The board of the Ethiopian Army Foundation is looking to establish a microfinance institution, more than a decade after it tabled its initial proposal to form a bank to provide financing to military personnel.
The Foundation, formed in 2010 under the auspices of the Ministry of Defense, first announced plans to establish a commercial bank dedicated to the armed forces two years into its lifespan. Under former Defense Minister Siraj Fegessa, the bank was poised to have been a crucial source of loans to military personnel.
According to regulations from the Council of Ministers, army members, ex-members honorably discharged, permanent civil servants of the Foundation, and the families of members of the defense forces are among those who qualify for benefits from the Foundation.
Access to credit would be life-changing for many of the would-be beneficiaries, particularly for military personnel discharged due to injury.
However, there has been little progress in the decade since the Foundation first made the plans public.
This changed recently after the Foundation’s board decided a microfinance institution would be a better fit for its needs. The decision was based on a recommendation from the National Bank of Ethiopia (NBE), according to Martha Luigi, a state minister of Defense.
A feasibility study has already been completed, and the Foundation is recruiting the necessary manpower, disclosed Martha.
The initial capital for the microfinance institution will be covered by an injection from the Ministry of Defence, according to the State Minister.
Earlier this year, the regulators at the NBE raised the minimum capital requirement from microfinance institutions by more than seven-fold to 75 million birr. There are 45 microfinance institutions operating in the country.
The Foundation and the Defense Ministry are also considering the possibility of re-establishing the microfinance institution as a bank in due time, said Martha.
No less than five former microfinance institutions (Siinqee, Shebelle, Sidama, Tsedey, and Omo) have either completed or begun their transformation into banks since an NBE directive opened up the option in late 2020.
The microfinance institution is expected to be up and running before the current fiscal year is through, according to the State Minister. She hinted that the Foundation has already identified the person it would like to see lead the microfinance, but refrained from revealing the candidate’s identity.
The microfinance institution is one of several projects the Foundation is pursuing. It has received plots of land in all of Addis Ababa’s sub-cities to build housing for its members and beneficiaries.
During a quarterly presentation to Parliament’s Foreign and Peace Affairs committee this week, Defense Minister Abraham Belay (PhD) called for a review of the defense regulation proclamation. He would like to see incentive mechanisms for military personnel included in the legal framework.
The Minister also requested for a budget and investment that would enable his Ministry to expand food–processing facilities that provide military rations, as well as to build factories to produce military uniforms.