Opening Doors: A Performance Evaluation of the
Development Credit Authority (DCA) in Ethiopia
Wolday Amha, Consultant
William M. Butterfield, Mission Economist, USAID/Ethiopia
Fasika Jiffar, Senior SME Development Specialist, USAID/Ethiopia
Leila Ahlstrom, Financial Management Specialist, USAID/DCA
USAID/Ethiopia
May 2016, Addis Ababa
Credit: Courtesy of Leila
Ahlstrom, USAID Development Credit
Authority
Opening Doors: A Performance Evaluation of the Development Credit Authority (DCA) in Ethiopia
Contents
List of boxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ii
Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ii
Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .iii
1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 Statement of the problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 Objectives of the DCA program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
1.3 Assessment objectives and methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
1.4 Method of data collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
2. Salient features and outreach of the DCA program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
3. The performance of the DCA product – Views of stakeholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
3.1 Macroeconomic factors influencing the performance of the DCA program . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
3.2 Bankers’ views on the DCA program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
3.3 Borrowers’ views on the DCA guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
3.4 Capacity-building support to partner banks and borrowers under DCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
3.5 Views of women - A gender perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
4. Assessment of outcomes and impact of the DCA program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
4.1 Appropriateness of the design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
4.2 Utilization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
4.3 Credit additionality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
4.4 Financial sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
4.5 Program sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
4.6 Impact on the beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
5. Conclusions and recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Annexes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
Annex 1: Public policies for micro-, small and medium enterprises (MSMEs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
Annex 2: Credit guarantee initiatives in Ethiopia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Annex 3: Establishing lease financing institutions to address the collateral issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Annex 4: Definition of micro- and small enterprises in Ethiopia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
Annex 5: First-time borrowers from a DSA facility by sector and bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
Annex 6: Summaries of loan portfolio guarantees under DCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
Annex 7: Information provided by SHOPS to potential borrowers under DCA for private health facility 
service providers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Annex 8: Interview schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
Contents
i
Acronyms
AGP-AmDe Agricultural Growth Program-Agribusiness and Market Development 
AGP-LMDP Agricultural Growth Program-Livestock and Market Development Program
BDS business development services
BG bond guarantee
CBB Construction and Business Bank
CBE Commercial Bank of Ethiopia
CEO Chief Executive Officer
CMS DCA’s Credit Monitoring System
DBE Development Bank of Ethiopia
DCA Development Credit Authority
GDP gross domestic product
GoE Government of Ethiopia
GTP Growth and Transformation Plan 
HABP Household Asset Building Program
LG loan guarantee
LMDP Livestock and Market Development Program 
LPG loan portfolio guarantee
MFI microfinance institution 
MoF Ministry of Finance
MSE micro- and small enterprise
MSMEs micro-, small and medium enterprises
NBE National Bank of Ethiopia
NPL non-performing loan
PG portable guarantee
PHSP Private Health Sector Program
SDG Sustainable Development Goal
SHOPS Strengthening Health Outcomes through the Private Sector 
SSA Sub-Saharan Africa
SMEs small and medium enterprises
TA technical assistance
TIN Tax Identification Number
USAID US Agency for International Development
VAT value-added tax
VP Vice President
Opening Doors: A Performance Evaluation of the Development Credit Authority (DCA) in Ethiopia
ii
List of boxes
Box 1: The effect of the recent drought on SMEs in the agriculture sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Box 2: SHOPS – An example of effective TA to support DCA guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Box 3: The high potential impact of loan guarantees: The case of Ethio Chicken . . . . . . . . . . . . . . . . . . . . . . . . . . .25
iii
Lending to small and medium enterprises (SMEs) in
Ethiopia, in new sectors to new clients, while offering
new lending products, is perceived by banks to be riskier
than lending to large enterprises and known borrowers,
using traditional forms of finance. At the same time,
microfinance institutions (MFIs) have done an adequate
job of reaching micro- and small enterprises, creating a
situation commonly described as ‘the missing middle’.
Asymmetric information, inadequate expertise and a
lack of incentives to expand balance sheets due to the
current market environment together mean that banks
overwhelmingly base their lending decisions on
collateral coverage and target sectors with lower
perceived risk. The collateral rate (compared to the loan
size) required by banks in Ethiopia is much higher than
that required in many of the countries in Africa, Asia
and Latin America. These features have discouraged
SME owners from pursuing bank loans, especially since
the preferred form of collateral for first-time borrowers
is a primary family residence.
The Development Credit Authority (DCA) in Ethiopia
offers partial credit guarantees that cover either a single
loan or a loan portfolio in order to motivate private
commercial banks to lend to SMEs, new sectors or new
clients. In Ethiopia, DCA has focused mainly on
providing loan portfolio guarantees (LPGs) for firms
in the agricultural value chain, health sector, and to
diaspora and women entrepreneurs. In offering partial
credit guarantees to banks that cover loans in default,
DCA aims to reduce collateral requirements for
borrowers, incentivize banks to take more risk, create
demonstration effects if the new clients are successful,
and ultimately help spur private-sector-led economic
growth in the countries where it operates.
This performance evaluation seeks to understand the
effectiveness and impact of the DCA program in
Ethiopia, both for the borrowers, in terms of improved
access to credit and business profitability, and for
partner banks, in terms of improved lending practices
that more effectively reach SMEs in targeted sectors.
Attempts are also made to assess the contribution of
technical assistance (TA) providers (which are partner
US Agency for International Development [USAID]
projects) in building the capacity of partner banks and
DCA borrowers. The outcome and impact of the DCA
program are assessed along six main dimensions:
appropriateness of the design; utilization; credit
additionality (i.e. the degree to which the program
expands access to finance for target borrower groups
relative to what we could expect in the absence of the
program); financial sustainability; program
sustainability; and impact on the borrowers. The
evaluation focuses on primary and secondary
information from key stakeholder interviews.
Appropriateness of the design
Overall, DCA guarantees in Ethiopia were found to
have been effective in meeting its primary objective of
incentivizing commercial lenders to serve segments and
sectors targeted by the partial guarantees. There is near
consensus among both surveyed borrowers and lenders
that the DCA guarantee, while less effective in altering
the terms of loan agreements in the form of reduced
collateral requirements, successfully ‘opened the door’
to previously under-served clients by prioritizing their
applications. However, in the current market
environment, serious questions were raised about the
sustainability of the loan portfolio guarantee design,
while the need to reconsider various aspects of the DCA
model in the Ethiopian context also became evident.
DCA’s primary objectives are to foster increased access to
capital and capital market development. By not crowding
out market-driven interventions by providing subsidized
credit or other below-market financial products and
services, DCA attempts to foster competitive behavior
among participating banks (by changing their
institutional attitude towards lending to target sectors
and segments) and supports a sustainable deepening of
the financial sector, which ensures the delivery of loans to
those types of borrowers after the termination or
expiration of the guarantee. DCA partner banks are
expected to benefit from the guarantee product by
assisting them in opening up new markets for profitable
Executive summary
Executive summary
Opening Doors: A Performance Evaluation of the Development Credit Authority (DCA) in Ethiopia
iv
commercial operations. On top of the guarantee, DCA
emphasizes the importance of technical assistance to
both partner banks and borrowers, normally provided by
parallel USAID projects that are operational in the
country. This assistance was found to be of high quality
on average. By reviewing many credit guarantee schemes
implemented by development partners in different
countries and the experience in Ethiopia, the team found
that, overall, the DCA model is more effectively designed
and can serve as a benchmark for other credit guarantee
schemes in Ethiopia.
However, the largest exogenous challenge facing the
DCA program in Ethiopia is the shortage of
commercial bank liquidity, driven by the large demand
for loanable funds due to recent high economic growth
rates, lack of foreign competition, and the requirement
since April 2011 for commercial banks to purchase
low-yield Development Bank of Ethiopia (DBE) bonds
worth 27 percent of the principal value of all loans
made. The incentive of private commercial banks to
seek out new and perceived higher-risk clients is
therefore greatly diminished, as is the ability of DCA to
alter this dynamic. For example, some current partner
banks report little interest in continuing to support the
agriculture sector given the higher perceived risks. In
the current commercial lending environment, the design
of the DCA loan portfolio guarantee is becoming less
relevant, although the program can still be effective at
redirecting limited liquidity to target borrowers at the
margin, which continues to be important for these SMEs.
Utilization 
USAID/Ethiopia began sharing risk under the
Development Credit Authority in 2004, and has since
signed 17 guarantee facilities through 2015 with seven
private financial institutions and one private
corporation. Since the initial guarantee in 1999 (under
the Micro and Small Enterprise Development [MSED]
authority), USAID/Ethiopia has facilitated more than
US$96,309,045 in credit to SMEs in the agriculture and
health sectors, at a cost of $9,621,444 – leveraging
approximately $10 of private sector financing for every
$1 of USAID funds obligated. As of March 2016, the
cumulative value of current guaranteed loans and loan
portfolios to the seven partner banks was
US$90,604,045, while the total cumulative utilization
was $47,369,550. To date, under the various DCA
guarantees, a total of 316 beneficiaries accessed loans
from banks. About 41.1 percent of the beneficiaries of
DCA were engaged in trade/commerce, followed by
agriculture (24.7 percent), the health sector (23.4
percent), and tourism (7 percent). Bank of Abyssinia
extended about 30.4 percent of DCA-backed loans,
followed by Dashen Bank (24.4 percent) and Nib
International Bank (21.8 percent). Out of the total
borrowers, only 8.5 percent were identified by partner
banks as being female-owned businesses.
Of the 316 borrowers under DCA-backed loans, 37
percent were first-time borrowers. This compares with a
global average of 22.7 percent, so Ethiopia has done
comparatively well. Of the 117 first-time borrowers, 51.3
percent were engaged in establishing private facilities in
the health sector, followed by the agriculture sector (25.6
percent), with tourism and trade/commerce tied at 10.3
percent. Nib Bank had the highest ratio of first-time
borrowers (41.9 percent), followed by Dashen Bank
(32.5 percent) and Bank of Abyssinia (12 percent).
Although the utilization rate varied from bank to bank
and depended somewhat on the age of the guarantee, the
overall LPG utilization rate to date is 61.1 percent. Of
expired guarantees, the utilization rate was just over 77
percent. These rates are relatively high overall and
demonstrate the value that DCA products have offered to
commercial banks and the effectiveness of the design in
targeting under-served sectors and borrowers. The largest
factor affecting the few instances of low utilization has
been sector strategy shifts within partner banks. For
example, both Dashen Bank and Bank of Abyssinia
made the decision to shift out of the agriculture sector
due to increased perceived risks, while the latter also no
longer wishes to do business with diaspora borrowers
for similar reasons. DCA products need to ensure the
coherence of bank strategies with the objectives of
DCA and the development objectives of the USAID
Mission, as well as the durability of those strategies
prior to making future agreements.
The utilization rates are relatively
high and demonstrate the value of
DCA products
Credit additionality
There was a clear consensus among borrowers that DCA
enabled them to access finance that they otherwise might
not have been able to access, but these views ranged in
degree. Some claimed that accessing finance without
the DCA guarantee in place would have been
‘unthinkable’ for them. Others admitted that they
‘probably could have’ accessed finance without DCA,
but felt that DCA reduced the time and inconvenience
of obtaining finance. To a lesser extent, borrowers felt
that DCA likely increased the amount of the loan that
they were able to obtain as well as decreased the
Executive summary
v
A borrower under the DCA loan facility; this woman owns a building supplies store.
Courtesy of Leila
Ahlstrom, USAID Development Credit
Authority
required collateral. Our interviews with banks
confirmed these beliefs as all claimed to prioritize DCA
loan applications, often with documents being sent
directly to a Vice President’s office. All banks also
claimed that the DCA guarantee generally enabled
them to lower collateral requirements and/or increase
the amount of the loan available, which also coincides
with some of the borrowers’ beliefs.
DCA guarantees have been comparatively successful in
achieving credit additionality by lending to 117 first￾time borrowers, or 37 percent of the DCA-backed
loans. The senior executives of the partner banks
understand that there is a strong need to extend loans
to targeted segments and sectors in order to meet the
country’s growth and transformation objectives. Yet
while some banks have a strategy to provide financial
services to segments and sectors targeted under the
DCA, others have no such formal strategy. There was a
general agreement that DCA incentivized their banks
to extend loans to the targeted sectors and sectors
under the guarantee (e.g. SMEs in the agricultural
value chain, private health service providers, women
entrepreneurs, and diaspora), even though lending to
these areas was perceived to be riskier and less
profitable and also required additional staff time.
Without DCA, the banks would likely have continued
to lend to preferred and larger clients, especially
exporters given the current foreign exchange premium.
While DCA guarantee products do in fact often lower
required collateral, in practice collateralization rates 
of loans under the DCA program often exceed 100
percent and normally run much higher depending on
the type of collateral offered, normally the primary
residence of smaller borrowers. Since DCA only pays
claims on 50 percent of the remaining principal balance
of a defaulted loan after collateral has been collected,
when realized collateralization rates exceed 100 percent,
DCA products have no real financial value when the
bank is able to fully liquidate seized collateral.
Financial sustainability 
Formal attempts were not made by partner banks to
estimate the financial costs and benefits of implementing
DCA-backed loans. However, in general, it is the
relationship with USAID and its implementing partners,
rather than the guarantee product itself, that is more
highly valued, as many bankers did not consider the
guarantee products to be profitable in and of themselves.
Partner banks enjoy USAID’s ability: to offer technical
assistance to qualified clients and refer them to the bank;
to connect the bank with a wider universe of
stakeholders; to offer capacity building to their
institution; as well as the perceived prestige of working
with USAID, which gives them a corporate social
responsibility role that they can highlight.
Another way to estimate the financial sustainability of
DCA guarantees is to compare the non-performing loan
(NPL) ratio of the DCA-backed loans with the general
portfolio of the bank, which are generally less than 2
percent. With the exception of Bank of Abyssinia, bank
executives reported that the NPL ratio of DCA-backed
loans and regular loans are about the same. The low
default rate of DCA-backed loans can be attributed in
part to increased oversight and risk management
(putting in extra effort to support DCA borrowers),
which has been consistently observed given most
partner banks’ clear preference for the program to be
seen as successful. On the other hand, banks were
consistently accused by borrowers of deliberately
undervaluing their collateral, thereby increasing
collateralization rates and greatly increasing the cost of
default for borrowers. The low default rate could also
reflect the fact that some DCA loan portfolio guarantees
are not reaching the smaller and riskier SMEs. However,
there are increasing indications that the NPL rate is
increasing, especially in the DCA-targeted agricultural
sector – due in large part to effects from the El Niño￾influenced drought. Even so, many banks appeared to be
reluctant to submit claims under DCA due to lack of
understanding of the process, full collateralization, and
worries about USAID’s perception.
