201 commercial bank of ethopia presentation

8/8/2019 201 Commercial Bank of Ethopia Presentation

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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


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YILMA


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


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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




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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




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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



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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



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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





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





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






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






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



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ExperienceExperience


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


di h h h i k ki h f h i l k f





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



E di O h Th h Li k B ki Th C f h C i l B k f




YILMA

Linkage Banking: CBEsLinkage Banking: CBEs

ExperienceExperienceCBEs linkage and outreach in rural/agricultural

credit(2008/09)

Amount in millions of Birr


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


E di O t h Th h Li k B ki Th C f th C i l B k f





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)



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E di O t h Th h Li k B ki Th C f th C i l B k f




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 of




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 of




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







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





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YILMA

Thank You!!


201 commercial bank of ethopia presentation

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