10 April

Wegagen Bank and KfW sign Credit Guarantee Framework Agreement

news6On Friday November 5, 2010, Wegagen Bank and KfW Entwicklungsbank, the German Development Bank signed a Credit Guarantee Framework Agreement to securitize loans of Wegagen Bank to Microfinance Institution (MFIs) via a 50% credit guarantee arrangement through CapitaLink Project. This agreement is expected to curb a shortage of loanable funds that are constraining the growth and wider outreach of MFIs. The agreement is a crucial step forward in creating a linkage between the banking and the micro finance institutions and developing the financial sector to contribute to poverty alleviation and economic development in Ethiopia.

This agreement is part of the German Government’s support to Ethiopia under the framework of engineering capacity building program (ecbp) through KfW. It is implemented for four years by two partners, Triodos Facet and First Consult, under the umbrella of CapitaLink Project.

In this attempt, KfW has signed an agreement with the Government of Ethiopia in order to bridge the funding resource gap of MFIs by providing a guarantee facility to encourage banks to provide loans to MFIs. Following suit, KfW earmarked EUR 4.5 million for the guarantee facility and an additional EUR 1.5 million for technical assistance to banks and MFIs.
It is the firm conviction of Wegagen Bank to support such ventures as MFIs, who make significant contribution to the development of the micro-small and medium enterprises (MSMEs) and the country’s economic development overall. Thus, the Bank will do its level best towards the realization of this project.

The overall mission of CapitaLink is to see MFIs in Ethiopia being able to adequately and independently secure and service commercial sources of finance via improvements in their corporate governance, reporting standards, corporate performance and market orientation.

The joint efforts of Wegagen Bank and KfW through the CapitaLink project is believed to contribute to majority of the rural, low-income population as well as MSME business sectors that are not considered as bankable. So far, there are 30 MFIs in the country serving over 2 million clients. These MFIs provide a range of financial services to the active poor in trade, agriculture, construction, consumption, manufacturing, and service sectors. These MFIs have a strong track record even by a global standard.

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