Revised Lease Financing Procedure

DEVELOPMENT BANK OF ETHIOPIA
REVISED LEASE FINANCING PROCEDURE

MANUAL (DRAFT)
[No. LFPM/002/2023]
November 2023
Table of Contents
Table of Contents_______________________________________________________________i
Acronyms____________________________________________________________________iv
1. Preamble__________________________________________________________________1
2. Issuing Authority___________________________________________________________2
3. Short Title_________________________________________________________________2
4. Definition of Terms_________________________________________________________2
5. Governing Rules___________________________________________________________5
6. Scope of the Revised Lease Financing Procedure Manual_________________________5
7. Duties and Responsibilities___________________________________________________6
7.1. Board of Management___________________________________________________________6
7.2. President______________________________________________________________________6
8. Lease Financing Service_____________________________________________________7

9. Capital Requirement________________________________________________________8
10. Areas of Lease Financing____________________________________________________8
10.1. Agricultural Mechanization______________________________________________________8
10.2. Agro-Processing Industries______________________________________________________10
10.3. Manufacturing Industries_______________________________________________________11
10.4. Construction Material Production Industries_______________________________________12
10.5. Mining and Quarries Industries__________________________________________________12
10.6. Tour Operation_______________________________________________________________13
10.7. Health Care and Sanitation Services______________________________________________14
11. Mode of Lease Financing____________________________________________________15

11.1. New Lease____________________________________________________________________15
11.2. Expansion Lease_______________________________________________________________17
12. Lease Buyout_____________________________________________________________20

13. Working Capital Loan_____________________________________________________21
14. Special Loan______________________________________________________________22
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15. Working space and Infrastructure___________________________________________22
16. Eligibility Criteria and Requirement Checklists________________________________23
16.1 Eligibility Criteria_____________________________________________________________23
16.2 Requirement Checklists_________________________________________________________24
17. Lease Financing Process____________________________________________________27

17.1 Customer Sourcing and Selection_________________________________________________28
17.2 Due Diligence or KYC Assessment________________________________________________30
17.3 Lease Appraisal_______________________________________________________________33
17.4 Lease Review Team____________________________________________________________37
17.5 Lease Approval________________________________________________________________37
17.6 Lease Contract and Documentation_______________________________________________40
17.7 Concern for the Environment____________________________________________________41
18. Terms and Conditions______________________________________________________43

18.1 Service Charge and Penalty Fees_________________________________________________43
18.2 Service Charge________________________________________________________________43
18.3 Penalty Fee___________________________________________________________________43
18.4 Grace Period__________________________________________________________________44
18.5 Terms of Lease Payment________________________________________________________44
18.6 Equity Blocking and Release_____________________________________________________45
18.7 Other Terms and Conditions____________________________________________________45
19. Accelerated Lease Payment_________________________________________________46

20. Exposure Limits___________________________________________________________46
21. Lease Administration______________________________________________________47
21.1 Compliance Checking__________________________________________________________47
21.2 Capital Goods Procurement_____________________________________________________47
21.3 Registration of Capital Goods____________________________________________________50
21.4 Insurance, Repair and Maintenance______________________________________________50
21.5 Project Follow-up and Monitoring________________________________________________52
21.6 Payment Rescheduling__________________________________________________________55
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21.7 Transfer of Lease Asset_________________________________________________________56
21.8 Relocation of Capital Goods_____________________________________________________57
21.9 Financial and Other Record Keeping_____________________________________________58
21.10 Accounting Treatments for Lease Financing____________________________________58
21.11 Events of Default___________________________________________________________59
21.12 Repossession and Disposal of Leased Asset_____________________________________60
21.13 Lease Portfolio Management, Classification and Provisioning_____________________63
21.14 Lease Risk Review_________________________________________________________63
22. Write-Off/Write-Back______________________________________________________64
23. Handling of Exceptions_____________________________________________________64
24. Record Keeping and Reporting______________________________________________64
25. Depreciation Allowance and Tax Exemption___________________________________66
26. Accountability____________________________________________________________66
27. Auditing_________________________________________________________________66
28. Complaint Handling_______________________________________________________66
29. Revision__________________________________________________________________67
30. Repeal___________________________________________________________________68
31. Effective Date_____________________________________________________________68
Annex 1_____________________________________________________________________69
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Acronyms
1. ‘’AML/CFT stands for Anti-Money Laundering and Combating the Financing of Terrorism.
2. “BOM” stands for Board of Management of Development Bank of Ethiopia.
3. “BDS ” stands for Business Development Services.
4. ‘’CIF’’ stands for Cost Insurance Freight.
5. “CGPSD” stands for Capital Goods Procurement and Supply Directorate.
6. ‘’PMMISD’’ stands for Portfolio Management and MIS Directorate.
7. “DBE” stands for Development Bank of Ethiopia.
8. ‘’EED’’ stands for Ethiopian Enterprises Development.
9. “EMC” stands for Executive Management Committee.
10. ‘’FIC’’ stands for Financial Intelligence Centre.
11. ‘’IBSD’’ stands for International Banking Services Directorate.
12. “KYC” stands for Know Your Customer.
13. “LAT” stands for Lease Approval Team at Head Office.
14. “LAPT” stands for Lease Appraisal Team at Districts.
15. ‘’L/C’’ stands for Letter of Credit.
16. ‘’LFPM” Lease Financing Procedure Manual.
17. ‘’LRT’’ stands for Lease Review Team at Districts.
18. “WRTT” stands for Lease Workout and Recovery Team
19. ‘’MSMEs’’ stands for Micro and Small Medium Enterprises.
20. “NBE” stands for National Bank of Ethiopia.
21. “NPLs” stands for Non-Performing Leases.
22. “SMEs” stands for Small and Medium Enterprises.
23. “V/P SMEF” stands Vice president Small and Medium Enterprises Financing.
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1. Preamble
WHEREAS, the Development Bank of Ethiopia (DBE) is mandated to support economic growth
and development of the country through the provision of medium and long-term finance and
other credit services and facilities to investment projects as well as Small and Medium
Enterprises (SMEs) through lease financing service in the government priority areas and sectors
which seem to have market failure, impacted by economic shocks and missing or
underdeveloped market,
WHEREAS, the Bank provides lease financing services in hire purchase modality to its
customers in line with proclamation No. 103/1998 (as amended by 807/2013) and relevant NBE
directives. While providing these services, the Bank shall practice a sound lease financing policy
and working procedure to ensure prudent and smooth lease financing operation.
WHEREAS, the Bank shall provide lease financing services to Small and Medium Enterprises
for those who submit feasible business plans, it requires a sound lease financing procedure
manual.
WHEREAS, the major reason for revision was to provide operational clarity to the revised lease
financing policy statements, consolidate various memos and circulars issued as procedures
within the recent years, improve service delivery to close gaps that have resulted in the
accumulation of NPLs and bridge operational gaps created due to lack of revised lease financing
procedure manual.
NOW, THEREFORE, the Bank has issued this Lease Financing Procedure Manual based on
the Revised Lease Financing Policy No. LFP/002/2022 issued on July 2022 to address
operational gaps in the existing lease financing process.
2. Issuing Authority
This Procedure is issued by the President of the Bank based on the duties and authorities stated
in Article 7.2 Sub-Article 2 of the Revised Lease Financing Policy No. LFP/002/2022.
3. Short Title
This Procedure may be cited as “Revised Lease Financing Procedure Manual of Development
Bank of Ethiopia, No. LFPM/002/2023”
4. Definition of Terms
For the purpose of this Procedure:
4.1. Acceptance Certificate shall mean a document signed by the lessee to confirm that the
asset has been delivered to the lessee by the lessor in good working condition and as per
the specification requested by the lessee.
4.2. Agricultural Mechanization shall mean the use of machines, implements and tools for
agricultural land development and preparation, crop production, harvesting, post-harvest
handling and on-farm processing.
4.3. BoM shall mean the Board of Management of the Development Bank of Ethiopia.
4.4. Branch shall mean all branches of the Development Bank of Ethiopia.
4.5. Capital Goods shall mean any equipment or machine that may be used to produce
products or to provide services and includes accessories.
4.6. Customer or Beneficiary shall mean individuals and companies including their
shareholders that are categorized under the missing middle i.e. those who are not able to
avail adequate collateral.
4.7. Default shall mean failure to make scheduled payments willfully or any delay in payment
exceeding 30 days from the due date.
DBE, Revised Lease Financing Procedure Manual, November 2023
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4.8. District shall mean all districts of the Development Bank of Ethiopia.
4.9. Economic Life of an Asset shall mean the maximum period over which the asset can
usually be depreciated.
4.10. Exceptions shall mean lease approved by variations from the Lease Financing Policy.
However, the nature of the lease request or issues raised therein is within the spirit of the
Lease Financing Policy.
4.11. Expansion Project shall mean an existing SMEs customer of the Bank who obtained
lease financing service and requests for project expansion through lease financing to
increase product line, product mix, quantity and quality of outputs, to create forward or
backward linkages or both.
4.12. Financial Lease shall mean a type of leasing by which a lessor provides a lessee against
payment of mutually agreed installments over a specified period with the use of specified
capital goods which is: either already acquired by the lessor; or purchased by the lessor
from a third party, known as the manufacturer or supplier, chosen and specified by the
lessee; and under which the lessor shall retain full ownership right on the capital goods
during the period of the lease agreement, and, subject to agreement between the two
parties, the lessee may have an option to purchase the capital goods outright after the
termination of the lease period at an agreed price.
4.13. Grace Period shall mean the period covering from commissioning to the full operation
of the project. During the grace period, the lessee is required to make payment of accrued
service charge.
4.14. Hire-purchase shall mean a type of leasing by which a lessor provides a lessee with the
use of a specified capital goods, against payment of mutually agreed installments over a
specified period under which, with each lease payment, an equal percentage of the
ownership is transferred to the lessee and, upon effecting of the last payment, the
ownership of the capital goods shall automatically be transferred to the lessee.
4.15. LAT Shall mean Lease Approval Team(s) at Head Office.
4.16. LAPT shall mean Lease Appraisal Team(s) at District(s).
4.17. Lease Fee shall mean the principal amount to be paid by the lessee.
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4.18. Lease Financing shall mean capital goods financing service availed by the Bank to
SMEs under “hire-purchase” modality.
4.19. Lease Payment shall mean the amount paid per period by the lessee to the lessor in
return for the use of the capital goods.
4.20. Lease Portfolio shall mean lease amount receivables in return to leasing of capital goods
to SMEs and it can be extended to all lessees categorized into priority sectors, form of
business ownership, geographical location or otherwise.
4.21. Lease shall mean the legal contract between lessor and lessee. It deals with the use of
capital goods in exchange for a payment or series of payments.
4.22. Leasing shall mean financing in kind for production and service purpose by which a
lessor provides specified capital goods on financial lease or hire purchase agreement
basis to a lessee, without requirement of collateral, for a specified period of time and
collects in return a certain number of periodical payments over the specified period.
4.23. Lessee shall mean a person who, under a lease agreement, obtains capital goods from a
lessor and has the right to use the capital goods, against payment of rent for an agreed
period of time.
4.24. Lessor shall mean a person who, under a lease agreement, provides to a lessee the right
to use the capital goods in return for rent for an agreed period of time.
4.25. Manufacturer or Supplier shall mean a person, other than the lessor or the lessee, who
is in the business of manufacturing or selling capital goods.
4.26. NBE shall mean the National Bank of Ethiopia.
4.27. New Project shall mean a project which is under formation and not involved in
production or service.
4.28. Payment Rescheduling shall mean the rearrangement or resetting of the payment
schedule of the lease due to acceptable reasons.
4.29. Person shall mean any natural or juridical person.
4.30. President shall mean the President of the Development Bank of Ethiopia.
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4.31. Registration Organ shall mean the authorized federal organ in the case of capital goods
to be used in more than one regional state, or the competent regional organ in the case of
capital goods to be used within one regional state.
4.32. Repossession shall mean capital goods taken back from a lessee, which was once leased
by the Bank.
4.33. Service Charge shall mean a charge calculated on principal lease amount balance of the
lessee.
4.34. Small and Medium Enterprise (SME) in the context of DBE shall mean an enterprise
that creates job opportunity for at least 11 employees; has a minimum capital of Birr
500,000 and a maximum initial total asset of Birr 90 million (i.e including working
capital) as per the Definition of Organization, Powers and Duties of the Ethiopian
Enterprises Development (EED) Regulation No. 526/2022.
4.35. Strategically Important Sectors shall mean lease financing projects entertained due to
their significant contribution towards the national development goals.
4.36. The Lessor shall mean Development Bank of Ethiopia (DBE) or the Bank.
5. Governing Rules
This Revised Lease Financing Procedure Manual is governed by capital goods leasing business
proclamations No. 103/1998 (as amended by proclamation No. 807/2013) and the relevant NBE
directives. Hence, specifically all Lease products, Lease processing and Lease administration of
the Bank shall comply with:
a. Laws, regulations and conventions of the country applicable to Leasing businesses.

