KOTEBE UNIVERSITY OF

EDUCATION

BUSINESS AND ECONOMICS FACULTY

DEPARTMENT OF MANAGEMENT
Financial institution and marketing assignment

Prepared by: -
1. Samrawit Sintayhu Assefa PGE/28836/15

2. Nolawit Lessanu Gebrekrstos PGE/28834/15

3. Yonas Kiflie Babdewa PGW/28917/15

4. Kalkidan Fikremariam Alem PGW/28954/15

5. Zewudu Abebawu Melaku PGW/31215/15

6. Samuel Dessale Feyisa PGW/28968/15

Summited to: - Dr. Atikilt H.

April, 2023
Table of Contents
1. Financial System in Ethiopia .................................................................................................................... 1

2. The different financial institutions operating in Ethiopia ......................................................................... 2

3. Functions and roles of National bank of Ethiopia ..................................................................................... 2

3.1. Monetary Policy:................................................................................................................................ 3

3.2. Banking Supervision: ......................................................................................................................... 3

3.3. Financial Stability: ............................................................................................................................. 4

3.6. Financial Inclusion: ............................................................................................................................ 4

4. Functions and roles of Development bank of Ethiopia ............................................................................. 5

4.1. Financing: .......................................................................................................................................... 5

4.2. Policy implementation: ...................................................................................................................... 5

4.3. Investment promotion: ....................................................................................................................... 5

4.4. Export promotion: .............................................................................................................................. 5

4.5. Financial intermediation: ................................................................................................................... 5

4.6. Capacity building and technical support: ........................................................................................... 6

4.7. Collaboration and partnerships: ......................................................................................................... 6

4.8. Financial inclusion: ............................................................................................................................ 6

4.9. Sustainable development: .................................................................................................................. 6

5. Financial investment alternatives available for Ethiopian investors ......................................................... 7

5.1 Savings Accounts: ............................................................................................................................... 7

5.2 Fixed Deposit Accounts (Fixed-term Deposits):................................................................................. 7

5.3 Stocks .................................................................................................................................................. 7

5.4 Real Estate: ......................................................................................................................................... 7

5.5 Mutual Funds: ..................................................................................................................................... 8

5.6 Bonds: ................................................................................................................................................. 8

4. References ................................................................................................................................................. 9
1. Financial System in Ethiopia

The financial sector in Ethiopia is incorporating financial institutions composed of commercial

banks, insurance and Micro-finance.4 Ideally, a financial institution plays as financial
intermediation that stimulates economic growth by mobilizing financial resources from
depositors to investors to different investment projects. Hence a financial sector as the engine of
the country economic growth. Four major roles play by the financial institutions in economic
growth of the country are: increases the selection of funds-seeking investors and then scrutinizes
the funds-receiving investor that improves the allocation of recourses, deposit mobilizations,
lower cost of transaction through economic of scale by screening and monitoring of costs and
finally, provide risk management and liquidity management tools (Biritu, 2011).

Since the liberalization of financial sector in 1994, a number of domestic commercial banks,
others financial institutions like Micro-finance institutions, insurance companies, government
owed the economy. Pension Fund and saving and credit cooperatives established in Ethiopia.
Although, saving and credit cooperatives are relatively larger in number than formal financial
institutions, their capacity and accessibility to provide financial product for the broad adult
population is still very low. The government owned Pension Fund provides long term
compulsory contractual saving product providing financial service for only for public sector
employees. While, in 2011 Ethiopian government established the private employees’ pension
fund agency to serve private sector employees. Other than these, there are no other financial
institutions that specialize in provision of contractual savings products to the general public.

