NBE issues directive that gives life to warehouse receipt financing

Yinager Dessie (Photo: Anteneh Aklilu)

The National Bank of Ethiopia (NBE) issued a directive that gives life for the Commercial Bank of Ethiopia (CBE) and Ethiopian Commodity Exchange (ECX) to commence the warehouse receipt financing (WRF) scheme and the Movable Property Security Right Proclamation that was ratified by the parliament last year.
The directive issued on February 26 by NBE mainly focuses on the collateral and risk management on the movable asset, according to experts in the financial industry.
Experts told Capital that as a pioneer the effectiveness of the directive gives life for the implementation of WRF than other sectors since WRF was on the process to commence by the state owned bank and some others, who are on the pipelines.
Recently Yinager Dessie, Governor of NBE, told Capital that the new financing approaches will broaden access to finance and the directive for the implementation of the extraordinary credit scheme to expand the financial inclusion of the country.
On the new scheme the warehouse receipts introduced by Ethiopian Commodity Exchange is the first, according to Yinager, while others will be effective in the near future.
In December last year in the presence of Yinager, ECX and CBE, the state owned financial giant, launched the collateralized commodity finance project that initially was introduced by maize at the center at Nekempt and Bure warehouses supported by International Finance Corporation, a private sector wing of the World Bank.
Despite the initiative that was publicly launched a couple of months ago it was not in effect until now that some claimed CBE may not have interest to embark it.
However CBE disclosed that the delay mainly occurred because they are waiting the directive from the financial industry supervisory body, NBE.
Muluneh Aboye, Vice President for Credit Management at CBE, said that the financial giant is internally prepared and the system is already in place.
“The data and information exchange, which is electronic, is in place,” Muluneh told Capital.
He said that in the coming days it will start registering beneficiaries and commence operation.
Awash, Cooperative Bank of Oromia, Oromia International Bank, United Bank and Abay Bank are also on the way to be part of the WRF scheme under the trading platform at ECX.
CBE is not new for the WRF at ECX. About nine years ago it has provided credit under WRF that is worth about 36 million birr until ECX issued a directive that products at the ECX warehouse could not be stored for not more than 45 days.
Wondimagegnehu Negera, CEO of ECX, told Capital that WRF is an optional facility that farmers opt to deposit and get credit facility to get price, but currently maize’s current price is encouraging that farmers were not forced to speculate besides harvest is being financed recently.
Article 27 of the movable property proclamation defines movable property that includes; inventories, agricultural products, incorporeal assets, corporeal assets, the right to use land unless prohibited by pertinent laws; a security right under a hire-purchase agreement, security trust deed, trust receipt, commercial consignment, mortgage of a business, sale with ownership reserved, sale with right of redemption, security rights in certificated securities, and security rights in warehouse receipts, motor vehicle, trailer, agricultural machinery, construction machinery, industrial machinery, and other properties excluding land, house and building.
The International Finance Corporation (IFC) financed the proclamation drafting process which is based on United Nations Commission on International Trade Law.
The proclamation is part of the financial inclusion strategy (NFIS), launched in 2017 with the support of the World Bank, to increase the percentage of adults with a transaction account from 22 percent in 2014 to 60 percent in 2020.
The proclamation is expected to benefit several small business and rural communities.