Dashen trail-blazes ‘foreign loans intermediation’ opportunity

Dashen Bank becomes the first bank to break the foreign loans intermediation glass ceiling following the financial backing of two well established European financiers.
The instrumental directive, ‘Foreign currency intermediation by banks’ which was first issued in 2020 by the National Bank of Ethiopia (NBE), and which was later amended in December 2021 to allow banks to play an intermediary role to affiliate foreign currency financing for foreign currency earning oriented businesses, has now finally come to life.
Despite the directive having a positive aim of expanding foreign currency availability, it however did not take off as expected up until recently when one of the biggest and oldest private banks, Dashen sealed a deal with two foreign financiers to access USD 40 million under the directive.
During the announcement on Tuesday, August 29 Dashen disclosed that it had reached an agreement with British International Investment (BII), the UK’s Development Finance Institution (DFI) and impact investor, and FMO, the Dutch entrepreneurial development bank to access the foreign currency as a bridge for those who want to accelerate their international business.
As per the joint commitment of the two partners, they will be able to affiliate up to USD 20 million each to Dashen.
Through this commitment, BII and FMO become the first foreign financial institutions to provide long-term funding to Ethiopia’s financial services sector under the new intermediation directive for banks issued by the National Bank of Ethiopia in 2021.
“The loan will help to drive agricultural exports and provide access to much needed foreign exchange within Ethiopia,” the statement issued read.
By providing much needed capital for the expansion of growing businesses, the development finance-backed facility enables Dashen to provide USD-denominated loans to cover the costs of importing machinery supporting farmers towards increased productivity in areas such as harvesting, logistics, and processing as well as in boosting exports earnings.
xxx“We are pleased to have achieved this historic milestone. With the exemplary co-lending of BII and FMO, Dashen Bank is breaking the ice in the materialization of the directive for foreign loans intermediation,” Asfaw Alemu, President of Dashen Bank said, adding, “The forex denominated financing will enable Dashen Bank, one of the top four private sector banks in Ethiopia serving over 5 million customers with a footprint of 800 plus branches, to support export-oriented agribusinesses.”
“On top of the badly needed foreign currency, the lessons learnt through the rigorous due diligence process will help us set the bar high when it comes to sustainable financing in Ethiopia,” he added.
Stephen Priestley, Managing Director and Head of Financial Services at BII said that his firm has been a pioneer investor in Ethiopia for the past 50 years, “Our partnership with FMO and Dashen Bank forms part of a mobilization plan that creates untapped opportunities for DFI and commercial investment into Ethiopia’s financial services sector for years to come.”
Marnix Monsfort, Director of the Financial Institutions Department at FMO said, “By providing much needed foreign currency for on-lending to the bank’s agriculture/exporting clients, FMO aims to contribute to job creation and financial inclusion of rural communities.”
According to Darren Welch, British Ambassador to Ethiopia, this first long-term, international investment into Ethiopia’s banking sector is the latest achievement in the country’s economic reform journey.
As per the, ‘Foreign Currency Intermediation by Banks Directives No. SBB/82/2021 that was replaced by the directive no. SBB/77/2020, article 4 sub article, three 1 and 2, a grace period for principal payment of at least six months and a repayment period of at least two years was included.
“Eligible businesses that shall access the foreign currency are those who engage on foreign currency generating activities, and importing of priority goods,” the NBE rules read.
Dashen is well known as a trailblazer and pioneer on digital financial schemes and for the roll out of foreign oriented payment systems in Ethiopia.