National Bank of Ethiopia mandates allocation of agricultural loans

ETHIOPIA – National Bank of Ethiopia has issued a directive to banks to allocate five percent of their annual loans to cooperatives, unions and small and micro enterprises in the agricultural sector beginning July 1, 2020.

The directive follows a proclamation that was legislated a few months ago, enabling banks to take movable assets as collateral for loans and advances.

If banks cannot disburse the loans directly, they can allocate a budget and partner with microfinance institutions to provide the credit.

The agreement may include motor vehicles; trailers; agricultural, construction or industrial machinery; and serial-numbered collateral held for business use. The collateral agreement will include the type of collateral, quantity or specific listing.

The scheme is part of the government’s attempt to increase loans to the agricultural sector. In the last five years, less than 10pc of total loans were directed to agriculture.

“We targeted to increase this value between 30pc and 40pc,” said Anteneh Girma (PhD), a senior advisor at the Ministry of Agriculture (MoA).

To move forward with the service, the central bank has established a Movable Collateral Registry Office, headed by a director, and the Electronic Collateral Registry System.

The Office will approve and provide user accounts for creditors to access the collateral registry upon fulfilling the proper requirements.

Financial institutions with a user account at the registry will collect fees on behalf of the registry office of the National Bank of Ethiopia and credit the collected fees to the account of the Movable Collateral Registry Office.

Banks that fail to comply with the new requirement will be subjected to a 10,000 Br fine (US$305). If any bank fails to achieve the target in the preceding budget year, it is required to double the allocation in the subsequent budget year.

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