ADDIS ABABA, ETHIOPIA – Two new loan guarantee agreements signed today between the United States Agency for International Development (USAID) and Abyssinia Bank and NIB will allow these two banks to offer more short and medium term loans to entrepreneurs engaged in manufacturing, services, trade, export and agricultural related activities. The agreements reduce collateral requirements to beneficiaries by 50%, amounting to more than $17 million USD in potential loans for Diaspora and women – two underserved groups of the economy who have little or no access to credit.
“This assistance from the American people will strengthen access to credit for two very important entrepreneur groups – the Diaspora and women – who will in turn help bolster an already growing national economy,” USAID Mission Director Glenn Anders comments.
USAID expects the credit enhancing program to provide lessons learned for the larger banking community by demonstrating the viability and profitability of women and Diaspora owned business. The program will be complemented by USAID technical assistance to both target groups from USAID’s Volunteers for Economic Growth Alliance (VEGA) AGOA+ Program. The program will provide business development services and training to maximize each participant’s chances for success. VEGA’s AGOA+ program will also play a facilitating role, providing basic information about financing options to the banks, introducing lending mechanisms based upon cash flow and utilizing U.S. Credit Bureaus to assess the credit worthiness of Diaspora borrowers.
Support to the Diaspora borrowers includes the development of a Diaspora Business Center, a fully staffed one-stop shop with an interactive website and annual business conferences. The center is a public-private sector initiative funded by the World Bank and implemented by Precise Consult International, in close partnership with the Government of Ethiopia and the Donors Assistance Group on Private Sector Development.
“This loan guarantee program, coupled with technical support for the Ethiopian Diaspora, is the first of its kind in the world with the aim to stimulate private sector investment and channel economic benefits from the Diaspora community into development back home,” Addis Alemayehou, Chief of Party for the USAID VEGA AGOA+ Program. “We are hopeful that it will encourage substantial new investment into Ethiopia over the coming years.”
The new agreements build upon the success of previous loan guarantee programs with Abyssinia, Awash and Dashen Banks. Loan amounts currently utilized by the program total nearly $24.8 million USD and support 141 Ethiopians involved in agriculture, agro-processing, and manufacturing who otherwise would not have access to this type of financial support.
The Development Credit Authority (DCA) is a broad financing authority that allows USAID to leverage private sector resources to have a greater, more sustainable impact in supporting economic growth. The DCA instrument translates into partial loan guarantees of 50%, encouraging private banks in Ethiopia to increase their investments in local businesses and projects. For every USAID dollar spent on DCA guarantees, an average of $10-15 USD of private credit can be mobilized
Source: U.S. Embassy