Beyond economics How Development Bank of Ethiopia plays its role in bringing balanced regional development and meet social responsibility?


By Atsebaha Abay
Beyond their economic roles, banks do play unique role in bringing balanced regional development and addressing social and environmental harms. This article tends to assess how the Ethiopian banks in general and DBE in particular perform their corporate social responsibilities.
Development Bank of Ethiopia (aka. DBE’s) mandate is derived from its policy objectives which again are drawn from the government’s national development policy and strategy. One of these mandates is providing development finance to sectors that have the highest sustainable development pay-out. These are clearly indicated in the GTP documents as priority sectors and national mega projects. Over the past decade and half, DBE’s contribution in attaining the double digit growth was visible.
DBE performs its business in a socially and environmentally responsible way. Taking the regional development and social responsibility factors, DBE’s contribution stood-out most in the financial industry of the country. The following can be mentioned as testaments of its regional and social commitment.
DBE provides long-term development finance to priority sectors that are identified by the national policy. While many banks of the country focus on profitability, return on equity, etc. and ignore the high risk sectors, DBE delivers long term finance to these sectors that are considered as critical in transforming the economy from agriculture based to industry.
Named as “Agricultural and Industrial Development (AID) Bank” for most of its 108 years in operation, DBE has been committed partner and prime financer of agricultural and rural based business enterprises. In connection to this, DBE has provided Birr 40.71 billion to agriculture, manufacturing as well as mining and energy sectors which is 19.3% of the aggregate loans and advances provided by the rest of the 17 banks operating in the country as of 2018/19 (Source: NBE and DBE 2018/19 Annual Reports). The loan was given to the priority sector investors at 11.5% lending rate against an average of 13.5% by the rest of the banks.
DBE works to bring balanced regional development. This is one of the governing policies of the bank. Unlike other banks who crowd their operations in Addis Ababa, only 4.4% (i.e., 4 out of 90) branches of DBE are located in the capital city. Taking the major banks operating in the country 20.9% of CBE’s branches, 42.1% of Awash Int’l, 36.7% of Dashen, 41.2% of Abyssinian, 37.8% of Wegagen, 41.5% of United, 53.5% of Nib and 41.8% of Birhan Bank Branches are concentrated in Addis Ababa leaving the 95% of the population with little access to financial services. Indeed, DBE not only opens bank branches in these regions but also works with regional, zonal and woreda level bureaus of industry and investment offices to recruit new borrowers. Further, beyond bringing its branches near to the needy rural projects, 90% of the loans and advances delivered by DBE over the past decade was made to regions’ based investments.
Financial inclusion of the MSMEs: Financial inclusion is one of the crucial dimensions of DBE’s business and the bank uses this as an opportunity to ensure access to financial services to those vulnerable and economically weaker groups of the society as well as addresses the financial needs of the missed middle group (i.e., the SMEs/ Small & Medium Enterprises). In this category, DBE works with 21 MFIs (Micro Finance Institutions) that operate throughout the country. Under its RUFIP (Rural Financial Intermediation Project) and SMEFP (Ethiopia SME Finance Project) credit windows, DBE contributes to the growth of rural financial services and reaches out to the rural poor and cooperatives who are engaged in micro and SME businesses. In these credit lines, DBE together with the international development partners provided Birr 2.4 billion (as of March 31st 2020) through the MFIs to be disbursed to the micro and SMEs at only 8% interest rate.
Introducing new financial products to the Ethiopian market: DBE is keen to modernize the Ethiopian financial market through among others providing diversified financial products. Unlike the other commercial banks that provide traditional banking products, i.e., receiving deposit and providing short term loans, DBE has introduced new financial products such as lease financing. Through the lease financing window, DBE provided a total of Birr 5.35 billion to SMEs that operate throughout the country as of March 31st 2020.