Although the financial system in Ethiopia is growing at alarming rate since the liberalization of
the sector in 1994, the major share of financial sector is dominated by the banking industry.
Currently, the banking industry shows excess reserve and excess liquidity due to the limited
investment opportunities in the country, the main investment area is really state. The reserve
requirements by the regulatory authority (NBE) are other challenges of the banking industry. The
problem is more sever in state owned commercial banks (CBE) it takes 90 percent and 79
percent respectively. Accordingly, banking industry is regulated for a number of reasons, among
these: protecting depositors’ fund, ensuring safety and stability of the banking system, protecting
safety of banks; to limit credit to a single borrower, and limiting or encouraging a particular kind
of lending because of expected impact on the perseverance of these problems is also implied in
the interest rate structure of the banks as both the lending and deposit rates are almost constant
and show a very limited or no change unless NBE revised the minimum deposit rates for saving
and time deposits. The financial sector is highly regulated by NBE to ensure the safety and
soundness of the financial institutions in the country and contribute for the economic growth.

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2. The different financial institutions operating in Ethiopia

2.1. Commercial Banks: Commercial banks are the most dominant financial institutions in
Ethiopia. The major commercial banks in Ethiopia include Commercial Bank of Ethiopia,
Dashen Bank, Wegagen Bank, United Bank, Awash International Bank, and Nib International
Bank.

2 Microfinance Institutions: Microfinance institutions provide financial services to low-

income households and small businesses. The major microfinance institutions in Ethiopia include
Amhara Credit and Savings Institution, Oromia International Bank, and Addis Credit and
Savings Institution.

3. Insurance Companies: Insurance companies provide insurance services to individuals

and businesses. The major insurance companies in Ethiopia include Ethiopian Insurance
Corporation, National Insurance Corporation, and Ethiopian Reinsurance Company.

4. Investment Banks: Investment banks provide financial services such as underwriting,

mergers and acquisitions, and capital raising. The major investment banks in Ethiopia include
Abyssinia Investment Bank, United Bank Investment Bank, and Awash Investment Bank.

5. Non-Banking Financial Institutions: Non-banking financial institutions provide

financial services such as leasing, factoring, and money transfer services. The major non-banking
financial institutions in Ethiopia include Ethiopian Leasing Company, Ethiopian Factoring
Company, and Ethiopian Money Transfer Company.

❖ The most dominant financial institution in Ethiopia is the Commercial Bank of Ethiopia. It is
the largest bank in the country and provides a wide range of banking services to individuals
and businesses.

3. Functions and roles of National bank of Ethiopia

In 1963, The Ethiopian Monetary and Banking law outlined the functions of The National Bank
of Ethiopia. Its functions included: Controlling the supply, availability, and cost of money and
credit. Managing the country's international reserves. Licensing and supervising commercial
banks. Holding commercial bank reserves. Supervising the loans granted by commercial banks to
individuals and businesses. The NBE was also given the power to grant loans to commercial
banks Printing and issuing currency. The bank was also in charge of controlling the foreign
exchange rates. The proclamation also separated the NBE from government rule and raised the
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NBE’s capital to $192,328.90. During the country’s socialism Regine, the power of the NBE
expanded. In addition to the functions listed above, the NBE participated in Ethiopia’s national
planning.

The NBE was also granted regulatory power over other financial institutions I.e., insurance
institutions, credit cooperatives, and investment-oriented banks in Ethiopia. During this period,
the NBE replaced the Ethiopian dollar with the “Birr” (ETB) and raised the legal limits of
outstanding government domestic borrowing to 25%. After liberal economic policies were
enacted in 1991, the government revised the role of the NBE. In 1994, proclamation 83 outlined
the functions of the NBE. The NBE was tasked with:

Printing currency and controlling the country's money supply. Managing the international
reserve of the country Creating and managing the country's exchange rate policy. Licensing,
supervising, and regulating commercial banks, insurance companies and other financial
institutions. And also Providing short and long-term refinancing facilities to banks and other
financial institutions, promoting financial inclusion in Ethiopia Acting as a banker, fiscal agent,
and financial advisor to the Government.

