The National Bank of Ethiopia (NBE) has required all the commercial banks to submit a quarterly report that shows the amount of loans and advances they approved and disbursed against movable property. Approved almost a year ago, the law requires banks to dedicate five percent of their total loan portfolio toward the agricultural sector.

Signed by Solomon Desta, a vice governor at the central bank in charge of financial institutions supervision, the letter was dispatched at the end of last month. The Movable Collateral Registry became operational as of last February, activating a scheme allowing banks to approve loans by taking movable assets as collateral.

The regulatory bank also requires the banks to file the annual disbursement budget and actual loan disbursements against movable properties in a format that is provided to them beforehand. The reports have to be filed at the central bank in soft copy via email or as a hard copy to the Ethiopia Movable Collateral Registry Office that was established under the NBE. Headed by a director, the Office has an Electronic Collateral Registry System and is in charge of approving and providing user accounts for creditors to access the collateral.

Banks should allocate at least five percent of their credit disbursement of the year to entities in the agricultural sector including individuals, cooperatives, unions, enterprises and others using movable property as collateral. Banks that fail to comply with this rule will have to allocate 10pc of their loans to agriculture in the following year.

Taking movable property as collateral for loans and advances is part of the administration's effort to ensure access to finance as well as to raise the loans directed to the agricultural sector. Over the past five years, less than 10pc of loans were directed to agriculture, which is significantly lower than the 30pc to 40pc targeted by the Ministry of Agriculture. The scheme was introduced as part of the Homegrown Economic Reform Agenda that was kicked off by the government two years ago.

The legislation of the law is a landmark initiative since it will encourage the majority of the population who are living in rural parts of the country, according to Yinager Dessie (PhD), governor of the central bank, who spoke at the CEO Forum that was organised last week by Precise Consult.

"If we create access to finance to the farmers and pastoralists," he said, "It'll create a positive impact on the life and livelihood of many."

Yinager also said that the central bank is working closely with the Ministry of Agriculture, Ethiopian Intellectual Property Office, banks and insurance companies to realise the plan.