Ethiopia’s smallholder farmers to use cattle as collateral

The Government of Ethiopia is set to introduce bank directive that will allow smallholder farmers to use their cattle as collateral to access loan from banks.

The practice of banks in Ethiopia so far shows that one has to have fixed asset such as, building or villa to use as collateral in order to access loan from banks. The banking system, which has been making the few rich individuals richer, is not going to change the country’s economy fundamentally, according to the reformist Prime Minister Abiy Ahmed of Ethiopia, whose focus is gearing towards bringing structural change to the agrarian Ethiopian economy faced with multiple challenges.

“We need to introduce a system where a farmer can use his cattle or goat as collateral to access loan from banks and create job for his children,” he told members of the national committee established a month ago bringing together heads of ten government agencies with the aim of improving the economy and business climate of the country. The committee led by PM Abiy, has conducted its first meeting on Tuesday.

He stated the fact that only about six million people have now access to bank loans in a nation with 100 million plus people, shows how the issue is serious and the need to bring fundamental change to the economy by addressing the problem.

One of the members of the committee, Yinager Desse, Governor of the National Bank of Ethiopia (NBE), announced a week ago that NBE has drafted a directive, which for the first time allows Ethiopians to use their ideas and non-fixed assets as collateral to access finance from banks.

Yinager told reporters that a national job opportunity creation commission will soon be established with the aim of facilitating job creation for the youth and helping by addressing their challenge of access to finance. The new commission Yinager mentioned is aims to address problem of unemployment and poverty in the country.

“…It is important to speed up the job opportunity creation …and access to finance is fundamental…If we bring an alternative in relation to issues such as, collateral, the opportunity to get jobs for many youths will be expanded,” he said.

The state agencies included in the committee also include the federal investment commission, customs commission, ministries of revenue, finance, trade and industry. Access to finance has been mentioned by many studies as one of the major obstacles for startups.

Around 85% of Ethiopia’s inhabitants live in rural areas. The country is facing a youth bulge. More than 40 per cent of the population is below the age of 15, and 71% is under 30.

In both rural and urban areas, many young people, particularly young women, are unemployed or working in the informal sector. Most young people live in rural areas, where livelihood opportunities are increasingly scarce.