to establish potential collaboration in areas such as SMEs leaving MFIs.
“Vision Fund MFI is very grateful to the BRIDGES program for creating the opportunity to unlock the Youth Credit Facility,” said Taye Chimdessa, CEO of Vision Fund MFI.
“The facility will solve the liquidity problems that MFIs are facing and help them meet the growing demand for credit from MSMEs,” noted Amsalu Alemayehu, CEO of Wasasa MFI.
“Awash Bank finances small businesses engaged in different sectors of the economy. In its concerted efforts to further support MSMEs, we have committed 4 billion birr in addition to the 1.5 billion we signed today. I look forward to seeing the impact this will have on the businesses that MFIs work with,” said Tsehay Shiferaw, CEO, Awash Bank Share Company
“We are very pleased with this partnership between commercial banks and MFIs to provide affordable access to finance for MSEs. This will address structural challenges such as low access to finance by solving the problem of limited loanable funds available to MFIs. The solution is sustainable and opens doors for greater collaboration across sectors,” explained Henok Tenna, BRIDGES Program Team Leader.
“The Foundation is seeing promising results from our partnership with financial institutions. We will continue to partner with private financial institutions and other service providers to create access to affordable capital for small lenders. Today’s partnership demonstrates that Young Africa Works is on the right track not only to enable young people to find employment, but also to help institutions replicate and scale up work models using their own resources. Partnering with MFI will pave the way for meeting young people, especially young women where they are,” said Samuel Yalew Adela, Country Manager, Ethiopia, at The Mastercard Foundation.
About Awash Bank
Awash Bank, Ethiopia’s leading private commercial bank, was established in 1994 as a joint stock company. Currently, the number of shareholders has reached 5,745 and its paid-up capital is over 10 billion birr as of June 2020/21. It operates through a network of over 725 bank branches and over 565 ATMs and 1,406 PoS terminals across the country. Awash Bank is the first private bank in Ethiopia to surpass the 1 billion birr profit mark in the history of Ethiopian private banks in fiscal year 2019. For more information on Awash Bank, please visit www.awashbank. com
About The Mastercard Foundation
The Mastercard Foundation works with visionary organizations to enable young people in Africa and Indigenous communities in Canada to access dignified and fulfilling work. It is one of the largest private foundations in the world whose mission is to advance learning and promote financial inclusion to create an inclusive and equitable world. The Foundation was established by Mastercard in 2006 as an independent organization with its own board and management. For more information on the Foundation, please visit: www.mastercardfdn.org
About the first consultation
First Consult is a leading development consultancy organization specializing in economic development in Ethiopia. With a focus on the private sector, financial sector and human capital development since 2005, First Consult has built and worked in over 500 partnerships that span private sector, government and development actors. First Consult works to solve the most critical development challenges of our time by supporting the building of strong local institutions and the implementation of national strategies. A focus on youth development and women’s economic empowerment is central to First Consult’s mission to achieve inclusive and sustainable development that benefits everyone. For more information on First Consult, please visit: https://firstconsultet.com/main/home
About the BRIDGES program
The BRIDGES program, a five-year initiative, aims to create employment opportunities for young women and men by unlocking the job creation potential of industrial parks (IP), other large companies and their surrounding ecosystem. , including micro, small and medium-sized enterprises (MSMEs). Through the program, BRIDGES works to support the creation of nearly 600,000 jobs for young people (80% women) and 15,000 micro, small and medium-sized enterprises (MSMEs). The BRIDGES program includes four areas of intervention: link with employment, business development, business competitiveness and access to finance. Follow the BRIDGES Program on: https://twitter.com/BridgesEthiopia| https://www.facebook.com/BridgesEthio
Ebisa Deribie, Director, Marketing and Communications
Telephone: +251 944733463
Email: [email protected]
Getachew Mekonin, Manager, Access to Finance
Phone: +251 114 401 473
Email: [email protected]
Simret Yasabu, Manager, Program Communications
Telephone: +251 988 80 57 66
Email: [email protected]