DBE is on track to achieve 100% success rate for financed projects

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Mr Essayas Bahre serves as President and member of Executive Management, Development Bank of Ethiopia (DBE), one of the oldest banks in Ethiopia. In this chat, he sheds light on the bank’s contributions to the growth of the Ethiopian economy

essayas-bahreDevelopment Bank of Ethiopia is a specialized institution established to promote the national development agenda of the country. To what extent has the organization achieved its mandate?

Development Bank of Ethiopia (DBE) is a state-owned financial institution which promotes the development of the country through provision of financial and technical support to viable projects. The bank has been playing a central role in financing government’s priority sectors such as commercial agriculture, agro-processing, manufacturing, mining and extractive industries as well as small and medium-sized enterprises.

Our financing has contributed immensely to the saving of foreign currency, improving consumption of local raw materials, creating employment, generating tax revenue for government, as well as conveying new technologies and systems to the local economy. Indeed, during the first Growth and Transformation Plan (GTPI), DBE contributed to the country’s overall growth.

During GTPI, DBE approved birr 38.8 billion for various development projects and injected a total amount of birr 26 billion into the economy. Moreover, the bank is not relenting in its effort towards contributing to the effective implementation of the second Growth and Transformation Plan (GTPII). DBE plans to disburse birr 112.28 billion during GTPII.

What is Lease Financing, DBE’s new product, all about?

DBE has been financing small and medium enterprises (SMEs) through its Lease Financing Policy and Procedures prior to government’s mandate. The bank has adopted the lease financing policy, which is consistent with global sound and prudent lease financing practices.

The service is tailored to the SMEs which operate within government’s priority sectors with over six employees and have between birr 500,000 and birr 7.5 million as capital. DBE finances the leased equipment and associated expenses while the SMEs provide the required total working capital as equity contribution to cover operation costs such as salaries, raw materials, rent, office supplies among others. DBE is funding SMEs as we believe they will greatly contribute to the transformation of the economy by facilitating transition from agricultural-led economy to industrialized economy.
The main goals of Lease Financing are promoting import substitution, creating employment, supporting foreign exchange earnings, bringing about economic diversification, offering linkage to large industries and providing support to the rural economy through income generating activities. About birr 41 billion has been allocated to lease financing projects in the GTPII period which will certainly increase the number of domestic investors in Ethiopia.

DBE hopes to achieve 100 per cent success rate for all its financed projects by 2020. With less than four years to the target date, how feasible is this?

The bank is striving to achieve the vision. To reach the goal, DBE is carrying out systematic assessment of all proposed projects before disbursing the loan. Typically, the bank is working tirelessly to reduce non-performing loans (NPLs), including undertaking due diligence of customers before disbursing loans for projects. DBE is also working to minimize NPLs from time to time due to strict project appraisal enforcement and firm project follow-ups.

Unlike commercial banks operating in Ethiopia, DBE funds risky projects which may not bring returns in a short period.

To what extent would government’s plan to open up the financial sector to foreign competition impact on DBE?

There is a general agreement on the benefits of foreign banks’ participation for emerging economies like Ethiopia. Foreign banks are familiar with sophisticated financial instruments and techniques, and have faster and cheaper access to international capital markets and liquid funds. Moreover, their presence may encourage foreign firms to invest in the domestic economy. They are likely to boost financial system stability. Foreign banks also improve national banking markets operation by introducing a variety of new financial products and better risk management techniques.

 

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