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Up to 25 percent of financing for GERD expected to come from bond sale
The Development Bank of Ethiopia (DBE) has signed an agreement delegating the power to sell bonds to seven Micro Finance Institutions (MFIs), Capital learned.
The seven MFIs are: the Tigray based Dedebit Micro Finance Institution, the Southern region based Omo Micro Finance Institution, Amhara Credit and Saving Institution, Oromia Credit and Saving Institution, Dire Micro Finance Institution, Harar Micro Finance Institution and Benishangul Gumuz Micro Finance Institution.
Berhanu Taye, Manager of Business Promotion and Communication Process at DBE, said the move was taken in order to enhance the saving power of the rural peasant and pastoralist population and to make bond buying more accessible to all sectors of Ethiopian society through the MFI’s extensive branches.
It also aims to stimulate investment by acclimatizing those parts of society that haven’t been involved previously in banking activities as well as being an alternative saving mechanism.
The bank has stated that it wants to use the capital of farmers during harvest season, whereby farmers sell their produce but are left with little or no mechanism to save the money they earn.
DBE in connection with this new scheme will run promotional campaigns in five local languages, Amharic, Tigrigina, Oromiffa, Afar and Somali, endorsing the merits of bond purchasing. According to data from the National Bank of Ethiopia, as of September 30, 2011 of the 31 MFIs in Ethiopia only 2.6 percent of potential clients in the sector are being serviced.
The Ethiopian government plans to finance up to 25 percent of the construction of the Grand Renaissance Dam (GERD) through bond sales.
In the nine months of the current Ethiopian Fiscal Year 2011/12, it has collected about 1.2 billion birr through bond sales and plans to mobilize another 300 million birr in the remaining three months of fiscal year.
Berhanu said in connection with DBE’s plans to promote the sale of bonds, it has recently introduced three new bonds worth 50, 100 and 300 birr.
Now the bank has 14 types of bonds to choose from ranging from 50 to one million birr. The bank has also introduced an additive 25 birr bond that can only be purchased in tandem with the above bonds.
Bonds are a certificate of debt issued in order to raise funds. They carry a fixed rate of interest and are repayable with or without security at a specified future date.