Dutch development bank FMO has extended a 65% partial guarantee on a 108m Ethiopian Birr ($4m) loan by the Commercial Bank of Ethiopia (CBE) to the Vision Fund Microfinance Institution (VFMFI). 

The loan is to help the microfinancer in reducing financial exclusion in poor, rural areas of Ethiopia.

Linda Broekhuizen, CIO of FMO, said: “We want to support Ethiopia’s ambitious plans to spur growth through further opening up the economy to foreign investment and by helping local institutions to address the critical issue of financial exclusion in rural areas.” 

“We are glad that we can do this jointly with our partner Vision Fund. Large swathes of the population have very limited access to financial services to unlock their entrepreneurial potential, so as a financial institution that cares about empowering entrepreneurs, this is a logical area for FMO to start as we build strategic relationships in the market.”

VFMFI, with total assets of $47m and almost 171,000 clients, is the largest privately-owned microfinancer in Ethiopia and is focused on rural financial inclusion. 

Strong demand is pushing VFMFI’s requirement for more funding and state-owned CBE, Ethiopia’s largest bank, is able supply this with the backing of a financially strong counterparty such as FMO to guarantee the majority of the loan.

The National Bank of Ethiopia, the central bank, has formulated a plan for 60% of the population to achieve access to financial services by 2020, compared with 22% in 2014. 

Microfinance, in combination with fintech, will play a vital role in achieving this goal in a country with one of Africa’s lowest levels of per capita income.  

Taye Chemdessa, CEO of VFMFI, said: “We are delighted with the guarantee arrangement facilitated by FMO. It enables VFMFI to access the credit facility from the Commercial Bank of Ethiopia’s micro finance window.” 

“Access to funding allows VFMFI to further expand its operations and reach a larger number of clients, most of whom are located in rural areas. This partnership helps us to have an even greater impact on vulnerable children and their families.” 

The partial loan guarantee of 70m Ethiopian Birr ($2.6m) to CBE is being provided by the MASSIF Fund, which FMO manages on behalf of the Dutch government, and focuses on investing in the growth of financial institutions in the least developed countries. 

The MASSIF Fund aims to take the early high investment risks and act as a catalyst for the growth of the private financial sector and financial inclusion, easing the way for other investors to follow in these frontier markets.

FMO was supported by ICCO Cooperation/ICCO Terrafina's Ethiopian office in its execution of this transaction.