Addis Ababa — Today, the Bank of Abyssinia signed a loan agreement with four private commercial microfinance institutions (MFIs) – Dynamic, Harbu, Metemamen, and Nisir that will create Moveable Loan Collateral opportunities, and unlock access to finance for micro, small, and medium enterprises (MSMEs) in Ethiopia.
The agreement, worth ETB 600 million, is facilitated through the BRIDGES Programme, which is part of the Mastercard Foundation ’s Young Africa Works strategy in Ethiopia, and is being implemented in partnership with First Consult.
Lack of access to finance is often cited as one of the key constraints hindering the growth of MSMEs in Ethiopia. This is mainly because of the shortage of eligible collateral opportunities offered by financial institutions to MSMEs. The difficulty that MSMEs experience in accessing finance is largely due to their lack of fixed assets, such as land or buildings which institutional lenders demand as collateral.
This milestone agreement is part of a larger effort to implement the National Bank of Ethiopia’s (NBE) directive to enforce the operationalization of a moveable collateral registry. The NBE directive seeks to resolve the challenge where banks have greater financial resources but do not adequately lend to MSMEs, and, conversely, MFIs are willing to lend to MSMEs but lack the resources.
The directive has stipulated two options for banks to fulfill their requirements; i) disburse funds to individuals in the agricultural sector, including cooperative unions and MSMES; and ii) partner with MFIs to channel this fund to the identified target groups by setting up a wholesale lending facility.
The Bank of Abyssinia agreement is fulfilling the second option by establishing and operationalizing a wholesale funding platform that will unlock access to credit from MFIs who are willing to service MSMEs through less stringent collateral requirements yet are constrained by a lack of liquidity.
The BRIDGES Programme has consistently worked to identify opportunities that will unlock finance in MSME lending. As such, BRIDGES has undertaken this as a potential intervention area that will create lasting benefits for both banks and MFIs, as well as facilitate additional financing for MSMEs.
"Dynamic MFI is grateful for the technical support and facilitation of the funding by the BRIDGES Programme, which is indeed a milestone in unlocking credit for young people," said Bewketu Alamirew, CEO, DYNAMIC.
''Thank you to the BRIDGES Programme for the initiative and to the Bank of Abyssinia for the positive response. The time has now come for MFIs to eliminate the prevailing loanable fund challenges that they have experienced over the years,'' said Dawit Wakgari, CEO, Nisir.
The agreement will serve to establish longer-term business relationships between the commercial banks and capable MFIs to not only create funding sources, but also build potential collaboration in areas such as establishing linkages for SMEs graduating from MFIs. An additional benefit is that liquidity constraints hindering MFIs ’ ability to increase access to finance for MSMEs will be done on a commercially sustainable basis.
In a statement, the leadership of the Bank of Abyssinia, expressed their gratitude to the BRIDGES programme and the Mastercard Foundation for facilitating the linkages between the Bank and the MFIs. They consider the agreement as a significant breakthrough to unlocking finances for young people and alleviating the hard physical collateral requirements.
“MSMEs have a critical role to play in enabling opportunities for young people, which remains a pressing challenge and opportunity. We are excited about the role that this new partnership will play in unlocking the job creation potential of MSMEs,” said Alemayehu Konde Koira, Country Head, Ethiopia, at the Mastercard Foundation.
About the Mastercard Foundation
The Mastercard Foundation works with visionary organizations to enable young people in Africa and in Indigenous communities in Canada to access dignified and fulfilling work. It is one of the largest, private foundations in the world with a mission to advance learning and promote financial inclusion to create an inclusive and equitable world. The Foundation was created by Mastercard in 2006 as an independent organization with its own Board of Directors and management. For more information on the Foundation, please visit: www.mastercardfdn.org
About Bank of Abyssinia (BOA)
Bank of Abyssinia, which was initially established in 1996, is as a shareholding company with 2,400 shareholders. It operates through a network of over 560 bank branches and more than 230 ATMs across the country. As of June 30, 2020, BOA’s total ass ets, outstanding loan portfolio, net deposits and total capital reached Birr 56.9 billion, 37.2 billion, 47.6 billion and 5.7 billion, respectively. https://www.bankofabyssinia.com/
About First Consult
First Consult is a leading Ethiopian institution specialized in economic development in Ethiopia. With a focus on private sector, financial sector, and human capital development since 2005, First Consult has built and worked with over 500 partnerships that span the private sector, government, and development community. By supporting and mobilizing strong local institutions with highly capable individuals, the institution strives to solve the most-critical development challenges of our time. The core focus on youth development and women’s economic empowerment is central to the mission of First Consult, which is to realize inclusive and sustainable development that benefits all. Follow First Consult on: https://twitter.com/FirstConsultEth| https://www.facebook.com/FirstConsultEth
About the BRIDGES Programme
The BRIDGES Programme, is a five-year initiative, aims to create employment opportunities for young women and men by unlocking the job creation potential of industrial parks (IPs), other anchor enterprises (AEs), and their surrounding ecosystem including micro, small, and medium enterprises (MSMEs). Through the programme, BRIDGES works to support the creation of close to 600,000 jobs for young people (80% women) and 15,000 micro, small, and medium enterprises (MSMEs). BRIDGES works to capitalize on, and scale-up its previous experiences and key learnings within the industrial sector toward creating direct employment linkages, as well as establishing sustainable market linkages between AEs and MSMEs. The BRIDGES Programme is comprised of four focus areas: Employment Linkage, Enterprise Development, Enterprise Competitiveness, and Access to Finance. Follow the BRIDGES Programme on: https://twitter.com/BridgesEthiopia | https://www.facebook.com/BridgesEthio
CONTACT
Mastercard Foundation
Simret Yasabu, Lead, Program Communications
Telephone: +251 975 048876
Email: syasabu@mastercardfdn.org
First Consult
Henok Tenna, BRIDGES Programme – Access to Finance Lead
Telephone: +251 114 401 473
Email: htenna@firstconsultet.com