b. Directives of the Supervising Authorities of the Bank.
c. The Lease Financing Policy and this procedure, and Internal control guidelines.
6. Scope of the Revised Lease Financing Procedure Manual
This Revised Lease Financing Procedure Manual is applicable to all lease processing and
administration functions of the Bank in relation with Lease financing.
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7. Duties and Responsibilities
Without prejudice to the specific responsibilities indicated elsewhere in the relevant

proclamation under Article 2 of the Revised Lease Financing Policy No. LFP/002/2022, the
following are duties and responsibilities of the Board of Management and the President of the
Bank in relation to the lease financing function.
7.1. Board of Management
The BoM shall:
7.1.1 approve the Policy and amendment thereof;

7.1.2 oversee the implementation of the Lease Financing Policy and the overall lease
financing management of the Bank;
7.1.3 approve lease portfolio exposure limits, lease risk tolerance and new lease products;
7.1.4 set lease targets and priorities;
7.1.5 approve service and penalty charges.
7.2. President
The President shall:
7.2.1 initiate, when deemed necessary, changes on Lease Financing Policy, lease portfolio
exposure limits, and lease pricing/service charge;
7.2.2 approve Lease Financing procedures/guidelines;
7.2.3 decide on lease approval and non-performing lease resolution mechanisms; however,
he/she can delegate such functions to his/her deputies, other bank employees, and/or
committees and/or teams established for this purpose, as the case may be;
7.2.4 ensure the proper application of leasing related laws, regulations, and directives
issued by the pertinent authorities, as well as the proper implementation of the Lease
Financing Policy;
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7.2.5 put in place a system that aligns leasing functions of the Bank with other core and
support units;
7.2.6 monitor whether the overall leasing risk identification, measurement and mitigation
process are sound and safe;
7.2.7 ensure maintenance of proper check and balance in the lease processing;
7.2.8 approve exceptions from the lease financing policy;
7.2.9 set sanction limits for districts and branches according to their grades.
8. Lease Financing Service
8.1. DBE shall provide capital goods finance in the form of Hire purchase for SMEs.
8.2. The Bank shall not finance used or second hand capital goods. But, this does not violate
the transfer of lease to third party as lease transfer involves transferring of capital goods
that have been leased and due to various reasons the capital goods and the lease amount
receivable have to be transferred from the previous lessee to other lessee. Moreover, it
does not violate lease buyout to be undertaken by the Bank as per the stipulated lease
financing policy of the Bank.
8.3. The Bank purchases the capital goods by its name.
8.4. The total amount of lease financing shall include all costs until commissioning
including insurance, transport, installation and related costs. The associated costs, shall
not exceed 15% of the total cost.
8.5. Associated Cost shall mean cost incurred in the procurement of machinery after CIF,
Bank Charge and taxes (if any) which shall include costs until commissioning including
port handling, local transport, loading and unloading, installation and commissioning
costs and other related costs.
8.6. The Bank shall not refinance own purchased capital goods.
8.7. The Bank shall hold 10% of the total machinery cost as contingency during appraisal
works for covering cost increment due to foreign currency fluctuation and other
associated costs of machinery, and this shall be part of the lease financing contract.
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9. Capital Requirement
9.1. The Bank shall only accept a lessee with a total initial capital of Birr 500,000 and a
maximum initial total asset of Birr 90,000,000 (i.e including working capital) for
manufacturing enterprises as per the Definition of Organization, Powers and Duties of the
Ethiopian Enterprises Development (EED) Regulation No. 526/2022.
9.2. The Bank shall extend lease financing services to Small and Medium Enterprises (SMEs)
engaged in manufacturing industries sector having a capital from Birr 500,000 to
18,000,000.
9.3. The maximum capital and total asset for Agriculture and Service sector capital shall be
Birr 15,000,000 and Birr 75,000,000, respectively.
9.4. Notwithstanding the provision under sub-article 9.2 and 9.3 herein above, the Bank may
accept a total capital equivalent to the maximum value of the leased capital goods to the
following customers:
a. Producers’ Cooperative Unions

b. Youth Unions
c. Women Unions
d. Unions of Persons with Disabilities.
10. Areas of Lease Financing

The Bank shall finance new capital goods for SMEs from the priority areas of the Government
like; Agricultural Mechanization, Agro-Processing, Manufacturing Industries, Construction
Industries, Mining & Quarries, Tour Industries, Health Care and Sanitation, and other priority
areas designated by the government.
10.1. Agricultural Mechanization
Agricultural mechanization refers to the use of machines, implements and tools for agricultural
land development, crop production, harvesting, and preparation for storage, storage, and on-farm
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processing. For different purposes of farm activities, mechanization tools/equipment of various
types are required for crop production starting from farmland preparation to post harvest
activities.
The Bank provides appropriate agricultural machineries, tools, or equipment to lessees for the
production of agricultural products, animal farming and provision of agricultural mechanization
services.
The Bank has also authorized to provide lease financing services to lessees who would be
engaged in agricultural mechanization services. The services providers/lessees are expected to
provide efficient agricultural mechanization services to farmers whose plots of land may be
arranged in clusters.
Due to the specific nature of the sector, the Bank shall design mechanisms to monitor movement
of agricultural machinery and equipment by ways of fixing GPS and related monitoring
technologies.
The targeted areas for SMEs financing in agriculture include but not limited to the following:
a) Provision of Agricultural Mechanization Services.

b) Production of Horticultural Products, Vegetables, Mushrooms, etc
c) Production of Improved Seed Multiplication
d) Poultry Farming
e) Animal Breeding
f) Fishery (Fish Farming)
g) Dairy Farming;
h) Cotton Farming
i) Fiber (Sisal) Crops Production
j) Silk Worm Farming;
k) Ostrich Farming;
a) Other agri-mechanization services shall be determined by the Bank when and as
required.
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10.2. Agro-Processing Industries
Agro-processing is defined as set of techno-economic activities, applied to all the produces,

originating from agricultural farm, livestock, aqua cultural sources, and forests for their
conservation, handling and value-addition to make them usable as food, feed, fiber, fuel or
industrial raw materials.
Agro-processing industries could be based on full-blown or partial out-growers scheme (i.e.

collection of necessary input(s) externally or self-contained, i.e. production of the necessary
inputs from within the enterprise.
Some of targeted Agro-Processing Industries under SMEs lease financing could be:
a) Dairy products processing:
i. Pasteurized milk production;
ii. Cheese production; and
iii. Butter production.
b. Coffee roasting and grinding;
c. Animal feed processing;
d. Honey processing;
e. Poultry products processing;
f. Spices, medicinal plants and essential oil production; extraction and

processing;
g. Fish products processing;
h. Edible oil extraction and processing;
i. Fruit and vegetable processing;
j. Food processing; and
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k. Other agro-processing industries shall be determined by the Bank when and as
required.
10.3. Manufacturing Industries
DBE finances manufacturing industries engaged in converting raw materials, components, or

parts into semi-finished or finished goods. Those manufacturing projects are preferential if they
can promote the countries development objectives, like utilizing local resources/inputs, substitute
imports and produce exports.
Some of targeted Manufacturing Industries under SMEs lease financing could be:
a. Leather and leather products;
b. Textile (spinning, weaving, dying, knitting, garment, in combination or

separately);
c. Metal and non-metallic works;
d. Oxygen and chemical production;
e. Plastic products including pipes, fittings, etc
f. Wood works;
g. Handicrafts;
h. Soap and detergent;
i. Jewelers;
j. Packaging materials manufacturing industries;
k. Publication and printing products and services;
l. Concrete poll production;
m. Paint; and
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n. Other manufacturing industries shall be determined by the Bank when and as
required.
10.4. Construction Material Production Industries
Some of targeted Construction Material Production industries under SMEs Lease Financing
could be:
a. Hallow block, pipe and bricks production;
b. Bazola production;
c. Batching plant;
d. Terrazzo and tiles production;
e. Ceramic Production;
f. Gypsum production;
g. Marble production and processing;
h. Limestone production and processing;
i. Construction materials/inputs/ production; and
j. Other Construction industries shall be determined by the Bank when and as

required.
10.5. Mining and Quarries Industries
DBE finances mining and Quarries industries engaged in the extraction of minerals, ores, and
raw materials or any other thing that has economic value from the earth.
Some of targeted Mining and Quarries Industries targeted under SMEs lease financing could be:
a. Gold and precious minerals production;

b. Gravel production;
c. Marble block extraction;
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d. Limestone extraction and
e. Other mining and quarries shall be determined by the Bank when and as
required.
10.6. Tour Operation
The Bank finances tour vehicles to enhance the tourism sector that meet the lessee eligibility
criteria in tour operation.
a) The Basic Eligibility Criteria for Tour Operation
i. The applicant shall submit competency letter from the Ministry of Tourism;
ii. The applicant shall submit supporting letter from the concerned government
organ that confirms whether the applicant has obtained duty free privilege or
not;
iii. The applicant should sign an undertaking agreement that clearly states using
the leased capital goods or vehicles other than the intended purpose is
strictly prohibited;
iv. Due to the specific nature of tour industry, the Bank shall design
mechanisms to monitor movement of the tour vehicles and equipment by
ways of fixing GPS and related monitoring technologies.
b) The Type of Capital Goods to be Provided for Tour Operation

i. Bus, Midi-bus, Minibus that are suitable for tour service. The number and type
of vehicles shall be determined as per the applicable directives from the
concerned government organs;
ii. Motorized tourist boat; and
iii. Other tour vehicles shall be incorporated as per the applicable directives from
the concerned government organs.
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10.7. Health Care and Sanitation Services
The Bank provides lease financing service for capital goods purchase in the area of health care
and sanitation services. In this regard, the Bank provides various medical equipment (like
laboratory equipment, diagnostic equipment, medical sanitation, and other medical tools),
sanitation equipment and other equipment to extract water for drinking and cleaning purpose
such as potable water well drilling machine. However, water drilling machine can also have
functions for irrigation purpose.
Furthermore, the health care service provider/lessee shall obtain relevant professional permit
from the concerned government organ.
a) The Basic Eligibility Criteria for Health Services

i. The applicant shall submit health service license from the concerned
government organ;
ii. The applicant shall submit supporting letter from the concerned government
organ that confirms whether the applicant has obtained duty free privilege or
not.
b) The Main Areas in Health care and Sanitation are:-
i. Medical Equipment (using laboratory equipment, diagnostic equipment and

other medical tools)
ii. Medical Waste Disposal Equipment (using medical sanitation equipment)
iii. Others shall be determined by the Bank when and as required
c) Other Sanitation services
i. Water well drilling services;
ii. Others when and if required;
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11. Mode of Lease Financing
The Bank shall extend lease financing in the form of new, additional or expansion to projects in
the areas of lease financing up on fulfillment of its requirements.
11.1. New Lease