Program sustainability 
Some partner banks reported that their overall SME
portfolio increased as a result of the DCA-backed loans
and that their targeted sector portfolio will continue to
Opening Doors: A Performance Evaluation of the Development Credit Authority (DCA) in Ethiopia
vi
In general it is the relationship
with USAID, rather than the
product itself, that is more highly
valued by partner banks
grow (e.g. Nib Bank in the health sector), indicating
program sustainability. However, others felt as if they
no longer needed to take perceived additional risks and
indicated that they planned to exit DCA-targeted
sectors (e.g. Bank of Abyssinia, Zemen Bank, and
Dashen Bank in agriculture).
On top of perceived risk, lack of individual credit scoring
systems, and inadequate methods to value collateral, the
lack of liquidity in the banking system is the main
constraint faced by partner banks to offering finance to
SMEs in the targeted sectors on a sustainable basis after the
expiration of the DCA guarantee. While real interest rates
have risen recently, they cannot rise high enough to offset
demand, creating a shortage of available debt financing,
in turn leading to credit rationing. Banks have little
appetite for accepting increased risk in this environment,
and even complain that DCA covers only 25 percent of
the principal value of a loan if half of that value is
secured as collateral – an admission that they expect to
assume as close as possible to zero risk. Another effect of
credit rationing that was reported has been a rise in
corrupt practices. Since access to finance is scarce, some
potential borrowers (including DCA beneficiaries who
freely admitted such) resorted to offering bribes to credit
evaluators in exchange for a more favorable estimate of
their collateral. Such reports were anecdotal, however,
and it is not clear how widespread such practices are in
the system. Other borrowers reported that having their
loan under the DCA program made them feel less
compelled to offer bribes.
Partner banks demonstrated interest in developing new
financial products and methods of collateralization to
support SMEs or the new borrowers under the DCA
facilities. However, progress on this front was uneven.
Property and in particular primary family residences
continue to serve as the main source of collateral for
smaller and first-time borrowers. Offering primary
residences as collateral normally means that
collateralization rates exceed 200 percent of the value of
the loan. It is also a significant deterrent to considering
borrowing money for many people. Smaller borrowers
reported that this was a large risk for them and put
their families in a difficult situation.
Although there have been some attempts by partner
banks to establish a separate SME lending unit, such
units were generally not prioritized. All banks reported
that they at least have a plan to establish a separate unit
for SMEs and train their staff on SME financing.
Executive summary
vii
Ethio Chicken provides a good example of how a single DCA-backed loan guarantee can create employment for hundreds of people.
Courtesy of Leila
Ahlstrom, USAID Development Credit
Authority
Impact on borrowers 
There was a clear consensus among borrowers that
access to finance was the most binding constraint to
growing their businesses. Borrowers who were
experiencing troubles with their business blamed the
inadequate amount of finance that they were offered
by the banks. Business and investment licensing was
the second most cited constraint.
Accessing finance was found to be very important and
effective at spurring business growth. Most borrowers
under DCA guarantees were experiencing success and,
of these, all agreed that access to finance through
support from the DCA facility was associated with
significant profit increases, employment growth, and
increased assets which would enable these firms to
access additional finance. Some borrowers have also
reported that they built additional infrastructure and
expanded their residential houses after accessing the
DCA-backed loans.
In general, smaller borrowers seemed less concerned
with interest rates and more concerned with the time
and bureaucratic inconvenience in accessing finance
and the limited amount of principal they could obtain.
For most first-time borrowers, the entire process took
well over one year, sometimes longer. Some of the
small borrowers interviewed did not know without
checking the interest rate they were paying on their
current DCA-backed loan, and in fact appeared
unconcerned with that figure. This was interpreted as
indicative of the strong growth environment and high
rates of return to capital in Ethiopia at this time. On
the other hand, larger borrowers of DCA-backed loans
appeared to worry less about the time and cost to
access finance (likely because of a strong credit history
and pool of assets) and much more about the rising
interest rates they were paying on the facilities.
DCA attempted to target women beneficiaries through
a guarantee to Bank of Abyssinia, which expired in
Opening Doors: A Performance Evaluation of the Development Credit Authority (DCA) in Ethiopia
viii
Bishoftu Farm Service Center has experienced support via a DCA-backed loan..
Courtesy of Leila
Ahlstrom, USAID Development Credit
Authority
September 2015. While the high number of loans (29)
and low default rate (just one claim) was encouraging,
utilization never achieved a significant level (just 41
percent) and a number of the loans were to repeat
borrowers, which may signal a continued hesitancy in
lending to women-owned businesses. In general,
women interviewed did not feel as if they were at a
significant disadvantage for obtaining access to finance
from commercial banks and reported levels of
satisfaction with the DCA program that were similar to
those of the men. However, one area of particular
disadvantage that was highlighted was social
relationships, especially with lenders, given that women
have more cultural limitations on how they can
interact with men, who are greatly overrepresented in
the banking sector.
The unique experience of AGFlow Venture PLC (aka
Ethio Chicken) in Mekelle is a good example of how a
single DCA-backed loan guarantee can create
employment opportunities for hundreds of people
along a supply chain within a short space of time. The
project created demonstration effects in a new sector
and the larger-sized investment resulted in
considerable spillover benefits for SMEs.
Overall, since DCA borrowers were able to grow their
businesses and improve profitability, DCA achieved its
objective in terms of economic additionality and
impact on borrowers.
Evaluation recommendations 
Going forward, there are issues that need concrete
action to improve the effectiveness of the DCA
program and address the financial needs of businesses
in targeted segments and sectors. Recommendations
are summarized as follows. USAID and its partners
should:
• Increase their scrutiny of LPG agreements given the
current liquidity-constrained environment in Ethiopia:
The limitations of DCA products in the current
environment should be recognized. Only if there is
demonstrated availability of liquidity and a clear
willingness to serve targeted clients should a new
LPG be considered.
• Insist on partner banks establishing a separate unit and
dedicated staff for financing borrowers targeted under a
guarantee: One of the approaches to incentivize
banks is linking the technical support of USAID to
the would-be established unit and dedicated staff. To
this end, the terms of the legal agreement between
USAID and a partner bank could obligate the
establishment of a specialized unit by that partner
bank to support targeted borrowers.
• Improve performance monitoring and consider impact
evaluations: Throughout the life of the DCA
program, the only performance indicators gathered
have been numbers of loans, size of loans, interest
rates, size of collateral, numbers of first-time and
women-owned borrowers (sometimes), and
utilization rates. A more comprehensive results
framework should be developed for future
guarantees that includes, for example, variables such
as changes in the bank’s overall lending portfolio,
average collateral reductions with respect to non￾DCA-backed loans, and number of entrepreneurs
and bankers trained in connection with the
program. DCA should also actively encourage
surveys of borrowers that would collect baseline
data about their business and follow-up in order to
collect impact-level data on variables such as
changes in business and family income following
access to finance. Partner banks should offer such
baseline information about their clients and USAID
implementing partners should follow up between
one and three years after loan disbursement with a
brief survey.
• Support banks to change their collateralized lending
approach: Given the challenges of meeting the
collateral requirements of banks, the absence of a
collateral registry for movable assets, and ineffective
enforcement of contracts in case of default, banks
require technical support and incentives to
implement different financing technologies such as
small business credit scoring, financial statement
Executive summary
ix
Since DCA borrowers were able to
grow their businesses and improve
profitability, DCA achieved its
objectives of economic additionality
and impact on borrowers
lending, relationship lending, factoring, asset-based
lending, leasing, and fixed asset lending. USAID
should use technical assistance providers to support
efforts to move banks away from their preference for
property as collateral.
• Improve the quality of technical support and link it to
concrete operational changes in the banks: Partner
banks perceived the existence of a moral hazard
problem, as many borrowers believed that because
their loan was under a USAID-backed program
there must be a grant component, reducing
incentives to repay the facility. Going forward,
USAID technical assistance should ensure that
general information about the DCA program is
provided to borrowers and is clearly understood.
Rather than providing one-off training to the banks,
USAID should look to support banks to
institutionalize training and improve the quality of
internal bank training. The value addition and
performance of the capacity-building support to
banks and borrowers varied significantly from one
TA provider to another. There is a need to share the
experiences of the TA providers by discussing their
experiences and challenges in regular workshops.
• Improve the sustainability of business development
services (BDS): USAID and other donors, which
provide the majority of value-added services for
DCA guarantees, are distorting the BDS market with
the largely free services that they arrange for
borrowers. Donors should focus on nurturing the
local development of this market by working
directly through local BDS providers and
introducing cost sharing with borrowers, with a
longer-term plan to phase out all subsidies.
• Increase support for loan guarantees: USAID should
focus more on loan guarantees that have a clear
potential to ‘crowd in’ private investment and make
a relatively large impact in terms of spillovers that
include employment growth, benefits to SMEs in
the value chain, and demonstration effects in a 
new sector.
• Address prohibited practices in the partner banks:
USAID will need to communicate with partner
banks that such practices as paying bribes to loan
officers will not be tolerated and could result in the
immediate termination of the agreement. USAID
also needs to increase communication with partner
banks to ensure that they are aware of and in
compliance with USAID rules and regulations, such
as the provision of prohibited services.
Opening Doors: A Performance Evaluation of the Development Credit Authority (DCA) in Ethiopia
x
Introduction
1
1.1 Statement of the problem
Micro-, small and medium enterprises (MSMEs) have
emerged as important for socio-economic development
and economic diversification in Ethiopia, often acting as
key multipliers along the supply chain. Despite their
importance, MSMEs, especially small to medium-sized
firms, face a serious challenge compared to large firms
when accessing finance from formal financial
institutions. The share of small and medium enterprise
(SME) lending to overall lending in Ethiopia is only 7
percent, among the smallest in Sub-Saharan Africa
(SSA), as well as far below that of other developing
economies (World Bank, 2014a). According to the same
report, about 41 percent of microenterprises, 36 percent
of small firms, and 29 percent of medium firms reported
access to finance in Ethiopia to be a major constraint to
daily operations, compared to SSA averages: 24 percent,
20 percent, and 16 percent respectively. Firms in Ethiopia
that are credit constrained have sales growth that is 15
percentage points lower, employment growth that is 5
percentage points lower and labor productivity growth
that is 11 percentage points lower than firms which are
not credit constrained.
The same study also reveals that only 6 percent of
microenterprises, 1.9 percent of small enterprises and
20 percent of the medium-sized firms had accessed a
loan from formal finance providers. Moreover, among
firms that applied for a loan or a line of credit, about
57.3 percent and 87.9 percent of applications
submitted by micro and small firms respectively were
rejected, while the rejection rates experienced by
medium and large firms were 6.2 percent and 10.4
percent respectively (Figure 1). More recently, in the
World Bank’s Enterprise Surveys (2015), the number
one identified constraint among the 848 surveyed
firms was access to finance, with over 40 percent of
firms choosing this as their biggest obstacle. The World
Bank’s Doing Business report (2016) also demonstrates
just how far behind Ethiopia is compared to its
neighbors (Figure 2).
Wolday and Tassew (2015) reveal that lack of access to
finance and limited government support to access
land or buildings to produce and market the products
of micro- and small enterprises were the key
challenges affecting growth and expansion. The same
1. Introduction
Figure 1 Access to finance by firm size
Source: World Bank Enterprise Survey 2011.
Note: Micro firms, those with less than ten employees, were only surveyed in Addis Ababa. ‘Loan application’ refers to the most recent application submitted
within the last fiscal year.
study shows that about 71.3 percent and 70.1 percent
of the micro- and small enterprises used
savings/retained earnings to meet their working and
investment capital needs, respectively, while only
about 8.7 percent of the owners had access to formal
finance providers. However, the proportion of these
small enterprise owners who used borrowing from
formal financial institutions was relatively higher
compared to the microenterprise owners. Smaller
firms appear to face more serious financial
constraints compared with those that are larger,
which is attributable to factors including higher
perceived risks, inadequate business plans, the high
value of collateral needed for a loan, and the current
financial environment in which banks are limited in
their ability to expand their balance sheets.
The higher perceived risk involved with lending to
SMEs among banks is due in part to information
asymmetry or the relatively high cost of obtaining
information about the business potential and cash
flows of the operators, each because of capacity gaps
on both the borrower and lender side. As a result,
banks demand high levels of collateral as security and
the cost of borrowing increases and constrains access
to finance for SME operators. Meeting the collateral
requirements of formal finance providers, usually in
the form of fixed assets and real estate, is much more
difficult for SMEs compared with large enterprises.
Inadequate collateral and difficulties in proving their
credit worthiness or absence of credit history were the
main factors that discouraged micro- and small
enterprise (MSE) operators from submitting loan
applications to formal finance providers, followed by
difficulties in processing loans, and the high cost of
borrowing. Indeed, collateral rates1 in Ethiopia are
much higher than in many other countries in Africa,
and in Asia, Eastern Europe, and Latin America. For
example, the collateral rates for SSA, Kenya, South
Africa, and Morocco were 162.2 percent, 120.8 percent,
103.8 percent and 171.2 percent of the loan value
respectively, compared to 234 percent in Ethiopia
(Wolday and Tassew, 2015). The value of collateral
needed (in percentage terms) for a loan in East Asia
and the Pacific, Eastern Europe and Central Asia, Latin
Opening Doors: A Performance Evaluation of the Development Credit Authority (DCA) in Ethiopia
2
Figure 2 Ease of getting credit ratings and rankings (2015)
Source: World Bank Doing Business 2016.
Note: The number in parentheses represents the country’s rank in terms of ease of getting credit across all countries included in the study. Higher numbers
represent a worse ranking for ease of access to credit. The distance to the frontier score shows how far on average an economy is at a point in time from the
best performance achieved. The measure is normalized to range between 0 and 100, with 100 representing the frontier/ best performance. 
1 Banks and microfinance institutions (MFIs) in Ethiopia prefer immovable collateral such as land and buildings rather than movable
assets such as machinery.
Introduction
3
America and the Caribbean, and South Asia were 176
percent, 135.6 percent, 197.3 percent, and 232.5
percent respectively (World Bank, 2014b). Moreover,
the absence of collateral registration in combination
with ineffective enforcement of contracts in case of
default are also constraining factors to the significant
losses for banks which affect SME lending in Ethiopia.
1.2 Objectives of the DCA program
USAID’s DCA offers partial credit guarantees, whereby
USAID shares the risk of borrower default with partner
banks. DCA offers different types of products, the most
popular being the loan portfolio guarantee (LPG),
whereby some percentage, usually 50 percent, of a
maximum principal value of loans to targeted borrowers
on the balance sheet of a private commercial bank
partner is covered from default on a pari passu basis or
equal footing. While an LPG is a product for a partner
bank, a portable guarantee (PG) is a product for
borrowers, providing coverage against default, which,
upon USAID’s consent, can be utilized at most any
private commercial bank. Once a lender is identified by
the borrower, PGs convert to loan guarantees (LGs) and,
in the event of default by the borrower, USAID would
guarantee a portion of the outstanding principal balance.
DCA also offers LGs to support specific borrowers, as
well as local government and non-government entities,
but not sovereign (central government) bond guarantees
(BGs). All of these products are designed to encourage a
lender to extend credit to borrowers that are currently
under-served by financial institutions (USAID, 2009).
