1 / 19

By Getahun Nana National Bank of Ethiopia July 2008

POLICY INITATIVES FOR IMPROVED FINANCIAL SERVICE PROVISION IN THE RURAL AREAS: THE CASE OF ETHIOPIA. By Getahun Nana National Bank of Ethiopia July 2008. Introduction. Top Government Economic policy agenda is accelerated and sustained economic growth Agriculture playing a leading role

lareina-strong
Télécharger la présentation

By Getahun Nana National Bank of Ethiopia July 2008

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. POLICY INITATIVES FOR IMPROVED FINANCIAL SERVICE PROVISION IN THE RURAL AREAS: THE CASE OF ETHIOPIA By Getahun Nana National Bank of Ethiopia July 2008

  2. Introduction • Top Government Economic policy agenda • is accelerated and sustained economic growth • Agriculture playing a leading role • The role of Finance in bringing accelerated growth • Finance being an essential catalyst to boost investment by: • mobilizing scarce financial savings and channelling it to productive investments; • reducing risk of investors and of course savers; • lessening the barriers to new entry; and • facilitating efficient exchange of goods and services • Thus, there is a need to have vibrant, efficient and strong financial system which is accessible to majority of the population, if not all.

  3. Introduction continued • Creating enabling environment is essential to improve accessibility of finance • Creation of enabling environment for financial systems includes: • maintaining stable macro-economic condition, • ensuing soundness of FI, and • developing stronger underlying infrastructure including in information and legal dimensions.

  4. Introduction continued • The objective the paper • To outline policy initiatives taken by the GoE since early 1990s to foster development and accessibility of finance to the rural areas in particular and the country in general (section 2); • Section one presents overview of Ethiopian financial system; and • Section 3 concludes the paper.

  5. I Financial Systems in Ethiopia • Financial systems of a country • Financial institutions; • Financial markets • Financial instruments • Financial systems evolve over time – three distinct periods. • Pre Derg (1905 - 1974 ): The first bank in Ethiopia was established in 1905 (Bank of Abyssinia). • Derg (1974 – 1991): Nationalizations of financial institutions, • Post derg (1991 ---): Reorientation of the financials system to market economy.

  6. Financial Systems in Ethiopia • Reforms since 1991 included • comprehensive restructuring of government owned financial institutions, and • opening the sector for local private equity participation; • As a result, nine banks (Zemen Bank), eight insurance companies and 28 MFIs have been created until June 2008. • Ownership of the newly created institutions: • Banks and insurers 100% by local private shareholders • MFIs mixed= regional governments, local NGO, and private .

  7. Financial Systems in Ethiopia • Other financial institutions (other than banks, MFIs and insurers) • Pension fund, and • saving and credit cooperatives (5,437 of them, September 2006) • Limited contractual saving services • Thus financial institutions in Ethiopia constitute: the central bank (NBE), 12 banks, 9 insurers, 28 MFI, the pension fund, and over 5000 SACCOS

  8. Financial Systems in Ethiopia • Financial markets in Ethiopia are underdeveloped. • Inter-bank local money and foreign exchange market is almost non- existent or inactive • No long term debt securities market or • No stock exchange market • Financial instruments • limited to government papers (mostly Tbs) • No secondary market (even for gov’t papers). • Banking products are traditional (saving, time & demand deposits; as well as standard loan products)

  9. Financial Systems in Ethiopia • Thus Ethiopian financial systems is thus bank dominated. • Yet it is not easily accessible to large segment of the population • A study by the World Bank showed that only 20% of adult population have accounts in financial institutions in the median African country (Honohan, P. 57) • The figure for Ethiopia is about 19% (NBE, Banking Supervision).

  10. Financial Systems in Ethiopia • Reason for low access: • Low geographic and demographic penetration, and • All banks are headquartered in Addis Ababa (the capital city). • Ethiopia : Population per bank branch135,404 (June 2008) • Spain 96 branches per 1000 people (Kunt P.6). • Thus mainstream bank branches are hardly accessible to rural poor.

  11. Number and distribution of Bank Branches

  12. Financial Systems in Ethiopia • Affordability: • For a small farm landholder living on subsistence, minimum account opening balance (birr 50) set by banks is relatively high. • For banks small farmers/the poor are considered unbankable. • Loans are granted to urban rich who can offer collateral • Average loan size for the banking sector was birr 728 for March, which was much higher than borrowing capacity of the poor.

  13. Facts on mainstream banking: Loans

  14. Facts on mainstream banking: Deposit mobilization • There are 3,403,959 deposit accounts • Balance maintained in the accounts stood at birr 60,943 million • A.A. accounted for 66% of the total • 2% deposit account holder contributed for 73% of total deposits; or • 98% of account holder contributed for only 27% of deposits

  15. II. Policy Initiatives • Creating enabling environment • Government has a central role in creating enabling environment for expansion, competition and growth of financial services industry in the country. • First Maintaining sound Macro-economic condition • Inter-temporal nature of financial contracts, • low inflation and stable exchange rate • until recently, Ethiopia’s macroeconomic system has been stable • over the last five years, the country grew by about 11% per annum • inflation rate has been below 10% • exchange rate continued to be stable • however the current rise in inflation is worrisome

  16. Creating Enabling Environment • Second, Conducive Legal and regulatory Framework • Banking and insurance laws of 1994 (now being revised) • MFI law of 1996 (under revision) • A law that allows for establishment and operation of leasing companies • Foreclosure law • Third, Creation of Credit information bureau

  17. Creating Enabling Environment • Fourth, expanding modern telecommunication network to rural areas • Fifth, Payment System Modernization Project

  18. Mitigating market failure • Input loans that enable farmers buy agricultural inputs • Rural Financial Intermediation Program (RUFIP) • Urban Financial Intermediation Program (UFIP)

  19. The Way Forward • The challenge to stabilize the economy (inflation currently is running at doable digit). • Modernizing the payment and settlement systems • improve breadth and depth of access to finance • speed up the implementation of this important program. • Develop missing laws and regulations • On electronic banking/transactions • Develop securities market particularly, market for long term debt securities. • Extending application of foreclosure law to MFIs • Extending credit information sharing system to MFIs, utility service providers, tax authorities and commodity exchange, and • Expand further appropriate telecommunication infrastructure.

More Related