Agricultural Finance Institute Poised To Unlock Billions In Credit For Farmers

By Sara Solomon

The federal government has begun laying the institutional groundwork for the establishment of an agricultural bank as part of a five-year strategy aimed at expanding access to finance for tens of millions of farmers.

The National Agricultural Finance Implementation Roadmap unveiled in August by officials at the Ministry of Agriculture and regulators at the National Bank of Ethiopia (NBE) revealed that Ethiopia’s financial institutions meet only two percent of an estimated 2.5 trillion Birr in annual demand for credit in the country’s agriculture sector.

The roadmap seeks to raise total annual credit to agriculture to nearly 900 billion Birr before the decade is out, and also includes ambitious targets for modernization through a coordinated, data-driven financial framework that promotes rural inclusion and private capital engagement.

Among the tools officials propose to use to achieve the proposed 10-fold growth in credit is an agricultural bank.

Getachew Mekonnen, head of the rural finance services department at the Ministry of Agriculture, says the bank will operate as a wholesale finance apex institution that, unlike conventional banks, will not operate branches or provide retail banking services, such as direct lending to individual customers.

Instead, it will support existing financial institutions in expanding credit to the agricultural sector.

The bank’s core functions will include mobilizing finance from the private sector, government sources, and development partners, and channeling that support to farmers through financial institutions, Getachew explained.

The private sector, particularly commercial banks, is expected to play the leading role, provided appropriate guarantees and support facilities are in place. Development partners, including the World Bank, the International Fund for Agricultural Development (IFAD), and the African Development Bank, are identified as the second major source of finance.

The government is also expected to contribute.

The bank’s role will also extend to providing capital support, risk-sharing mechanisms, credit guarantees, and institutional linkages to participating financial institutions.

Getachew told The Reporter the initiative is inspired by India’s National Bank for Agriculture and Rural Development, which supports agricultural lending through financial institutions rather than engaging in direct retail banking.

The bank’s head office is expected to be located in Addis Ababa.

Getachew added that preparations are also underway to operationalize other components of the roadmap.

Responding to questions from The Reporter on whether the Farmer Access to Streamlined Financial Services (FAST) system, one of the three pillars of the roadmap, has entered a pilot phase, he said the system remains under development due to fragmented data that must first be integrated.

He noted that additional preparatory work is required, including integrating FAST with the Fayda national identification system. Awareness-raising activities are also underway to promote the use of the national ID among targeted beneficiaries of the roadmap.

An official at the National Bank of Ethiopia (NBE) said the necessary government structures have been established to begin implementation of the roadmap. According to the official, a steering committee and a multi-institutional technical committee have already been formed to oversee the process. To support the rollout, NBE has also set up an interim office within the central bank.

For the current crop year, selected woredas with favorable conditions have been identified, and preparatory work is underway to pilot the initiative. Several commercial banks have expressed interest in participating, the official said, adding that NBE has briefed interested lenders on the roadmap, its objectives, and their expected roles.

Asked by The Reporter whether incentives or regulatory directives would be introduced to encourage bank participation, the NBE official said such measures are currently under consideration.