LPGs target specific sectors (e.g. agriculture, tourism) or
segments (e.g. women, diaspora), and while partner
banks are required to utilize the guarantee only for
qualified borrowers (as defined in the legal agreement
between USAID and the partner bank), LPGs rely
entirely on the bank’s own loan approval processes.
USAID/Ethiopia began entering into DCA LPGs with
partner banks in Ethiopia in 2004, while just one PG to
LG conversion has been issued, in 2014.
USAID/Ethiopia’s utilization of DCA guarantees seeks
to: mobilize private capital to targeted segments and
sectors, such as the agricultural and health sectors,
diaspora and women entrepreneurs; help private
commercial banks to develop a range of new financial
products for these targeted borrowers; create a more
competitive market environment for banking services
targeted to those borrowers; enable targeted borrowers
to access loan services with lower collateral
requirements; and create strong market linkages with
local partner banks (as illustrated in Figure 3).
1.3 Assessment objectives and
methodology
The core objective of this performance evaluation is to
measure the outputs, outcomes and impact level
achievements of DCA guarantees over the 12 years
since 2004. The specific objectives of the performance
evaluation include to:
(i) Assess how DCA guarantees facilitated lending to
SMEs in Ethiopia, both in terms of the value of
loans and number of loans to agricultural value￾chain actors, diaspora, private health service
providers and women-owned businesses, as well as
review the support of the DCA program in
assisting the efforts of USAID and the
Government of Ethiopia (GoE) in achieving
development objectives.
(ii) Evaluate the involvement of partner banks in the
DCA program by studying their capacity for
expanding lending to target businesses after the
loan portfolio guarantees have expired, ensuring
sustainability, including the cost-effectiveness of
the guarantee to partner banks.
(iii) Assess the outcomes and impact of DCA
guarantees on the performance of beneficiary
enterprises and their livelihoods (household
incomes, assets, etc.).
(iv) Review lessons learned from the experience of
DCA guarantees to be disseminated and propose
specific interventions that will guide and
strengthen future programming.
Impact evaluation studies usually rely on measuring
the degree of change in a specified outcome that is
attributable to the intervention of programs such as
DCA, often through quantitative approaches.
Randomization is generally required in order to
effectively measure impact quantitatively and attribute
causality, because the characteristics of the treated and
untreated groups are equally distributed, implying the
untreated group is the correct comparison. However,
randomization is not always feasible, particularly
when the evaluation is conducted after the
intervention/ treatment has already been given to
participants (Steiner et al., 2010), as is the case in this
instance. Given the lack of randomization and
population level data for borrowers and banks alike,
we have termed this paper a ‘performance evaluation’
which focuses on gathering primary and secondary
qualitative information from project stakeholders in
order to assess whether the DCA guarantees have
met/are likely to meet intended objectives, i.e.,
outputs, outcomes, and impact (See Annex 8 for a
complete list of interviews conducted). Quantitative
data from DCA’s Credit Monitoring System (CMS)
regarding utilization rates, borrowers, and loan
amounts are also used.
The outputs, outcome, and impact of DCA guarantees
in Ethiopia are evaluated here along six major
dimensions: appropriateness of the design; utilization;
credit additionality; financial sustainability; program
sustainability; and impact on the borrowers.
Appropriateness of the design: The inherent design of
the loan portfolio guarantee is directly or indirectly
related to the outcome and impact of the scheme. As
indicated by Green (2003), the weakness of early
guarantee schemes can be avoided through proper
design and institutional arrangement. For example,
targeting riskier types of borrowers through strict
Opening Doors: A Performance Evaluation of the Development Credit Authority (DCA) in Ethiopia
4
Figure 3 Conceptual framework to assess the performance of DCA guarantees 
Development Credit Authority (DCA) guarantee
Sustainably increase access to financial services for SMEs 
to support economic growth
Small and medium enterprises
• Firms in agriculture value
chain or health sector
• Diaspora
• Women
Private banks USAID implementing
partners
Other stakeholders
such as local firms 
Capacity building and the GoE 
Credit Capacity building
Capacity building
Credit guarantee Grant
Output: The partner banks utilize the loan portfolio guarantees (LPGs) by extending loans to targeted borrowers. The DCA guarantee
facilitates increased lending in terms of both the value of loans and number of loans to, for example, agricultural value-chain actors, private
health service providers, diaspora and women-owned businesses.
Outcome: Guaranteed borrowers receive greater access to credit than they would have otherwise (additionality). It is expected that each
partner bank will develop its own strategy for expanding lending to targeted borrowers after the LPGs have expired, ensuring sustainability. 
Impact: The DCA guarantee strengthens private commercial banks and increases access to finance among targeted borrowers, in order to
increase sustainable economic growth through increased investment, revenue, profit, sales, etc., ultimately affecting livelihoods through
improvements in household income. 
Output
Outcome
Impact
Introduction
5
eligibility criteria may have a positive impact on
additionality by discouraging partner banks from
using the guarantee for average risk borrowers, but
may also reduce utilization and generate adverse
selection effects (Saadani et al., 2010). An effective
design needs to strike a balance between the
objectives of utilization, additionality, and financial
sustainability. Although there is no standard approach
to assess the project design of portfolio guarantees,
attempts are made to review the scheme against
general guiding principles and selected international
best practices.
Utilization: This is the key output indicator for LPGs,
because it is a measure of the value and
appropriateness of the product for banks; it is
commonly measured by the number of loans issued to
qualified borrowers and the amount of actual loan
disbursements as a percentage of the potential
maximum coverage amount.
Credit additionality: This measures the extent to which
loans under the guarantee are extended to borrowers
that are credit constrained and would not have been
able to obtain a loan without the support of the DCA
guarantee.
Financial sustainability of project: From the perspective
of partner banks, a loan portfolio guarantee product
should be cost-effective and ultimately profitable.
While the objective of DCA is not necessarily to
increase the profits of partner banks, in order for the
project to be financially sustainable the guarantee
product must be seen as being financially viable
(Saadani et al., 2010).
Program sustainability: DCA products are meant to
serve as a pilot project of sorts in order to produce
demonstration effects which play a catalyst role in
transforming the perspective of partner banks to
comfortably continue lending to targeted borrowers
after the guarantee is no longer in place. Thus,
increased exposure of partner banks to the targeted
sector or class of borrowers after a guarantee expires is
a key outcome and/or impact indicator.
Impact on borrowers: The underlining development
impact sought by DCA guarantees in Ethiopia is the
financial and economic performance of the guarantee
users. In this evaluation, impact is measured by
reported improvements in borrower households’
income and quality of life, as well as on commercial
activities of the enterprises in terms of growth in
employment, sales, new products developed,
competitiveness, and productivity.
1.4 Method of data collection
Fieldwork for this evaluation included meetings with
five partner banks and 12 beneficiaries that were
purposively selected by considering regional, sectoral
and gender balances for in-depth interviews using
structured questionnaires. Moreover, three USAID
implementing partners that provide capacity-building
support were interviewed to capture their views on the
value addition of the technical assistance to partner
banks and borrowers. On top of the primary
information, secondary data were also extensively used
in the study. An internet review of literature, assessment
of the public policies that influence SME financing in
Ethiopia, and critical review of selected and recent
sample MSME survey results, focusing on financial
constraints, were undertaken prior to commencement
of the fieldwork. Documents and reports from
USAID/DCA and partner banks were also useful inputs
in the evaluation process, as was CMS data.
Opening Doors: A Performance Evaluation of the Development Credit Authority (DCA) in Ethiopia
6
To address the constraints to SME access to finance,
USAID/Ethiopia has relied mainly on the LPG
mechanism to date, which mostly has focused on
agriculture value-chain participants that support
USAID’s broader objectives to reduce hunger and food
insecurity in Ethiopia through the Feed the Future
Initiative. Key stakeholders include: cooperatives,
livestock value-chain actors, smallholder farmers,
agricultural input suppliers, seed companies,
agricultural equipment providers, transporters,
warehouse operators, aggregators, post-harvest
processors, and farmer organizations with forward￾delivery contracts. On top of supporting SMEs in the
agricultural value chain, DCA activities have targeted
diaspora, private health service providers, and women
entrepreneurs in various sectors. The salient features of
a typical LPG in Ethiopia are summarized in a sample
term sheet in Table 1.
The implementation of the DCA program in Ethiopia
often includes a capacity-building component to
support both the partner banks and borrowers. When
there has been technical assistance, it has been
primarily focused on borrowers, not partner banks.
The assistance to partner banks is expected to help
them in developing their own strategy to expand
lending to targeted enterprises and sectors in the
future, without DCA support, but this has generally not
been an integral part of the TA program in Ethiopia.
Capacity-building providers (partner USAID projects)
are expected to offer assistance such as training on new
product development and customized risk
management to partner banks. It is also important to
assess the role of TA providers such as AGP-AMDe,
AGP-LMDP and SHOPS (USAID/Ethiopia
implementing partners) to assist DCA borrowers.2
Given the diversity of the targeted borrowers'
enterprises, the USAID/Ethiopia projects have used
various specialized capacity-building providers to assist
them in preparing business plans and loan applications
and in managing their businesses. For the partner
banks, most or in some cases all of their DCA￾guaranteed clients were referrals from these projects.
Even with this support, to qualify for the DCA-backed
loan, the potential borrower must meet all the normal
eligibility criteria of partner banks.3 However, all
partner banks reported that clients under the DCA
guarantee receive priority, often with applications
moving directly to a Vice President’s office for
expedited review and approval.
In order to facilitate lending by private commercial
banks, DCA provides 50 percent loan portfolio
guarantees which attempt to compensate for the lack of
acceptable collateral that can be offered by the targeted
borrower. Partner banks are selected after DCA reviews
their performance, with soundness of assets and
management of risks of the bank as just some key factors,
among others. Moreover, the partner banks are expected
to show clear interest and commitment in extending
2. Salient features and outreach of the DCA program
2 For example, the Agricultural Growth Program-Agribusiness and Market Development (AGP-AMDe) and AGP-Livestock Market
Development Program (LMDP) provides limited technical assistance to DCA partner banks and technical assistance to potential
borrowers engaged in selected crop value chains, such as maize, wheat, coffee, etc. and the livestock value-chain respectively.
Strengthening Health Outcomes through the Private Sector (SHOPS) offers capacity-building support to partner banks and targeted
private health service providers. The three partner USAID TA providers are expected to assist in developing a stronger private sector that
is able to meet the demands of domestic and export markets through linkages with farmers and smallholders, increased productivity,
and improved post-harvest practices.
3 These required documents normally include certificates of registration and single business permits, tax identification number
(TIN)/value-added tax (VAT), audited financial reports, matching collateral and ownership certificates, certificates of asset, guarantee
letters, a marriage certificate, etc. After a potential borrower meets the list of preset eligibility criteria, the bank starts appraising his/her
loan application, which is largely done through the establishment of a close relationship with the potential borrower. Loan appraisal
techniques of all partner banks are mostly based on traditional relationship lending rather than on transactional technologies such as
credit scoring. Relationship lending/loan approval techniques are based on soft information gathering by loan officers via direct personal
contact with borrowers. Moreover, partner banks commonly utilize quantitative and qualitative assessment for their credit analysis.
Most of the partner banks do not separate the credit risk management function from the sales function. In many cases, the risk
management in partner banks is handled by a credit analyst and assessment processes are not automated.
Salient features and outreach of the DCA program
7
Authority DCA
Type of guarantee Loan portfolio guarantee
Guarantee party Private bank(s) (e.g. Bank of Abyssinia)
Maximum portfolio amount US$10,000,000 
USAID guarantee percentage 50%
Guarantee ceiling US$5,000,000 
Term of guarantee 2011–2016
Origination fee 0.50% of maximum portfolio amount
Utilization fee 1.5% p.a. of the cumulative outstanding principal loan balances
Qualifying borrowers and projects e.g. SMEs engaged in the agriculture value chain, health sector, diaspora, 
and women-owned businesses
Table 1 Example of a typical term sheet of an LPG in Ethiopia 
Table 2 The performance of DCA facilities in Ethiopia
End date
2014/09/28
2014/09/28
2015/09/15
2015/09/26
2020/09/26
2020/09/26
2021/09/30
2021/09/30
2021/09/30
2017/09/22
2017/09/22
2018/09/30
2018/09/30
2018/09/30
2016/05/13
2016/04/11
2021/03/30
Guarantee
agreement value
$9,000,000 
$9,000,000 
$10,000,000 
$4,280,000 
$6,420,000 
$6,420,000
$4,474,063 
$4,474,063 
$4,474,063
$3,655,928 
$3,655,928 
$3,000,000 
$3,000,000 
$4,000,000 
$10,000,000 
$2,500,000 
$1,250,000 
Start date
2004/09/28
2004/09/28
2005/09/15
2008/09/26
2008/09/26
2008/09/26
2011/09/30
2011/09/30
2011/09/30
2011/09/22
2011/09/22
2013/09/30
2013/09/30
2013/09/30
2013/09/30
2013/09/30
2014/09/25
Partner name
Awash 
International Bank*
Bank of Abyssinia*
Dashen Bank*
Bank of Abyssinia*
Bank of Abyssinia
Nib International Bank
S.C.*
Bank of Abyssinia+
Nib International Bank
S.C.+
Bank of Abyssinia or Nib
International Bank S.C.+
Bank of Abyssinia*
Zemen Bank
Cooperative Bank of
Oromia**
Oromia International
Bank**
Cooperative Bank of
Oromia or Oromia
International Bank**
Dashen Bank*
Zemen Bank*
Zemen Bank
Target
sector
Agri
Agri
Agri
General
General
General
Health
Health
Health
Agri
Agri
Agri
Agri
Agri
Agri
Agri
Agri
Number 
of loans
44
40
74
29
10
11
16
58
0
1
6
11
9
3
0
1
Util. %
97.87%
96.83%
99.02%
41.47%
74.80%
35.23%
35.02%
80.80%
0.00%
4.12%
61.82%
44.24%
30.61%
0.00%
0.48%
0.00%
97.65%
Target
segment
SME
SME
SME
SME
SME
SME
SME
SME
SME
SME
SME
SME
SME
SME
SME
SME
SME
Notes: *Expired or terminated guarantees; **Competitive guarantees; +PEPFAR competitive guarantee
finance to the targeted borrowers. Once the banks sign
the guarantee agreement, targeted borrowers are able to
apply for a loan and partner banks begin placing such
loans under coverage of the DCA guarantee; but in
practice, in the case of Ethiopia, most of these clients are
referred to the banks through an active USAID program.
Between 2004 and 2015, DCA signed 14 LPG
agreements and one LG agreement with seven private
banks. Of the 14 LPG agreements in Table 2, four
guarantees expired naturally and four were terminated,
while the remaining seven are active guarantees. One
agreement with Nib Bank was terminated at the
request of the bank, and since the utilization rate of
one of the agreements with Bank of Abyssinia was very
low (4.12 percent), DCA decided to terminate the
agreement. Nine of the DCA LPGs focus on extending
loans to SMEs in agricultural sector value chains, two
LPGs are focused on lending in the health sector, and
the remaining three LPGs provide priority lending to
diaspora and women-owned businesses.
