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BusinessDBE lifts 20 percent payment request on leased property

DBE lifts 20 percent payment request on leased property

The bank to resume lease financing after 18 months

The Development Bank of Ethiopia (DBE) lifted the requirement for businesses to pay 20 percent of the total worth of a leased property.

Announcing its decision to resume lease financing after 18 months of suspension, the management of the Bank disclosed that the 20 percent prerequisite had been unnecessary and contrary to the original lease financing policy and procedures.

Originally, the leasees were expected to show 20 percent of the leased assets as working capital, while the bank was expected to cover the remaining 80 percent. However, later on, they were asked to pay an additional 20 percent of the property under lease, which parliamentarians referred to as an illegal requirement.  

A half-day meeting was called by the Public Expenditure and Finance Supervision Standing Committee of the House of People’s Representatives (HPR) to hear the response of the bank’s Officials regarding the Auditor General’s performance and audit findings carried out between 2017 and first quarter of 2020.

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Among the dozens of questions raised by members of the committee, Officials of DBE were asked why the bank abruptly enacted the 20 percent request on leased assets, although it was given a direction to help small and medium enterprises, beneficiaries of the lease financing scheme.

The bank was also criticized for failing to support the enterprises, referred to as the Missing Middle that have low access to credit despite having no skill gaps in the area they specialize in.

“The requirement has been illegal and in contradiction with the purpose of the lease financing policy,” said MPs.

Responding to the questions and criticism, DBE president, Yohannes Ayalew (PhD) said “As it is highlighted in the Auditor General’s report, it is true that customers [who seek lease financing] have been requested to contribute at least 20 percent of the leased machine cost as collateral.” He added “This requirement, in fact was adopted lately after being frustrated with the increase in the amount of uncollected lease fee.”

He further indicated that at first, when the lease financing began, the original directive demanded customers provide at least 20 percent as working capital, while the bank covered 80 percent for machine purchases.

Later on, Yohannes explained, the bank was forced to introduce the controversial 20 percent which serves as a collateral finance to offset the increase in the number of leasees who failed to settle their fees.

“Customers’ negligence and their failure to settle payments forced the management to introduce such a requirement, although a decision has been made to lift it,” Yohannes added.

Going further, he admitted little attention was given by management over the importance of providing proper orientation and training for customers, its own employees, and stakeholders about lease financing.

“Learning from our failure, we have begun offering trainings and orientations for all concerned stakeholders and customers two months ago,” he remarked.

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