Session 1 Esayas Bahre Development Bank

UK-Ethiopia Investment
Trade and Tourism Forum

9th June 2011
Savoy Place, London

Development Bank of Ethiopia
(DBE)
Outline
•C O U N T R Y P R O F I L E - E T H I O P I A
•F I N A N C I A L S E C T O R I N E T H I O P I A
•B A N K I N G S E C T O R I N E T H I O P I A
•B R I E F O V E R V I E W O F D B E
•E C O N O M I C S E C T O R S F I N A N C E D B Y D B E
•L E N D I N G STRUCTURE AND CREDIT
POLICIES
•C O N C L U S I O N
Country Profile- Ethiopia
 Country Name- Conventional Long Form- Federal Democratic

Republic of Ethiopia
 Capital - Addis Ababa
 Government Type-Federal State
 Administrative Divisions- 9 Regional States
 Population- 77.8 Million (2008/09 National Census of CSA)
 Currency- Ethiopian Birr, exchange rate 26.50 Birr to £ 1
 GDP Per Capita- 340 USD (NBE, 2007/08)
 Membership of International Organizations- United Nations
(UN), African Union (AU), Intergovernmental Authority on
Development (IGAD), Common Market for Eastern and Southern
Africa (COMESA)
Financial Sector in Ethiopia
The major Financial institutions operating in Ethiopia

are :-
 Banks
 Insurance Companies and
 Micro- Finance Institutions
Banking Sector in Ethiopia
The modern Banking practices were started during the regime of

Emperor Menelik II in 1905. Bank of Abyssinia was the first to be
established.
The number of Banks operating in the country reached 17, of which

fourteen are private commercial banks and the remaining three
state-owned. As far as recent data is concerned by the end of
June 2010, private commercial banks are operating with 407
branches (59.9% of the total branch of the industry) across the
nation. These Banks collectively had Birr 49.1 billion in asset,
21.4 Billion birr in loans, 38.3 Billion deposit and 5.9 billion Birr
in terms of capital. The private Bank in total have a market share
of 39.6% of total deposit and 47.5 % of the total loan outstanding
balance of the Banking sector.
Banking sector continued…
Ethiopia is regarded as fast growing economy

relative to other Sub-Saharan African Countries.
According to the NBE Annual Report of 2008/09,
it is estimated that one bank branch serves 126,258
people.
Contribution of Banks in the Ethiopian
Economy
 Promoting investment
 Facilitating Trade
 Foreign Exchange earning
 Creation of Employment Opportunity
Insurance Companies
 The number of Insurance Companies in the Country

expanded to 12 in 2008/09 from 10 a year earlier .
 In terms of ownership, all insurance companies

except the Ethiopian Insurance Corporation (EIC),
are privately owned. Branch share of private
insurance companies rose to 78.5 percent in
2008/09 from 75.3 percent previous year.
Microfinance Institutions (MFIs)
 The number of microfinance institutions operating

in the country is 28. Their total capital reached Birr
1.7 billion. Their total asset is Birr 6.6 billion. Of the
total MFIs, 13 are operating in Addis Ababa.
Development Bank of Ethiopia- Overview
History and Development

 The history of the Bank goes back to 1909 when it
was first established under the name of The

Societe Nationale d’ Ethiopie pour le
Development de l’agriculture et de
Commerce (The Society for the Promotion of
Agriculture and Trade).
History Continued…
 The Bank has taken different names at

different times even though its mission and
business purposes remained the same,
development of the nation.
Mission and Vision of DBE
• Mission of DBE
– “The Development Bank of Ethiopia is a specialized financial

institution established to promote the national development agenda
through development finance and close technical support to viable
projects from the priority areas of the government by mobilizing
fund from domestic and foreign sources while ensuring its
sustainability.”
• Vision
– “100% success for all financed projects by 2020”
Financing areas
• September, 2009 credit policy is purely aligned to

financing of government priority areas with
emphasis given to export oriented projects:
• Major areas of finance include:

 Commercial agriculture
 Manufacturing Industries
 Agro-processing Industries
Credit Services of DBE
 DBE is mandated to extend investment credits to

creditworthy borrowers and projects that have
received a thorough appraisal and that are found to
be financially profitable, economically viable and
socially desirable.
Credit Services continued…
 According to the newly revised credit policy of the Bank

issued in August 2009, DBE will provide the following
credit products and services.
 Long-Term Loans
 fixed at 20 years including any grace period