A new lease is a lease granted to financing either of the following:-
b) The Bank may finance new or graduating projects from micro enterprises;
i. These may include new projects in the areas of lease financing; projects under
establishment/implementation (i.e. projects which did not commence
operation);
c) The Bank may provide additional finance for the purchase of overlooked, missing
and/or damaged items during appraisal or under implementation of the lease
project;
i. Additional finance may be granted to projects under implementation due to

items overlooked during appraisal and to replace damaged items.
ii. The overlooked items during appraisal and replacement of damaged items
require a strong technical justification to entertain the additional fund request
and shall follow the normal approval processes.
d) New lease requests shall be entertained as per the understated procedure:
i. The branch receive and register lease application with relevant lease documents
as per the lease financing checklists:
ii. The branch screen and ensure completeness of supporting documents and
proforma invoices at once;
iii. The branch contact and inform the applicant regarding missed information or
document inappropriateness, if any;
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iv. The branch sends proforma invoices and related technical documents for
technical evaluation, verification and confirmation by the district technical
team;
v. The branch sends legal documents for legal advice and comment;
vi. The branch sign disclaimer agreements with applicants;
vii. The branch undertake KYC/due diligence assessment;
viii. The branch transfer KYC/due diligence reports with all relevant documents to
District appraisal team for checking the viability of the proposed lease project;
ix. The branch reviews and comment on the draft appraisal report, communicates
and discusses with the applicant and send comments along with the consent of
the applicant.
e) The District shall:
i. Receive all documents from branches;

ii. Check and register all documents received from branches;
iii. Prepare the necessary appraisal report for the new lease financing request based
on the Lease Financing Appraisal Guidelines of the Bank;
iv. Discuss appraisal reports with team members;
v. Incorporate accepted points raised by team members into appraisal reports;
vi. Endorse appraisal reports;
vii. Send draft appraisal report to the branches for comments and to communicate
the applicant on the draft appraisal report;
viii. Finalize appraisal reports by incorporating comments made by the branches
and the applicant, and;
ix. Review the lease documents, KYC and lease appraisal report by an
independent Lease Review Team to ensure their completeness, quality and
accuracy;
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x. Present final review and appraisal reports along with other lease documents to
LAT at Head Office for approval after owning and duly signing by the District
Manager on the Lease Review Report;
xi. The LAT at Head Office pass a decision on the proposed new lease.
11.2. Expansion Lease

a) The Bank may provide an expansion lease in the areas of lease financing which
have been properly implemented and proved to be successful financially as well as
in the areas of project management/administration. Hence, this includes,
i. An existing (operational) project/enterprise graduated from micro

enterprises and request for expansion through lease financing;
ii. An existing SMEs customer of DBE who obtained lease financing service
from DBE and requests for project expansion through lease financing;
iii. Existing SMEs which are not customers of DBE and have been involved in
production and approaching the Bank for expansion in lease financing
scheme.
b) A lease financing request for expansion of existing areas of lease financing being
financed by the Bank may be entertained provided that:
i. The project is properly implemented and commenced full operation;
ii. The project has been in full operation for at least two recent consecutive
years;
iii. The project produces the required/planned products;
iv. Products of the project have sound market;
v. The project should be profitable;
vi. The project should not be in NPLs;
vii. The project should have a sound financial performance;
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viii. The applicant shall submit the recent consecutive past two years audited
financial statement.
c) A lease request for expansion shall only be accepted for healthy projects. This
means that:
i. The WRT shall not process expansion lease for projects under workout
program.
ii. Sick projects shall first be rehabilitated and become performing to be

entertained for expansion in leasing;
d) Expansion of a project shall be understood in terms of increase in size and/or

capacity of a project regardless of the project location or working premises as far as
operating under same license which results in an increase in the quantity produced
and quality improvement of products by introduction of new technologies which
could:
i. Diversify product mixes of the project;
ii. Increase market share of the project; and
iii. Increase volume of products of the project.
e) Expansion lease request shall pass through the normal lease financing process in
line with the procedure stated under Article 11 Sub-Article 1.
f) Expansion lease requests shall be entertained as per the understated procedure:
i. Branches receive and register lease application with relevant lease

documents as per the lease financing checklists:
ii. Branches screen and ensure completeness of supporting documents and

proforma invoices at once;
iii. The Branch contact and inform the applicant regarding missed information
or document inappropriateness, if any;
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iv. The branch sends proforma invoices and related technical documents for
technical evaluation, verification and confirmation by the district technical
team;
v. The branch sends legal documents for legal advice and comment;
vi. The branch sign disclaimer agreements with applicants;
vii. The branches shall further process applications for expansions only after
assessment on the application is justified by undertaking full-fledged
follow up reports for the existing DBE financed lease projects. The branch
shall also assess technical status and full functionality of all the existing
machineries of expansion lease requests not previously financed by the
DBE;
viii. The branch shall confirm that the existing machineries and equipment is in
a very good status as per the DBE technical evaluation criteria;
ix. The Branch undertake KYC/due diligence assessment;
x. The branches shall transfer the follow up report with all relevant
documents to the district for appraisal of the project;
xi. To make sure that all documents are fulfilled as per the checklist, the
District shall:
 Receive all documents from branches;
 Check and register all documents received from branches;
 Review the follow up reports;
xii. The LAPT shall:
 Receive all documents from branches;
 Check and register all documents received from branches;
 Review the follow-up reports;
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 Prepare the necessary appraisal report for the new lease financing
request based on the Lease Financing Appraisal Guidelines of the
Bank;
 Discuss appraisal reports with team members;
 Incorporate accepted points raised by team members into appraisal

reports;
 Endorse appraisal reports;
 Send draft appraisal report to the branches for comments and to

communicate the applicant on the draft appraisal report;
 Finalize appraisal reports by incorporating comments made by the

branches and the applicant, and;
 Review the lease documents, KYC and lease appraisal report by an

independent Lease Review Team to ensure their completeness, quality
and accuracy;
 Present final review and appraisal reports along with other lease
documents to LAT at Head Office for approval after owning and duly
signing by the District Manager on the Lease Review Report;
 The LAT at Head Office pass a decision on the expansion lease

proposal.
12. Lease Buyout
12.1 The Bank may exceptionally buyout well-functioning leased capital goods in
strategically important sectors financed by other leasing companies at a reasonable
discount through negotiation. However, the lease buyouts to be purchased should be:
a. Viable/going concern; and,

b. Priority sector lease projects.
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12.2 Projects which have strategic importance to the country include those projects which
increase the foreign exchange earning capacity of the country through export or import
substitution, projects which supply basic raw materials to the agro-processing and
manufacturing industry, etc;
12.3 Lessors of other leasing companies are able to transfer their lease financing liabilities
to the Development Bank of Ethiopia provided that they have good payment track
record, but face stringent leasing terms and conditions that could strain on the business
sustainability. Stringent leasing terms and conditions include short installment payment
period, high service charge, etc. as compared to similar projects financed by DBE so that
they could take advantage of DBE’s favorable leasing terms and conditions;
12.4 The Bank shall not buyout lease projects which have incurred loss within the recent
two fiscal years;
12.5 The lease buyout machineries and equipment shall be new when purchased by the
original leasing company;
12.6 The lease buyout machineries and equipment shall be in a very good status as per the
criteria of the Bank;
12.7 The Bank shall make sure that the lease buyout is in line with the risk appetite
parameters set by the Bank;
12.8 The lease buy out process shall follow the normal lease financing standard procedure.
13. Working Capital Loan
13.1 The lessee may also borrow additional working capital loan from commercial banks or
the Bank against collateral;
13.2. The Bank may extend short-term working capital loan to customers lease projects with
performing status after two years of operation against adequate collateral;
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13.3. Notwithstanding Article 13 Sub-article 13.2 of this procedure manual, when the
determined working capital is greater than 20% equity contribution, the Bank may avail
the working capital shortfall against collateral;
13.4. The short-term working capital loan shall not exceed the amount determined in the
actual working capital requirement as determined in the appraisal report of the project
even if the collateral coverage is beyond 100% of the loan.
14. Special Loan
14.1 The Bank may provide loan to the lease projects like dairy and poultry for the purchase
of special purpose vehicles necessary for the project against external collateral;
14.2 The Bank may entertain those vehicles with strong technical and critical justification by
evaluating their importance in relation to the nature of the project.
15. Working Space and Infrastructure
15.1 Regional governments shall provide adequate working space or shade to the lessee
which has access to the necessary infrastructure;
15.2 The Bank may accept lessee’s owned working premises by ensuring that own work
premises shall be free from third-party claims. However, if the premise is held as
collateral by financial institutions, the lessee shall submit a letter of consent, a copy of
collateral agreement and repayment performance every three months from the lending
institution. Each district shall send quarterly report to V/P SMEs Financing;
15.3 Depending on the nature of the project, the Bank may also accept rented working
premises with a minimum of two years rental agreement (to be renewed within the lease
period) for those applicants who do not have their own working premise. However, if the
premise is held as collateral by a financial institution, the lessee shall submit a letter of
consent from the lending institution;
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15.4 The Bank shall not accept rented premises for those lessees requesting capital goods that
are difficult to dismantle during repossession. The type of capital goods that are difficult
to dismantle during repossession shall technically be defined. Detail checklist for
identifying the features of easily movable and dismantled capital goods shall be prepared.
15.5 In case of rental premise, the lessee may not be required to present rental agreement at
the time of application. However, the lessee should submit an undertaking letter at the
time of application regarding the presentation of work premises rental agreement and the
fulfillment of basic infrastructure for the premise before L/C opening. Moreover, the
lessee shall ensure in its undertaking letter that the machinery layout and the rental work
premise are technically compatible;
15.6 The Bank may participate in the construction of working space jointly with foreign
donors and/or regional governments in the form of matching funds.
16. Eligibility Criteria and Requirement Checklists
16.1 Eligibility Criteria
The branch offices, as appropriate, shall select prospective customers for lease financing based
on the following eligibility criteria:
a. The applicant shall get the SMEs training provided by DBE and present the certificate
given by the Bank;
b. Notwithstanding sub-article 16.1 (a), the Bank may accept applications from potential
SMEs who have their own working premises, infrastructure, 20% working capital
contribution and/or recruited by stakeholders as per special agreement. However,
these SMEs shall be trained later within the lease processing stage as per the Bank’s
schedule;
c. If the applicant is a legal person (PLC, Share Company, Partnership and others), the
key management member shall present DBE SMEs training certificate issued by
his/her name and he/she shall have at least 10% share in the company;
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d. Notwithstanding Sub-Article 16.1.a, of this procedure, existing lessees who may
apply for expansion lease and/or new lessees have applied to get the leased capital
goods through transfer option as third party or have applied to get the repossessed
capital goods through auction or negotiation are not required to present the certificate;
e. The applicant cannot apply multiple lease applications at a time in a branch and/or in
different branches of the Bank. However, after two years in operation, the lessee shall
apply for other lease project, provided that single borrower limit shall be
maintained/ensured at the time of application;
f. The applicant must be creditworthy and his/her project shall adequately meet all
pertinent procedural requirements and viability checks established by the Bank;
g. The applicant shall be of Ethiopian citizen/ foreign nationals of Ethiopian origin who
has been residing in the country at least for the last one year;
h. The Bank may accept rental premises. But the agreement of rental premises shall be
at least for 2 years and to be renewed annually;
i. If the lessee wants to change the location of the previous production area by moving
the capital goods from one area to another new area due to various reasons, the
following requirements need to be fulfilled:
i. The reason for mobilization of capital goods need to be justified by the
customer and accepted by the District/Branch and endorsed by V/P SMEs
Financing.
ii. The lessee shall agree to bear the transportation, transit and carriers liability
insurance, installation, dismantling costs and other associated risks.
iii. The applicant shall present all relevant documents or information demanded
by the Bank.
iv.The Bank shall confirm the appropriateness of the new location/premise,
availability of basic infrastructure on which the capital goods is to be relocated.
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16.2 Requirement Checklists
a. Application letter: SMEs applicant, who seeks lease financing service of the Bank
need to submit a formal request in writing indicating the lease amount together with
its intended use or purpose.
b. SMEs Training Certificate: The applicant should avail training certificate upon
lodging of its application. The trainee shall be owner or shareholder of the
business/company and being part of the management member of the
business/company.
c. Adequate production area or shade and sales area as appropriate.
d. Principal Registration Certificate;
e. Tax Identification Number (TIN) shall be submitted for sole proprietorship (for both
husband and wife) and shareholders with 5% and above shares in the case of PLC and
Share Company;
f. Proforma invoices: Applicants are required to submit one proforma invoice by their
name. However, the proforma shall be collected from legitimate manufacturers or
suppliers which should incorporate:
i. Proforma invoice number and date;
ii. Seller’s name and full address with logo;
iii. The applicant’s name and address;
iv. Letter of authorization if the supplier is not a manufacturer;
v. Major specifications: Model, Brand, Country of origin, HS code, Year of

