US$100 million IFAD loan and grant to Ethiopia to improve financial services in rural areas

Rome, 21 December 2011 – The International Fund for Agricultural Development (IFAD) will provide a US$50 million loan and US$50 million grant to the Federal Democratic Republic of Ethiopia to help poor rural households gain access to financial services and reduce rural poverty in the country.  

The loan and grant agreement for the Rural Financial Intermediation Programme – Phase II (RUFIP II) was signed today by Mulugeta Alemseged, Ambassador Extraordinary and Plenipotentiary of Ethiopia to Italy, and Kanayo F. Nwanze, President of IFAD.

While there has been significant growth in Ethiopia over the past decade, the rural financial markets are largely under-developed. Poor people living in rural areas need access to credit on a regular basis so they can build up their assets and diversify their income-generating activities. Without any collateral, they often depend on moneylenders and pay exorbitant rates of interest.

Currently, only about 15 per cent of rural households have access to savings and credit services. The micro insurance market is not developed. The growth of a vibrant rural financial industry including micro insurance for the poor is a government priority. The RUFIP II will build on the successes of the first phase, scaling up the delivery of financial services from 3.3 million poor rural households in 2012 to 6.9 million by the middle of 2019.  

The programme will enhance outreach of the microfinance institutions (MFIs) through institutional development and provision of equity and credit funds. It will strengthen a community banking framework and promote the Rural Financial Cooperative Societies (RUSACCOS). MFIs and RUSACCOS are the only major sources of agricultural finance for smallholder farmers to support agricultural growth as well as rural employment opportunities.

Cofinanced by the government of Ethiopia, the Development Bank of Ethiopia, commercial banks and MFIs in the country, the programme will be implemented nationwide. Approximately 3.6 million poor rural households living with less than US$2 per day, of which nearly 50 per cent are women, will gain access to improved and reliable financial services either as clients of microfinance institutions or as members of rural savings and credit cooperative societies. 

With this new programme, IFAD will have financed 16 programmes and projects in Ethiopia for a total investment of US$387.7 million benefitting 10,410,000 households.

Press release No.: IFAD/92/2011

The International Fund for Agricultural Development (IFAD) works with poor rural people to enable them to grow and sell more food, increase their incomes and determine the direction of their own lives. Since 1978, IFAD has invested about US$13.7 billion in grants and low-interest loans to developing countries through projects empowering about 405 million people to break out of poverty, thereby helping to create vibrant rural communities. IFAD is an international financial institution and a specialized UN agency based in Rome – the United Nation's food and agricultural hub. It is a unique partnership of 167 members from the Organization of the Petroleum Exporting Countries (OPEC), other developing countries and the Organisation for Economic Co-operation and Development (OECD).