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The bank will resume financing the lease after 18 months
The Development Bank of Ethiopia (DBE) removed the requirement that companies pay 20 percent of the total value of a leased property.
In announcing its decision to resume lease financing after an 18-month suspension, Bank management revealed that the 20 percent prerequisite had been unnecessary and contrary to the original lease financing policy and procedures.
Originally, tenants were expected to show 20 percent of leased assets as working capital, while the bank was expected to cover the remaining 80 percent. Later, however, they were asked to pay an additional 20 percent of the property for rent, which MPs called an illegal requirement.
The House of People’s Representatives (HPR) Standing Committee on Oversight of Public Expenditure and Finance convened a half-day meeting to hear the response of bank officials regarding the performance of the Auditor General and the audit findings made between 2017 and the first quarter of 2020.
Among dozens of questions posed by committee members, DBE officials were asked why the bank abruptly enacted the request for 20 percent on leased assets, even though it was given direction to help small and medium-sized businesses. , beneficiaries of the lease financing scheme.
The bank was also criticized for not supporting companies, known as Missing Middle, that have little access to credit despite having no skills gaps in the area in which they specialize.
“The requirement has been illegal and is in contradiction with the purpose of the lease financing policy,” said MPs.
Responding to questions and criticisms, DBE President Yohannes Ayalew (PhD) said: “As highlighted in the Auditor General’s report, it is true that clients [who seek lease financing] they have been asked to contribute at least 20 percent of the cost of the rented machine as collateral. “He added:” This requirement was, in fact, recently adopted after being frustrated with the increase in the amount of the lease fee. not charged “.
In addition, he indicated that at the beginning, when the financing of the lease began, the original directive required that customers provide at least 20 percent as working capital, while the bank covered 80 percent for the purchase of machines.
Later, Yohannes explained, the bank was forced to introduce the controversial 20 percent that serves as a financial guarantee to offset the increase in the number of tenants who failed to pay their fees.
“The negligence of clients and their failure to settle payments forced management to introduce such a requirement, although a decision has been made to lift it,” Yohannes added.
Going further, he admitted that management paid little attention to the importance of providing proper guidance and training to clients, their own employees and stakeholders on lease financing.
“Learning from our failure, we began offering trainings and orientations to all stakeholders and interested clients two months ago,” he commented.