Based on the agreements between USAID/Ethiopia and
the seven partner banks, the total maximum cumulative
disbursement (or guarantee agreement value) was
$90,604,045, while the total cumulative utilization as of
the last report was $47,369,550, for an average utilization
rate of 53.3 percent. However, the utilization rate is a
function of various elements including the time since
signing the guarantee (utilization is typically low in the
first two years of the agreement and then increases),
internal preparation of the banks, commitment to and
understanding of the DCA by the senior management,
dissemination of the necessary instructions to branches,
etc. Of expired guarantees, the overall utilization rate
increases to 84 percent. In particular, the utilization rate
of the expired guarantee agreement with Dashen Bank
was very high (99.02 percent). Of the two expired
guarantee agreements with Bank of Abyssinia, the
guarantee that focused on lending to women
entrepreneurs had lower utilization (41.47 percent)
compared to the other which targeted the agricultural
sector, with utilization rate of 96.86 percent.
The full utilization of the facility by Dashen Bank and
Bank of Abyssinia underscores the importance of the
commitment of the staff at the head office level for the
Opening Doors: A Performance Evaluation of the Development Credit Authority (DCA) in Ethiopia
8
Awash International Bank 97.87% $81,471 $0 0
Bank of Abyssinia 96.83% $63,996 $327,726 3
Dashen Bank 99.02% $98,293 $66,756 1
Bank of Abyssinia 41.47% $41,547 $5,402 1
Bank of Abyssinia 74.80% $19,079 $3,428 1
Nib International Bank S.C. 35.23% $58,244 $0 0
Bank of Abyssinia 35.02% $30,952 $0 0
Nib International Bank S.C. 80.80% $26,554 $0 0
Bank of Abyssinia 4.12% $18,784 $0 0
Zemen Bank 61.82% $29,231 $0 0
Cooperative Bank of Oromia 44.24% $7,500 $0 0
Oromia International Bank 30.61% $7,500 $0 0
Dashen Bank 0.48% $25,000 $0 0
Zemen Bank 0.00% $12,500 $0 0
Zemen Bank 97.65% $0 $0 0
Total 53.33% $520,651 $403,312 6
Partner name Average cumulative
utilization percentage (%)
Fees Claims Total number of
claims
Table 3 Average utilization rate, subsidy fees paid and claims of partner banks 
utilization of the facility. It also underscores the
importance of aligning the target sector/borrowers
under a DCA guarantee with bank strategies, which
may be prone to shift on short notice. The strategy
shifts away from borrowers targeted under a DCA
guarantee typically stem from a perceived increase in
risks in the DCA-targeted area.
As of March 2016, the origination and utilization fees
paid by the partner banks totalled $520,651, while
partner banks submitted six claims (on loan defaults),
for $403,312.4 Three defaults under Bank of Abyssinia
accounted for about 82 percent of the claims paid.
This means that throughout the period since USAID/
Ethiopia first entered into guarantees with partner
banks, it has taken in more money in fees than it has
paid out in claims. If this continues to hold true after
all guarantees expire, it is odd because DCA is in
theory supposed to act as a subsidy, not a net
moneymaker. Different theories could explain this
result. One is that this is an indication of low levels of
additionality (value added) of the DCA product. If
DCA guarantees are supposed to incentivize risk￾taking by partner banks, but defaults are no higher
than the banks’ portfolio as a whole, then this
indicates the guarantee may be ineffective in achieving
additionality. However, another theory could be that
the targeted sectors do in fact present profitable
lending opportunities and DCA created a
demonstration effect by lowering the risk to banks to
experiment with lending to these clients. This was the
case, for example, with private health clinics under the
agreement with Nib Bank and to a significant degree
for women borrowers under the agreement with Bank
of Abyssinia, as both banks have indicated their
continued interest in lending to these clients.
A third theory, to which the authors subscribe, is that
most of these targeted sectors and clients did indeed
present profitable commercial lending opportunities
and that has been the main reason why defaults
remained low. At the same time, these were in fact
riskier borrowers, and these risks are beginning to
materialize with the current stress in the agriculture
sector in particular. We have evidence that non￾performing loan (NPL) rates are increasing across a
number of LPGs, and this is why some banks have
expressed less desire to continue lending to some DCA￾targeted sectors. We conclude that the DCA guarantees
did encourage banks to assume increased risks as
designed, and until just recently these investments have
paid off; however, they are now experiencing pressure
as a result of an exogenous shock in the form of a
massive drought. It is hoped that the agriculture sector
can escape the current downturn and continue to
attract investment going forward.
Once a loan is approved and issued, borrowers repay
the bank according to the repayment schedule, just as
any other client. DCA charges a ‘utilization fee’ to the
partner bank, which is sometimes either absorbed by
or transferred to the borrower in the form of a higher
interest rate than a similar non-DCA-backed loan. In
the case of Ethiopia, due largely to liquidity constraints
and credit rationing, most banks reported that they
passed on 100 percent of the utilization fee to the
client. This makes sense in terms of standard tax￾incidence theory in economics, whereby the more
‘inelastic’ (least sensitive to price) side of the market, in
this case borrowers, should absorb most of a tax or fee.
Salient features and outreach of the DCA program
9
4 Fees are paid to the US Treasury.
Throughout the period since
USAID/Ethiopia first entered into
guarantees with partner banks, it
has taken in more money in fees
than it has paid out in claims
Perceptions of the performance of the DCA product in
Ethiopia by the key stakeholders are affected by a
number of factors. Most recently, macroeconomic
factors such as the fiscal environment and policies
affecting the financial sector have driven performance
perceptions. Often, the opinions of the lenders,
borrowers, and TA providers coincide, while at other
times there are significant divergences driven by
differing experiences with the guarantee. This section
reviews and analyzes the observations of these key
stakeholders during the fieldwork that was conducted.
3.1 Macroeconomic factors influencing
the performance of the DCA program
The success of a DCA loan portfolio guarantee is
directly and indirectly influenced by macroeconomic
factors and the ongoing development of the financial
sector. The Ethiopian economy has registered double￾digit GDP growth in the past ten years with an
associated expansion of the private sector, particularly
to MSMEs. However, private investment in Ethiopia
was only about 28 percent of the GDP compared with
the SSA average of 72 percent of GDP (USAID, 2014)
while the share of public sector credit climbed to two￾thirds of the total available. Despite the support of the
Ethiopian government to promote MSMEs, they have
encountered serious challenges in the form of a
financial sector that is closed to foreign investment,
onerous sector-specific regulations, limited capacity,
and lack of bank sophistication. The result has been a
severe shortage of liquidity among local commercial
banks, ultimately manifesting itself in the form of
credit rationing.
Government-owned banks dominate the Ethiopian
banking system, constituting 71 percent of total assets
of the sector. Until 1994, only the state-owned banks,
namely the Commercial Bank of Ethiopia (CBE), DBE,
and the Construction and Business Bank (CBB) were
in operation. In the last 20 years, 16 private
commercial banks have been established and have
begun providing financial services to the domestic
market. Despite the financial crisis that affected much
of the rest of the world beginning in 2008, the banking
industry in Ethiopia has registered remarkable progress
in the last five years. According to a National Bank of
Ethiopia (NBE) 2014 report, over 2009–2013, total
assets of the banking sector grew by 30 percent, loan
and advances by 27.8 percent, deposits by 31.4 percent,
capital and reserves by 21.7 percent, profit after tax by
32.2 percent, branch network by 33 percent, and
human resources by 13.3 percent. In 2014, the 16
private banks and the three government banks had
1,205 and 1,003 branches respectively.5
However, the expansion of the banking sector has been
dominated by the government-owned CBE, as the share
of private bank assets to total assets of the banking
sector declined from 36 percent in 2008/09 to 28 percent
in 2012/13 (World Bank, 2014a). The share of CBE to
total banking sector assets, deposits and profit in 2014
was 69 percent, 56 percent and 51.4 percent respectively.
Although CBE has been successful in mobilizing
deposits, its primary objective has been to meet the loan
and hard currency demand for large government
projects such as power generation and distribution,
establishing large sugar plantations/factories,
construction of condominium houses, railways,
telecommunication, etc. Given this primary demand for
its resources, CBE gave very little attention to MSME
finance. At the same time, the huge demand for loanable
funds in the economy has given the private commercial
banks little incentive to lend to riskier clients such as
MSMEs and, when they do, the terms often include
higher collateral than principal value.
The liquidity challenge of banks was aggravated by the
tight monitory policies implemented by NBE or the
central bank that were aimed at reducing inflation,
which included increasing the reserve and liquidity
Opening Doors: A Performance Evaluation of the Development Credit Authority (DCA) in Ethiopia
10
3. The performance of the DCA product – Views of
stakeholders 
5 Total assets of the banking sector increased from 101.7 billion Birr in 2009 to 375 billion Birr in 2014, while the industry’s deposit
increased from 73.7 billion Birr in 2009 to 299.1 billion Birr in 2014. Moreover, the total profit before tax increased from 4.3 billion Birr
in 2009 to 12.3 billion Birr in 2014.
requirement of banks, lowering the lending of banks to
below 50 percent their deposits, and even halting their
lending activities in 2009. Then, in April 2011, NBE
issued a directive requiring all banks, except the state￾owned CBE and DBE, to purchase DBE bonds that
cover 27 percent of the principal value of every loan
disbursed. These bonds yield 3 percent, far below the
rate of inflation and even farther below the cost of
acquiring additional funds on market terms. This
requirement serves to channel resources directly to
government, as explained in the IMF 2014 Article IV
report for Ethiopia:
“The proceeds of these bonds are transferred to the
state-owned Development Bank of Ethiopia (DBE)
which, according to the stated policy, is supposed to
on-lend them to government targeted private sector
activities. However, an analysis of DBE balance sheet
reveals that more than half of the proceeds are used to
buy T-bills. This, combined with the policy of directed
lending mainly to public enterprises in an
environment of negative real interest rates, results in a
significant transfer of resources from creditors (savers)
to borrowers, especially the public sector.”
The directive further restricted the availability of
loanable funds and this greatly reduced the incentives
of private banks to extend scarce resources to potential
borrowers under DCA facilities. The CEOs of partner
banks were in broad agreement that the current
liquidity challenges in the banking sector are a key
factor limiting the utilization of DCA guarantees.
Nominal interest rates are also rising, reaching as high
as 19 percent for some borrowers, but not fast enough
to offset demand and eliminate the need for credit
rationing. This is likely because of two main factors:
first, the CBE acts as a ‘rate setter’ given its market
dominance. As a state-owned institution, it is typically
encouraged to keep rates low and normally artificially
below market rates. Commercial banks risk losing
customers if their interest rates rise too far above the
CBE rate of 9 percent. Second, rising interest rates
attract an increasingly risky pool of borrowers which
the banks want to avoid (Stiglitz and Weiss, 1981).
Moreover, the shortage of foreign exchange in the
economy has led partner banks to give priority to firms
engaged in the export sector, at the expense of SMEs.
Interest rates for exporters run as low as 8 percent
according to banks interviewed, which with inflation
currently running around 10 percent, results in a
negative real interest rate. The banks compensate the
loss of interest income through the foreign exchange
premium, which is currently estimated at around
15–20 percent.
The effects of these constraints can be seen at the
household level. According to the 2014 Global Findex
(conducted for the first time in Ethiopia), only 22
percent of Ethiopians owned a bank account at a
formal financial institution, compared to the Sub￾Saharan regional average of 34 percent, while only 7
percent of Ethiopians had borrowed from commercial
financial institutions (World Bank, 2014b).
Data from the World Bank ‘Enterprise Surveys’ (2015)
suggests that the problem has grown worse recently.
There was a substantial increase in the percentage of
firms identifying access to finance as a major
constraint, with over 40 percent doing so in 2015,
compared to 33 percent in 2011 and just 19 percent in
2006. Finally, Ethiopia ranked 167th out of 189
countries for ‘ease of getting credit’ in the 2016 Doing
Business report of the World Bank, with an index score
of just 15 out of 100, compared to the Sub-Saharan
African average of 35.85.
These effects are not uniform. According to the
‘Enterprise Surveys’, 57 percent of small and 49 percent
of medium-sized firms reported to be ‘fully credit
constrained’, compared to just 24 percent of large
firms. When citing reasons for not applying for a loan,
29 percent of small firms and 33 percent of medium￾sized firms cited onerous collateral requirements,
compared to just 6 percent for large firms (World
Bank, 2015).
Despite these constraints, private banks in Ethiopia
continue to thrive, recording some of the highest
returns on equity in the region (World Bank, 2014b).
The reason for this apparent contradiction in light of
the above documented constraints is lack of
competition in a financial sector closed to
international competition and many GoE policies
constituting implicit subsidies for the banks. This
The performance of the DCA product – Views of stakeholders 
11
inordinate level of profitability signals that banks are
already receiving relatively high yields on their existing
positions, further lowering their incentive to assume
additional risk in the SME sector and new borrower
classes. However, high profits could also create an
opportunity through which the DCA products could
divert some level of these profits back towards under￾served sectors and clients. This ‘profit cushion’ is
perhaps reflected in the local banks’ uniformly high
level of interest in obtaining a DCA product, described
further in the next sub-section.
3.2 Bankers’ views on the DCA
program
The views of partner banks on the DCA program
overall are seemingly contradictory on the surface. It
was very clear that senior bank management highly
valued being a DCA partner institution. At the same
time, nearly all agreed that the DCA guarantees were
not a financially profitable stand-alone product.
Interestingly, it is the relationship with USAID and its
implementing partners, rather than the guarantee
product itself, which is more highly valued. Partner
banks enjoy USAID’s ability to offer technical
assistance to qualified clients and refer them to the
bank. The initial support makes these clients more
bankable, while the ongoing support offered by USAID
reduces the probability of default by improving
business decisions. The banks also value the training
that their staff is sometimes offered through the TA
providers, described in more detail below.
The relationship with USAID and its implementing
partners also connects the bank with a wider universe
of stakeholders, often including GoE officials and
other international donors which can prove to be
valuable business partners. Finally, there is the
perceived prestige of working with USAID, which
allows the banks to signal a commitment to their
country’s larger development goals and support for
the under-served communities. Corporate social
responsibility plays an important role in Ethiopian
society, and a partnership with USAID acts as an
international seal of approval of sorts that they can
highlight. Due to these factors, despite the liquidity
challenge, many of the CEOs and Vice Presidents
(VPs) of the partner banks showed their commitment
to continue implementing the DCA guarantee.
The perceived value of the relationship with USAID is
important indeed, especially since most of the banks
admitted that given the high demand for credit in the
economy, they could have used the loanable funds
allocated to DCA-backed borrowers to lend to larger
and safer clients; ideally such clients would be in the
export or trade finance sectors, which can offer coveted
foreign exchange and provide near complete assurance
of repayment given the large size of the firms involved.