manufacturing, quantity, price, power consumption and machinery layout, etc;
vi.Terms of sale;
vii.Terms of payment;
viii. Validity date;
ix. Estimated delivery date, and
x. Availability of after sales service and spare parts;
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g. Utilities: In view of the crucial role played by electricity and water in the
implementation and continued operation of projects, applicants are required to submit
documents and/or confirmation letter from concerned government organ upon
submission of application as the required utilities would be available. In the case of
rented premises, the applicants may submit undertaking letter for the fulfillment of
basic infrastructure before L/C opening;
h. Marriage certificate should be presented for sole proprietorship;
i. Memorandum of association should be presented for legal entities;
j. Track records: Business track records of the lessee should be submitted if the SME is
an existing one to check experience and performance of the applicant in the
businesses involved and know the capacity of the lessee to raise the required down
payment. SMEs that have stayed in production should submit three years latest
provisional financial statements or audited financial statements as per the NBE‘s
Directives, as appropriate.
k. Credit History: The applicant shall submit confirmation regarding his/her credit
history;
l. Fulfillment of Tax Obligation: All lessees with on-going business concerns need to
submit tax clearance from the relevant authority confirming that they have duly met
all applicable tax obligations;
m. Environmental Impact Assessment: the lessee is required to submit environmental
impact assessment (EIA) study and/or confirmation letter from the concerned
government office based on the nature of the project (as per the environmental and
social management guideline of the bank) endorsed in June, 2017. Some lease
projects like Tour, Bore Hall Drilling and Agricultural mechanization Services may
not required to submit EIA study and confirmation letter.
n. Source of deposit in cash: The applicant is obliged to validate the source of funds to
be used as its 20% deposit. To this effect, the lessee is required to clearly indicate the
source of funds to be used as; and the 20% deposit of lessee can be traced from one or
more of the following sources:
Page | 26
i. Mobilized savings by the lessee;
ii. Bank statements of the lessee at least six months;
iii. Other sources like, sales of assets, income from other business, shares, etc.
o. Management: Lessees need to submit their life history, project managers’ or the key
management staff’s CVs complete with credentials and list of referees to help the
Bank assess their managerial ability, competency, experience, and technical
knowledge.
p. Business Plan/Feasibility Study: The lessee should submit a business plan for
requests up to Birr 15 million and feasibility study for requests of more than Birr 15
million to demonstrate his/her knowledge and understanding in the area of the
targeted project. The business plan may be prepared by the lessee with the support of
concerned stakeholders, however, the feasibility study shall be prepared by licensed
consultants.
q. Requirement checklist of Expansion of Existing projects:
i. All requirements listed above under Article 16.2;

ii. Renewed business license;
iii. Expansion license as appropriate;
17. Lease Financing Process
The Lease Financing Process of the Bank is designed to serve a customer with:
a) The shortest possible time;
b) Minimum cost; and
c) High quality services.
The functions of the process of lease operation:

a) Starts at customer recruitment and/or application receiving; and
b) Ends with full settlement of the lease.
The lease financing process of the Bank for SMEs incorporates the following five independent
processing teams at Branch, District and Head Office level:
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a) Branches shall carry out the due diligence (KYC) assessment and administration of
lease financing projects;
b) LAPT appraises projects;
c) The Lease Review Team shall independently review lease appraisal reports to
ensure their completeness, quality, and accuracy;
d) LAT at Head Office shall approve the amount of lease appraised by the appraisal
team, reviewed by the LRT and owned by the District Manager;
e) WRT shall propose the lease workout and repossession.
The lease financing process of the Bank encompasses the following five main working units to
handle lease financing activities at various stages and discharge their respective duties and
responsibilities:
a) Branches offices: - the lease application process originates here and the overall
lease administration also carried out;
b) District offices: shall monitor and follow-up its Branches and handles overall
administrative issues. Moreover, lease appraisal, review, lease workout and
recovery tasks may be undertaken;
c) Lease Approval Team at Head office: Shall pass decision on lease requests sent
from districts after assessing and verifying whether the requests are in line with the
Bank’s lease policy and procedures;
d) Capital Goods Procurement and Supply Directorate: shall execute the

procurement of Capital Goods by undertaking price verification and cost
estimation, undertake foreign currency registration, L/C opening facilitation,
handling port clearance, transportation, installation and commissioning of capital
goods, and undertake monitoring and follow-up activities as deemed necessary;
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e) The Agriculture, Industry and Tourism, Health and Others Follow-Up
Directorates Under SMEs Cluster: shall undertake monitoring and follow- ups of
the overall lease financing operations in their respective sectors.
17.1 Customer Sourcing and Selection

The Bank accepts SMEs applicants for lease financing from both recruited and walk-in
customers if they fulfill the Bank’s eligibility criteria as defined under sub-article 16.1 of this
lease procedure manual.
a) Applications of recruited and walk-in customers for the lease financing services of
the Bank shall be received by branches if applicants fulfill the Bank’s requirements;
b) Branches and other stakeholders mainly focus on recruiting customers by attracting
and persuading potential applicants through appropriate means of communication;
c) The branch offices should select potential customers applying for lease financing
based on eligibility criteria and checklists for customer requirements;
d) Customer recruitment requires:
i. Understanding the strategic and operational plan of the Bank;
ii. Identifying the sources of such potential customers;
iii. Performing promotion works on lease financing services of the Bank;
iv. Encouraging potential customers to apply for lease financing;
v. The branches shall thoroughly understand the strategic plan of the Bank and
operational plans of their respective work units and share it among team
members;
vi. The branches shall identify sources of potential customers and decide on means
of communication;
vii. The branches shall collect data of potential customers in collaboration with
stakeholders;
viii. The branches shall screen and prepare short list of potential customers;
ix. The branches shall arrange means of communication and organize
workshop/awareness creation , if necessary;
Page | 29
x. The branches shall organize discussion forums in collaboration with District
offices or other government organs to attract and persuade potential
customers;
xi. The branches shall discuss with potential customers on the lease financing
services of the Bank, create awareness on the bank’s requirements, as well as
the rights and obligations of the lessees;
xii. The branches shall obtain expression of interest from potential customers and
follow-up customer recruitments;
xiii. The branches shall receive and register applications for lease financing with
supporting documents and verify completeness of supporting documents;
xiv. The branches set-up, prepare and oversee the signature of disclaimer
agreements signed to make ready the application for further processing;
xv. The branches register the application in a database and avail the information
to the concerned teams;
xvi. The branches check the appropriateness and completeness of documents
submitted to them and ascertain that, proforma invoice for capital goods, legal
documents, and contents of the business plan and/or feasibility study are as
per the standard.
17.2 Due Diligence or KYC Assessment

a) Due diligence or KYC assessments shall be undertaken by the Bank to identify the
integrity of all customers.
b) Due diligence or KYC assessments are undertaken to protect the Bank from
entering into relationships with inappropriate applicant and to check applicant’s
credit worthiness and in compliance with Anti-Money Laundering and Combating
Terrorist Financing (AML/CFT) Compliance Directives No.01/2014;
c) The standard due diligence format will be used by the branch to carry out due
diligence assessment of lessees;
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d) Due diligence assessment requires thorough collection and evaluation of
information in relation to the applicant in line with the objective of KYC and in
compliance with the due diligence assessment guidelines and formats of the DBE
and the requirements of the Financial Intelligence Center (FIC) AML/CFT
Compliance Directives No.01/2014;
e) In compliance with directives No.01/2014 of the FIC that came into force since
January 24, 2014:
i. The branches shall not keep anonymous accounts or accounts in fictitious
names;
ii. The branches shall identify lessees whether regular or occasional, natural or
legal person or legal arrangement, and verify lessees’ identity using as much as
possible reliable, independent source documents, data or information;
f) Identification requirements for a natural person shall include a brief history of the
applicant, at a minimum:
i. Given or legal name and all other names used;
ii. Permanent address;
iii. Telephone number, fax number and e-mail address;
iv. Date and place of birth;
v. Nationality;
vi. Occupation, public position held and/or name of employer;
vii. Marital status
viii. Type of account; and
ix. Signed statement certifying accuracy of the information provided.
g) For lessees that are legal persons or legal arrangements, the Branches shall:
i. Take reasonable measures to understand the ownership and control
structure of the lessee and determine who are the natural persons that
ultimately own or control the legal person or arrangement; this shall
include those natural persons who exercise ultimate effective control
over the legal person or arrangement;
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ii. Verify that any person purporting to act on behalf of the lessee is so
authorized, and identify and verify the identity of that person;
iii. Verify the legal status of the legal person or legal arrangement at a
minimum by obtaining proof of incorporation or similar evidence of
establishment or existence and information concerning legal persons or
legal arrangements:
 Name and legal form;
 Some form of official identification number such as tax
identification number (if available);
 Address which includes country, city/town/kebele in which the head
office is located and if available, house number, mailing address,
telephone number and fax number;
 Names of directors, if applicable, and the chief executive officer;
 Provisions regulating the power to bind the legal person or
arrangement;
 The resolution of the board of directors (if applicable) or any other
authorized body or person to open an account; and
 Identification of those who have authority to operate the accounts.
h) The branches, as appropriate, collect KYC related data of lessees and consolidate
due diligence report on lease financing;
i) While consolidating due diligence assessment reports determine the acceptance or
rejection of an application, positive due diligence reports also serve as important
source of information for appraisal reports;
j) The KYC undertakings on applicant shall include, among others, reliable
information on:
i. Character of the applicant;
ii. Credit information of the applicant: The branch shall collect the credit
information of; the applicant and his/her spouse if the applicant is sole
Page | 32
proprietorship and the applicant and its major shareholders with 5% and
above shares from Micro financial institutions, leasing companies and banks
through the Credit Reference System (CRS) of the NBE;
iii. Sources of equity of the applicant;
iv. Business track records of the applicant;
v. Managerial competence of the applicant;
vi. Whether or not the applicant has engaged on tax evasion;
vii. Whether or not the applicant has engaged in breach of foreign exchange
transaction, if applicable;
k) The branches, as appropriate, shall also:
i. Assess adequacy of the proposed owner’s capital;
ii. Review the business plan and/or feasibility study submitted by the promoter;
iii. Review the marketing strategy of the promoter;
iv. Review the availability of expected human resources.
Page | 33
17.3 Lease Appraisal
a) Lease project appraisal shall focus on assessing the technical, market, financial and
managerial viabilities as well as socio-economic benefits of the project.
b) During technical study, specially pro-forma evaluation shall be undertaken by the
District’s technical team;
c) The technical team at Districts shall confirm the appropriateness of the facility
layout for the machinery to be procured;
d) The standard project appraisal format will be used by the lease appraisal team at
Branches or Districts to properly determine the financial profitability and
soundness, economic benefits and social desirability of the project;
e) The SMEs project appraisal format of the Bank provides appropriate guideline on:
i. Executive summary;
ii. The Applicant background;
iii. Project background:
 Production performance;
 Financial performance;
 Key success and risk factors.
iv. Market aspects of the project such as:
 Demand and supply analysis on products;
 Market prospects and major marketing areas of the proposed
product;
 Marketing strategy and arrangements for the product;
 Price analysis for the product.
v. Strengths, Weaknesses, Opportunities and Threats (SWOT Analysis) of
project;
vi. Technical assessment:
 Location and site selection;
Page | 34
 Production process;
 Work premise;
 Machinery and equipment;
 Availability of utilities and infrastructure;
 Availability of inputs/raw materials;
 Project implementation plan; and
 Environmental impact assessment of project.
vii. Socio-economic Aspects of the Project
 The socio-economic aspects of the project mainly address the
employment generation, tax benefits to the government, foreign
currency generation of the project, etc. In general, it analyzes the
economic facets and social aspects of the project.
viii. Project management:
 Organizational structure of the project;
 Technical capacity of management of the project; and
 Human resource requirement and availability.
ix. Financial analysis:
 Basic assumptions
 Capital goods cost;
 Working capital requirements;
 Financing scheme;
 Revenue estimates;
 Operating costs;
 Projected financial statements (Profit/Loss, Cash flow & balance
sheet Statements);
 Financial analysis (IRR, NPV, Sensitivity);
 Working capital determination;
 Lease Payment schedule;
Page | 35
x. Conclusion and Recommendation.
f) The LAPT shall use the Bank’s commodity studies, parameters, and/or locally
available data from various government & non-governmental sources to be used for
the project appraisal. The collection of data shall be through formal letter
correspondence, as appropriate.
g) The District offices receive and register all documents sent to them from branches
so as to make sure that all documents necessary for appraisal are fulfilled as per the
checklist;
h) The LAPT;
i. Checks due diligence assessment report to ensure that all the necessary
KYC information are obtained;
ii. Conducts appraisal of the project by collecting the required data from
lessee file, due diligence report and relevant organizations and prepares the
appraisal report in accordance to the SMEs appraisal format;
i) The LAPT leader, after finalizing the draft appraisal report, calls all team members
for meeting to own the project & create common understanding of the project &
endorse for approval through a meeting minute dully signed on;
j) The LAPT then sends the whole file including the appraisal report to the respective
branch;
k) The lease appraisal report shall be sent to the Branches for their comments and to
be communicated to the lessee;
l) The LAPT shall finalize the appraisal report by incorporating comments made by
the Branches and lessee;
m) The Lease Review Team shall undertake an independent review of the lease
appraisal report to ensure the completeness, quality and accuracy of the report;
n) The District shall present the final appraisal and review reports along with Due
diligence/KYC and other lease documents of the applicant to the LAT at Head
Office for final decision;
Page | 36
o) In cases involving project expansion, in addition to project viability check, the
assigned team to appraise the project, among others, shall:
i. Evaluate the existing market and marketing arrangement of the project so
as to examine how the project has been selling its product and propose
other alternatives, if necessary, for the future;
ii. Evaluate the existing management set up and human resource placements
of the project & propose what is to be done in the future;
iii. Indicate key success and risk factors of the project;
iv. Indicate risk mitigation measures to be taken to ensure smooth operation
and ascertain the lease payment;
v. Evaluate production capacity utilization of the project to ascertain the
appropriateness of the technology and production process;
vi. Evaluate actual production and operational performance of the project to
check the products, sales and capacity utilization of the project and
forward recommendations for future action;
vii. Analyze and evaluate past financial performance of the project from
financial records & financial statements produced in previous years, if any;
viii. Revise cost of capital goods and working capital requirement of the
project, source of finance; and
ix. Check financial viabilities of projects to show changes in investment and
financial projections.
p) Determination of Working Capital Requirement
a. Working capital requirement includes the direct as well as the indirect costs
that a project incurs to produce outputs;
b. The computation of working capital requirement during lease appraisal shall

