Promoting financial inclusion
Christophe Litt is the head of the European Investment Bank representative office to Ethiopia and the African Union. On the heels of announcing loans worth millions of euros in Ethiopia, Litt talked to The Reporter’s Samuel Getachew on the mission of the bank, its many activities in the nation, on its recent investment on M-Birr and why it decided to venture into private investment rather than the public investment it have focused on for the last two decades. Excerpt:
The Reporter: Tell me about the EIB?
Christophe Litt: The European Investment Bank (EIB) is the European Union's bank. It is the long-term lending institution of the European Union owned by its Member States. Working closely with other EU institutions, it provides long term finance and expertise for sustainable investment projects that contribute to EU policy objectives. It is the world’s largest multilateral borrower and lender. More than 90 percent of our activity is in Europe but it is also a large investor around the world. Over the last five years the European Investment Bank has provided more than EUR 10.1 billion for investment across Africa. More information is available at www.eib.org.
What are some of its loan portfolios?
EIB has recently provided financing (EUR 40 million) to improve access to water in small towns across Ethiopia together with the French and Italian cooperation. This interesting project which is currently being successfully implemented includes major capacity building and technical components to the benefit of all stakeholders.
Most recently, we have signed EUR 70 million financing to develop the leasing sector in the country. This operation will be complemented by a technical assistance envelope estimated in the range of USD 5-6 million from the Department for International Development (DFID), which will support the Development Bank of Ethiopia (DBE) as well as all participating financial institutions in the implementation of this initiative. Moreover, additional technical assistance will be extended to support SMEs with business development skills training and develop a rigorous impact evaluation of the entire scheme. For the latter, the EU shall provide support through a grant of up to EUR 1.5 million.
End of last year, we have also signed an investment (USD 10m) in a local private equity fund which will invest in equity in local companies, mostly in active in exporting sectors. Since the coming into force of Lomé I in 1976, the EIB has signed 28 loan operations in Ethiopia.
There are many entrepreneurs looking for such opportunities to start, expand their business. What is the process of borrowing funds from EIB?
EIB does not normally provide direct financing to SMEs. Instead, we reached SMEs or microenterprises through the financing of selected intermediaries such as local banks (both public and private) and microfinance institutions, which on-lend our money to local entrepreneurs. We also invest in private equity funds and venture capital funds, which then provide equity financing to SMEs all over the continent.
Your firm recently endorsed M-Birr with a EUR three million equity investment and more has been promised. It is rare for EIB to invest in such arena. Why do you feel this was a worthy investment to make?
The EIB has a track record of investment to promote financial inclusion in Sub-Saharan Africa. The bank provides financial and technical assistance support to banks and microfinance institutions. M-BIRR provides fintech (mobile money) solutions to financial institution to be more efficient and more capable to deliver financial services. Who will ultimately benefit from their services are the financially excluded or underserved people that the EIB wants to support.
The bank has shown that the final beneficiaries are at the center of its actions; this operation represents an innovative approach to reach the social goals targeted by the applicable Impact Financing Envelope of the Cotonou agreement.
In announcing the new partnership, investment, M-Birr was described as one that has improved lives in many parts of Ethiopia and that the investment was to allow the company to expand in others sectors of the Ethiopian economy. Tell me about that?
M-BIRR has been in operations for several years and its business model has shown very encouraging results, both in terms of financial returns and social impact. With this investment we want to help the company to scale up and expand its outreach. M-BIRR has reached an impressive coverage in terms of the partner financial institutions, agents offering cash in and cash out services, and most importantly the people receiving social payments or making mobile transactions. Yet there is so much more that can be done to make even more Ethiopians able to access financial services, and in particular those living in rural areas that are not covered by traditional bank branches. This investment will be used to increase the presence of agents in the country and show people how easy and convenient it can be to access financial services from their phones.
This investment was made through the Impact Financing Envelop which continues to invest in high risk African investment.
The Bank has been operating for many years in Sub-Saharan Africa under the ACP-EC Partnership Agreement. To do this, the EIB is entrusted with the management of the Investment Facility, funded from the resources of the EU Member States. These funds support projects promoting the development of the private sector and commercially-run public enterprise. The Impact Financing Envelope is a separate window of the Investment Facility, which is meant for higher risk projects with significant developmental impact. This allows the EIB to go further than the traditional operations, and explore new sectors and new regions, supporting private sector initiatives with a major impact for poorer populations.
How did EIB transition from investing in this new private business from its previous investments on only government projects within Ethiopia?
EIB is present in Ethiopia for more than twenty years. And indeed, we have mostly focused on public sector investment even though we also financed a private cement company in 2005. Indirectly, we also recently supported the private sector in the country together with the World Bank through a credit line to the Development Bank of Ethiopia with the objective to develop the leasing sector in the country. This investment will benefit SMEs in the manufacturing sector in Ethiopia. We are also currently appraising an investment in the so-called Woman Entrepreneurship Development Program (WEDP) through the financing of microfinance institutions, which will benefit women needing financing to expand their businesses.
Since the announcement of the opening of our office in Ethiopia in July 2015, our presence on the field has also allowed us to generate a more diversified pipeline including more structured and private sector projects to which we did not always had access in the past. We have now developed a well-balanced pipeline including strategic public projects such as Jobs Compact and Modjo Leather City and private sector projects, including the financing of renewable energy sector projects (IPPs) as well as involving the financing of foreign corporate investing in the country.