At the same time, they recognized the importance and
stressed the need to assume the additional risks involved
in extending loans to SMEs who have less access to
finance. This is not completely or even in large part due
to charitable concerns about the social good. The banks
are aware that financially profitable opportunities exist
in the SME space, and all agreed that a DCA guarantee
increased their level of comfort with lending to new
clients, both via default coverage and the confidence that
a partnership with USAID offers.6
Except for reductions in the collateral requirement, the
terms and conditions for the DCA-backed loans and
regular loans of the partner banks are generally the
same. Banks all agreed that DCA enables them to lower
collateral requirements for covered borrowers and also
allows them to access a larger loan amount than
similarly qualified borrowers. It was clear, however, that
collateral requirements were not lower than 100
percent of the principal for DCA borrowers in most
cases. This was especially true of first-time borrowers,
most of whom had to offer up their primary residences
as collateral, generally valued at well over 200 percent
of the value of the principal. For repeat borrowers with
Opening Doors: A Performance Evaluation of the Development Credit Authority (DCA) in Ethiopia
12
6 To address the liquidity challenge, some banks are revisiting their strategies such as increasing the interest rates on savings and demand
deposits.
Corporate social responsibility
plays an important role in
Ethiopian society, and a
partnership with USAID acts as 
an international seal of approval
the ability to offer business assets as collateral, it was
much more likely that banks would lower collateral
requirements for DCA-backed loans compared to
uncovered loans for similarly qualified borrowers.7
The current lack of short-term financial incentives to
lower collateral requirements and undertake additional
risks was exemplified by some banks’ complaint that
DCA does not assume liability for virtually all losses of
principal. For example, two separate banks grumbled
that, overall, DCA only covers 25 percent of the
principal value of a loan if half of that value is secured
as collateral, an admission that they expect to assume
as close to zero risk as possible. Many banks therefore
called for higher guarantee percentages if they were 
to be expected to lower collateral requirements for
DCA borrowers, as banks confirmed the existence of
credit rationing and admitted that they can demand
larger amounts of collateral to cover small loan
amounts. Some banks even asked if USAID could
consider parking its subsidy payment in the bank,
rather than at the US Treasury, so that this money
could be leveraged. A general consensus was that,
in the current environment, DCA products can affect
this reality only at the margin by redirecting some
scarce credit to new and targeted borrowers, but that
DCA guarantees are largely powerless to increase the
amount of credit offered by commercial banks.
Banks also found technical assistance to be critical for
borrowers, as described above.8 With the exception of
Bank of Abyssinia, the rest of the partner bank CEOs
revealed that the repayment rate for DCA-backed loans
and the rest of their portfolio was similar until just
The performance of the DCA product – Views of stakeholders 
13
7 Unfortunately, we did not have hard and consistent data with respect to average collateral coverage of loans to analyze. Going forward,
DCA should attempt to require this information from partner banks.
8 However, there were some cases where banks complained that unqualified borrowers and unrealistic feasibility studies were submitted to
the banks.
Mulu dairy farm is a small family-owned enterprise that has benefited from a DCA-backed loan.
Courtesy of Leila
Ahlstrom, USAID Development Credit
Authority
recently and were generally at a relatively low risk of
default. However, it was agreed that the DCA
borrowers require more support and post-loan follow￾up from bank staff and USAID implementing partners
than the regular clients of the bank. Again we see more
confirmation of the importance of the TA providers in
making the program work, as bank staff consistently
cited their importance to the successful repayment of
loans under the program.
Although the default rate of DCA-backed loans is less
than 2 percent, the reasons behind the default of DCA
borrowers vary from enterprise to enterprise and from
bank to bank. In some instances, borrowers use the
proceeds of their loan to invest in real estate and
finance consumption needs (weddings, funerals,
vehicle purchases, etc.). This puts repayment in
jeopardy, and banks complained about their inability
to monitor such practices.9 Another common refrain
from the banks was that many borrowers who were
informed that their loan was part of a ‘USAID
program’ considered the loan as a grant of sorts and
were reluctant to repay. The banks blamed this ‘moral
hazard’ problem in part on USAID and its
implementing partners, accusing them of not fully and
accurately explaining the program.10
There have been only six default claims paid by USAID
to date in Ethiopia. This is in spite of the fact that NPL
rates are rising.11 USAID can pay out on the
guaranteed portion of the outstanding principal
balance of a loan as soon as 90 days after a partner
bank has written off a loan, but it appears that partner
banks have been waiting to submit requests for claim
payments until after collateral recovery. While USAID
is permitted to pay claims in advance of collateral
collection, many banks wait until this process is
complete before submitting a claim, perhaps because
they perceive it to be difficult to reimburse USAID at a
later date. Another reason for non-submission of
claims to DCA is, as noted throughout this report,
many guaranteed loans are well over 200 percent
collateralized. In these cases, the DCA product itself
has no real financial value to the bank when the bank
is able to fully liquidate seized collateral.
Two other reasons stem from misperceptions on the
part of banks. One is a simple lack of knowledge on
how to submit claims and the perception that the
process would be onerous (we determined that the
process is in fact relatively straightforward and quick,
as DCA does a highly effective job of processing
claims). Another is the misperception that submitting
claims will be viewed negatively by USAID and could
damage the relationship with the bank. It is unclear
how widespread this belief is, but USAID should make
efforts going forward to help partner banks understand
that claims are not generally viewed as a failure of the
guarantee or the bank, and in fact are an important
factor in demonstrating the value-added of the DCA
product by evincing that banks are indeed taking on
additional risks.
While some partner banks reported that their overall
SME portfolio has increased as a result of the DCA￾backed loans and that their targeted sector portfolio
will continue to grow (e.g. Nib Bank in the health
sector), indicating program sustainability, others felt as
Opening Doors: A Performance Evaluation of the Development Credit Authority (DCA) in Ethiopia
14
9 For example, one DCA-backed borrower we spoke with took a loan to expand his clinic in Adama, just south of Addis Ababa, but
defaulted largely as a result of using about 75 percent of the loan proceeds to buy a house. After accessing the loan from the partner bank
and buying the house, the remaining resources were insufficient to purchase the equipment needed to upgrade the clinic, leading to its
ultimate failure.
10 Generally, across the global DCA portfolio, borrowers do not know that their loan is covered under a guarantee. The extent to which
borrowers know about the guarantee and the DCA program in Ethiopia is unique.
11 Banks in Ethiopia usually categorize loans as NPL after 90 days of non-repayment. According to the NBE directive No. SBB/43/2008,
loans are classified into the following five categories: (1) Pass: loans that are fully protected by the current financial and payment
capacity of the borrowers; (2) Special mention: loans that are past due for 30 days or more, but less than 90 days; (3) Sub-standard:
loans that are past due for 90 days or more but less than 180 days; (4) Doubtful: loans that are past due for 180 days or more but less
than 360 days; and (5) Loss: loans that are past due for 360 days. While pass and special mention are classified as performing loans, the
sub-standard, doubtful and loss are non-performing loans.
USAID should help partner banks
understand that claims are not
generally viewed as a failure of
the guarantee or the bank
if they no longer needed to take perceived additional
risks and indicated that they planned to exit DCA￾targeted sectors (e.g. Bank of Abyssinia, Zemen Bank,
and Dashen Bank in agriculture).
3.3 Borrowers’ views on the DCA
guarantee
As of March 2016, there have been 316 borrowers
supported under DCA guarantees. About 37 percent
were first-time borrowers to the bank. Out of these
117 first-time borrowers under DCA, 51.3 percent
were engaged in establishing private facilities in the
health sector, followed by the agriculture sector (25.6
percent), tourism and trade/commerce (each with 10.3
percent). Nib Bank had the highest proportion of
first-time borrowers (41.9 percent), followed by
Dashen Bank (32.5 percent) and Bank of Abyssinia
(12 percent) (Annex 5).
The most commonly asked question surrounding DCA
borrowers strikes at the heart of the additionality issue,
which is ‘would these borrowers have otherwise been
able to access finance in the absence of the DCA
guarantee?’ There was a clear consensus among
borrowers that DCA enabled them to access finance
that they otherwise might not have been able to access,
but these views ranged in degree. Some claimed that
accessing finance without the DCA guarantee in place
would have been ‘unthinkable’ for them. Others said
they ‘probably could have’ accessed finance without
DCA since they considered themselves well-qualified
borrowers to begin with. Given the huge demand for
finance in the country and the liquidity problems of
banks, credit in Ethiopia is rationed and SME
borrowers find it very difficult to access finance. Both
banks and borrowers agreed that in these conditions,
DCA ‘opened the door’, especially for young
entrepreneurs and first-time borrowers, in particular
by giving their applications priority. On top of the
support from the DCA product itself, borrowers
appreciated the technical training and business
development services from the TA providers, which
they also felt were critical in enabling them to access
finance. They appreciated the commitment and
support of the technical providers (e.g. MLDP, SHOPS,
and AMDe) and USAID staff and stressed the value
addition of the capacity-building support. For many
young borrowers, their involvement in DCA changed
their attitude about doing business with banks,
opening the doors for them and others.
Other than the initial challenge of simply being
approved for a loan, the most constant refrain among
smaller borrowers was that banks have a strong
tendency of undervaluing their collateral and reducing
approved loan sizes. This was especially troubling to
many first-time and small firm borrowers, who had to
offer their primary residence as collateral. Given that
the value of the property often vastly exceeds the
amount of principal obtained in return, many
potential business startups in Ethiopia are discouraged
from attempting to access finance. DCA guarantees are
largely powerless to change this dynamic in the short
run given the credit environment, and the issue of
overcollateralization is a serious issue that will need to
be addressed by USAID. While USAID cannot dictate
the collateral requirements set by private banks, it
should make the case at the time of negotiation for
lowered collateral, and the bank should offer
assurances that it intends to lower collateral
requirements for borrowers vis-à-vis regular clients.
Part of the problem, other than the current liquidity
constraints, is that most borrowers indicated that banks
have limited understanding of their businesses, and in
general banks lacked the commitment to serve SMEs in
the agricultural value chain and other under-served
clients. The need for banks to be trained in business
banking and to gain a more specialized understanding
of specific sectors was emphasized. This will require the
provision of tailored capacity-building support to bank
staff, focusing on financing SMEs in specific sectors and
changing the attitude of banks toward lending to a
targeted sector. However, much of this lack of business
banking knowledge is rooted in the current financial
environment, which includes a lack of competition,
above-normal returns for banks, and severe liquidity
constraints, all of which dull incentives for banks to
The performance of the DCA product – Views of stakeholders 
15
Would these borrowers have
otherwise been able to access
finance in the absence of the 
DCA guarantee?
improve their operations. USAID missions should
consider more specialized training to bank staff to
improve business banking skills, but should also be
skeptical of such training’s effectiveness in the current
environment. Any such training should be focused on
risk management and aimed at having some effect on
the collateral requirements of the banks.
The second major complaint common among
borrowers is the time required to finalize loan
procedures, as the application and approval process
took much longer than their expectations. This was
especially true for first-time borrowers, who reported
that the process took 8–10 months on average, and
sometimes well over a year. Timely delivery of loans is
critical for borrowers, particularly in the agricultural
sector because access to working capital is needed for a
particular season.12 However, most of the borrowers
agreed that DCA played a pivotal role in reducing the
loan-processing time, consistent with what the banks
told us. Borrowers agreed that the DCA guarantee gave
priority to their applications and enabled them to
access finance more quickly than they otherwise would
have done. We conclude that DCA has proved effective
in lowering the time and burden to access finance.
Many of the borrowers also complained about the
repayment schedule of the banks, although this is not
unique to DCA-backed loans. Since many banks did not
offer the borrowers a grace period, the repayment
period of the loan began on the day the banks disbursed
it to the borrower. The borrowers reiterated that the
absence of a grace period is one of the main reasons for
delinquency and NPLs, which sometimes require
rescheduling the loans and write-downs for banks.
Another effect of credit rationing has been a reported
rise in corrupt practices between banks and clients.
Since access to finance is scarce, many potential
borrowers (including DCA beneficiaries who freely
admitted such) resorted to offering bribes to credit
evaluators in exchange for a more favorable estimate of
their collateral. At the same time, one beneficiary said
that the fact that her loan was placed under the DCA
facility made her feel less compelled to offer a bribe, and
she credited DCA with enabling her to access finance
without resorting to such practices. Either way, this issue
is something USAID and its implementing partners will
need to investigate further and communicate with
partner banks that such practices will not be tolerated
and could result in the immediate termination of the
agreement. Borrower commitment is also needed, and
this could be achieved through incorporating these rules
into the training currently offered by TA providers.
Opening Doors: A Performance Evaluation of the Development Credit Authority (DCA) in Ethiopia
16
Box 1 The effect of the recent drought on
SMEs in the agriculture sector
Ethiopia is facing its worst drought in decades,
with over 12 million people in need of food aid.
Due to El Niño weather conditions, two
consecutive rainy seasons failed in 2015, including
the Kiremt rains, which normally feed 80 to 85
percent of the country between June and
September. This has devastated livelihoods and
greatly increased malnutrition rates across the
country. SMEs in the agriculture sector are
struggling hard as a result of this phenomenon.
Partner banks are also pulling back from the sector.
The banks perceive the agriculture sector to have
become ‘too risky’, to quote more than one banker.
We therefore expect finance to dry up even further
in the sector, which will disproportionately harm
SMEs. Non-performing loans are indeed picking
up. As an illustration, we met with three local firms
that lease combines and tractors to smallholders,
each of which was suffering due to lack of business
associated with the drought. They needed to
restructure their loans, which were covered under
DCA guarantees, but the bank in question, while
open to discussing the situation, was not offering
many concessions. If the bank repossesses the
machinery of these small businesses, it will likely
destroy their livelihoods. Unfortunately, there
simply is not much that can be done to increase
access to finance in the sector due to the current
situation affecting agriculture in Ethiopia.
12 For example, a DCA-supported borrower engaged in input marketing revealed that if he does not obtain sufficient capital to purchase
seeds or chemicals on time, he will miss out on the planting season, significantly affecting the profitability of the business. Another
borrower, who built a hotel apartment in Addis Ababa, indicated that since it took him two years to access the bank loan, he was forced
to change his business plan from a full-fledged hotel to a hotel apartment.
Overall, when speaking with borrowers we quickly
confirmed what many other recent studies (including
USAID, 2014) concluded: that access to finance is the
most binding constraint faced by SMEs in Ethiopia.
While realizing that DCA is just a single product and
cannot fundamentally alter this dynamic, it was
universally agreed that DCA has been effective at
redirecting scarce credit to under-served borrowers.
Borrowers were extremely positive overall on the
importance of DCA and the TA facilities, agreeing on
the product’s ability to ‘open doors’ for them when
they otherwise might have been a victim of the current
credit-constrained environment.
