MICROCAPITAL STORY: USAID Signs a USD 16 Million Dollar Loan Agreement with Ethiopian Awash International Bank and Oromiya Cooperative Bank S.C.

According to AllAfrica, a multi-media content service provider of news in Africa, USAID has recently signed a USD 16 million dollar loan agreement with Ethiopian Awash International Bank and Oromiya Cooperative Bank S.C [1]. The agreement was reached to help strengthen the economic development of Ethiopia by enabling microfinance institutions and savings and credit cooperatives to offer more loans [1]. No additional information is provided as to whether the funds are on-lent to MFIs or which MFIs will receive these funds. According to the AllAfrica story, the loan agreement would reduce collateral requirements to beneficiaries by 50 percent, but it is unclear who the beneficiaries are. There is no additional information regarding the terms and usage of loan, structure of the program or how it would reduce collateral requirements is provided.

USAID is a federal government agency that receives overall foreign policy guidance from the Secretary of State [8]. They support long-term and equitable economic growth while advancing the US foreign policy objectives. To encourage financial institutions to lend to creditworthy but underserved borrowers, USAID uses a tool called the Development Credit Authority (DCA) [8]. DCA is used to stimulate lending through the use of partial credit guarantees. These guarantees, which cover up to 50 percent of defaults on loans made by private financial institutions to institutions that work to further the USAID mission. The stated rational is to use financial resources that already exist in developing countries (such as funds held in local financial institutions) to stimulate broad-based development. Since the establishment of DCA in 1999, over 200 partial credit loan and bond guarantees have been granted by USAID. In July 2008, USAID approved a co-guarantee with the African Development Bank (AfDB) [4] for Ghana. The loan portfolio guarantee with two banks, one with Barclays Bank Ghana [5] and the other with Prudential Bank Ghana [6], is a 10-year USD 48 million guarantee facility whereby the AfDB will cover 40 percent of the exposure on outstanding loans and USAID will cover 10 percent.

Established in 2005, the Cooperative Bank of Oromia S.C (CBO) began its operations with 7 branches [2]. At present the bank has a total of 28 branches in operation. CBO was established to provide all banking service and products. It was registered on 29 October 2004 in accordance with Article 304 of the commercial code of Ethiopia and was licensed by National Bank of Ethiopia. The CBO provides banking services for cooperative societies in Oromia, (Ethiopia) other entities and individuals with special emphasis to agricultural and agro-based business financing. The main objective of the bank is to stimulate the economic and social development of Oromia through mobilizing financial resources from cooperates, private business and public institutions and financing them. Specifically, CBO has the following objectives: Mobilize deposit and promote the culture of saving that encourage the supply of funds, create access to loans and advances and other banking services for broad portions of population [2]. The CBO does not report to the MixMarket.

Awash International Bank is a full-service bank in Ethiopia. According to its website, the bank has 60 branches and 480,000 customers [3]. No additional information regarding deposit base is provided. Awash International Bank S.C. was established in November 1994 as a commercial bank in Ethiopia after deregulation. It started operation in February 1995. According to the corporate website, the bank recorded profitability in the past eleven years with an average annual return on equity of 21.7 percent [3]. AIB’s domestic banking wing provides a range of services, including, lending, deposits, cash management, and custodial services. The following are few of AIB’s service offerings [3]:
• Operating savings accounts, time and demand deposits, including non-resident accounts for eligible foreigners residing in Ethiopia, Non-Resident Ethiopian, Non-Resident of Ethiopian Origin.
• Providing short-term loans and overdraft facilities to all sectors of the economy (trade, industry, construction, agriculture, transport and etc.)
• Providing long-term finance for large projects
• Issuing letters of guarantee, bid and performance bonds.
• Rendering domestic money transfer services
The AIB does not report to the MixMarket.

By Zoran Stanisljevic

Additional Resources:

[1] USAID, Local Banks Sign USD 16 Million Loan Accord:
http://allafrica.com/stories/200909280612.html

[2] Cooperative Bank of Oromia S.C (CBO): http://www.coopbankoromia.com.et/en/home.htm

[3] Awash International Bank: http://www.awash-international-bank.com/Services.html

[4] African Development Bank (AfDB): www.afdb.org/

[5] Barclays Bank (Ghana): www.barclays.com/africa/ghana/

[6] Prudential Bank (Ghana): www.prudentialbank.com.gh/

[7] The MIX Market: www.mixmarket.org/

[8] United States Agency For International Development (USAID): www.usaid.gov/