3.1. Monetary Policy: The National Bank of Ethiopia (NBE) is responsible for formulating
and implementing monetary policy in Ethiopia. This includes setting interest rates, controlling
the money supply, and managing foreign exchange reserves. The NBE's main objective is to
maintain price stability and promote economic growth. To achieve this, the NBE uses a variety
of instruments, including open market operations, reserve requirements, and interest rate policy.
The NBE also works to promote financial inclusion and access to credit, and to ensure the
stability of the banking system.

3.2. Banking Supervision: The NBE is responsible for supervising and regulating the
banking sector in Ethiopia. The department is responsible for the supervision and regulation of
all banking institutions in Ethiopia. The department is responsible for ensuring that all banking
institutions comply with the laws and regulations of the NBE, as well as international standards
and best practices. The department also monitors the financial performance of banks and
provides guidance and advice to banks on risk management and other matters. The department
also works to ensure that banks are well-capitalized and have adequate liquidity to meet their
obligations. This includes setting capital requirements, monitoring compliance with banking
regulations, and conducting regular inspections of banks.

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3.3. Financial Stability: The NBE is responsible for maintaining a sound and stable
financial system that is conducive to economic growth and development. This includes the
ability to maintain a sound and stable macroeconomic environment, a sound and efficient
financial system, and a sound and efficient banking system. The NBE is responsible for ensuring
that the financial system is stable and efficient, and that it is able to support economic growth
and development. The NBE also works to ensure that the financial system is resilient to shocks
and that it is able to respond to changing economic conditions. And also monitoring the financial
system, intervening in times of crisis, and providing liquidity to the banking system.

3.4. Payment System: The NBE is responsible for managing the payment system known as
the Ethiopian Interbank Payment and Settlement System (EIPS). This system is used for the
settlement of interbank payments and transactions, including the transfer of funds between banks,
the clearing of cheques, and the settlement of interbank deposits. The system is also used for the
settlement of government payments, such as taxes and customs duties. The EIPS is a real-time
gross settlement system, which means that payments are settled as soon as they are received.
And also setting up and managing the national payment system, issuing payment instruments,
and providing payment services.

3.5. Currency Issuance: The NBE is responsible for issuing and managing the national
currency, the Ethiopian Birr. This includes setting the exchange rate, issuing coins and notes, and
managing the currency reserves. And also, is the process of printing and distributing the
country's official currency, the Ethiopian Birr. The NBE is responsible for issuing and managing
the currency, and it is the only institution authorized to issue banknotes and coins in Ethiopia.
The NBE also sets the exchange rate of the Birr against other currencies, and it is responsible for
maintaining the stability of the currency.

3.6. Financial Inclusion: The NBE is responsible for promoting financial inclusion in
Ethiopia. This includes providing access to financial services to underserved populations,
encouraging the use of digital payments, and developing financial literacy programs. And also, is
the process of providing access to financial services to all citizens, regardless of their income
level, location, or other factors. This includes providing access to banking services, credit,
insurance, and other financial products and services. The NBE is committed to promoting
financial inclusion in Ethiopia by providing access to financial services to all citizens, including
those in rural and remote areas. The NBE has implemented a number of initiatives to promote
financial inclusion, such as the establishment of a national financial inclusion strategy, the
launch of a mobile banking platform, and the introduction of a national financial literacy
program.

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4. Functions and roles of Development bank of Ethiopia
The Development Bank of Ethiopia (DBE) is a government-owned financial institution that was
established in 1909. Its primary function is to provide financial support to various sectors of the
Ethiopian economy, with a focus on promoting economic development and poverty reduction. It
is a specialized state-owned financial institution primarily aimed at promoting economic
development by providing medium and long-term financing solutions to businesses in various
sectors. The primary functions and roles of the Development Bank of Ethiopia include:

4.1. Financing: One of the primary functions of the DBE is to provide long-term financing to
various sectors of the economy, including agriculture, industry, and infrastructure. This financing
is typically provided in the form of loans, which are designed to support the growth and
development of these sectors. DBE provides medium and long-term loans to businesses in the
priority sectors, such as agriculture, agro-processing, manufacturing, infrastructure, and export-
oriented industries. They offer both local currency and foreign currency loans with favorable
terms and interest rates to support the growth of businesses.

