Exporters shade in outcry over the lack of appetite of the financial sector which is eroding its provision of pre-shipment export credit facility.
Business community members who are engaged in the export business claim that despite most of their export activity being supported by pre-shipment export credit, they are unable to go under the previous regular circumstance due to lack of interest from banks to provide such kind of loan facility.
One of the exporters that Capital interviewed said that because of capital shortage, his operation has been stuck; meanwhile, he has been presented several contracts to ship commodities for foreign clients.
“In the past, we operated our business with pre-shipment export credit facility, however the banks interest have eroded in the past few months,” the exporter says, adding, “because of that I can not undertake the business even though there are huge demands from clients in my sector.”
Exporters said that the case is particularly challenging for growing businesses that do not have ample collaterals as big and long established businesses owners.
“Banks are now demanding to provide over draft credit facility or term type of loans, which is affordable for well established business actors,” they added.
Experts stated that the current trend of banks, on becoming uninterested to provide pre-shipment export credit facility is directly related with the revision of retention directive which was amended by the National Bank of Ethiopia (NBE), financial sector regulatory body, early this year.
They argued that the directive has eroded the financial sector to provide service for international businesses since it smashes the hard currency retention portion that banks or exporters secured from the activity.
The retention and utilization of export earnings and inward remittances directives no. FXD/79/2022 that was amended and became effective on January 6 on its article 4.1 stated that banks are required to surrender 70 percent of the foreign currency earnings from export of goods and services, private transfer and NGO’s transfer to the NBE.
Article 4.2 stated that exporter of goods and services and recipients of inward remittance shall have the right to retain 20 percent of their export earnings in foreign currency indeterminately in a retention account after the deduction of 70 percent surrender requirement from the total earnings. It added that the remaining 10 percent shall be surrendered to the respective bank.
The prior directive that was revised early last budget year gave a right for NBE to take half of the foreign currency earnings and the balance for exporters and banks.
Experts said that banks benefited from the hard currency earnings whether that is their portion or exporters, “but it is now not more attractive as a business for banks due to that they are reluctant to provide credit facilities like pre-shipment loans, which is only considered as an export contract with less interest rate compared with the market.”
“Banks now prefer to do other businesses at better interest rates and even secured procedures like providing loans with collaterals,” experts explained.
“Bankers argued that they would not be profitable even if they get 30 percent of the hard currency,” experts said.
They added that currently some banks shall provide pre-shipment credit but it might be with collateral and high interest rates unlike the past, which was below 10 percent.
Pre-shipment export credit facility is a type of loan extended for the purchase of raw materials, processing and converts them into finished goods, warehousing, packing, and transporting the goods until the time of shipment.