take into account the basic nature of SMEs;
c. The determination of the working capital requirement is based on its

production and sales cycle;
Page | 37
d. The required raw material stock to be held for imported ones, as a
component of the working capital requirement, shall not exceed four
months whereas two months for local purchases;
e. If the value of the determined working capital during lease appraisal exceed
Birr 18 million, the working capital shortfall may be availed by the Bank
against external collateral as stated in sub article 13.3 of this procedure.
17.4 Lease Review Team

Lease appraisal reports shall be reviewed by an independent Lease Review Team to
ensure their completeness, quality, and accuracy as per the policy, procedure and
applicable laws and guidelines of lease financing.
17.5 Lease Approval

a) Once lease financing applications from SMEs are received, screened for appraisal by
the branch, lease appraisal team at District undertakes the appraisal of project,
reviewed and owned by the district, the Lease Approval Team at Head Office shall
pass the necessary decision, i.e. approval or rejection on the appraised lease amount;
b) The LAT deliberates on the project appraisal reports and makes decisions on the
approval or rejection of the lease amount;
c) Once the decision is made by the LAT, the lease file with minutes of the LAT shall
be returned back to branches and copy of procurement related documents shall be
transferred to the Capital Goods Procurement and Supply Directorate for
procurement process;
d) The Lease Approval Procedure shall be as follows:
i. The LAT chairperson receives the approval documents and distributes to LAT
members;
ii. LAT members read and review all approval documents and pass decisions;
iii. The lease approval documents shall comprise of:
 The lessee file;
Page | 38
 The Due Diligence Assessment Report;
 The Appraisal Report;
 The Lease Review Report and
 Other relevant documents.
e) To get further explanations on appraisal documents, the LAT can call, as and when
appropriate:
 The Branch Manager/Customer Relationship Team;
 The Division Head/Manager/Team members of appraisal team at Districts;
 Members of Lease Review team at Districts.
f) The LAT can, if need be, request any relevant information apart from, appraisal
report, due diligence and follow-up reports;
g) The LAT can request advice from the Compliance & Risk Management Process, if
need be;
h) Members of LAT have the right and responsibility to:
 Be aware of the agenda of the LAT;
 Attend all meetings; and
 Forward their sincere opinions freely, in favor of or against any proposal
submitted for their deliberation;
i) All members are required to attend all LAT meetings convened by the chairperson;
j) Before coming to attend meetings, members of LAT are required to prepare
themselves by:
 Carefully reading the approval documents; and
 Referring to other relevant materials.
k) All members including the chairperson of the LAT are required to declare upfront
any conflict of interest regarding project to be deliberated on and exclude them from
the proceeding if and when the team is convinced of the situation. Such instances
should also be duly included in the minutes of the team;
Page | 39
l) Members of the LAT, in accordance with this manual are liable for the execution of
their duties;
m) A member objecting a decision of the team shall not be held liable for the decision
taken by the team. Such instances need to be duly stated in the LAT minutes;
n) In order to improve the quality of the approval process and ensure proper discharge
of professional obligations, members of the LAT are required to update themselves
with the latest developments in the area of project appraisal and relevant rules and
regulations;
o) The LAT shall make its decisions based on rules, regulations, policies, procedures
and guidelines that come into force from time to time of the Bank;
p) There shall be a quorum where all five members or representatives are present;
q) Decisions made only be binding and enforced when supported at least by three
members of LAT;
r) The LAT prepares minutes for the session and all members who have attended the
meeting shall sign the minute;
s) LAT decisions are to be implemented when LATs send their minutes to branches;
t) In order to fully convince itself and ensure the technical viability of a project as per
the proposal:
 The LAT, as deemed necessary, can visit the project site of a proposed project
before passing its decision on the proposal;
 The field visit proposal should, however, be approved by the V/P-SMEs

Financing;
u) The LAT may revisit rejected projects if and when cases for rejection are amended
or corrected.
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17.6 Lease Contract and Documentation
a) Once the lease amount is approved through the approval process, Branches shall
undertake facilitation and follow-up of lease contract signing between the Bank and
the lessee which concludes the lease financing process.
b) The Branch/District shall sign contract agreement with the lessee after approval of
the lease.
c) Trained or well-oriented officers or legal person (as appropriate) shall prepare lease
contracts for branches. Contracts prepared in such a manner should, however, always
be checked and proofread by Branch managers. However, the standard lease contract
templates of lease contract or amendment lease contract or lease rescheduling
contract that have been approved and dispatched to Districts and Branches shall not
be modified unless and otherwise that are required to be amended or modified by the
concerned organ of the Bank.
d) The lease contracts, in addition to the regular covenants and other generic contents,
should also address the major conditions set by the LAT.
e) Lease contracts shall be signed by the branch managers or any officially delegated
person on behalf of the Bank and the lessee and his spouse (for natural person) and
witnesses (one from the Bank side and the other from the lessee side);
f) District managers shall sign cases under WRT for contracts meant to rehabilitate
projects;
g) Once a lease contract, amendments to Leasing contracts and Acceptance Certificate

is signed between the Bank and a lessee, the lease contract shall be registered by the
designated government organ as registrar by the lessor or Bank’s representative;
h) The Branch office is responsible for the assignment of a staff member to handle the
process of registering the capital goods and lease contract by the registrar;
i) The branch office shall keep the signed Leasing contracts, amendments to Leasing
contracts and capital goods title deed certificates in its custody.
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17.7 Concern for the Environment
a) The Bank shall ensure that projects to be financed are environmentally friendly.
After the client has identified the risks and impacts of the project, the Bank requires
it to develop measures to manage and mitigate the impacts and reflect them in an
Environmental and Social Management Plan (ESMP). Accordingly:
i. The Bank will finance projects that are technically, economically, and
financially viable and meet adequate environmental and social standards.
Therefore, the Bank will screen and classify all projects applied for financing
according to their potential environmental and social impacts.
ii. The Bank shall assume the responsibility for conducting environmental and
social due diligence and for reviewing, monitoring and supervising projects
throughout the project cycle in conformity with the principles and requirements
embodied in the environmental and social policies of the country including
environment, social, and health and safety legal requirements, as well as
requirements of international financial institutions as applicable.
iii. The Bank expects its clients to manage the environmental and social issues
associated with projects submitted by lessees.
iv. In due course of implementation of this Policy framework, DBE will support
lessees to improve long-term sustainability and strengthen their environmental
and social management capacity.
v. The Bank recognizes the importance of addressing consequences of climate

change and in appropriate cases will promote low-carbon investments and
climate-change mitigation and adaptation opportunities.
vi. The Bank will ensure that at a minimum the projects to be financed are
environmentally friendly and socially acceptable. That is their operations:
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 Favors the use of cleaner technologies and of renewable resources,
waste reduction, resource recovery and recycling. If some operations
financed by the Bank imply undesirable consequence for the
environment or related health and safety conditions, these
consequences need to be fully understood, clearly identified,
adequately justified, and mitigating measures need to be pinpointed
and implemented.
 Avoid degradation of forests and habitats, including but not limited to

avoiding emitting pollutants to water, air, and land.
b) The Bank:
i. Will not finance projects that do not comply with the country’s environmental
and social laws and regulations and will ensure that certain environmentally
and socially harmful activities are also not financed, in accordance with the
Exclusion List, as stated by DBE.
ii. Will not knowingly finance projects that would breach country obligations
under pertinent international conventions, as identified during project
appraisal.
iii. Will not involve in any activities where there is clear evidence of severe human
rights violations including use of child or forced labor as per the country’s
relevant legislative frameworks;
iv. Will not finance project(s) that damage to the environment including sites of
cultural and archaeological heritage sites of national and world importance and
illegal logging.
v. For details please refer the Environmental and Social Policy Framework
(ESPF) of the Development Bank of Ethiopia prepared on January 17, 2017.
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18. Terms and Conditions
18.1 Service Charge and Penalty Fees

The current service charge rate and other charges for lease financing priority areas of
the Bank are:
Types of Charges Rate Per Annum