Environmental protection: DBE joins hands with international development partners in initiating environmental management and renewable energy development funds namely MDRE & EEPs (Market Development for Renewable Energy and Energy Efficient Products) and REF (Rural Electrification Managed Fund). In this window, DBE has been working with 13 MFIs and has disbursed Birr 586.6 million as of May 31st 2020. In addition, DBE has also played a laudable work in mobilizing domestic savings and harnessing national efforts for the country’s brand dam “the GERD”. So far, DBE has contributed an aggregate of Birr 12.4 billion (including through the sales of bonds, employees’ contribution and donation) to the dam. By doing all these, the bank has greatly contributed to improve the rural people’s welfare and realize the climate Resilient Green Energy (CRGE) strategy of the country.
Women economic empowerment: DBE with its international development partners such as the World Bank, UK Aid and Enterprises Partner (EP) is implementing a women entrepreneurs Development Program (WEDP) starting 2012. In this credit line alone, DBE has been working with 12 MFIs and has disbursed Birr 3.2 billion to 15,250 women entrepreneurs operating throughout the country. Therefore, apart from its responsibility of finical inclusion, DBE has been playing its role in developing women owned businesses and build their competitiveness.
Combating Covid-19 and its negative consequences on the economy: In the context of the ongoing combat against Covid-19, DBE has developed an inclusive strategy to fight against the pandemic. In this regard, DBE has contributed Birr 5.0 million to the national taskforce and also developed the Covid-19 response strategy which costs it Birr 290 million to support its clients. Further, the bank has established a client friendly complaint delivery mechanism and together with its clients have developed a strategy of mutually acceptable and workable loan repayment plan.
Creating new jobs, earning foreign currency and boosting government revenue: Unlike the commercial banks who provide short term loans for working capital, DBE specializes in providing long term loans to finance new projects and thus its role in creating new jobs is tremendous. This year alone the bank (through its borrower clients) has targeted to create 15,765 new jobs, generate Birr 2.76 billion US$ of foreign currency and boost government revenue by 426.75 million in the form of taxes. All these have been achieved without compromising its financial efficiency. Last year, (i.e., in 2018/19) DBE has accrued Birr 2.94 billion profit before tax and this year it targeted to earn Birr 3.41 billion.
All being so, the bank has faced with some challenges. Admittedly, some employees lack ethical integrity and have tried to erode the hard earned reputation of the bank and its image. Also, some social activists who associate themselves with some political elements have tried to tarnish the reputation of this national pride. Despite the promising improvements that have been achieved this year, high level of NPLs (Non Performing Loans) has been another challenge of the bank. This year, the bank has managed to reduce the NPL by 5% points in just 9 months, i.e., from 38.6% in June 2019 to 33.6% by March 31 2020.
All in all, the bank’s role in bringing balanced regional development and meet its social responsibilities are laudable by all standards and these have been possible with the 2,360 committed and hardworking employees of the staff and its management.
In conclusion, Ethiopia has no CSR (Corporate Social Responsibility) standard/ guideline for the financial institutions. In many regions and countries of the world including USA, EU and Asia, CRS has been used as an instrument for business enterprises to positively impact to societal welfare and their environment. In Ethiopia, NBE’s Licensing and Banks’ Supervision guideline has some elements of CRS but it lacks a full dimension and indices.
Currently, many of the banks contribute to social development (mainly in the form of charity) and disclose this in their annual reports. However, it is not uniform and above all is not mandatory. These banks do not even have written guideline on how to and how much to contribute annually. Therefore, it is time for NBE (or other relevant institutions such as the Ethiopian Bankers Association/ EBA) to develop CRS guideline with its indices and monitoring framework. Beyond developing a guideline, NBE or EBA will have to ensure that each bank integrates the CSR to its core business. Once the guideline is mainstreamed, NBE or EBA can periodically evaluate the banks’ social development performances, rank the bank and declare it to the public.

Atsebaha Abay holds BA degree in Business Management and Diploma in general agriculture both from Jimma University and is now attending MBA degree in Financial Services at Addis Ababa University. He served DBE for the last 29 years at different positions and regions: 19 years in Oromia, 6 years in Tigray and 4 years at the headquarters. 29 years back he joined the bank as loan technician and was promoted to different expert positions. In his managerial position, he was first promoted to a team manager in the North Region District then as manager of Mekelle branch. Later he was raised to manage Adama District and currently serving as Director of CRMD III. (