4.2. Policy implementation: DBE plays a significant role in the implementation of the
country's economic policies, focusing on the priority sectors, which are considered essential for
the country's sustainable growth and poverty reduction goals. They provide financial resources
and the necessary technical support to ensure the implementation of these policies.

4.3. Investment promotion: DBE promotes private sector investments and partnerships,
both local and foreign, by providing the necessary financial resources and favorable loan
conditions. They support both greenfield and brownfield projects to encourage new investments
and the expansion of existing businesses.

4.4. Export promotion: The DBE also plays a role in promoting exports from Ethiopia. It
provides financing and other forms of support to businesses that are involved in exporting goods
and services, with the aim of increasing foreign exchange earnings and promoting economic
growth. As part of its mandate, DBE assists in enhancing Ethiopia's export by financing export-
oriented projects, promoting export diversification and capacity building. The bank helps
businesses gain a competitive advantage in international markets by offering export credit
facilities and guarantees.

4.5. Financial intermediation: DBE mobilizes funds from various sources, including local
deposits, government appropriations, loans and grants from international financial institutions,
and capital markets, and then allocates resources to priority sectors to support businesses and
investments in sustainable development projects. The DBE also mobilizes savings from the
public and other sources to finance its lending activities. This helps to ensure that it has the
necessary funds to support economic development and poverty reduction in Ethiopia.
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4.6. Capacity building and technical support: DBE provides capacity-building support,
technical assistance, and advisory services such as project appraisal, feasibility studies, and
environmental and social impact assessments to its clients. This helps businesses make better-
informed investment decisions and ensures projects are economically viable and environmentally
sustainable. In addition to providing financing, the DBE also provides technical assistance to
businesses and other organizations. This assistance can include training, consulting, and other
forms of support that help to improve the performance and competitiveness of these
organizations.

4.7. Collaboration and partnerships: DBE collaborate with government ministries,

agencies, private sector organizations, and international financial institutions to ensure the
alignment of its operations with national development priorities and the effective mobilization of
resources for the country's economic growth.

4.8. Financial inclusion: Through targeted financing programs, DBE helps expand access to
finance for small and medium-sized enterprises (SMEs) and underserved communities, driving
inclusive growth and reducing poverty levels. DBE plays a key role in supporting SMEs in
Ethiopia. It provides financing and technical assistance to help these businesses grow and expand,
which in turn helps to create jobs and promote economic development.

4.9. Sustainable development: DBE is committed to financing environmentally

sustainable development projects, promoting green industries, and focusing on climate-resilient
investments. The bank ensures that environmental and social considerations are integrated into
its operational guidelines and risk management framework. The DBE provides financing for
infrastructure projects, including roads, bridges, and other public works. This helps to improve
the country's infrastructure, which is essential for economic development.

In summary, the Development Bank of Ethiopia plays a vital role in Ethiopia's economic growth
by providing financial resources, technical assistance, and support to businesses in priority
sectors. The bank helps stimulate investment, promote exports, foster financial inclusion, and
contribute to environmentally sustainable development for the reduction of poverty in the
country.

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5. Financial investment alternatives available for Ethiopian investors
5.1 Savings Accounts: this is the most basic investment alternative available to Ethiopian
investors investment option that involves depositing money into a savings account with a bank or
microfinance institution. Savings accounts offer a safe and secure means of saving funds and
earning interest on the deposited amounts. Investors can open savings accounts with commercial
banks operating in Ethiopia.

The issuing procedure for this alternative involves visiting a bank, providing identification and
opening an account, then depositing funds into the account with the chosen financial institution
and depositing money.

5.2 Fixed Deposit Accounts (Fixed-term Deposits): This is a low-risk investment

option that involves depositing money with a bank for a fixed term and earning a fixed rate of
interest. These are also known as time deposits, where Ethiopian investors deposit their funds for
a fixed period, typically ranging from several months to a few years. In return, the investors
receive a fixed interest rate, which is higher than the interest rate on savings accounts. To open a
fixed-term deposit, investors need to visit their nearest bank, provide identification, and specify
the term and amount they wish to invest.