Service charge rate for lease financing 11% to 11.5%
Penalty fees on leases in default or on
payments overdue more than 180 days 3%
(NPLs)
18.2 Service Charge

a) The Bank shall require all lessees to pay a Service Charge and other necessary
charges on lease financing services;
b) The Service Charge rate to be applied on lease financing shall be set by

management of the Bank and considered by the BOM in consultation with the
Government;
c) The Service Charge rate shall be applied starting from the date of commissioning or
signing of acceptance certificate;
d) The Bank may apply differentiated /preferential service charge for selected sectors
depending on the sources of fund and/or government priority;
e) Service Charge rates and other charges currently prevailing are subject to change as
and when deemed necessary.
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18.3 Penalty Fee
a) The penalty fee should start to be charged when a lease is in default or payment due
more than 180 days or to become NPL;
b) Customers who withdrew after the completion of lease processing without
justifiable reasons will be penalized forfeiting its 20% deposit and shall be
incorporated in the lease contract. If the amounts forfeited do not cover DBE’s total
costs incurred for procuring the capital goods to be leased to the customer, DBE
retains the right to claim the additional amounts from the customer.
18.4 Grace Period

a) The Bank may grant grace period for its lessees after commissioning and receipt of
Acceptance Certificate of the leased capital goods based on the nature of the
project;
b) The maximum grace period allowed after commissioning shall not exceed 180
days;
c) Service charge which is accrued after commissioning within the grace period shall
be paid quarterly.
18.5 Terms of Lease Payment

a) The payment period/term of payment of the lease shall be determined based on the
cash flow of each project and the economic life of the capital goods.
b) The payment installment shall be on a quarterly basis.
c) The maximum tenure of lease repayment shall not exceed seven years including
grace period and any restructuring;
d) Service charge which is accrued after commissioning within the grace period shall
be paid quarterly;
e) In case of partial procurement of capital goods, the scheduled payment shall be set
based on the cost of capital goods that enables the lessee to operate and produce the
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required output at reasonable capacity. The lessee should sign the acceptance
certificate for the delivered capital goods.
18.6 The 20% Contribution Blocking and Utilization

a) Upon notification of readiness for L/C opening in case of foreign procurement or
upon confirmation to execute procurements locally, the lessee shall contribute the
required 20% contribution into a blocked account in the lessee’s name, opened with
DBE, with an amount equal to 20% of the total cost of lease project (the final
estimated price of capital goods including associated costs by the CGPSD and the
actual working capital requirement as determined in the appraisal report) just after
price verification and cost estimation;
b) The maximum 20% contribution shall not exceed Birr 15 million for agriculture
and service projects and Birr 18 million for manufacturing industry projects;
c) After the lessee has deposited the equity contribution into the blocked account with
DBE, the Bank orders the capital goods from the supplier, opening L/C in favor of
the supplier for the purchase of the capital goods if they are to be imported;
d) The 20% contribution shall be released for the working capital needs of the lease
project based on the utilization schedule agreed within the lease contract. If the
20% contribution exceeds the actual working capital requirement of the project, the
remaining balance shall be utilized for advance lease payment;
18.7 Other Terms and Conditions

a) The Bank may apply lending conditions stated in the agreement made between the
Government and/or Bank and the lender for loanable funds obtained from other
sources for SME lease financing;
b) Notwithstanding provisions under sub articles of this article, the Bank may set
additional terms and conditions if deemed necessary depending on the nature of a
specific project;
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19. Accelerated Lease Payment
19.1 The Bank may allow early settlement of lease payments for projects with a minimum of
three years of operation;
19.2 Notwithstanding sub-article 19.1, the Bank may allow lessees’ for early settlement
before three years of operation by applying the following penalty charges for the
remaining period:-
a) 3% penalty on the undue principal balance of the lease if such balance is more than
50% of the original lease balance;
b) 1% penalty on the undue principal balance of the lease if such balance is 25%- 50%
of the original lease balance;
c) 0.5% penalty on the undue principal balance of the lease if such balance is greater
than or equal to 10% but below 25% of the original lease balance.
19.3 The Bank shall collect the total lease payment based on the total outstanding balance at
the time of executing early settlement, when and if the lessee requests to settle the lease
amount after three years of operation.
20. Exposure Limits
20.1 Leasing Units' Lease Approval and Administration Limits

a) The total exposure of the Bank to a single lessee shall not exceed 80% of the
maximum total assets of the SMEs set by the Ethiopian Enterprise Development
(EED) Regulation No. 526/2022, while the minimum exposure shall not be less
than Birr 2 million. In this case the maximum exposure shall not exceed Birr 72
million for manufacturing industries and Birr 60 million for agriculture and service
projects;
b) The maximum amount of total lease portfolio shall not exceed 20% of the total
loans and advances of the Bank at any given time;
c) The Bank may set exposure limits based on geography, sector, and commodity
basis;
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d) The aggregate sum of capital goods finance granted to and outstanding at any one
time to any single lessee shall not exceed 72 million for manufacturing industries
and Birr 60 million for agriculture and service projects;
e) Such sanctioning will be made based on leasing units lease processing approval and
administration capacity as well as risk and customers demand considerations;
f) All Branches under district offices are authorized to receive application from Birr 2
million up to the maximum limit as stipulated under Sub-Article 20.1 a) herein
above and carry out document screening and due diligence assessments or KYC.
g) District offices are authorized to appraise, and review from Birr 2 million up to the
maximum limit as stipulated under Sub-Article 20.1 a) herein above.
h) All lease administrations shall be undertaken at Branches in coordination with

District offices.
i) Lease requests shall be approved by the Head Office Approval Team;
j) The lease workout and recovery tasks shall be undertaken by WRT at district
offices in coordination with respective branches;
21. Lease Administration
21.1 Compliance Checking

The Bank shall undertake compliance checks before the procurement of the machinery to ensure
the fulfillment of all terms and conditions. All the terms and conditions under the contract shall
be fulfilled that are set to be fulfilled before execution of procurement of capital goods.
21.2 Capital Goods Procurement

After lease contract signing, the next step is the procurement process. The important aspects that
would be considered in the procurement of capital goods are explained as follows: -
a) Foreign Procurement
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i. If the capital goods are to be imported from abroad, Districts/Branches send a
letter with the relevant documents attached to Capital Goods Procurement and
Supply Directorate (CGPSD) after contract signing for the commencement of
procurement of capital goods;
ii. The CGPSD shall undertake price verification and cost estimation by collecting
three proforma invoices as per the approved specifications;
iii. The Bank shall hold 5% of the total machinery cost as contingency during cost
estimation at Procurement stage for covering cost increment due to foreign
currency fluctuation and other associated costs of machinery;
iv. After finalizing the price verification and cost estimation work, the CGPSD shall
notify the customer through the District/Branch so that the customer could grant
his/her consent on the revised costs;
v. After the District/Branch notifies the CGPSD the consent of the customer, the
CGPSD shall process the registration and facilitation of the L/C opening process;
vi. After the registration of the foreign currency, the CGPSD shall send L/C related
documents to IBSD for approval of foreign currency allocation and L/C opening;
vii. The CGPSD/IBSD shall present and get approval from the President or Foreign
Currency allocation committee;
viii. The IBSD shall ensure that the customer has deposited 20% of the total project
cost from Districts/Branches;
ix. After confirmation of the 20% deposit from District/Branch and approval of
foreign currency allocation, the IBSD shall open the L/C having checked the
compliance of all L/C related documents;
x. The IBSD shall undertake online disbursement upon arrival of settlement

document by making Branches onboard in the disbursement process (second
level authorization of disbursement is undertaken by the IBSD);
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b) Local Procurement
i. If the capital goods are to be procured from local supplier/manufacturer,

Districts/Branches send a letter with the relevant documents attached to Capital
Goods Procurement and Supply Directorate /CGPSD/ after contract signing for
the commencement of procurement of capital goods;
ii. The CGPSD shall undertake price verification and cost estimation by collecting
three pro forma invoices as per the approved specification;
iii. After finalizing the price verification and cost estimation work, the CGPSD shall
notify the customer through the District/Branch so that the customer could grant
his consent on the selected supplier, machinery specification and the revised
costs.
iv. The CGPSD will execute the local procurement by undertaking sale-purchase
agreement with the supplier or manufacturer and facilitate advance payments not
exceeding 30%.
v. The Corporate Branch shall undertake online disbursement by making Branches

onboard in the disbursement process (the Corporate Branch shall undertake
second-level authorization in the disbursement);
vi. In case of power unavailability, the bank may hire or own power generators to
handle commissioning stages so that the proper testing and installation could be
undertaken;
vii. The CGPSD should maintain and update the database for approved lists of
equipment suppliers/manufacturers and share the data to Districts or Branches;
viii. The fulfillment of manufacturing premises, availability of power and other

utilities shall be confirmed before commencing the procurement process. The
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Districts technical Team shall be responsible for the confirmation of the
fulfillment of the above requirement.
c) The CGPSD is mainly responsible for undertaking price verification and cost
estimation, handle the logistics issues, and enhance the proper installation and
timely commissioning of capital goods;
d) Commissioning cannot be delayed unnecessarily under the procurement process.

Any delay from the banks side or from suppliers’ side shall follow accountability.
21.3 Registration of Capital Goods

a) The Bank shall ensure timely registration and registration renewal of the capital
goods as per proclamation No. 1147/2019 and the relevant NBE directives.
b) The leased asset or capital goods shall be registered in the name of the Bank, i.e., the
Bank holds the title deed of the asset and the registration certificate.
21.4 Insurance, Repair and Maintenance

a) Repair and Maintenance of Leased Equipment: The lessee’s obligations related to the
maintenance and repair of the equipment are stated in the Leasing contract.
Violations of these obligations by the Lessee are considered as Events of Default.
Specific requirements include: -
i. The lessee shall ensure timely maintenance of the capital goods as per the
recommendation of the manufacturer;
ii. The lessee shall ensure timely repair of the capital goods at all times;
iii. The lessee shall take care of and preserve the capital goods as long as it is in
his/her custody/possession;
iv. The lessee shall not change the purpose of utilization of the capital goods
without the written consent of the Bank;
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v. Any breakage, periodic maintenance and service to machinery and equipment
shall be reported to the Bank;
vi. The leased asset should be regularly serviced by the lessee at the recommended
frequency and authorized service center;
vii. Compliance by the Lessee with its obligations regarding the leased equipment
will be verified by site visits by the CGPSD and/or District Technical Team and
the team findings will be communicated to the respective responsible working
units.
b) Insurance of Leased Equipment
i. The leased capital goods shall be insured by the lessee in the name of the Bank
against all potential risks, including political violence (where necessary), at any
given time during the tenure of the lease;
ii. The insurance is to be regularly renewed by the lessee until full settlement of the
lease amount and related charges;
iii. Insurance must be adequate to cover all potential risks and events of the leased
asset;
iv. The Insurance premium shall include duties and other exempted taxes by the
Customs Commission;
v. Branches assist lessee and fill forms so as to purchase insurance policies against
possible risks and events for leased asset;
vi. The specific time for the purchase of insurance policies depends on the type and
complexity of the project. It can be:
 After lease contract is signed; or
 After arrival of machinery.
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vii. Branches undertake regular insurance follow-up of all leased machineries and
equipment;
viii. Branches shall remind lessee to renew their insurance policies on time;
ix. Branches shall notify the lessee to settle the due amount of insurance premium;
x. Branches shall settle the amount of insurance premium when the lessee fails to
do so and add the amount to the balances of the lessee in accordance with
relevant articles of the lease contract.
21.5 Project Follow-up and Monitoring

a) Branches undertake SMEs project supervision and follow-up activities using both on-
site and off-site approaches.
b) The Branches shall undertake on-site follow up and monitoring of the lease project at
least four times per year and ensure that the reports contain full-fledged analysis
including gap identification (against the lease appraisal plan) and must contain
problem solving recommendations timely.
c) Branches shall strictly monitor the mobility of capital goods from one location to
another using in-built or other system of control so that the safety of the leased assets
could be maintained.
d) The technical Team under follow-up directorates shall undertake follow-ups and
monitoring conditions of the leased capital goods by preparing action plan in the
fiscal year to ensure the appropriate after sales service is in place.
e) This site visit will involve an inspection of the leased equipment, its location, its
operation, and confirming its proper maintenance in accordance with the leasing
contract; and discussing the Lessee’s business performance and outlook with the top
manager of the Lessee.
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f) The concerned follow-up directorates under V/P SMEF (Agriculture, Industry, and
Tourism, Health and Others follow up Directorates) at Head Office, undertakes
onsite and offsite monitoring and follow ups.
i. The offsite follow up includes Lease Arrears monitoring and reporting on

