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 access to finance for micro, small, and medium enterprises (MSMEs) in Ethiopia.
The ETB 1.5 billion agreement 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.
Today’s agreement is part of the ETB 5.5 billion the Bank has committed to disburse over the next three years on flexible terms and conditions such as low-interest rates, relaxed repayment terms and flexible collateral options, including clean loans (no 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 close to 220,000 jobs.
In Ethiopia, banks’ lending is highly collateralized, generally requiring fixed property collateral valued up to 200% of the loan amount requested. Banks also do not have an effective business model to serve the credit needs of young entrepreneurs and MSMEs. This limits young entrepreneurs and MSMEs to access formal credit services from banks because they do not own assets that could 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 systems, personal guarantees, land certificates, vehicles/bajaj, machinery, and other movable properties to provide loans for enterprise in the agriculture and MSME sectors. In Ethiopia, MFIs have more than 5.5 million active borrowers. As such, they are best placed to reach small enterprises with credit services. However, they are severely challenged by the lack of loanable funds/liquidity to reach more individuals and MSMEs in Ethiopia.
In 2020, the National Bank of Ethiopia (NBE) introduced a movable collateral registry directive 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 may disburse the loan directly to borrowers or to MFIs on a wholesale basis so that MFIs retail the loan to individual entrepreneurs and MSMEs against movable collateral. While this directive is believed to bring fundamental change to the flow of capital to enterprises in agriculture, which is the most credit-constrained sectors in the Ethiopian economy, and addresses a major bottleneck for MFIs to acquire loanable fund, compliance to the directive is slow and reluctant
In one of its interventions, the BRIDGES programme works to support partner banks and MFIs to establish and operationalize wholesale credit facilities in which MFIs use loans from banks to lend to MSMEs using movable property as collateral. BRIDGES has facilitated the linkages process of banks to 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 collateral, and branch network. BRIDGES also provides technical support to MFIs in their loan utilization efforts, monitoring whether they have lent the loan against movable collateral and providing other technical support, such as financial product development and portfolio management training for the effective utilization of the fund from banks.
Today’s agreement between Awash Bank and the MFIs will establish longer-term business relationships between the commercial banks and capable MFIs not only for funding sources, but also to build potential collaboration in areas such as SMEs graduating from MFIs.
"Vision Fund MFI is so grateful for the BRIDGES programme for creating the opportunity in unlocking the credit facility for young people,” said Taye Chimdessa, CEO, of Vision Fund MFI.
“The facility will address liquidity issues MFIs face and will help them to satisfy the growing credit demand from MSMEs,” noted Amsalu Alemayehu, CEO, at Wasasa MFI.
“Awash Bank has been financing small enterprises engaged in different sectors of the economy. In its concerted efforts to support further 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 enterprises MFIs work with,” said Tsehay Shiferaw, CEO, Awash Bank Share Company
“We are very pleased about this partnership between commercial banks and MFIs to provide affordable access to finance for MSEs. This will respond to structural challenges such as poor access to finance by addressing the problem of limited loanable funds at MFIs’ disposal. The solution is sustainable and opens doors for more collaboration between the sectors,” explained Henok Tenna, Team Leader, at BRIDGES Programme.
“The Foundation is observing 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-scale lenders. Today's partnership testifies that Young Africa Works is on the right track not just only to enabling young people to secure work but supporting institutions to replicate and scale working models using their own resources. The partnership with MFI will create the path to meeting young people, particularly young women where they are,” said Samuel Yalew Adela, Country Head, Ethiopia, at the Mastercard Foundation.
About Awash Bank
Awash Bank, the leading private commercial bank in Ethiopia was established in 1994 as a shareholding company. Currently, the number of shareholders has reached 5,745 and its paid-up capital is over Birr 10 billion as of June 2020/21. It operates through a network of over 725 bank branches and more than 565 ATMs and 1,406 PoS terminals across the country. Awash Bank is the first private bank in Ethiopia to exceed the billion Birr profit mark in the history of Ethiopian private banks in the financial year 2019. For more information about 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 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 First Consult
First Consult is a leading development consulting organization specializing 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 in over 500 partnerships that span private sector, government and development actors. First Consult strives to solve the most critical development challenges of our time by supporting the building of strong local institutions and the implementation of national strategies. The core focus on youth development and women’s economic empowerment is central to the mission of First Consult, which is to realize an inclusive and sustainable development that benefits all. For more information about First Consult, please visit: https://firstconsultet.com/main/home
About the BRIDGES Programme
The BRIDGES Programme,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 large enterprises, 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). 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
Contacts:
Awash Bank
Ebisa Deribie, Director, Marketing and Communications
Telephone: +251 944733463
Email: ebisad@awashbank.com
First Consult
Getachew Mekonin, Lead, Access to Finance
Telephone: +251 114 401 473
Email: gmekonen@firstconsultet.com
Mastercard Foundation
Simret Yasabu, Lead, Program Communications
Telephone: +251 988 80 57 66
Email: syasabu@mastercardfdn.org
