Ethiopia set to improve rural finance

Ethiopians living in rural areas need access to credit on a regular basis so they can build up their assets and diversify their income-generating activitiesThe International Fund for Agricultural Development (IFAD) has committed to helping Ethiopia improve rural access to financial services. 

IFAD is providing a US$50mn loan and US$50mn grant to the Federal Democratic Republic of Ethiopia to help poor rural households gain access to financial services and reduce rural poverty in the country. The loan and grant agreement for the Rural Financial Intermediation Programme – Phase II (RUFIP II) was signed in December 2012 by Mulugeta Alemseged, Ambassador Extraordinary and Plenipotentiary of Ethiopia to Italy, and Kanayo F. Nwanze, President of IFAD.

While there has been significant growth in Ethiopia over the past decade, the rural financial markets are largely under-developed. Poor people living in rural areas need access to credit on a regular basis so they can build up their assets and diversify their income-generating activities. Without any collateral, they often depend on moneylenders and pay exorbitant rates of interest. Currently, only about 15 per cent of rural households have access to savings and credit services. The micro insurance market is not developed. The growth of a vibrant rural financial industry including micro insurance for the poor is a government priority. The RUFIP II will build on the successes of the first phase, scaling up the delivery of financial services from 3.3mn poor rural households in 2012 to 6.9mn by the middle of 2019. The programme will enhance outreach of the microfinance institutions (MFIs) through institutional development and provision of equity and credit funds. It will strengthen a community banking framework and promote the Rural Financial Cooperative Societies (RUSACCOS). MFIs and RUSACCOS are the only major sources of agricultural finance for smallholder farmers to support agricultural growth as well as rural employment opportunities.

Cofinanced by the government of Ethiopia, the Development Bank of Ethiopia, commercial banks and MFIs in the country, the programme will be implemented nationwide. Approximately 3.6mn poor rural households living with less than US$2 per day, of which nearly 50 per cent are women, will gain access to improved and reliable financial services either as clients of microfinance institutions or as members of rural savings and credit cooperative societies. With this new programme, IFAD will have financed 16 programmes and projects in Ethiopia for a total investment of US$387.7mn benefitting 10,410,000 households.

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