The funding will allow Ethiopia’s Dashen Bank to provide dollar-denominated loans to farmers and other agricultural businesses seeking to import machinery.
UK’s British International Investment (BII) and Dutch FMO are jointly committing up to $20m each to Ethiopia’s Dashen Bank to support agricultural development, making them the first foreign institutions to provide long-term funding to the country’s financial services sector under a new intermediation directive for banks.
The two development finance institutions (DFIs) said the funding was part of collaborative efforts to catalyse the market, and build confidence amongst international and domestic investors and thus mobilise private capital. Dashen is one of the largest private sector banks in Ethiopia serving over 5m customers and with a network of more than 800 branches to support export-oriented agribusinesses.
The facility enables Dashen to provide US dollar-denominated loans to cover the costs of importing machinery, helping farmers to boost productivity in areas such as harvesting, logistics, and processing and ultimately to increase their exports earnings.
It will also provide financial support for agricultural enterprises, such as producers of cut flowers and coffee for export.
Stephen Priestley, BII’s managing director, said the DFI was proud to be amongst the first movers in a financial market opening up to international investment.
“Our partnership with FMO and Dashen Bank forms part of a mobilisation plan that creates untapped opportunities for DFI and commercial investment into Ethiopia’s financial services sector for years to come,” he said;.
Intermediation directive
The National Bank of Ethiopia issued the intermediation directive in 2021, allowing local private banks to act as intermediaries in accessing loans from foreign funders to provide credit to local borrowers in foreign currency. The move was designed to stimulate economic growth in a country where foreign exchange has been in short supply.
BII and FMO said the financing would create significant economic potential by contributing to financially inclusive growth in Ethiopia, where fewer than half of the population has access to bank accounts.
The partnership is also intended to help Dashen to improve governance and risk management, as well as environmental, social and gender practices.
“On top of the badly needed foreign currency, the lessons learnt through the rigorous due diligence process will help us set the bar high when it comes to sustainable financing in Ethiopia,” Asfaw Alemu, Dashen Bank’s CEO, said.
Both DFIs have a long track record of support for Ethiopia’s private sector. BII is part of an international consortium that owns the Safaricom Ethiopia mobile telecommunications network, which it hopes will be another driver for economic growth. The network became operational in the Ethiopian capital Addis Ababa in October 2022 and is now being rolled out across other parts of the country. Other consortium members are Vodafone Group, Safaricom, Vodacom Group and Sumitomo.
