USAID Loan Agreement Increases Credit Access for Microfinance Institutions and Credit Cooperatives

FRIDAY, SEPTEMBER 25, 2009 Addis Ababa (U.S. Embassy) – A new loan agreement signed today between the United States Agency for International Development (USAID) and Awash International Bank and Oromia Cooperative Bank will help strengthen the economic development of Ethiopia by enabling microfinance institutions and savings and credit cooperatives to offer more loans. The agreement, worth $16 million USD in potential loans, reduces collateral requirements to beneficiaries by 50 percent. The program will benefit micro and small enterprises, which play a major role in creating jobs and generating income for Ethiopians in food deficit regions.  

“The microfinance institutions that will benefit from this agreement not only have the knowledge of local cultures and markets, but also have the presence and capacity to reach some of the most remote communities.”  Thomas H. Staal, USAID Mission Director, remarked during the signing ceremony held at the Hilton Hotel.

USAID expects the guarantee scheme to create a sustainable partnership between microfinance institutions and private commercial banks, thus increasing agriculture productivity, expanding staple food supply, and helping expand small scale business related to the trade and cottage industries. 

USAID’s Development Credit Authority (DCA) loan guarantee program allows USAID to fund projects that are financially viable through loan guarantees in sectors that meet sustainable development objectives. By sharing the risk with the financial institutions, DCA is able to demonstrate the soundness of lending activity in sectors that may not otherwise have access to capital. The first DCA Agreement in Ethiopia started in 1999 with Abyssinia Bank, supporting small and medium enterprises engaged in different agricultural activities.  In 2004, DCA added Awash and Abyssinia Banks availing $18 million USD for agro-processing, livestock marketing and commercial horticultural activities. In 2008, a new agreement was made for a $17.2 million USD guarantee with Abyssinia and NIB Banks for Diaspora and women entrepreneurs.