3.4 Capacity-building support to
partner banks and borrowers under
DCA
DCA guarantees alone do not significantly improve
access to finance and the overall performance of the
target borrowers. Complementary capacity-building
support needs to be implemented to both the partner
banks and borrowers under the facilities. Although there
were other TA providers in the initial phase, there are
currently three USAID/Ethiopia implementing partners
offering TA support to DCA borrowers and partner
banks: (i) The Agricultural Growth Program Livestock
and Market Development Program (AGP-LMDP), which
facilitates access to finance through DCA-backed loans
and looks for other financing options to build the
capacity of borrowers engaged in the meat and dairy
value chains; (ii) AGP-AMDe, which has been involved
in offering TA support to various private-sector actors in
the crop value chains, including access to loans from
diverse finance providers such as banks, MFIs and
cooperatives, and facilitating the DCA-backed loans to
borrowers; and (iii) Strengthening Health Outcomes
through the Private Sector (SHOPS), which has provided
technical assistance to private health service providers,
including facilitating access to DCA-backed loans.
Overall, borrowers found technical assistance to be
effective and valuable for their business growth. In many
instances, the beneficiaries claimed that USAID/Ethiopia
implementing partners did most of the work for them in
preparing business plans and getting all necessary
documents together to present to the bank. Borrowers
were overwhelmingly grateful for this assistance. Banks
also greatly value this assistance, as it results in the
referral of generally well-qualified clients. The executives
of the partner banks indicated past TA support was
useful in building the capacity of the staff and exposing
them to new businesses, particularly SMEs. The technical
support to specific sectors and enterprises assisted them
in appraising unique projects, which were beyond the
technical capacity of credit analysts in the banks.
However, a general consensus was that the training
offered by TA providers to partner banks was not
adequate and needed to be carried out on a more
consistent basis, which was outside the work plans for
these TA providers. In just a couple instances, bankers
complained that the business plans developed by TA
providers were overly optimistic in their revenue and
profit projections. For AMDe and LMD, the success rate
for supported beneficiaries was over 50 percent, while the
success rate of SHOPS was almost 100 percent; compares
to a national rate of just 2 out of 1,000 applicants for
financing that are approved (Wolday and Tassew, 2015),
providing a clear indicator of high value-added services.
The three TA providers used different approaches to
build the capacity of partner banks and beneficiaries of
the DCA program. For example, while AGP-AMDe
provided no TA support to partner banks except a single
workshop, LMDP and SHOPS offered structured
technical training to senior staff of banks and took senior
executives of the partner banks to other countries for
exposure visits. Before offering technical assistance to
partner banks, SHOPS conducted a detailed needs
assessment to identify the skill gaps of finance providers
in lending to private health facility providers and
designed the training modules for CEOs, senior bank
staff, and credit analysts. Regarding the identification and
selection of beneficiaries, AGP-LMDP and AGP-AMDe
did not have a formal system, while SHOPS had a very
articulate beneficiary selection system which gave equal
opportunities to potential beneficiaries in all regions.
Unlike AGP-LMDP and AGP-AMDe, SHOPS has
dedicated staff to implement only the DCA facility. The
The performance of the DCA product – Views of stakeholders 
17
It was universally agreed that 
DCA has been effective at
redirecting scarce credit to under￾served borrowers
team proposes that the SHOPS experience of providing
TA support to partner banks and beneficiaries should be
documented and shared with other TA providers. There
is a need to conduct an experience-sharing workshop, at
least once a year, among the three TA providers.
From a sustainability perspective, this evaluation
concludes that donors, including USAID, have
hindered the emergence of an effective local business
development services (BDS) sector that can support
SMEs on a commercial basis. The TA providers
Opening Doors: A Performance Evaluation of the Development Credit Authority (DCA) in Ethiopia
18
Box 2 SHOPS – An example of effective technical assistance to support DCA guarantees
In October 2011, a DCA loan portfolio guarantee agreement was signed between USAID/Ethiopia and the two
partner banks (Bank of Abyssinia and Nib Bank) to facilitate access to loans to private health service providers
in Ethiopia. In March 2013, USAID, through Abt Associates Inc., started implementing the Strengthening
Health Outcomes through the Private Sector (SHOPS) to provide technical assistance to DCA borrowers,
including the facilitation of bank loans and TA support to partner banks. Before offering the TA support to
private health sector providers and partner banks, the Private Health Sector Program (PHSP) conducted a
detailed needs assessment which was found to be useful in identifying capacity constraints among both
borrowers and banks. Unlike other TA providers, SHOPS had dedicated staff, on a full-time basis, to
implement the capacity-building support and monitor the implementation of the DCA guarantees. Since
PHSP has coordinating offices in different regions, it was easier for SHOPS to use these offices to disseminate
information about DCA to the potential beneficiaries in the health sector. Moreover, the Ethiopian Medical
Association and the Medical Association of Physicians in Private Practices (which is also a partner of PHSP)
were instrumental in communicating and identifying the potential DCA beneficiaries.
Based on the needs assessment of PHSP, SHOPS developed the training module and offered a one-week tailored
training program by outsourcing the Frankfurt School of Finance to the senior management staff, including the
CEOs and VPs of partner banks. The training mainly focused on lending to SMEs and mitigating the risks.
Separate training was also delivered to credit analysts of partner banks, which focused on the role of the private
health sector, the standards of the Ministry of Health, and details of the business plans of the private health sector
providers. The two training sessions offered by SHOPS brought a significant change in the attitude of partner
banks in lending to private businesses in the health sector. Two-day training was offered to the beneficiaries of the
DCA facility, focusing on how to access finance from banks and prepare bankable business plans. SHOPS
outsourced these borrower training sessions to local private consulting firms, and provided a three-day ‘training of
trainers’, (TOT) to the staff of the local consulting firms and SHOPS staff beforehand to ensure the quality of the
training and build local BDS capacity. SHOPS provided the training in all regions for 250 potential beneficiaries of
the DCA program. After the training, the potential borrowers were required to prepare and submit their business
plans to SHOPS. While some of the business plans submitted by the beneficiaries had deficiencies such as
exaggerated costs and returns, a ‘copy and paste’ approach in their preparation, limited understanding of the
standards of the Ministry of Health, etc., SHOPS further assisted the borrowers in revisiting and refining the plans
and submitting them on behalf of the borrowers to the partner banks.
The overall success of the TA support of SHOPS was quite impressive. Out of the 250 potential beneficiaries of
DCA who took training and received the support in preparing their business plans, 125 borrowers were
successful in submitting and getting their loan application approved by the two partner banks. Hardly any
loan proposals were submitted with the support of SHOPS that were rejected by partner banks; however, given
the insufficient liquidity, only 55 borrowers have accessed finance from the partner banks to date. Moreover,
six borrowers who received the TA support of SHOPS were successful in obtaining loans without the support
of a DCA guarantee from non-partner banks. The success of this intervention demonstrates the value addition
of effectively implemented TA for the DCA program.
broadly agreed that BDS services such as those offered
by their own projects have made it more difficult for
a local market-based industry to develop, as the
current market is distorted by the level of subsidies
provided by donors. On the lender side, free TA from
donors also likely reduced banks’ incentives to build
their own capacity to more effectively assess and lend
to the SME sector. An over-reliance on donors for free
support on both the lender and borrower side may be
harming the incentives for building a commercially
sustainable BDS sector with a wider reach and the
ability to support SME finance. However, as
opportunities arise, it is much more expedient to 
pay for the advancement of such opportunities
directly (e.g. offer grants, free technical assistance)
without regard to longer-run spillover impacts.
Recognizing this, USAID activities need to provide
services in a manner that is more cognizant of the
distortionary impacts that they may have on local
market development.
3.5 Views of women – A gender
perspective 
Based on the information provided to DCA by partner
banks, out of the total 316 borrowers of DCA-backed
loans, only 27 (8.5 percent) were women-owned
businesses. Despite the problem involved in classifying
businesses by specific sector, about 51.9 percent of the
women DCA-backed borrowers were engaged in
health, followed by agriculture (22.2 percent), the
tourism sector (14.8 percent), and trade/commerce
(11.1 percent). Among the different partner banks,
Bank of Abyssinia and Nib Bank each lent to 37
percent of the women-owned businesses, followed by
Dashen Bank (14.8 percent) (see Table 4).
There has only been one DCA guarantee in Ethiopia
that explicitly targeted women-owned businesses, which
was signed in 2008 with maximum loan coverage of
$4.28 million. An internal project review of this LPG
was carried out in 2013, which found that the DCA
The performance of the DCA product – Views of stakeholders 
19
Dairy entrepreneur named Mulu Negash and her son. Only 8.5 percent of borrowers are female-owned businesses.
Courtesy of Leila
Ahlstrom, USAID Development Credit
Authority
guarantee ‘successfully demonstrated the business case
that women are credit worthy’. While the good number
of loans (29) and low default rate (just one claim) was
encouraging, utilization never achieved a significant
level (just 41 percent) and a number of the loans were
to repeat borrowers, which signaled a continued
hesitancy by Bank of Abyssinia in lending to women￾owned businesses. The key reason cited by the 2013
report was a lack of TA support from a dedicated
USAID implementing partner. This provides more
evidence of the importance of TA to support DCA
guarantees, but it is also evidence of the lack of capacity
or perhaps interest of banks in utilizing DCA products
without active USAID involvement and the greater
importance of the relationship rather than the product.
In general, women we interviewed did not feel as if
they were at a significant disadvantage for obtaining
access to finance from commercial banks. They also
generally did not feel at a distinct disadvantage in
conducting commercial activities and felt that under
DCA guarantees it was generally no more difficult for a
woman to be a successful entrepreneur compared to a
man. However, we admit to strong availability bias in
this regard, since the businesses of most of the women
we met were performing relatively well.
One area of disadvantage that was highlighted was in
social interaction, both with lenders and clients.
Business in Ethiopia is fueled by social events,
including going out for coffee, alcoholic drinks, and
sharing food. It is not socially acceptable for a woman
to undertake this kind of social interaction with men,
unless perhaps in the presence of a husband or male
family member. For example, while we noted above
that some potential borrowers have resorted to offering
bribes to bank evaluators in exchange for better
estimations, at minimum it is expected that bank
officials will be treated to food and beverages and a
solid social relationship built. This is much more
difficult for women given the disproportionate share of
men in banking, and it places them at a significant
disadvantage in the Ethiopian business world.
An identified area of importance was business
associations for women, which can be an effective
source for knowledge sharing. These organizations are
mostly local in nature and many of them are new. Most
of these associations have revolving savings funds that
can serve as an effective alternative to commercial and
MFI lending for smaller borrowers.
Opening Doors: A Performance Evaluation of the Development Credit Authority (DCA) in Ethiopia
20
F
6
0
0
14
0
0
4
3
0
0
27
M
70
5
1
51
3
1
18
126
1
34
310
F
1
0
1
M
5
1
6
F
1
1
2
M
3
2
5
F
0
9
0
0
9
M
8
40
1
2
51
F
3
1
0
0
4
M
25
13
33
1
72
F
0
0
0
M
11
3
14
F
1
0
0
4
0
3
2
0
10
M
16
5
1
11
1
4
47
33
118
F
0
0
0
M
2
42
44
Agriculture
Education
Energy
Health
Manufacturing
Other services
Tourism
Trade/ commerce
Transportation
NA
Total
Awash 
Bank
Awash 
Bank Sectors Coop. Bank
of Oromia
Dashen 
Bank
Nib Int.
Bank 
Oromia 
Int. Bank
Zemen 
Bank Total
Total 337
Table 4 Number of borrowers under DCA guarantees by sector and bank
Note: M= male; F= female. 
21
Building on the stakeholder interviews described
above, the outcomes and impact of the DCA program
are assessed along six main dimensions:
appropriateness of the design; utilization; credit
additionality; financial sustainability; program
sustainability; and impact on the beneficiaries.
4.1 Appropriateness of the design
Overall, the DCA program was found to have been
effective at meeting its primary objective of
incentivizing commercial lenders to serve new clients
targeted by the guarantees. There is a near consensus
among both borrowers and lenders that the DCA
program, while less effective in altering the terms of
loan agreements in the form of reduced collateral
requirements, successfully ‘opened the door’ to
previously under-served clients by prioritizing their
applications. However, in the current market
environment serious questions have been raised about
the sustainability of the design and the need to
reconsider various aspects of the DCA model.
DCA has a clear objective of not crowding out market￾driven interventions by providing subsidized credit or
other below-market financial products and services. It
has the wider objective of fostering competitive
behavior among participating banks (changing their
institutional attitude towards lending to SMEs and
other new clients) and supporting a sustainable
deepening of the financial sector, which will ensure the
delivery of loans to SMEs after the termination of the
project. The banks are partners of DCA and are
expected to benefit from the project by assisting them
to open up new markets for profitable commercial
operations. On top of the guarantee, the program
emphasizes the importance of technical assistance to
borrowers, and less so to banks, normally provided by
parallel USAID projects that are operational in the
country. The TA was found to be of high quality on
average, but numerous gaps existed, especially
regarding a systematic plan to build the capacity of
partner banks. By reviewing many credit guarantee
schemes implemented by development partners in
different countries and the experience in Ethiopia, the
team found that, overall, the DCA model is more
effectively designed and can serve as a benchmark for
other credit guarantee schemes in Ethiopia.
The largest exogenous challenge facing the DCA
program in Ethiopia is the shortage of commercial
bank liquidity, driven by the large demand for loanable
funds due to recent high economic growth rates, lack
of foreign competition, and the requirement since
April 2011 for commercial banks to purchase low-yield
DBE bonds worth 27 percent of the principal value of
all loans made. The incentive of commercial banks to
seek out new and perceived higher-risk clients is
therefore greatly diminished, as is the ability of DCA to
alter this dynamic. For example, some current partner
banks report little interest in continuing to support the
agriculture sector given the higher perceived risks. In
the current commercial lending environment, the
design of the DCA program is becoming less relevant,
although the program is still important for redirecting
limited liquidity toward targeted borrowers given their
ongoing need for access to finance.
4.2 Utilization 
USAID/Ethiopia began sharing bank risk under DCA
in 2004 and has since signed 17 guarantee facilities
through the end of fiscal year 2015 with seven private
financial institutions and one private corporation.
Since the initial DCA guarantee in 2004,
USAID/Ethiopia has enabled more than US$90,604,045
in credit to SMEs in the agriculture and health sectors,
at a USAID subsidy cost of $9,061,929, leveraging
approximately $10 of private sector financing for every
$1 of USAID funds obligated. As of March 2016, the
total cumulative utilization was $47,369,550. Although
the utilization rate varied from bank to bank and
depended somewhat on the age of the guarantee, the
average utilization rate for past and current agreements
was about 53.3 percent, and 83.8 percent for expired
agreements only. To date, under the various DCA
guarantees, a total of 316 beneficiaries accessed loans
from banks. About 41.1 percent of the beneficiaries of
Assessment of outcomes and impact of the DCA program
4. Assessment of outcomes and impact of the DCA
program 
DCA were engaged in trade/commerce, followed by
agriculture (24.7 percent), the health sector (23.4
percent), and tourism (7 percent). Bank of Abyssinia
extended about 30.4 percent of DCA-backed loans,
followed by Dashen Bank (24.4 percent) and Nib
International Bank (21.8 percent). Out of the total
borrowers, only 8.5 percent were identified by partner
banks as being female-owned businesses.
