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8/8/2019 201 Commercial Bank of Ethopia Presentation
1/22
COMMERCIAL BANK OF ETHIOPIA-RELIABLE AND COMMITTED TO MEETING YOUR
MANAGING PROBLEM LOANS IN ETHIOPIA BY GEZAHEGN
YILMA
Expanding Outreach Through LinkageBanking: The Case of the Commercial
Bank of Ethiopia
ByHabtu Dimtsu
Abraham Tesfaye
Expanding Outreach Through Linkage Banking: The Case of the Commercial Bank ofEthiopia
8/8/2019 201 Commercial Bank of Ethopia Presentation
2/22
COMMERCIAL BANK OF ETHIOPIA-RELIABLE AND COMMITTED TO MEETING YOUR
MANAGING PROBLEM LOANS IN ETHIOPIA BY GEZAHEGN
YILMA
Expanding Outreach Through Linkage Banking: The Case of the Commercial Bank ofEthiopia
ContentsContents
Introductory RemarkIntroductory Remark
-Linkage Banking-Linkage Banking
-Linkage Banking in Ethiopia-Linkage Banking in Ethiopia
Linkage Banking: The CBE experienceLinkage Banking: The CBE experience-Profile of the CBE-Profile of the CBE
-Linkage Models and Outreach-Linkage Models and Outreach
Risks and PotentialitiesRisks and Potentialities Concluding RemarksConcluding Remarks
-Recommendation-Recommendation
8/8/2019 201 Commercial Bank of Ethopia Presentation
3/22
COMMERCIAL BANK OF ETHIOPIA-RELIABLE AND COMMITTED TO MEETING YOUR
MANAGING PROBLEM LOANS IN ETHIOPIA BY GEZAHEGN
YILMA
Linkage Banking:
The poor constitutes more than 70 percent of the population indeveloping economies
Access to finance to the poor is one major aspect of themillennium development goals
The poor normally dont have access to finance fromformal financial institutions (such as banks)
MFIs and RUSACCOs can only reach 10 percent of the poorin these economies
The majority of the poor, therefore, meet their financial demandfrom informal financial institutions
Formal financial institutions (mainly banks) have large loanablefunds and wide branch network
Informal financial institutions have limited financial and structuralcapacity to widen their customer base
Introductory RemarkIntroductory Remark
Expanding Outreach Through Linkage Banking: The Case of the Commercial Bank ofEthiopia
8/8/2019 201 Commercial Bank of Ethopia Presentation
4/22
COMMERCIAL BANK OF ETHIOPIA-RELIABLE AND COMMITTED TO MEETING YOUR
MANAGING PROBLEM LOANS IN ETHIOPIA BY GEZAHEGN
YILMA
Linkage Banking:
Financial linkage is, therefore, necessitated as a result of thismismatch of resources and abilities between formal and informallenders.
