Ethiopian Agriculture Sector Receiving Less Financing by Banks

Ethiopian Agriculture Sector, which is one of the main contributors to the Gross Domestic Project, is receiving less financing from banks, a newly releases report states. The Ethiopian agriculture sector constitutes around 1/3 of the Gross Domestic Product (GDP).

The National Bank of Ethiopia this week issued the Financial Stability Report (FSR) which is the first of its kind. FSR shares some insights into agriculture financing by Ethiopian banks.

In 2022, the loans provided by Ethiopian banks to the agriculture sector were 28.8% of total loans but, in 2023, the number fell to 18.7%. The banks cite high risk of default, low investor capacity, and regional regulations as reasons for their selectivity in providing credit.

Interestingly, the majority of agriculture financing loans provided by banks goes unutilized, according to a report from the Ethiopian Agricultural Institute. Additionally, an analysis of the credit extended to agriculture by all commercial banks, the Development Bank of Ethiopia (DBE), and other financiers, found that nearly two-thirds of 35 billion birr in loans disbursed in 2022 were not utilized by farmers.

The lower financial utilization by farmers is attributed mainly to a lack of capacity. Moreover, agricultural investors’ inability to provide clean and clear financial statements required by banks, the DBE’s focus on extending credit to large investors, investor reluctance, and prerequisites involving land ownership contribute to the underutilization. Agricultural loans are generally being seen as “Bad Credit” by the banks.

Ethiopian agriculture sector is in immediate need of attention by the government. Moreover, less financing into the sector could pose a serious threat to the livelihoods of hundreds of thousands of people involved in this sector.

More Stories

Ethiopian Coffee Shipments Can be Bought Directly by Foreigners, say EIC