monthly basis (which discusses the monthly lease arrears status, new entrants
to NPL, watch lists &NPL, and gives feedbacks to districts to take timely
action) and Bi-Weekly Lease Performance Monitoring Report (which is a tool
for closely monitoring the lease financing performance of Districts and their
respective Branches).
ii. The onsite follow up involves visiting of Districts or Branches to examine how
the overall lease financing operations are going on, the status of operations of
lease projects and issues that affect the smooth operation of lease projects. The
onsite follow up shall be undertaken based on the action plan prepared by the
Directorate.
g) The results of such visits should be summarized in a site visit report, describing the
visit and identifying any problems, including the operation and condition of the
leased equipment and providing feedbacks to Districts.
h) The purpose of follow-up and supervision is to ensure that financed projects are
properly implemented, operating smoothly and effecting lease payment as per the
schedule.
i) Lease follow-up also serves as a means for the provision of technical assistance as
and when required.
j) The Branch monitors whether the lessee is making lease payments when due
according to the lease payment schedule in the Contract. In case of non-payment on
the due date, a written notice should be sent to the Lessee 30 days after the due date,
requesting payment not later than 30 days after the due date.
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k) Projects deemed unstable and NPLs should be monitored (followed up) more
frequently and at least once in a month.
l) DBE shall work together with concerned government organs regarding project
follow-up.
m)The branches prepare Lease follow-up reports using the formats developed for the
purpose.
n) Lease operation follow-up report:
i. should be prepared at different periods on financed projects until the lease

payment is fully collected including other charges due;
ii. assists in the identification of major risks on the sustainability and payment
potential of the project and provides management with risk mitigation
techniques and appropriate for project rescue;
iii. enables the Bank to monitor whether or not the project is delivering the
intended output and planned outcome;
iv. serves as a vehicle for the provision of technical assistance and risk mitigation
as well as a means for project workout;
v. should also be a means for asset classification;
o) The branches prepare, review and discuss the project follow-up report and take the
appropriate and timely action;
p) The branches should communicate the findings of the follow-up report as feedback to
lessees so as to;
i. Take the necessary corrective measures and make timely payments for arrears
in accordance with the Guidelines on Monitoring of Leases in Arrears and in
Default;
ii. Create partnership with lessees;
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iii. Encourage the lessees when the follow-up findings are positive;
q) Feed backs on the findings of follow-up reports should be communicated to lessees

through the managers of the Branches.
r) There shall be an online based tracking system of monitoring lease financing

transaction (from application to commissioning) to ensure efficiency of lease
financing service and instigate accountability.
21.6 Payment Rescheduling

a) The Bank may reschedule lease project payments within the maximum maturity
period;
b) Rescheduling of payment of a lease project shall only be allowed once in a lease

contract period;
c) The Bank may reschedule payments if and only if there are acceptable reasons. These
reasons, among others, may include:
i. If and when the project faces temporary market problems;
ii. If and when the project faces correctable management problems;
iii. If and when the project faces natural calamities and other similar justifiable
reasons given the specific nature of the project.
d) A full credit document must be prepared for all rescheduling requests which, among
others, should include:
i. Application letter of the lessee for the rescheduling; and
ii. A full-fledged follow-up report which should incorporate an analysis on the

financial performance of the project.
iii. Detail status of the leased machineries and equipment leased.
e) Rescheduling exercises are to be undertaken based on the understated procedural

guidelines;
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i. The branches receive rescheduling request in writing clearly explaining why
the request is lodged;
ii. The branches conduct a follow up work to ensure that there is a clear and
evident need often supported by imminent reasons for the rescheduling of
payments;
iii. The branches collect all relevant documents such as credit information,
renewed licenses, audit reports (as appropriate), etc. for the rescheduling of
payment as appropriate.
iv. The branches discuss on the follow-up reports and all the relevant
documents and credit information of the project with the lessee and
shareholders, if any;
v. To undertake payment rescheduling, the lessee shall clear all due service
charges.
21.7 Transfer of Lease Asset
a) Leased asset can be transferred to new applicants upon the written request of both
the original and the new customers.
b) The new applicants’ credit worthiness and management capability to run the project
should be confirmed by conducting the required due diligence or KYC assessment
and the request should be approved by the LAT at Head Office.
c) The capital of the new applicant shall be as per the article 9 of this procedure;
d) The transfer of leased asset to a new lessee shall be preceded by a full-fledged

follow-up and due diligence check on the new customer that is proposed by the
branches, as appropriate, and submitted to the LAT at Head Office. The under
mentioned important points need to be noted to transfer the leased asset:
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i. Both principal and service charge in arrears should be cleared, by the new
customer, before the signing of the new lease asset transfer agreement;
ii. If the arrears balance is less than 20% of the total outstanding balance, the new
lessee shall pay up to 20% of the total outstanding balance.
iii. The capital goods to be transferred to third party, that is new customer, shall be
registered with the pertinent government organ or the previous registration
shall be updated compatible with the new customer.
iv. The lease contract with the new customer should be duly registered with the
pertinent government organ;
v. A leased asset transfer from sole proprietorship to private limited company or

other similar form of business organizations should carefully be assessed to
minimize risk of default which is likely to arise given the nature of the debt
receiver.
vi. Leased asset transfer should be critically assessed and proposed by the branch
and approved by the respective LAT at Head Office;
vii. If the asset to be transferred to duty privileged entities or individuals/ SMEs/,

duty shall not be required to be paid by the new lessee.
viii. Notwithstanding the provision under Sub-Article 21.4 d) ii. of this procedure,
the transfer of the asset to third party from repossessed capital goods through
auction or negotiation, the new lessee shall at least cover 30% of the amount of
repossessed capital goods.
21.8 Relocation of Capital Goods

Leased capital goods may be relocated from the original location to new location if and
when proposed by the District/Branch and approved by V/P SME Financing due to the
following reasons:-
a) When the existing lease project is transferred to third party in a new location.
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b) When an existing lease project faces various challenges to smoothly operate in the
original location such as market problem or in search of boosting market demand,
supply bottlenecks, power shortage and interruption, security issues, and other
external factors.
21.9 Financial and Other Record Keeping

a) The Bank shall ensure that all lessees maintain accurate, complete and timely
financial and other required records.
b) The lessee shall present audited financial statements if the value of the capital goods
exceeds Birr 5 million. However, if the value of the capital goods is below Birr 5
million, the lessee shall present provisional financial statements.
c) The Bank retains the right to periodically inspect all financial records, project site
and management aspects of leases projects.
d) Lessees shall open current account with the Bank after the lease contract is signed.
21.10Accounting Treatments for Lease Financing

a) Procedures for Accounting and Booking Leasing Transactions
i. When a new leasing transaction is approved (after the Leasing Contract is

signed), Branch accounting should open a customer account for the transaction,
give a customer number, and enter a commitment amount (off-balance-sheet)
into the system;
ii. The Bank has to record lease financing transactions in its books of accounts
separately;
iii. The foreign currency transaction like settlement of L/C and other related costs
for the procurement of capital goods shall be paid at IBSD and Corporate
Branch;
iv. Other local currency components which are related to the procurement of
capital goods might be paid by the Corporate Branch and Branch offices;
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v. The associated cost shall not exceed 15% of the total cost;
vi. The income from leasing transactions needs to be separately recorded at each
lease administering Branches;
vii. During repossession of capital goods, the outstanding principal amount shall be
credited against the repossessed capital goods. The implementation shall be as
per the lease account manual of the Bank;
viii. During repossession of capital goods, the outstanding service charge balance is
credited and recorded as legal receivable;
ix. If there is a gain in the sale of repossessed capital goods, it shall be credited as
gain on sale of repossessed capital goods;
x. If there is a loss incurred in the sale of repossessed capital goods, the Bank
shall debit as a on sale of repossessed capital goods;
21.11Events of Default
a) Any deviation from the agreed terms and conditions shall be considered as an
event of default;
b) The following shall constitute event of default and the Bank reserves the right to
take all appropriate administrative and/or legal measures including repossession of
the leased asset:
i. Over invoicing;
ii. Presentation of falsified documents;
iii. Misrepresentation;
iv. Failure to renew insurance policy of the leased asset on time;
v. Failure to use the leased asset for the defined purpose or use of leased asset
for purposes other than prescribed by the manufacturer;
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vi. Failure to keep leased asset in good operating condition or failure to
maintain or service the leased asset at the designated service center
regularly;
vii. Tampering with the leased asset such as attempt to remove key components
or modify the asset or unauthorized actions such as attaching additional
items to the leased asset;
viii. Moving the leased asset to relocate out of the defined or designated area
without the written consent of the Bank;
ix. Failure to make scheduled payments on the due date; any delay in payment
exceeding 180 days from the time of payment shall be considered as default;
x. Refusal to take the machinery/capital goods after procurement and

deliberate intension by the lessee to create delay in commissioning;
xi. Refusal to sign acceptance certificate upon commissioning;
xii. In instances where the events of default mentioned under sub-article “21.11
i” through “21.11 xi” above occur, the Bank reserves the right to cancel all
agreements and contracts, repossession of the asset and to take legal
measures;
xiii. In instances where the events of default mentioned under article sub-article
“21.11 i” through “21.11 xi” above occur, a legal measure or penalty charge
of 3% will be applied. However, the penalty will be applied only when the
customer refuses to comply with the proposals forwarded by the Bank to
resolve the problem.
21.12 Repossession and Disposal of Leased Asset

a) The Bank shall repossess the capital goods from defaulting lessee as a last resort to
recover the asset;
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b) According to the Capital Goods Leasing Business proclamation and its amendment
(no.103/1998 and no. 807/2013) article 6, if the lessee does not remedy the default
within the specified period of time, the Bank has the right to rescind the agreement
and repossess the leased capital goods;
c) In case of default, the right of the lessee to have proportional ownership on the
capital good upon payment of each lease payment shall not jeopardize the right of
the Bank to repossess and take any measure necessary to recover the cost of the
capital goods, service, and penalty charges;
d) The Bank’s right to repossess the leased capital goods whenever the lessee is not
willing to discharge its obligations and the situations of repossession shall be
clearly stated in the lease contract agreement;
e) Repossession of capital goods shall be supported by a thorough follow-up report;
f) Repossession value shall be determined by technical teams of districts, approved by

technical team managers, and endorsed by districts managers, and finally revised by
the respective follow-up directorates. The detail implementation shall be as per the
Lease Workout and Repossession Guideline and Procedure Manual of the Bank
issued on May 11, 2021);
g) The Bank shall claim all damages through appropriate legal procedures as per the
lease contract for uncovered outstanding lease amount, and costs incurred for
repossession;
h) In parallel to the transfer /re-leasing or disposal process, the Bank shall claim the
lessee to settle remaining costs, including costs of repossession, through
administrative and/or legal measure;
i) The Bank can transfer the repossessed capital goods to other lessee or dispose in
cash to third party at bid/negotiated price based on the relevant guideline;
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j) The cost of transferring shall be the lease repossession balance at the time of
repossession plus the costs incurred for dismantling, transportation, refurbishment,
storage, insurance and other repossession related costs;
k) The WRT at District shall prepare a proposal for repossession of capital goods.
This includes:
i. A statement of the physical location and condition of the equipment;