The issuing procedure involves opening a fixed deposit account with the chosen bank and
depositing money for the agreed-upon term.

5.3 Stocks: This involves buying shares of ownership in a company that is publicly traded on
the Ethiopian Securities Exchange. Investing in stocks involves buying shares of ownership in a
company. This can be done through a stockbroker or online trading platform.

The issuing procedure involves the company going public and selling shares to the public
through an initial public offering (IPO). Marketing aspects involve promoting the company's
growth potential and financial health to potential investors.

Marketing aspects: Companies can market their IPOs through various channels such as social
media, newspapers, and radio advertisements. Investors can also be reached through brokerage
firms or investment advisors.

5.4 Real Estate: This involves investing in physical property such as land, buildings, and
other assets. The issuing procedure involves purchasing the property through a legal process and
obtaining the necessary permits and approvals. Investing in real estate involves buying and
owning property with the goal of generating rental income and/or capital appreciation

The issuing procedure involves contacting a real estate agent or a developer, selecting a property
and completing the necessary paperwork, including payment.

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Marketing aspects involve promoting the property's location, amenities, and potential for rental
income or appreciation.

5.5 Mutual Funds: This is an investment option that pools money from multiple investors to
invest in a diversified portfolio of stocks, bonds, and other securities. The issuing procedure
involves a mutual fund company registering with the National Bank of Ethiopia and obtaining a
license to operate.

In general, the issuing procedures for financial investment alternatives in Ethiopia involve
opening an account with a financial institution, purchasing securities through authorized dealers
or brokers, or registering with the National Bank of Ethiopia for certain investment options. It is
important for investors to research and understand the risks and potential returns of each
investment option before making a decision.

Marketing aspects: Investors can learn about mutual funds through marketing materials provided
by fund managers or through financial advisors who recommend them based on individual needs
and risk tolerance levels.

5.6 Bonds: A bond is a debt security where you lend money to a government or corporation for
a fixed period of time at a fixed interest rate.

Government bonds: Ethiopian investors can invest in government bonds, which are issued by the
Ethiopian government to finance public projects and support economic growth. These bonds
come with a fixed maturity period, and investors receive periodic interest payments, known as
coupon payments. The interest rates on government bonds are generally low, but they offer a
safe investment option. The Central Bank of Ethiopia occasionally announces auctions for the
purchase of treasury bills and bonds, which Ethiopian investors can subscribe to through their
banks.

Corporate bonds: Corporate bonds are debt securities issued by local corporations and businesses
to raise capital for various projects. These bonds come with a fixed interest rate and maturity
period. Ethiopian investors can purchase corporate bonds directly from the issuer (i.e., the
corporation) or through secondary markets.

The issuing procedure for bonds in Ethiopia involves buying them through the National Bank of
Ethiopia or through a licensed broker. Ethiopian investors can invest in bonds issued by the
government or private companies. These are debt securities that pay interest to the investor over
a specified period of time.

Marketing aspects: Issuers can market their bonds directly to investors or through intermediaries
such as banks, brokers, and investment advisors.

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4. References
Alemi, T. D. Investment and Financing Decisions Criteria in Ethiopia: Under Condition of Uncertainty.

http://www.dbe.com.et/

https://www.nbe.gov.et

HUSSEN, D. M. (2014). Access of financial service in Ethiopia (Doctoral dissertation, KDI School).

IOSCO Public Document No. 98, Hedge Funds and Other Highly Leveraged Institutions, IOSCO
Technical Committee, November 1999, cited in Supra note at 61, p. 6.

Malela, I. H. (2022). Financing Pattern of the Development Bank of Ethiopia (DBE).

Nbe.edpc@ethionet.et
Quarterly Bulletin Second Quarter 2021/22 Fiscal Year Series.