IFAD, EU invest US$32m in Ethiopian rural financial institutions to support agriculture sector mitigate pandemic effects

ETHIOPIA – The Development Bank of Ethiopia (DBE) is set to receive a EUR13.8 million (US$16.84m) grant from the International Fund for Agricultural Development (IFAD), and an additional EUR12.7 million (US$15.49m) support from the European Union (EU), to improve its liquidity and support to rural financial institutions (RFIs).

The financing, according to IFAD, will enable the RFIs to help their MSME clients retain workers in employment, reduce the interest cost of credit, provide support to farmers facing challenges meeting their contract farming arrangements, absorb the penalty on defaulted loan repayments, and offer liquidity to partly meet the deferment of loan instalments due to DBE from the RFIs.

The support is timely as the agriculture sector and rural people of Ethiopia are the most impacted by the COVID-19.

The pandemic has reduced agricultural labour, limited access to inputs and production capital, reduced production and productivity, and obstructed access to markets and financial services.

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This has led to loss of employment, reduced access to food, and increased domestic responsibilities for women.

“IFAD is happy to co-finance this effort with the EU and the government of Ethiopia, because protecting jobs is vital for resilience and supporting the financial sector is a key strategy.”

Mawira Chitima – IFAD Representative and Country Director for Ethiopia

Micro small and medium enterprises (MSMEs) and cooperatives who play an important role in creating jobs and sustaining livelihoods in rural areas are also facing the challenges due to the pandemic.

“Today’s new project of €26.5 million (US$32.3m) to support agriculture financing in time of COVID shows our support to Ethiopia’s economic development and job creation.

“This EU and IFAD funding will provide new line of credits to agricultural SMEs and their farmers in the production areas of the main agro-industrial parks of the country,” said Dominique Davoux, Green Deal Team Leader, EU Delegation in Ethiopia.

More than 1.5 million clients of the rural financial institutions are set to benefit from the funding which will be dished out through the IFAD-supported Rural Financial Intermediation Programme III (RUFIP III).

“The COVID 19 pandemic is affecting the most vulnerable members of the community through loss of jobs and economic opportunities. As the life blood of the rural economy, MSMEs will be able to sustain their business with minimum shocks and retain employees, thanks to this assistance.

“IFAD is happy to co-finance this effort with the EU and the government of Ethiopia, because protecting jobs is vital for resilience and supporting the financial sector is a key strategy,” said Mawira Chitima, IFAD Representative and Country Director for Ethiopia. 

Key partners in the project will include the Federal Cooperative Agency, the Regional Cooperative Promotion Bureaus, Association of Ethiopian Microfinance Institutions and the National Bank of Ethiopia.

Since 1980, IFAD has invested $795.5 million in 20 rural development programmes and projects in Ethiopia worth a total of US$2.1 billion. These have directly benefited around 12 million rural households.

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