Out of the 316 borrowers under DCA-backed loan, 37
percent were first-time borrowers. This compares with
a global average of 22.7 percent, so Ethiopia has done
comparatively well. Out of the 117 first-time
borrowers, 51.3 percent were engaged in establishing
private facilities in the health sector, followed by the
agriculture sector (25.6 percent), with tourism and
trade/commerce tied at 10.3 percent. Nib Bank had the
highest ratio of first-time borrowers (41.9 percent),
followed by Dashen Bank (32.5 percent) and Bank of
Abyssinia (12 percent) (Annex 5).
The largest factor affecting the few instances of low
utilization has been sector strategy shifts within
partner banks. For example, both Dashen and
Abyssinia banks made the decision to shift out of the
agriculture sector due to increased perceived risks,
while the latter also no longer wishes to do business
with diaspora borrowers for similar reasons. DCA
products need to ensure the coherence of bank
strategies with the objectives of DCA and the
development objectives of the mission, as well as the
durability of those strategies prior to making future
agreements.
4.3 Credit additionality
There was a clear consensus among borrowers that
DCA enabled them to access finance that they
otherwise might not have been able to access, but these
views ranged in degree. Some claimed that accessing
finance without the DCA guarantee in place would
have been ‘unthinkable’ for them. Others considered
that they could have accessed finance without DCA,
but felt that DCA reduced the time and inconvenience
of obtaining finance. To a lesser extent, borrowers felt
that DCA likely increased the amount of the loan that
they were able to obtain, as well as the required
collateral. Our interviews with banks confirmed these
beliefs, as all claimed to prioritize DCA loan
applications, often with documents being sent directly
to a Vice President’s office. All banks also claimed that
the DCA guarantee generally enabled them to lower
collateral requirements and/or increase the amount of
the loan available, which also coincides with some of
the borrowers’ beliefs.
Overall, the DCA facility has been somewhat successful
in achieving credit additionality by lending to 117 first￾time borrowers or 37 percent of the DCA-backed loans.
The senior executives of the partner banks understand
that there is a strong need to extend loans to SMEs and
new clients in order to meet the country’s growth and
transformation objectives. Yet, while some banks have a
strategy to provide financial services to the missing
middle or SMEs, others have no such formal strategy.
There was a general agreement that DCA incentivized
their banks to extend loans to the targeted sectors under
the agreement (e.g. SMEs in the agricultural value chain,
private health service providers, women entrepreneurs,
and diaspora), even though lending to these areas was
perceived to be risker and less profitable and also
required additional staff time. Without DCA, the banks
would likely have continued to lend to preferred and
larger clients, especially exporters given the current
foreign exchange premium.
4.4 Financial sustainability 
Formal attempts have not been made by partner banks
to estimate the financial cost and benefits of
implementing DCA-backed loans. However, in general,
it is the relationship with USAID and its implementing
partners, rather than the guarantee product itself, that is
more highly valued, as many bankers do not consider
the guarantee products to be profitable on a stand￾alone basis. Partner banks enjoy USAID’s ability to offer
technical assistance to qualified clients and refer them
to the bank; to connect the bank with a wider universe
of stakeholders; and to offer capacity building to their
institution; as well as the perceived prestige of working
with USAID, which gives them a corporate social
responsibility role that they can highlight.
While DCA guarantee products often lower required
collateral, in practice collateralization rates of loans
under the DCA program often exceed 100 percent and
normally run much higher, depending on the type of
collateral offered, normally the primary residence of
Opening Doors: A Performance Evaluation of the Development Credit Authority (DCA) in Ethiopia
22
23
smaller borrowers. Since DCA pays claims on 50
percent of the remaining principal balance of a
defaulted loan only after collateral has been collected,
when realized collateralization rates exceed 100
percent, DCA products have no real financial value
when the bank is able to fully liquidate seized
collateral.
Another way to estimate the financial sustainability of
the DCA facility is to compare the non-performing
loan (NPL) ratio of the DCA-backed loans with the
general portfolio of the bank, which is generally less
than 2 percent. With the exception of Abyssinia Bank,
bank executives reported that the NPL ratio of DCA￾backed loans and regular loans are about the same. The
low default rate of DCA-backed loans can be attributed
in part to increased oversight and risk management
(putting in extra effort to support DCA borrowers),
which has been consistently observed given partner
banks’ clear preference for the program to be seen as
successful. On the other hand, borrowers accused
banks of undervaluing the collateral of borrowers,
thereby increasing collateralization rates and greatly
increasing the cost of default for borrowers. The low
default rate could also reflect the fact that some DCA
loan portfolio guarantees are not reaching the smaller
and riskier SMEs. However, there are increasing
indications that the NPL rate is increasing, especially in
the DCA-targeted agricultural sector – due in large
part to the effects from the El Niño-influenced
drought. Even so, many banks appeared to be reluctant
to submit claims under DCA due to lack of
understanding of the process, full collateralization, and
worries about USAID’s perception.
4.5 Program sustainability 
Some partner banks reported that their overall SME
portfolio has increased as a result of the DCA-backed
loans and that their targeted sector portfolio will
continue to grow (e.g. Nib Bank in the health sector),
indicating program sustainability. However, others felt
they no longer needed to take perceived additional
risks and indicated that they planned to exit DCA￾targeted sectors (e.g. Abyssinia, Zemen, and Dashen
Banks in agriculture, largely due, however, to
exogenous factors, mainly the 2015 drought).
Assessment of outcomes and impact of the DCA program
Construction of a new hatchery buildings from loan proceeds.
Courtesy of Leila
Ahlstrom, USAID Development Credit
Authority
Opening Doors: A Performance Evaluation of the Development Credit Authority (DCA) in Ethiopia
24
On top of the perceived risk, lack of individual credit￾scoring systems, and inadequate methods to value
collateral, the lack of liquidity in the banking system is
the main constraint faced by partner banks to offer
financing to SMEs in the targeted sectors on a
sustainable basis after the termination of the DCA
facility. While real interest rates have risen recently, they
cannot rise enough to offset demand, creating a shortage,
in turn leading to credit rationing. Banks have little
appetite for accepting increased risk in this environment,
and even complain that DCA only covers 25 percent of
the principal value of a loan if half of that value is
secured as collateral, an admission that they expect to
assume very limited risk. Another effect of credit
rationing has been a perceived rise in corrupt practices.
Since access to finance is scarce, many potential
borrowers (including some DCA beneficiaries) have
resorted to offering bribes to credit evaluators in
exchange for a more favorable estimate of their collateral.
Partner banks have demonstrated interest in
developing new financial products and methods of
collateralization to support SMEs or new borrowers
under the DCA facilities. However, progress on this
front has been uneven. Property, and in particular
primary family residences, serve as the main source of
collateral for smaller borrowers. Offering primary
residences as collateral normally means that
collateralization rates exceed 200 percent of the value
of the loan. It is also a significant deterrent to
borrowing for many people. The smaller borrowers we
spoke with told us how large a risk this was for them.
Although there have been some attempts by partner
banks to establish a separate SME lending unit, this
was generally not prioritized. All banks reported that
they at least have a plan to establish a separate unit for
SMEs and train their staff on SME financing.
4.6 Impact on the beneficiaries 
There was a clear consensus among borrowers that
access to finance was the most binding constraint to
growing their businesses. Borrowers who were
experiencing troubles with their business blamed these
One of DCA's most successful beneficiaries, Ethio Chicken produced 3.2 million chicks in 2015 and hopes to double that number for 2016.
Courtesy of Leila
Ahlstrom, USAID Development Credit
Authority
25
Assessment of outcomes and impact of the DCA program
Box 3 The high potential impact of loan guarantees: The case of Ethio Chicken 
‘A chick for every Ethiopian’. That aspirational target of producing 100 million day-old chicks is Ethio
Chicken’s production goal for 2020, and is a testament to the company’s remarkable growth to date. Founded
by Americans David Ellis and Joseph Shields, the company transformed a former government-owned poultry
farm into a profitable enterprise within a few short years. We met with Dr. Berhane, its site manager, and Dr.
Banares, its Chief Veterinarian, at the company’s farm in Mekelle. After facing slow expansion and challenges
in 2012–2013, the company expanded rapidly beginning in 2014. Now with three breeding facilities
throughout the country, approximately 160 full-time employees, and a network of 1,000 agents, Ethio Chicken
produced 3.2 million chicks in 2015 and is targeted to double that number for 2016. They are on target to
produce 25 million chicks by 2017, or a chick for every Ethiopian family.
In 2014, USAID/Ethiopia entered into a US$2.25 million non-revolving Portable Guarantee Commitment
Agreement with AGFlow Ventures. This seven-year, 50 percent portable guarantee aims to increase access to
finance for AGFlow Ventures and Mekelle Farms, enabling them to meet their goals of further expanding in the
north of Ethiopia, as well as opening up new chicken production facilities and distribution networks in the
south of Ethiopia. In July 2014, AGFlow notified USAID of its intention to enter into a loan agreement with
Zemen Bank, with the first tranche of the PG converted to an LG with Zemen in March 2015. The second
tranche for approximately US$1 million awaited Zemen’s completion of its due diligence process in 2016. The
loan has allowed Ethio Chicken to construct new facilities, which were nearing completion during our visit.
With its own breeding and hatching facilities, Ethio Chicken sells its day-old chicks and pre-mixed feed to agents
who then raise them to maturity, aged 45 days. Agents are trained in how to nurture the chicks into maturity,
what to feed them, and how vaccinate them. From there, agents sell the chickens to end-users, primarily
smallholder farmers. Most agents are located in the Tigray region, but Ethio Chicken is seeing a strong growth in
demand in the south as well. Most agents purchase 3,000–4,000 chicks at a time, although some buy as few as
200–400 chicks and some buy as many as 10,000. Each chick costs 22 Birr or about US$1. In addition to its
growing agent network, Ethio Chicken is also partnering with local research centers and universities.
Despite its many successes, Ethio
Chicken continues to experience certain
challenges of doing business in Ethiopia,
including the need to import
approximately 80 percent of equipment
and medicines, and all chicken parent
stock, despite shortages in foreign
exchange. Ethio Chicken also faces
challenges in getting good quality feed
for its chicks. However, its biggest
challenge is meeting demand, as attitudes
toward chicken consumption are
changing within the country. Whereas
chicken used to be consumed only on
special occasions, it is now becoming
more commonly consumed on a daily
basis. Ethio Chicken is continuing to
look for additional debt financing in
order to expand its business.
Courtesy of Leila
Ahlstrom, USAID Development Credit
Authority
Opening Doors: A Performance Evaluation of the Development Credit Authority (DCA) in Ethiopia
26
on the inadequate amount of finance that they were
offered by the banks. Business and investment licensing
was the second most cited constraint. Accessing finance
was found to be very important and effective at
spurring business growth. Most beneficiaries of DCA
were experiencing success, and these all agreed that
access to finance through the DCA facility led directly
to significant profit increases, employment growth, and
increased assets which would enable their firms to
access additional finance. Some beneficiaries have also
reported that they built additional infrastructure and
expanded their residential houses after accessing the
DCA-backed loans.
In general, we noticed that smaller borrowers seemed
less concerned with interest rates and more concerned
with the time and bureaucratic inconvenience in
accessing finance and the limited amount of principal
they could obtain. For most first-time borrowers, the
entire process took well over one year, sometimes
longer. Some of the small borrowers we interviewed
could not recall the interest rate they were paying on
their current DCA-backed loan, and in fact appeared
unconcerned with that figure. We interpreted this as
evidence of the strong growth environment and high
rates of return to capital in Ethiopia at this time. On
the other hand, larger borrowers of DCA-backed loans
appeared to worry less about the time and cost to
access finance (likely because of a strong credit history
and pool of assets) and much more about the rising
interest rates they were paying on the facilities.
The unique experience of AGFlow Ventures PLC (aka
Ethio Chicken) in Mekelle is a good example of how a
DCA-backed loan guarantee can create employment
opportunities for hundreds of people along a supply
chain within a short span of time (see Box 3). The
project created demonstration effects in a new sector,
and the larger investment resulted in considerable
spillover benefits for SMEs. Overall, since DCA
borrowers were able to grow their businesses and
improve profitability, DCA achieved its objective in
terms of additionality and value added.
27
The preceding section describes our main findings
along six major program dimensions. Overall, our
conclusion is that DCA guarantees in Ethiopia have
proved to be effective in enhancing access to finance
among under-served sectors and borrowers per its
stated objective. At the same time, a number of issues
were identified that challenge the DCA product’s
effectiveness and sustainability. While many of these
issues are exogenous to the DCA guarantee and do
not reflect poor guarantee design, moving forward
the DCA guarantees will need to adjust to match the
realities of the current and short- to medium-term
financially constrained environment in Ethiopia.
Some issues require concrete action to improve the
effectiveness of the guarantees and address the
financial needs of targeted borrowers across various
sectors. Recommendations are summarized as follows.
USAID and its partners should:
• Increase their scrutiny of LPG agreements given the
current liquidity-constrained environment in Ethiopia:
The limitations of DCA products in the current
environment should be recognized. Only if there is
demonstrated availability of liquidity and a clear
willingness to serve targeted clients should a new
LPG be considered.
• Insist on partner banks establishing a separate unit and
dedicated staff for financing borrowers targeted under a
guarantee: One of the approaches to incentivize
banks is linking the technical support of USAID to
the would-be established unit and dedicated staff. To
this end, the terms of the legal agreement between
USAID and a partner bank could obligate the
establishment of a specialized unit by that partner
bank to support targeted borrowers.
• Improve performance monitoring and consider impact
evaluations: Throughout the life of the DCA
program, the only performance indicators gathered
have been numbers of loans, size of loans, interest
rates, size of collateral, numbers of first-time and
women-owned borrowers (sometimes), and
utilization rates. A more comprehensive results
framework should be developed for future
guarantees that includes, for example, variables such
as changes in the bank’s overall lending portfolio,
average collateral reductions with respect to non￾DCA-backed loans, and number of entrepreneurs
and bankers trained in connection with the
program. DCA should also actively encourage
surveys of borrowers that would collect baseline
data about their business and follow-up in order to
collect impact-level data on variables such as
changes in business and family income following
access to finance. Partner banks should offer such
baseline information about their clients and USAID
implementing partners should follow up between
one and three years after loan disbursement with a
brief survey.
• Support banks to change their collateralized lending
approach: Given the challenges of meeting the
collateral requirements of banks, the absence of a
collateral registry for movable assets, and ineffective
enforcement of contracts in case of default, banks
require technical support and incentives to
implement different financing technologies such as
small business credit scoring, financial statement
lending, relationship lending, factoring, asset-based
lending, leasing, and fixed asset lending. USAID
should use technical assistance providers to support
efforts to move banks away from their preference for
property as collateral.
