National warehouse receipt system has been fully operationalized in Ethiopia laying the foundation for modernized trading and financing for agricultural commodities, Jotework Gudeta, Financial Sector Specialist at IFC, wrote on Twitter.
It is recalled that the Ministry of Trade and Regional Integration of Ethiopia has launched a national Warehouse Receipt System /WRS/ in November 2021 after 17 years since the Warehouse Receipt System Proclamation was legislated in 2003. And the system is now fully operational.
The WRS is a legal regulatory framework for licensing and overseeing warehouses that can store the product of farmers and other value chain actors.
Warehouse receipts are negotiable instruments issued by warehouses to farmers that secures and guarantees the storage of a perishable commodity for a specific time period. Warehouse receipts serve as a transferable proof of ownership of a certain good.
Following this, Cooperative Bank of Oromia has started Collateralized Commodity Financing (CCF) for the first time in Ethiopia and financed the first warehouse receipt 0000001 to Hetosa Farmers Cooperative Union on 15 January 2022. This loan will have a wide-ranging benefit to the community as farmers are no longer obliged to sell their crops during low seasons, says the bank.
As clear as black and white, Agriculture is backbone of the Ethiopian economy. It attracts 90% of the country’s export earnings and employs 85% of the country’s labor force on the most of annual reports.
Small holders’ access to finance was overlooked despite sector’s promising potential to transform the country’s economy. The agricultural marketing system is underdeveloped, and it is still in its traditional rudimentary order.
The inability to raise money has been the number one problem with Ethiopia’s farmers for as long as farmers have been around. Financial institutions usually consider lending to small farmers risky mainly due to farmers’ lack of adequate collaterals and high transaction costs.
According to experts, there are several benefits to all actors of a warehouse receipt system such as access to financing; post-harvest loss mitigation; promotion of quality management, grading and certification services; price risk mitigation; trade facilitation; and public food reserve management.
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