The obvious advantage of the linkage is to increase access tofinance to the previously unserved poor and provision of a varietyof financial services
The other advantage of the linkage is reduction of transactioncosts in rural credit markets
Financial linkage can be direct or indirect
In majority of the cases, the motivation for the linkage is external (driven
by regulatory pressures) than internal
The state of development of a countrys economy affects the potential forfinancial linkage
Introductory RemarkIntroductory Remark
Expanding Outreach Through Linkage Banking: The Case of the Commercial Bank ofEthiopia
8/8/2019 201 Commercial Bank of Ethopia Presentation
5/22
COMMERCIAL BANK OF ETHIOPIA-RELIABLE AND COMMITTED TO MEETING YOUR
MANAGING PROBLEM LOANS IN ETHIOPIA BY GEZAHEGN
YILMA
Linkage Banking In Ethiopia:
Financial institutions in Ethiopia:-Commercial banks-Development bank-MFIs and SACCOs-Insurance Companies-Pension fund-Informal financial institutions
Ethiopia is one of the underbanked countries( bank per capita ofabout 6.1 million and population to bank branch ratio of 159,000)
Total number of CBs branches in December 2007 reached 490
More than 36 percent of the CBs branches are concentrated in AddisAbaba
Total Deposit of CBs in 2007 = 53.9 billion birr
Total Loans and Advances of CBs in 2007= 24 billion birr
Total No of MFIs in 2007 = 29
Expanding Outreach Through Linkage Banking: The Case of the Commercial Bank ofEthiopia
8/8/2019 201 Commercial Bank of Ethopia Presentation
6/22
COMMERCIAL BANK OF ETHIOPIA-RELIABLE AND COMMITTED TO MEETING YOUR
MANAGING PROBLEM LOANS IN ETHIOPIA BY GEZAHEGN
YILMA
Linkage Banking In Ethiopia: Major source of fund for MFIs in Ethiopia are saving, paid-up equity,
loan from banks, grants/donations and income from their lendingactivity
Not less than 40 percent of the MFIs operate in Addis Ababa. A goodnumber of the MFIs also operate in Oromia and Amhara regional states
Based on outstanding loans balance, MFIs in Ethiopia can be broadlycategorized into large, medium and small
Total saving mobilization by MFIs (End of Dec.2007)=Br.1235 million) Total outstanding loan portfolio of MFIs (End of Dec.2007) = Br.3246
million
Outreach of MFIs of loan clients in 2007 = 1.725 million
There will be significant change in the proportion of the loansfinanced via mobilized deposits by MFIs during 2008-2017
The MFIs continue to depend on other sources of fund tofinance their growth
Expanding Outreach Through Linkage Banking: The Case of the Commercial Bank ofEthiopia
8/8/2019 201 Commercial Bank of Ethopia Presentation
7/22COMMERCIAL BANK OF ETHIOPIA-RELIABLE AND COMMITTED TO MEETING YOUR
MANAGING PROBLEM LOANS IN ETHIOPIA BY GEZAHEGN
YILMA
Linkage Banking In Ethiopia:
The number of SACCOs in 2006 =5,437 with total membersof 381,000
Not less than 60 percent of Ethiopians approach informalfinancial institutions for loan
The loan form informal financial institutions can take theform of family loan, society based loans and loan frommoneylenders
In Ethiopia there is no as such significant businesslinkage between CBs and other formal and semi-formal financial institutions.
CBs in Ethiopia tend to cater to mainly for large and mediumenterprises as they consider the poor as credit risk
Expanding Outreach Through Linkage Banking: The Case of the Commercial Bank ofEthiopia
8/8/2019 201 Commercial Bank of Ethopia Presentation
8/22COMMERCIAL BANK OF ETHIOPIA-RELIABLE AND COMMITTED TO MEETING YOUR
MANAGING PROBLEM LOANS IN ETHIOPIA BY GEZAHEGN
YILMA
