The Commercial Bank of Ethiopia which recently froze all private project loans has now suspended working capital loans for commercial agriculture investors sending shockwaves among farmers who were getting ready to plant seeds in the next two months.
The suspension which has been effective for two weeks also denied loans already in progress.
Large commercial farms in Amhara, Benishangul, Afar, Gambella, Tigray, and Oromia Regions are now being told to get working capital loans from the state owned Development Bank of Ethiopia (DBE).
Most of the farmers who take out loans produce sesame, corn and cotton in the above regions.
Usually the working capital loans are spent on labor in the pre and post harvesting process.
Though the suspension came late, the GTP 2 strategy planned for all agricultural and project loans to be handled by DBE with CBE overseeing manufacturing and service sector loans.
According to source in CBE the temporary freeze may become permanent as discussions are still being held on the matter.
“We didn’t receive any formal letter, but we have been ordered to temporarily suspend loans and we expect the formal order to arrive in our office within the next few weeks,” a source at CBE said.
Some farmers are asking CBE to at least allow those who have already started the process to be allowed to continue. Other investors have said that applying for a loan at DBE will take at least six months and could affect their production.
“Usually at CBE getting a working capital loan takes a maximum of one month but the process at DBE has been more challenging and takes more time so some investors are asking us to lift the freeze on project and working capital loans for agriculture,” the source added.
CBE previously announced that it will continue providing working capital loans which involve financing a company’s daily operations. However loans for fixed assets which are purchased for long-term use and are not likely to be converted quickly into cash, such as land, buildings, and equipment are being discontinued.
Last week CBE reported that in the first nine months of the financial year they earned 11.2 billion birr in gross profit before tax with a total revenue of 23.4 billion birr. It disbursed 64.3 billion birr in loans during this time. It has 438.6 billion birr in assets.