IFC Access to Finance phase II

Ethiopia Promoting Access to Finance for the Underserved (1 & 2) National ID for Credit Bureau Function: The IFC has supported the National Bank of Ethiopia (NBE) in developing a Request for Proposals (RFP) to enroll 3.2 million microfinance institution borrowers into the national ID system for the credit bureau function. This builds on a pilot program that registered 7,700 borrowers during the previous supervision period. The goal is to register these borrowers within 18 months to align with the new credit bureau launch. IFC has mapped out microfinance institution borrowers geographically to facilitate deployment by the vendor and the National ID Project (NIDP) team. Digital Lending Support: To encourage the use of borrower data and registration in the credit bureau for digital loans, IFC has developed a report on the current state of digital lending. A consultant has been hired to support credit data extraction and analysis, aiding NBE's monitoring and supervision functions. Additionally, IFC and NBE hosted a training session on risk-based pricing and sound risk management, attended by 53 participants from 25 banks. Ethiopia Banking Sector Covid Response One bank, the first client under this IFC umbrella project, has signed two advisory agreements: one for treasury and balance sheet risk management, and another for environmental, social, and governance (ESG) practices. A second bank has signed an advisory agreement for treasury and balance sheet risk management. Ethiopia Smallholder Supply Chain & Agri-Finance Development Two sub-projects, Kifiya Financial Technology and Green Agro Solutions Lersha, are underway. These projects aim to build the capacity of digital agriculture service platforms to organize agriculture value chains and provide data-driven insights and closed-loop financing models. The project has launched an assessment to define a sustainable and efficient model for sourcing local oil seeds for the edible oil value chain. This involves strategies for developing the local supply chain for edible oil-processing companies and promoting access to finance for value chain players. Ethiopia Movable Asset-Based Lending Market Development This pillar was launched in October 2023. A training session on the Movable Property Security Right Proclamation was conducted, and a study tour of the Vietnam Secure Transactions and Collateral Registry was organized for the NBE team. Ethiopia Capital Market Development Project  In preparation for the diagnostic, the IFC/World Bank team introduced the Local Currency Bond Market (LCBM) diagnostic tool to NBE, the Ministry of Finance (MoF), and the Ethiopian Capital Market Authority (ECMA). The diagnostic focuses on the government bond market and covers six key areas: money markets, primary market, secondary market, market infrastructure, investor base, and regulatory framework. Ethiopia Collateralized Commodity Finance Discussions with the Ministry of Trade and Regional Integration (MoTRI) resolved policy and regulatory restrictions from the previous harvest season, allowing farmers and organizations to utilize the National Warehouse Receipt System (NWRS). The project reengaged stakeholders to rebuild trust in the NWRS. Soya bean has been added as collateral for credit through the warehouse receipt financing program facilitated by the Ethiopia Commodity Exchange (ECX). Environmental, Social, and Governance (ESG) The project is gaining momentum, with awareness-raising activities and engagement with IFCs country office staff. A knowledge and industry awareness event was held on July 27, 2023, in partnership with Financial Sector Deepening Africa (FSD), focusing on the ESG agenda in Ethiopia. The event featured a panel discussion and was attended by 122 participants from various sectors, including banking, insurance, development finance institutions, NGOs, and government regulators. Conflict Sensitivity  A report titled "IFC Projects and Increased Conflict" (Peace Positive Private Sector Development in Africa, funded by the Research Council of Norway) prompted discussions with IFC's conflict sensitivity team at the IMF and WBG Spring Meetings 2024. The meeting notes highlighted that IFCs current tools for assessing conflict sensitivity are insufficient for the private sector. Sida held internal workshops to discuss the findings and concluded that the report should facilitate deeper dialogue with IFC partners on conflict sensitivity. Contextual Challenges Financial Sector: Ethiopias financial sector remains closed, highly regulated, and lagging in international best practices. In August 2023, NBE issued directives to reduce cash circulation and slow down inflation, including restricting credit growth to a maximum of 14 percent annually and increasing the interest rate at NBEs emergency lending facility from 16 percent to 18 percent. These changes have constrained credit to underserved sectors. External Debt and Ratings: Persistent foreign exchange shortages have led to external debt service pressures. In November 2023, Fitch Ratings downgraded Ethiopia's Long-Term Foreign-Currency Issuer Default Rating to 'CC' from 'CCC'. This downgrade affects investor appetite and investment flow into the financial sector. Conflict Impact: Uncertainty from the Tigray conflict, interethnic conflicts in the Southern and Western regions, and tensions within the governing coalition have impacted financial institutions receptiveness to technical assistance from IFC, with many banks adopting a wait-and-see approach.

The MDI Access to Finance Phase second phase of the program aims to increase access to finance and thereby economic opportunities for the private sector at large with special focus on small- and medium-sized enterprises (SMEs); agri-value chain actors ranging from producers, producer organizations to agro-processors (with special focus on women and youth) and women owned businesses i.e. the underserved. The program seeks to effect structural change and thereby sustainable impact on access to finance leading to the expansion of economic opportunities, increased processing capabilities, increases jobs and ultimately impact on the economy at large. In particular, the program aims to: *Strengthen and increase financial institutions utilization of the credit information system to enhance the creditworthiness of borrowers and promote the use of their credit histories as collateral complements and substitutes, thus reducing loan collateralization levels. *Strengthen and increase financial institutions utilization of the MPSR and WRS as tools that would allow them to expand the range of bankable collateral to include movable assets like equipment, purchase orders, accounts receivable, livestock, and commodities, as they are more widely available to marginalized actors and women. *Leverage digital financial solutions to overcome gaps in bank branch footprints and inefficiencies in loan administration processes. *Provide hands-on support to financial institutions, including the provision of market analyses, risk appraisals, product design, process enhancement, and go-to-market strategies to boost their understanding and improve their perceptions of opportunities and risks in lending to the underserved via new inclusive financial products and technologies. *Create and deliver structured financial literacy programs to marginalized actors, including SMEs and agri-value chain actors, with a particular focus on women, in target industries and value chains. In addition, IFC will lay the foundation for good environmental, social and governance (ESG) practices in the financial and agribusiness sectors to enable a more diversified and resilient economy, and stronger and more sustainable local businesses, which boosts investments.