Linkage Banking In Ethiopia: Prior to 1991, series of efforts have been made to meet the
objective of enhancing agricultural growth and reaching thepoor through adequate finance
The government of the FDRE adopted ADLI strategy in whichthe development of a viable rural financial institutions hasbeen one of the key agendas
The strategies designed for the purpose include, amongothers:
-Strengthen the rural financial system by forging a strong
working relationship between the formal banks and the ruralfinancial institutions-Directly expand credit to cooperatives with strong
institutional and managerial capacity through forging a stronglink between rural banks and cooperatives
The recent bank-rural and microfinancing linkage practice inEthiopia takes mainly two forms: equity investment and/or
shareholding, and indirect linkage/financing Equity investment: the case of CBE linkage with SFPI
Indirect linkage: DBE through RUFIP fund channeled toselected MFIs, and CBE and AIB linkage with MFIs
Expanding Outreach Through Linkage Banking: The Case of the Commercial Bank ofEthiopia
8/8/2019 201 Commercial Bank of Ethopia Presentation
9/22COMMERCIAL BANK OF ETHIOPIA-RELIABLE AND COMMITTED TO MEETING YOUR
MANAGING PROBLEM LOANS IN ETHIOPIA BY GEZAHEGN
YILMALinkage Banking: CBEsLinkage Banking: CBEs
ExperienceExperienceProfile of the CBE:
Established in 1963 Engage in banking activities customarily carried out by
CBs
Render services to millions of its customers through
its 205 branches spread across the country
Capital and reserve = 4.5 billion enabling it to provideabout Birr 1 billion to a single borrower
No of staff(June 2008), about 8,000
Total Deposit(June 2008)=36.97 billion birr, share ofdemand deposit(60.2 percent)
Outstanding loan balance(June 2008)= 17.3 billion birr
Loan Disbursement(2008)=13.6 billion birr
Expanding Outreach Through Linkage Banking: The Case of the Commercial Bank ofEthiopia
8/8/2019 201 Commercial Bank of Ethopia Presentation
10/22COMMERCIAL BANK OF ETHIOPIA-RELIABLE AND COMMITTED TO MEETING YOUR
MANAGING PROBLEM LOANS IN ETHIOPIA BY GEZAHEGN
YILMALinkage Banking: CBEsLinkage Banking: CBEs
ExperienceExperience
Profile of the CBE:
Major sectors financed by the CBE: agriculture, manufacturing,DTS, foreign trade and Bldg and construction
Average Growth Rate(2001-2008)
-Total Deposits(11.4%)
-Loan Disbursement(39.3%)
The CBE managed to achieve a record profit during 2006-2008. InJune 2008, the profit amounted to Br.1.86 billion birr
The CBE is launching full implementation of a BPR on its core andsupport activities
Expanding Outreach Through Linkage Banking: The Case of the Commercial Bank ofEthiopia
8/8/2019 201 Commercial Bank of Ethopia Presentation
11/22COMMERCIAL BANK OF ETHIOPIA-RELIABLE AND COMMITTED TO MEETING YOUR
MANAGING PROBLEM LOANS IN ETHIOPIA BY GEZAHEGN
YILMALinkage Banking: CBEsLinkage Banking: CBEs
ExperienceExperienceLinkage Models and Outreach:
The CBE extends Short, Medium and long term loans
In the past, substantial amount of loans weredisbursed to the agricultural sector for purchase of
fertilizer and other agricultural inputs
The Bank is at the forefront of efforts to meet theobjectives mentioned in the ADLI strategy of theFDRE government
The Bank established SME and agricultural loansDivision to efficiently facilitate mainlyrural/agricultural credit and expand outreach in this
regard
Expanding Outreach Through Linkage Banking: The Case of the Commercial Bank ofEthiopia
8/8/2019 201 Commercial Bank of Ethopia Presentation
12/22
8/8/2019 201 Commercial Bank of Ethopia Presentation
