Commercial banks, starving for foreign currency have forayed into the risky business of advancing consumer loans, mortgages and vehicle loans to employees of organisations and firms that transact in hard currencies through the banks.


For Abichu Yoseph, forty-five years old and a father of two, buying a house was one of his dreams that always seemed far-fetched.

Moving to Addis Abeba eight years ago from Harar, he accepted a position as logistics and administration lead at Amref Health Africa, a non-governmental organisation that works on health, about a year ago.

Before joining Amref, which became fully operational in Ethiopia in 2002, he worked at more than eight non-governmental organisations.

Amref Health Africa works throughout Ethiopia, including Addis Abeba and eight regional states, on creating health systems through building the capacity of the Health Extension Program.

Abichu’s dream of owning a house became a reality last year after Awash Bank offered the employees of Amref a housing loan with a marginal interest rate of 7.25pc.

The consumer loan targets employees of companies and organisations that bring foreign currency to the country. In offering loans to the employees, the bank expects the organisations to transact their foreign exchange through that specific bank.

Banks in Ethiopia, desperate about their dwindling foreign exchange earnings, are exploring new options to increase their forex earnings. The latest is hunting for institutions that bring foreign exchange and offer them an incentive programme for their employees to finance housing or automobile loans.

The incentive is extended to all customers willing to transact their foreign currency through the banks. To qualify for the loan, an employee must be employed for at least three years with the prospective employer.

With the loan Abichu secured from the Bank, he bought a 210Sqm single residence in Bishoftu, 40Km south of the capital, on February 16, 2019.

The mortgage loans with Awash Bank carry a 25-year term depending on the size of the employee salaries and age, and Abichu qualified for a 15-year term.


Commercial banks, starving for foreign currency have forayed into the risky business of advancing consumer loans, mortgages and vehicle loans to employees of organisations and firms that transact in hard currencies through the banks.


“The loan service has given relief to my family and me,” Abichu told Fortune, “and it creates stability for my whole life.”

And Awash is not alone. Dashen Bank, one of the pioneering private banks, also launched a new consumer loan plan for Ethiopian diaspora, diplomatic communities and employees of NGOs in 2016.

For such kind of employers, Dashen, which already mobilises forex from remittances, exports, cash note purchases and e-banking services, offers mortgage loans with a competitive interest rate of nine percent.

The scheme helps the bank in attracting new potential customers that add economic value to the bank in terms of resource mobilisation and credit deployment, according to Tibebu Solomon, assistant chief of retail and micro, small & medium enterprise banking at Dashen.

Tibebu also says that the service has the benefit of satisfying and retaining existing clients by providing value.

“Meanwhile, it also has a negative short-term impact on our revenue generation activity, as the loan is deployed with a competitive interest rate,” Tibebu said.


The banks would have maximised their profit if the loan had been disbursed with a normal commercial interest rate, which is higher than the interest on such consumer loans for declining revenue risk. Commercial interest rates range between 15pc to 18pc.

As of June 30, 2019, Dashen generated 62 million dollars from more than 112 NGOs with accounts at Dashen. Out of the 112 institutions, the employees of 105 institutions took out loans under this scheme.

From these companies, Dashen has been able to mobilise 15.7 billion Br from annual transactions in both forex and local currency, according to Tibebu.

When the employees of such institutions leave, the interest rate will be converted to the commercial rate as the company provides an undertaking letter as a pre-request for loan processing to inform the bank when its employees leave the company.




The banks not only offer a mortgage loan but also loans for automobiles.

Abiyou Goshu, the 43-year-old human resources administration manager at Amref, is one of the borrowers who secured a loan from Awash Bank to buy an automobile. He took the loan with a low-interest rate of nine percent in October 2018.

Amref, which has 248 employees, brings foreign currency into the country from donors in the Netherlands, the United States and Canada.

In march 2019 Awash revised the interest rate from nine percent to 7.25pc, and Abiyou was able to transition to the lower interest rate.

Before reaching an agreement with Awash, Amref, whose employees get an average monthly salary of 17,000 Br to 18,000 Br, negotiated with Wegagen Bank in 2016/2017, and 20 employees managed to get a loan from that Bank.

The employees get the automobile and personal loans with a nine percent interest rate, and housing loans come with an eight percent rate. However, since May 2018, the organisation has switched to Awash Bank. Currently, 40pc of the company’s employees have received loans from Awash.

Not only the private commercial banks but also the state-owned Commercial Bank of Ethiopia (CBE) has ventured into mortgage loans to Ethiopian diaspora and employees of international organisations with a minimum interest rate of seven percent, which is equivalent to the deposit interest rate.

Mortgage loans shall be repaid within a maximum term of 20 years. The applicable interest rate is determined as per the organisation’s foreign currency earning capacity.

However, unlike the other banks, CBE takes the automobile or the house to be purchased or constructed as collateral. The Bank, which earned 9.4 billion Br profit during the first half of the just-ended fiscal year, avails loans of not more than 95pc of cost or value of the house.

It also offers up to 80pc of the value or price of the automobile loan to be purchased. The automobile shall only be from dealerships repaid within a maximum tenure of ten years.


The eligibility criteria for organisations to receive these special loans for their employees from CBE entail having a presence in Ethiopia, receiving funds from foreign sources, opening an account, channelling through the bank half a million dollars and signing a memorandum of understanding with the bank.

For employees to receive these special loans from CBE, they are expected to be permanent employees in an eligible organisation, open an account at the Bank, and submit a letter from the organisation indicating the term of employment, retirement age, basic salary, the employment contract and latest salary slip among others. The salary is considered in determining the borrower’s capacity.

The Bank, which has 20 million account holders, has five consumer and housing credit centres in Addis Abeba and 11 district offices outside the capital.

Habib Mohammed, an independent consultant in the financial industry, thinks the scheme is motivational for the employees and helps organisations retain their staff.

“The scheme is inclusive for middle-income employees,” he said.

However, an expert who wishes to remain anonymous fears that the scheme could place the banks and the employees in jeopardy if an organisation fails to bring in the expected foreign currency.

“The crisis could be more severe for the employees,” said the expert, arguing that they will find themselves in difficulty if they leave the organisation since their interest rate will be converted into a commercial rate. “If they fail to service their debt, the properties would be foreclosed.”

The United States experienced a mortgage crisis in 2007 that caused panic and financial turmoil. The mortgage crisis was a result of too much borrowing and flawed financial modelling, primarily based on the assumption that home prices only go up.



PUBLISHED ON Jul 27,2019 [ VOL 20 , NO 1004]



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