The Finance (FIN) sector strategy targets the creation of 350,000 new savers in the financial system, £40m in lending to Micro, Small, Medium Enterprises (MSMEs) and to catalyse £284m investment. By the end of 2015, EP was active in four interventions in the finance sector to achieve the targets stated above, with more coming in 2016.
SACCO Agency Banking (SAB)
This intervention was designed to address:
- Lack of financial services to rural dwellers due to their geographic distance from Financial Institutions (FIs) concentrated in urban areas;
- Absence of adequate financial services awareness on the demand-side;
- The non-innovative business models of FIs resulting in not serving certain market segments, i.e., the poor, women, and rural dwellers;
SAB brings the front-office assets (or strengths) of a Savings and Credit Cooperative – SACCO (knowing and reaching the communities) – together with the back-office assets of a bank (product range, accounting, treasury, etc.). This can be a powerful way of increasing outreach with a complete set of financial services, including but not limited to savings products.
The easier access to a savings account would encourage and incentivise the poor to save. The technology services provider company, Kifiya Financial Technologies (Kifiya), is the key partner in this intervention in creating linkages between FIs and SACCOs.
Financial Educational Marketing (FEM)
The intervention was developed to address key underlying causes of low savings rates, which are a lack of awareness as well as the knowledge and skill to save. The usual marketing methods and content used by financial institutions do not address the needs of the poor, especially women.
The intervention aims to integrate information and tools to support savings within the marketing campaigns of financial institutions. FEM is carried out in partnership with Eminence Social Entrepreneurs PLC, an enterprise renowned to have adapted and produced the financial educational tools, and Enat Bank, where FEM is being piloted.
Investment Advisory Facilitation
The Ethiopian garment sector suffers from an insufficient flow of investments. H&M, a large European apparel buyer, currently sourcing from Ethiopian garment manufacturers, created an opportunity for the sector to increase investments and jobs by identifying preferred garment manufacturers as suppliers.
Concept International Ethiopia PLC (Concept), as H&M’s preferred choice of garment manufacturer, required significant investment for expansion to meet H&M’s demands. Though there were interested investors who required a feasibility study to be conducted on Concept, the garment manufacturer was unable to pay for this service in full, due to investments made on new machineries.
EP therefore co-shared the cost for the feasibility study, to learn from the innovations of buyer-driven investment generation into a manufacturing sector. It also required Concept to enter into an agreement with a consulting company Veritas Consulting PLC (Veritas) on a success-fee basis to incentivise the consulting company to secure the required financing.
Increase Access to Working Capital for Farmers Cooperative Unions (FCUs)
This intervention was designed to increase working capital access for FCUs through Private Finance Advisory (FAS) development.
The private FAS provider identifies FCUs bankability challenges and provides technical assistance on improving internal equity mobilisation, financial management, record keeping quality, and other issues that would improve bankability. In addition, the FAS provider will assist in developing bankable business plan and facilitate buyer guarantee to FIs, as well as follow-up with banks on loan request, to ensure on-time loan disbursement to FCUs.
The FAS provider is paid on cost-sharing/fee-bases by the FCUs, which are accustomed to receiving inefficient and free support either from donors or directly from the government. This intervention will therefore change the current donor based modality of payment and show evidence for the FCUs to create commercial business relationships with FAS providers. This intervention will improve the capacity of FCUs’ cotton output aggregation from smallholder cotton farmers, and increase cotton production, and income.
EP signed agreement with a FAS provider who signed commercial agreements two FCUs – Selam FCU and Metema FCU.