Tigray’s largest microfinance institution, backed by the regional government, is reviving its pre-war plan to transform into a commercial bank as it attempts to recover from the brutal two-year conflict, which forced the microfinance to cease operations.
The management of Dedebit Credit and Savings Institution continued with their plan of transiting into a full-fledged bank, following the footsteps of their peers – the Amhara and Oromia microfinance institutions that transformed into Tsedey Bank and Sinqe Bank last year.
As one of the pioneering microfinance institutions in the country, Dedebit was among the largest in the microfinance sector, with almost 10 billion birr in outstanding credit as of early 2021 before the war broke out.
With approval from the National Bank of Ethiopia (NBE) in 2019, the Institution had already begun preparations to meet the requirements to transit into a bank before the conflict erupted, according to Institution CEO Mulugeta Berhane.
“We had undertaken some preparations, including hiring a consulting firm and meticulous reorganization aligned with the specified criteria,” he explained. “But then, the war unfolded.”
The institution’s management is now resuming preparations and engaging in discussions with the central bank as part of efforts to reinstate the transition process.
Despite not yet formally approaching the NBE with their request, Dedebit’s management is putting the finishing touches on their preparations and conducting a comprehensive assessment of their current standing.
The management and central bank officials recently engaged in discussions regarding the potential transformation into a bank. “It was just a discussion; we haven’t formally submitted a request or initiated the process,” the CEO clarified.
In response to these discussions, the central bank requested the management to prepare a comprehensive status report, including an audit, to facilitate further progress. “It was a prudent step to take,” emphasized the CEO.
A strategic recovery plan is underway, aiming to restore Dedebit to its former status and initiate the process of becoming a bank, albeit with the awareness that the complete transformation may take up to two years.
Notably, the criteria for establishing a bank have significantly changed since Dedebit’s initial journey began three years ago, with the central bank substantially raising the minimum capital requirement. The central bank raised the minimum capital requirement to five billion birr, a tenfold increment from what it was when Dedebit began the process.
Despite the challenges ahead, the institution remains committed to regaining its esteemed position in the microfinance sector, even as it grapples with pressing issues such as loan collection, according to the CEO.
“There is a desire to transition into a bank, and it has become imperative that we do so now. However, we have several pressing issues to address, one of which is the matter of loan collection,” he said.
Expressing the complexity of the situation, he explained that Dedebit currently has approximately 10 billion birr in outstanding loans extended to around 400,000 clients. The Institution’s savings have surged to 12 billion birr, contributed by approximately 1.3 million depositors.
Assuring their commitment to meeting the requirements, he emphasized the close assistance provided by the NBE. “We are confident that we will fulfill the necessary requirements once the loans are repaid. We are seeing encouraging signs of commitment from the public,” he affirmed.