 Includes permanent working capital considered as part of the
long term and investment capital of a project that will be
recovered within the 5-15 years of loan repayment
Credit Services continued…
 Medium-Term Loan – repayable within 3 to 5

years including any grace period.
 Working Capital Loan – used for extension of
inventory cycle, increase capacity utilization
and cover short-term cash flow problem.
 Co-financing or syndicate financing
 Guarantee services, i.e. Export guarantee
service
 Managed funds
 Loan Transfer
 Loan Buy Out
Credit Services continued …
 DBE’s main area of focus is provision of

long- and medium-term loans for
investment projects in the Government’s
priority areas.
Lending structure
 The Bank extends its credit service through the Head office and 12
branches organized under five regions
 Each region is empowered to extend loan up to Birr 15 million in

priority area projects
 Loan in excess of Birr 15 million is the jurisdiction of the Head office

credit process
 In addition to extending fresh loans the Bank has established project

rehabilitation and foreclosure units recently at the head office and
regional offices-The office is mainly responsible to rehabilitate loans.
However, it undertake foreclosure action as a last resort.
 The Bank has also strengthen its foreign Banking services to its clients
that include regional offices too.
Credit Policy Continued…
Equity (Capital) Contribution
 For purpose of commitment to the success of the project to be

financed, the applicant shall be required to make a
contribution towards the project cost.
 The contribution shall not in any event be less than thirty
percent (30%) of total project cost.
Interest Rate
 The interest rate to be charged on loans will be set by

management of the Bank and considered by the BOM
in consultation with the government.
 Current interest rate for the priority areas of the Bank
is 8.5%.
Collateral Requirement
 The Bank will rely primarily upon the financial
viability of the project itself. However, in order to
safeguard the loan, the Bank requires first-degree
collateral security of the project itself.
The Bank shall revalue collateral assets every year as

per the Bank’s guideline.
Insurance
• All fixed assets of a project as well as assets pledged
as collateral are required to be covered by
appropriate insurance policy with DBE as a co-
beneficiary until the loan is fully settled.
Repayment Schedule
• Loan repayment period is determined taking into
account the profitability and debt servicing
capacity of the borrowing concern as well as the
economic life of major investment items.
Loan Processing time
 The Loan processing time will be maximum of 32
days.
Other Conditions
 Borrower shall employ experienced and qualified
work force as specified in the loan agreement or
project feasibility study.
 Borrower shall open current account with DBE's
Head Office or Branch Offices.
General Requirements to Establish a New Project
 Project feasibility and viability study documents

 Project ownership related legal documents
 Licenses and Registration certificates
 Tax and VAT Certificates
 Land lease contractual agreements
 Lease and other payment documents
 Presentation of Performa Invoices
 Equity contribution of 30%
 Collateral as required
 Historical and projected financial statements
 Fulfilment of NBE regulations
Conclusion
 DBE is striving to efficiently provide its

financial services and successfully achieve
its development objective and maintain its
financial sustainability.
AND
Thank You!

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UK-Ethiopia Investment

Trade and Tourism Forum

Savoy Place, London

 Country Name- Conventional Long Form- Federal Democratic

The major Financial institutions operating in Ethiopia

The modern Banking practices were started during the regime of

The number of Banks operating in the country reached 17, of which

Ethiopia is regarded as fast growing economy

 The number of Insurance Companies in the Country

 In terms of ownership, all insurance companies

 The number of microfinance institutions operating

History and Development

was first established under the name of The

 The Bank has taken different names at

– “The Development Bank of Ethiopia is a specialized financial

• September, 2009 credit policy is purely aligned to

• Major areas of finance include:

 DBE is mandated to extend investment credits to

 According to the newly revised credit policy of the Bank

 fixed at 20 years including any grace period

 Medium-Term Loan – repayable within 3 to 5

 DBE’s main area of focus is provision of

 Each region is empowered to extend loan up to Birr 15 million in

 Loan in excess of Birr 15 million is the jurisdiction of the Head office

 In addition to extending fresh loans the Bank has established project

Equity (Capital) Contribution

 For purpose of commitment to the success of the project to be

 The interest rate to be charged on loans will be set by

The Bank shall revalue collateral assets every year as

 Project feasibility and viability study documents

 DBE is striving to efficiently provide its

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