13/22COMMERCIAL BANK OF ETHIOPIA-RELIABLE AND COMMITTED TO MEETING YOUR
MANAGING PROBLEM LOANS IN ETHIOPIA BY GEZAHEGN
YILMALinkage Banking: CBEsLinkage Banking: CBEs
ExperienceExperience
Expanding Outreach Through Linkage Banking: The Case of the Commercial Bank ofEthiopia
LoanFacility
LoanF
acility
Linkage Models and Outreach:
Loa
n
Repayment
Loan Repayment
Wholesale Loan
Loan Repayment
Wholesale Loan
Loan
R
epayment
W
holesaleLoan
Lo
anRecovery
CBE
RetailLoan
Loan
Recovery
MFIs
RegionalGovernments
SMEs.Household.Cooperativesand Unions
Commercial
Farms
CoffeeProcessingCooperative
s
Unions ofCooperative
s
Small
Farmers
RetailLoan
MANAGING PROBLEM LOANS IN ETHIOPIA BY GEZAHEGN
di h h h i k ki h f h i l k f
8/8/2019 201 Commercial Bank of Ethopia Presentation
14/22COMMERCIAL BANK OF ETHIOPIA-RELIABLE AND COMMITTED TO MEETING YOUR
MANAGING PROBLEM LOANS IN ETHIOPIA BY GEZAHEGN
YILMALinkage Banking: CBEsLinkage Banking: CBEs
ExperienceExperienceLinkage Models and Outreach:
Outreach:
-Geographic/area coverage in four regions and one cityadministration;
-47 unions of cooperatives(12 unions and 35 coffeeprocessing cooperatives);
-8 Commercial farms and 5 MFIs; and
-Credit volume disbursement outreach increased from 1.3
billion birr in 2005/06 to 4.1 billion birr in 2008/09
Expanding Outreach Through Linkage Banking: The Case of the Commercial Bank ofEthiopia
MANAGING PROBLEM LOANS IN ETHIOPIA BY GEZAHEGN
E di O h Th h Li k B ki Th C f h C i l B k f
8/8/2019 201 Commercial Bank of Ethopia Presentation
15/22COMMERCIAL BANK OF ETHIOPIA-RELIABLE AND COMMITTED TO MEETING YOUR
MANAGING PROBLEM LOANS IN ETHIOPIA BY GEZAHEGN
YILMA
Linkage Banking: CBEsLinkage Banking: CBEs
ExperienceExperienceCBEs linkage and outreach in rural/agricultural
credit(2008/09)
Amount in millions of Birr
Expanding Outreach Through Linkage Banking: The Case of the Commercial Bank ofEthiopia
Beneficiaries Appoved Disbursed LinkageModule
Security
Regional Govt 2,161 1,472 Indirect Regional govtguarantee
Unions ofcooperatives
2,200 2,100 Indirect 20% of govtandmerchandise
Commercial farms 9.5 9.5 Direct Buildings andthe projects
Coffee processingfarmerscooperatives
24.9 24.9 Direct Clean
MFIs 830 520 Indirect Regional govtguarantee
Total 5,225 4,126
MANAGING PROBLEM LOANS IN ETHIOPIA BY GEZAHEGN
E di O t h Th h Li k B ki Th C f th C i l B k f
8/8/2019 201 Commercial Bank of Ethopia Presentation
16/22COMMERCIAL BANK OF ETHIOPIA-RELIABLE AND COMMITTED TO MEETING YOUR
MANAGING PROBLEM LOANS IN ETHIOPIA BY GEZAHEGN
YILMALinkage Banking: CBEsLinkage Banking: CBEs
ExperienceExperienceFuture plan
The Bank has set a plan for the upcoming crop year to disburse about 5.1billion
birr, i.e.,
Agriculture input loan for 4 regional governments( Br. 2,161,396,634);
Loans for 4 commercial farms( Birr 10,219,581);
For 9 MFIs( Birr 357,000,000);
Coffee loans for 15 farmers/cooperatives Birr 30,000,000); and
Fertilizer import term loans for 15 unions of cooperatives( Birr2,550,000,000)
Expanding Outreach Through Linkage Banking: The Case of the Commercial Bank ofEthiopia
8/8/2019 201 Commercial Bank of Ethopia Presentation
17/22
MANAGING PROBLEM LOANS IN ETHIOPIA BY GEZAHEGN
E di O t h Th h Li k B ki Th C f th C i l B k f
8/8/2019 201 Commercial Bank of Ethopia Presentation
18/22COMMERCIAL BANK OF ETHIOPIA-RELIABLE AND COMMITTED TO MEETING YOUR
MANAGING PROBLEM LOANS IN ETHIOPIA BY GEZAHEGN
YILMA
Risks and PotentialitiesRisks and Potentialities
Risks:
Lack of dependable data from MFIs for credit decisions
Absence of significant regulatory policy on part of the