ii. The logistics required to dismantle, transport, loading, unloading and (if
needed) store the repossessed equipment;
iii. A description of the support which can be expected from the equipment
supplier, which could include repurchase, remarketing, and/or refurbishment
of the equipment for sale or lease;
iv. Identification of potential buyers or new lessees for the equipment;
v. An appraisal of the estimated value of the equipment, either for a sale or to
lease to another lessee.
l) If the planned cost of repossession is up to Birr 200,000, the cost shall be approved
by the District Manager;
m) If the planned cost of repossession is beyond Birr 200,000, the District shall send
the proposal to V/P SMEF for approval after the concerned follow-up directorate
under V/P SMEF (Agriculture, Industry and Tourism, Health and Others follow-up
Directorates) review and recommend on the proposal;
n) If the planned cost of repossession is beyond Birr 500,000, the District shall send
the proposal to V/P SMEF for endorsement and get the final approval by the
President after the concerned follow-up directorate under V/P SMEF review and
recommend on the proposal;
o) The VP SMEF shall send the approved proposal for actions to repossess and
remarket the equipment will be carried out;
Page | 63
p) Repossession of capital goods shall be undertaken by the WRT in coordination with
respective branches offices;
q) If there are any difficulties in repossessing the equipment (for example, if the
Lessee does not permit the repossession), the concerned follow-up directorate
under V/P SMEF, with the approval of the V/P SME Financing could request the
assistance of the Ministry of Trade that would follow the procedure in Article 18
(3) of the Proclamation 807/2013, which states that “the Ministry shall take
appropriate action in order to ensure the return of the leased capital goods to the
lessor, where the lessee has the obligation to return the leased capital goods to the
lessor but fails to return it and may order the police to facilitate the execution;
r) The status of repossessed capital goods and remarketing shall be monitored on a

monthly basis;
21.13 Lease Portfolio Management, Classification and Provisioning
a) The Bank shall ensure the soundness of its lease portfolio and balance sheet through
a regular review of its portfolio and lease provisioning if it is in compliance with the
relevant NBE directives;
b) The Bank shall hold adequate provision based on its internal provisioning guideline
as per the IFRS standard;
c) The IFRS standard dictates the Bank to calculate impairments or hold provision for
its lease financing services which is assumed to follow same procedure with loan
products;
d) Leased assets shall be classified as follows:

i. Past due less than 90 days as Pass
ii. Past due from 91-180 days as Special Mention
iii. Past due from 181-360 days as Substandard
iv. Past due from 361-540 days as Doubtful
Page | 64
v. Past due above 540 days as Loss
21.14 Lease Risk Review

The Bank shall ensure that its lease risk review, portfolio analysis and lease provisioning are
in compliance with the relevant NBE directives.
22. Write-Off/Write-Back
Legal receivables deemed to be unrecoverable, after repossession and exhausting all necessary
actions as per the established procedure, shall be written-off/back as per the Bank’s
write-off/back policy. For details on write off/write back procedures, please refer to the revised
Write-Off/Write-Back policy of the Bank.
23. Handling of Exceptions
Exceptions are leases or part there of approved, disbursed, or handled without adhering to lease
policy. However, it must be understood that exceptions should be undertaken within the intent,
spirit, and context of the lease financing policy. An exception shall be granted if and only if it is
in the best interest of the Bank. Exceptions granted during a certain period must be very few in
number.
23.1 No policy exception shall be granted to new or expansion lease projects at the time of
lease underwriting or processing stage (i.e. lease application, due diligence, document
review, and appraisal, approval and contract agreement);
23.2 Only issues of lease projects under implementation and operational which are found to
be imperative and obliging for smooth execution/operation of lease projects may be
considered exceptionally;
23.3 There shall be no policy exceptions on areas of lease financing service charge to be
applied on leases;
23.4 Any approved policy exception shall be reported to the BoM and with a copy to the
Internal Audit Unit of the Bank on quarterly basis, and
23.5 Policy exceptions granted repeatedly shall be presented to the BoM for consideration
and to be included in the lease financing Policy.
Page | 65
24. Record Keeping and Reporting
24.1 Lease Financing Activity and Portfolio Reports:

a) The lease financing portfolio database of the Bank shall be consolidated and
maintained centrally;
b) All Districts/Branches shall prepare and send the periodic lease financing portfolio
and other lease financing activity reports to the concerned directorates under V/P
SMEF;
c) The concerned directorate under V/P SMEF shall consolidate the Bank’s periodic
lease financing activity or operations report;
d) Timely feedback shall be provided based on the periodic lease financing

performance reports.
24.2 Past-due Leasing Payments Report

a) Districts/Branches shall prepare and send monthly monitoring past due/arrears
report to the concerned directorate under V/P SMEF;
b) The concerned directorate under V/P SMEF shall consolidate and make the
necessary analysis on the monthly past due/ arrears monitoring report.
c) Timely feedback shall be provided based on the monthly past due/arrears reports.
24.3 Filing and Safeguarding of Legal Documents

a) All original, signed legal documents relating to leasing transactions will be filed for
safekeeping by the respective operating units which have signed the legal
document. The units signing leasing transaction documents are normally the
Branches, the Districts, and the CGPSD.
i. All such original legal documents will be filed in locked, fireproof cabinets.
These files will be maintained by an District/Brach Managers. A log of all
documents filed will be maintained, listing each document and stating its title
and date, and name of the lessee;
Page | 66
ii. A copy of each original legal document will be lodged in the Lessee’s dossier
for the leasing transaction;
iii. Original legal documents will only be removed from the locked safekeeping
files for a specific stated purpose, by an authorized staff member who will sign
a log for its withdrawal, and who will return the original document to the
safekeeping file. Customer transaction files will include only copies of such
documents, not the signed original document.
25. Depreciation Allowance and Tax Exemption
25.1 Depreciation allowance shall be for the benefit of the lessee;

25.2 Lease payments made to the Bank under capital goods finance shall be exempted from
Value Added Tax, and
25.3 The Bank shall be exempted from customs duties and taxes on capital goods imported
in accordance with the relevant laws.
26. Accountability
The Bank’s staffs who are engaged in lease financing and management activities shall
individually and/or jointly be accountable for any actions, negligence and ignorance against this
lease procedure manual.
27. Auditing
27.1 The Internal Audit Unit of the Bank shall conduct an audit periodically on the lease
financing performances of the Bank;
27.2 Lessees shall produce annual external audit report no later than nine months after the
closure of the financial year;
28. Complaint Handling
28.1 The Bank cordially accepts complaints by lessee on presumed misdemeanors or

unfavorable decisions;
Page | 67
28.2 Such complaints by lessee can be submitted to the Branch in writing and resolved at
any stage of the lease financing processing units and where the need arises escalated to
the District Manager or the Vice President in charge of SMEs lease financing or the
President of the Bank for final resolution/ratification and decision at the Bank level;
28.3 Complaints can also be further escalated to the BOM;
28.4 Complaints by lessees on unfavorable decisions can be submitted to the Districts or
branches in writing, in person or by telephone in one week time and resolved at any
stage of the process and escalated, as required, to the President for final
resolution/ratification and decision at the Bank level;
28.5 When lessees are not satisfied with the resolution or decision given by the President,
complaints can be escalated to the BOM for final decision;
28.6 Complaints emanating at branches can be submitted to branch managers or to District
managers;
28.7 Complaints emanating at WRT can be submitted to District managers for appropriate
decisions;
28.8 If complaints submitted at branch offices are not resolved, branch managers shall send
them to District offices;
28.9 If a complaint is not resolved at District level it can be escalated to the V/P, SMEF,
and when it fails to obtain a solution at this level, the complaint can again be escalated
to the President for final resolution and decision;
28.10 Complaints received and properly resolved at different levels should be reported to
the next higher organ or directly to the President as appropriate. Accordingly:
a) Complaints received and resolved by branches and WRT should be reported to
District managers;
b) Complaints received and resolved by District offices should be reported to the

V/P, Small and Medium Enterprises Financing;
c) Complaints received and resolved by the V/P, Small and Medium Enterprises
Financing shall be reported to the President.
Page | 68
29. Revision
This lease procedure manual shall be reviewed every three years from its date of approval or as
deemed necessary.
30. Repeal
The Lease Procedure Manual issued in January 2016 and other related circulars and amendments
thereafter are hereby repealed and replaced by this Procedure.
31. Effective Date
This Lease Procedure Manual is approved by the Executive Management of the Bank on
…………, 2023 and shall be effective commencing on ………., 2023.
_____________________________________
Name and Signature of President
Page | 69
Annex 1
Acknowlegement by an Excuter
I ____________________________________, an Employee of the Bank acknowledge that I

have received a copy of the Bank’s Revised Lease Financing Procedure Manual and understand
and agree to abide by the procedure manual stepulations.
Name: _________________________________
Position: _______________________________
Signature: ______________________________
Page | 70

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DEVELOPMENT BANK OF ETHIOPIA

8. Lease Financing Service_____________________________________________________7

11. Mode of Lease Financing____________________________________________________15

12. Lease Buyout_____________________________________________________________20

17. Lease Financing Process____________________________________________________27

18. Terms and Conditions______________________________________________________43

19. Accelerated Lease Payment_________________________________________________46

2. “BOM” stands for Board of Management of Development Bank of Ethiopia.

3. “BDS ” stands for Business Development Services.

4. ‘’CIF’’ stands for Cost Insurance Freight.

5. “CGPSD” stands for Capital Goods Procurement and Supply Directorate.

6. ‘’PMMISD’’ stands for Portfolio Management and MIS Directorate.

7. “DBE” stands for Development Bank of Ethiopia.

8. ‘’EED’’ stands for Ethiopian Enterprises Development.

9. “EMC” stands for Executive Management Committee.

10. ‘’FIC’’ stands for Financial Intelligence Centre.

11. ‘’IBSD’’ stands for International Banking Services Directorate.

12. “KYC” stands for Know Your Customer.

13. “LAT” stands for Lease Approval Team at Head Office.

14. “LAPT” stands for Lease Appraisal Team at Districts.

15. ‘’L/C’’ stands for Letter of Credit.

16. ‘’LFPM” Lease Financing Procedure Manual.

17. ‘’LRT’’ stands for Lease Review Team at Districts.

18. “WRTT” stands for Lease Workout and Recovery Team

19. ‘’MSMEs’’ stands for Micro and Small Medium Enterprises.

20. “NBE” stands for National Bank of Ethiopia.

21. “NPLs” stands for Non-Performing Leases.

22. “SMEs” stands for Small and Medium Enterprises.

For the purpose of this Procedure:

DBE, Revised Lease Financing Procedure Manual, November 2023

DBE, Revised Lease Financing Procedure Manual, November 2023

DBE, Revised Lease Financing Procedure Manual, November 2023

a. Laws, regulations and conventions of the country applicable to Leasing businesses.

6. Scope of the Revised Lease Financing Procedure Manual

DBE, Revised Lease Financing Procedure Manual, November 2023

Without prejudice to the specific responsibilities indicated elsewhere in the relevant

7.1. Board of Management

The BoM shall:

7.1.1 approve the Policy and amendment thereof;

The President shall:

DBE, Revised Lease Financing Procedure Manual, November 2023

8. Lease Financing Service

8.3. The Bank purchases the capital goods by its name.

DBE, Revised Lease Financing Procedure Manual, November 2023

a. Producers’ Cooperative Unions

10. Areas of Lease Financing

10.1. Agricultural Mechanization

DBE, Revised Lease Financing Procedure Manual, November 2023

a) Provision of Agricultural Mechanization Services.

DBE, Revised Lease Financing Procedure Manual, November 2023

Agro-processing is defined as set of techno-economic activities, applied to all the produces,

Agro-processing industries could be based on full-blown or partial out-growers scheme (i.e.

a) Dairy products processing:

i. Pasteurized milk production;

ii. Cheese production; and

iii. Butter production.

b. Coffee roasting and grinding;

c. Animal feed processing;

e. Poultry products processing;

f. Spices, medicinal plants and essential oil production; extraction and

g. Fish products processing;

h. Edible oil extraction and processing;