Abay Bank has provided two cooperative unions with 50 million Br in short-term loans, pioneering lending services under the Ethiopian Commodity Exchange’s warehouse receipt plan, which was introduced three years ago (ECX).

Merkeb and Damot, the two unions, will each get 25 million Br in loans secured by electronic receipts and agricultural commodities kept at ECX warehouses. On loans to the two unions, Abay Bank charges a 12 percent interest rate, which is lower than the industry average of 14 percent and the highest rate recorded last year of 21 percent.

Farmers, cooperatives, and unions can borrow up to 70% of the value of the commodities they keep under the system. However, the only exportable products that can be used as collateral are soybeans and chickpeas; maize is used to secure loans from domestically traded grains. On the ECX floor, thirteen commodities are traded.

The ECX traded 614,586tns worth of commodities worth close to 40 billion Br last year. Farmers often sell their crop as soon as it is harvested, but markets are swamped with agricultural goods, forcing them to sell at buyer’s prices. If they choose to sell their produce through cooperatives or unions, they must wait months to obtain full payment. Farmers are put in financial jeopardy in either scenario. At the end of the year, farmers are entitled to dividend payments from the unions.

 Source: Abay Bank and Fortune Newspaper


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