concerned bodies in forging a linkage between banksand MFIs
Expanding Outreach Through Linkage Banking: The Case of the Commercial Bank ofEthiopia
MANAGING PROBLEM LOANS IN ETHIOPIA BY GEZAHEGN
Expanding Outreach Through Linkage Banking The Case of the Commercial Bank of
8/8/2019 201 Commercial Bank of Ethopia Presentation
19/22COMMERCIAL BANK OF ETHIOPIA-RELIABLE AND COMMITTED TO MEETING YOUR
MANAGING PROBLEM LOANS IN ETHIOPIA BY GEZAHEGN
YILMA
Risks and PotentialitiesRisks and Potentialities
Potentialities:
Huge demand for rural finance
Information facilitation and experience sharing from MFIs whichhave good experience and knowledge in handlingrural/agriculture related financial schemes
Credit facilities to MFIs graduating clients
Current efforts by MFIs to introduce local transfer service,housing loan and micro-bank on village banking scheme and thiscould help to outsource the banks services
High loan recovery rate on the part of MFIs
Expanding Outreach Through Linkage Banking: The Case of the Commercial Bank ofEthiopia
MANAGING PROBLEM LOANS IN ETHIOPIA BY GEZAHEGN
Expanding Outreach Through Linkage Banking: The Case of the Commercial Bank of
8/8/2019 201 Commercial Bank of Ethopia Presentation
20/22COMMERCIAL BANK OF ETHIOPIA-RELIABLE AND COMMITTED TO MEETING YOUR
MANAGING PROBLEM LOANS IN ETHIOPIA BY GEZAHEGN
YILMA
Concluding RemarkConcluding Remark The CBE is likely to be in advantageous position if it continues to forge
a linkage with rural finance operators, mainly MFIs
The bank has disbursed billions of birr to these institutions though themagnitude of the loan is unmatched with the huge financing needfrom the rural sector
The task now is to widen the scale and cover a large number of MFIsand cooperatives in the banks lending package
However, priority will continue to be given to MFIs with relatively
good performance as evidenced by-years of experience-outreach capacity-potential demand for credit-asset quality-operational self-sufficiency, etc
The CBE will follow gradual and learning by doing businesspartnership to minimize its business associated costs
Expanding Outreach Through Linkage Banking: The Case of the Commercial Bank ofEthiopia
MANAGING PROBLEM LOANS IN ETHIOPIA BY GEZAHEGN
Expanding Outreach Through Linkage Banking: The Case of the Commercial Bank of
8/8/2019 201 Commercial Bank of Ethopia Presentation
21/22COMMERCIAL BANK OF ETHIOPIA-RELIABLE AND COMMITTED TO MEETING YOUR
MANAGING PROBLEM LOANS IN ETHIOPIA BY GEZAHEGN
YILMA
Concluding RemarkConcluding Remark
Recommendation
Good performing MFIs need to be treated same astraditional borrowers who approached the bank for a loan
Credit needs assessment should be performed so as to
identify the likely volume of credit that could efficientlybe absorbed by MFIs
Detailed and comprehensive procedure manual forfinancing MFIs needs to be prepared
Targeted training on MF activities need to be given to thestaff involved in handling MF credit
CBEs linkage should also target towards other MFactivities e.g time deposit
Expanding Outreach Through Linkage Banking: The Case of the Commercial Bank ofEthiopia
MANAGING PROBLEM LOANS IN ETHIOPIA BY GEZAHEGN
Expanding Outreach Through Linkage Banking: The Case of the Commercial Bank of
8/8/2019 201 Commercial Bank of Ethopia Presentation
22/22COMMERCIAL BANK OF ETHIOPIA RELIABLE AND COMMITTED TO MEETING YOUR
MANAGING PROBLEM LOANS IN ETHIOPIA BY GEZAHEGN
YILMA
Thank You!!
Expanding Outreach Through Linkage Banking: The Case of the Commercial Bank ofEthiopia