The Ethiopian Commodity Exchange (ECX) started a new system that enables farmers to deposit their commodities in a warehouse as collateral to obtain loans. The farmers can store their commodities until the demand and the price of the commodity increases.

To be piloted in the coming post-harvest season, Warehouse Receipt Financing will be tested on selected products and cooperatives. The service will be started with cooperatives at places where maize is produced abundantly, such as Bure at Gojam, Amhara Regional State and Baku at Nekemt, Oromia Regional State, which were identified for the pilot test during the feasibility study.

The financing is a short-term loan, which lasts for not more than a year and enables the producers to achieve a higher sales value by storing the products for a certain period of time.

It also provides a solution to seasonal market fluctuations exhibited during a post-harvesting time where there is high supply and lower prices of the products, according to Wondimagegnehu Negera, CEO of ECX.

“The farmers could get a loan up to 70pc of the value of the commodity they stored,” he said. “Some banks have shown a positive inclination toward providing the service.”

ECX's move arrived on the scene months after the National Bank of Ethiopia drafted a new proclamation that will enable banks to take movable assets of companies or individuals as collateral for loans and advances. The proclamation for movable assets, which will allow low-income populations such as smallholder farmers and lower-scale entrepreneurs to secure loans for investment and job creation purposes, was legislated in June 2019.

ECX executed a year-long study on the demand of the cooperatives and the kind of products that are excessively produced, as well as select production places that have to get priority, according to Wondimagegnehu.

“The measure taken by ECX is very useful even though it is late,” said Mohammed Aman, assistant professor at the School of Agricultural Economy & Agribusiness at Haramaya University for more than a decade. “It reduces post-harvest waste and increases financial inclusiveness for the farmers.”