• Improve the quality of technical support and link it to
concrete operational changes in the banks: Partner
banks perceived the existence of a moral hazard
problem, as many borrowers believed that because
their loan was under a USAID-backed program
there must be a grant component, reducing
incentives to repay the facility. Going forward,
USAID technical assistance should ensure that
general information about the DCA program is
provided to borrowers and is clearly understood.
Rather than providing one-off training to the banks,
USAID should look to support banks to
Conclusions and recommendations
5. Conclusions and recommendations 
institutionalize training and improve the quality of
internal bank training. The value addition and
performance of the capacity-building support to
banks and borrowers varied significantly from one
TA provider to another. There is a need to share the
experiences of the TA providers by discussing their
experiences and challenges in regular workshops.
• Improve the sustainability of business development
services (BDS): USAID and other donors, which
provide the majority of value-added services for
DCA guarantees, are distorting the BDS market with
the largely free services that they arrange for
borrowers. Donors should focus on nurturing the
local development of this market by working
directly through local BDS providers and
introducing cost sharing with borrowers, with a
longer-term plan to phase out all subsidies.
• Increase support for loan guarantees: USAID should
focus more on loan guarantees that have a clear
potential to ‘crowd in’ private investment and make
a relatively large impact in terms of spillovers that
include employment growth, benefits to SMEs in
the value chain, and demonstration effects in a 
new sector.
• Address prohibited practices in the partner banks:
USAID will need to communicate with partner
banks that such practices as paying bribes to loan
officers will not be tolerated and could result in the
immediate termination of the agreement. USAID
also needs to increase communication with partner
banks to ensure that they are aware of and in
compliance with USAID rules and regulations, such
as the provision of prohibited services.
Opening Doors: A Performance Evaluation of the Development Credit Authority (DCA) in Ethiopia
28
29
Bennett, F., Doran, A. and H. Billington (2005), ‘Do
credit guarantees lead to improved access to financial
services: Recent evidence from Chile, Egypt, India and
Poland’, Policy Division Working Paper, commissioned
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Federal Democratic Republic of Ethiopia National
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Green, A. (2003), ‘Credit guarantee schemes for small
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International Monetary Fund (IMF) (2014), ‘Staff
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Kipnis, H. (2013), ‘Financing Women-Owned SMEs: A
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National Bank of Ethiopia (2014), Quarterly Bulletin,
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Wolday, A. and T. Woldehanna (2015), ‘Access to
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Washington, DC.
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Washington, DC.
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References
Opening Doors: A Performance Evaluation of the Development Credit Authority (DCA) in Ethiopia
30
Annex 1: Public policies for micro-,
small and medium enterprises
(MSMEs)
In Ethiopia, MSMEs have emerged as the most
important multipliers and catalysts in socio-economic
development and economic diversification. In addition
to creating employment opportunities at low cost
(labor intensive) and training entrepreneurs
(encouraging indigenous entrepreneurship), they have
huge potential to: add value in the manufacturing
sector and to GDP, generate export earnings, increase
per capita income and output, enhance regional
economic balance, create a competitive price structure,
promote effective resource utilization, providing a
source of livelihoods for the majority of low-income
households, and to ensure equitable distribution of
income. MSMEs also play an intermediary role in the
development of large-scale enterprises and
diversification of the industrial structure, and
contribute towards the transformation of the rural
economy. During the first Growth and Transformation
Plan (GTP I), MSMEs were given strategic focus by the
Ethiopian government due to the role that they play in
the country’s industrial development plan and in the
creation of employment opportunities in urban
centers, with the ambitious objective of 3.4 million
jobs expected to be added to this segment over the five￾year GTP period and training provided to over 3
million operators (World Bank, 2014a).
GTP II (2015/16–2019/20) has a broader objective of
realizing the vision of becoming a lower middle￾income country by 2025 and meeting the post-2015
sustainable development goals (SDGs). Increasing the
productive capacity and efficiency of the productive
sectors (agriculture and manufacturing industries) and
enhancing the transformation of the domestic private
sector are two of the key vehicles for achieving the
objectives of GTP II. The program reiterates the need
for concerted effort by government to increase private
sector investment (domestic and foreign) and
accelerate inclusive economic growth underpinned by
job creation, export promotion and technology
transfer. GTP II also emphasizes the expanding
development of small- and medium-scale
manufacturing by providing incentive packages and
access to finance, and creating a favorable environment
for doing business. Particular attention will be given to
nurture micro- and small enterprises, support their
transition to medium- and large-scale enterprises, and
ensure that investment goes to productive sectors.
Supportive measures will be taken to encourage trade
and service enterprises to invest in the manufacturing
sector for sustained growth and economic structural
transformation (Federal Democratic Republic of
Ethiopia National Planning Commission, 2015).
During the five-year GTP II period (base scenario),
real GDP is projected to grow at an annual average rate
of 11 percent, while the contribution of the agriculture,
industry, and service sectors to GDP are projected to
increase at an annual average rate of 8 percent, 20
percent, and 10 percent respectively (Table 5). The
manufacturing sub-sector, medium and large-scale
industries, and micro- and small enterprises are
expected to grow annually, on average, by 21.9 percent,
21.8 percent and 22.3 percent respectively. By the end
of GTP II (2019/20), the contribution of the
agriculture and service sectors to GDP are projected to
decline to the level of 33.5 percent and 44.3 percent
respectively, while the industry sector increases to 22.3
percent. With the primary objective of increasing
production and productivity, expanding exports,
ensuring transfer of technology and employment
creation, the contribution of the manufacturing sector
to GDP is projected to grow from 4.8 percent in
2014/15 to 18 percent by the end of 2025. The
employment opportunities created through medium
and large enterprises will increase from 380,000
persons in 2014/15 to 758,000 persons in 2019/20.
Moreover, the contribution of industry to exports is
projected to increase from 10 percent in 2014/15 to 25
percent in 2019/20, and 40 percent in 2025.
The projected targets of the manufacturing sector in
GTP II will be achieved through the deliberate and
Annexes 
31
coordinated support given to the agro-processing
enterprises. Moreover, all-round support will be given to
promote the manufacturing sector in the following areas:
(a) develop and expand industrial parks and cluster; (b)
improve the efficiency of the bureaucracy and address
the regulatory hurdles for private investors; (c) provide
tax incentives; and (d) improve access to loans and hard
currency. Government banks (Development Bank of
Ethiopia and Commercial Bank of Ethiopia) are given
the responsibility of availing loans and hard currency to
investors in the manufacturing sector. The two banks are
expected to give priority lending to manufacturing
enterprises producing their products for export and
government; through NBE, the government will
supervise the proper utilization of loans and hard
currency generated through private banks. The branch
network of banks (government owned and private) will
increase from 2,868 in 2014/15 to 5,736 in 2019/20.
Microfinance institutions are expected to provide 21
billion Birr to MSE operators and to reach at least 50
percent of the Kebeles in the country, within the GTP II
periods. In GTP II, Development Bank of Ethiopia is
given the responsibility of providing finance to medium￾sized enterprises and lease financing services to medium
and large enterprises in the country.
Annex 2: Credit guarantee initiatives
in Ethiopia
Banks and MFIs in Ethiopia shy away from extending
credit to MSMEs, which have hardly any property
collateral. When the finance providers have not been
successful in meeting the financial needs of the
MSMEs, credit guarantee schemes are used to address
the collateral requirements, enhance access to credit to
targeted sectors, and mitigate the default risk of
finance providers. In other words, a credit guaranteed
fund will reduce the risk of banks and MFIs in lending
to MSMEs and aims to increase lender’s interest in this
particular segment and to initiate and encourage the
learning process through which the commercial banks
and MFIs in Ethiopia develop the expertise of lending
to MSMEs. As a result, credit guarantee schemes shift
the burden of debt monitoring from the lender to the
guarantor. According to the World Bank (2014a) study,
when banks and MFIs were asked about their view on
the directed credit programs of government and credit
guarantee schemes, they indicated that partial
guarantee projects and the provision of dedicated
credit lines associated with technical assistance have a
positive impact in encouraging finance providers to
engage in SME lending.
Annexes
Agriculture
Industry
Manufacturing
Medium and large￾scale industries
Micro and small
industries
Service
Overall
Base line growth
rate (2014/15)
6.4
21.7
15.8
20.3
2.9
10.2
10.2
Projected growth
rate in 2019/20
7.8
18.4
23.4
23.4
23.5
9.6
10.8
Average annual
projections
(2015/16–
2019/20)
8.0
20.0
21.9
21.8
22.3
10.0
11.0
Base line
(2014/15)
38.5
15.1
4.8
3.7
1.1
46.3
100
2019/20
33.5
22.3
8.0
5.9
1.8
44.3
100
Average annual
projections
(2015/16–
2019/20)
35.4
19.4
6.3
4.9
1.4
45.1
100
Sectors/sub-sectors Projected GDP growth rates (%) Contributions of sectors/sub-sectors to GDP (%)
Table 5 Projected GDP growth rates and the contribution of the sectors and sub-sectors to GDP
during GTP II (2015/16–2019/20), base scenario
Source: Federal Democratic Republic of Ethiopia National Planning Commission (2015). 
Opening Doors: A Performance Evaluation of the Development Credit Authority (DCA) in Ethiopia
32
Since lending in Ethiopia (particularly bank loans) is
mainly collateral based, credit guarantee schemes are
important public support programs to provide strong
incentives to formal finance providers to address the
financial needs of excluded smallholder farmers,
MSMEs, etc. The credit guarantee schemes,
implemented in Ethiopia in the last two decades, can be
categorized into two groups: (i) regional governments
and development partners providing guarantees to
banks in order to extend loan capital to MFIs and
cooperatives; (ii) credit guarantees to banks and MFIs
to provide a line of credit directly to the financially
excluded population, particularly to riskier clients,
activities, sectors, enterprises, etc., without collateral.
Regional government credit guarantee to Commercial
Bank of Ethiopia
The objective of the credit guarantee of regional
government to CBE is to improve financial access
(credit) to chronically food insecure households
(implement the Household Asset Building Program
[HABP]), facilitate input supply, particularly fertilizer,
and provide credit to MSE operators. The regional
governments start the process by estimating the
amount of loan capital needed by MFIs and
cooperatives to implement food security programs
such as HABP and the fertilizer needs of other farmers,
and to import fertilizer through cooperatives or
Agricultural Input Supply Enterprise (AISE) in a given
planned period. Before submitting their credit
guarantee request for CBE to the Ministry of Finance
(MoF), the parliaments of the regional governments
are expected to approve the loan request. Once the
parliaments approve, the regional governments submit
their request to MoF to issue guarantee letters to CBE.
The MoF provides a credit guarantee to CBE and takes
the responsibility of paying the lending bank (from
their allocated annual budget) in the event of default of
MFIs or cooperatives. After receiving the credit
guarantee letter from the MoF, CBE processes the loan
request of MFIs or cooperatives. In such an
arrangement, the risk to CBE, MFIs and cooperatives is
zero. However, since the regional MFIs and
cooperatives are the development partners of the
regional governments, they have huge responsibility to
ensure the repayment of the loans and minimize
default rates. Once the MFIs and cooperatives receive
the loan capital, they will deliver the credit to eligible
clients. Although the current default rates are very low,
CBE is facing a serious challenge of liquidity because of
the delays of regional governments in settling their
fertilizer and food security loans on time. It should be
also noted that although there is the support of the
regional governments, MFIs and cooperatives are
entirely responsible in pre-loan screening and post￾loan follow-up to ensure 100 percent repayment.
Donors offering guarantee facilities to banks
KfW (capital link) provided guarantee facilities for
banks to on-lend to MFIs. The total project value was
£6 million, of which £4.5 million was allocated for the
guarantee and £1.5 million for technical assistance.
Although four private banks signed an agreement with
KfW, only two participated in the project. The two
banks disbursed 80 million Birr of loans to 12 MFIs.
The facility of KfW was a partial guarantee of
maximum 50 percent and MFIs paid a 2 percent
guarantee fee to KfW, which was added to the
guarantee fund. However, one of the loans from
Oromia International Bank to Addis Credit and Saving
Institution was agreed at 25 percent guarantee. The
interest rates of the loans to MFIs were based on
commercial rates, without subsidy. Technical assistance
(TA) was provided to both banks (to increase
understanding of the MFI sector and risk associated
with the wholesale loan) and MFIs (on individual
MSEs and others) (Triodos Facet and First Consult,
2013). Although there was huge demand, the facility
had challenges as MFIs negotiated for lower interest
rates to cover the high transaction costs of lending to
small and riskier firms.
USAID/ Ethiopia has a long history with DCA in
supporting financially excluded households,
institutions and enterprises to access loans through
portfolio guarantee projects. In 2004, USAID funded
DCA’s portfolio guarantee project to facilitate increased
lending to SMEs in Ethiopia (through partner private
banks), both in terms of value of loans and number of
loans to agricultural value-chain actors, diaspora and
women-owned businesses. There were also other credit
guarantee schemes such as IFC partial guarantee (75
percent) to Nib Bank for coffee farmers. Terafina had a
credit guarantee facility to selected MFIs through the
CBE. Cordaid provided a partial guarantee facility to
Wosasa MFI through CBE. Aspire project on the honey
value-chain established a cash guarantee setup with the
Cooperative Bank of Oromia to facilitate lending to
firms in the value chain. Enat Bank initiated an
innovative facility to women entrepreneurs without
collateral by using a guarantee of depositors from the
public.
Credit guarantee scheme established by regional
governments and MFIs
MSEs in Ethiopia have serious difficulties in meeting
the property collateral requirement of MFIs. To this
end, the MSE development strategy and the saving and
credit policy of MFIs have identified different types of
credit guarantee options to substitute for the property
collateral requirement, which include: credit guarantee
fund (established by the regional governments and
MFIs); group guarantee; institutional guarantee by city
and Woreda administrations; family guarantee;
tripartite guarantee or guarantee arrangement among
the three parties (suppliers, MFIs and MSE operators);
third-party guarantee by a salaried person; warehouse
receipts; and clean loan (without collateral) on the
basis of a viable business plan for new and innovative
business ideas. It should be noted that credit can be
extended to growth-oriented MSEs without collateral
through the guarantee scheme established by the
regional governments and MFIs, after meeting the
20–15 percent saving requirement before accessing the
loan. On top of mandatory credit life insurance, MSE
operators are expected to insure their property
collateral before accessing the loan.
As per the five-year MSE development strategy, the five
region-based MFIs (with significant support from
regional governments) established a credit guarantee
scheme to reduce the risk of the MFIs in lending to
MSE operators that do not have collateral. The credit
guarantee scheme is intended to cover both financial
loan and lease finance. The regional government, MSE
operators, and MFIs are expected to contribute 70
percent, 20 percent and 10 percent of the credit
guarantee fund respectively. However, it is the MFIs
and the regional governments that share the risk of
default. The fund is deposited in a blocked account of
an MFI and the financing institution is expected to pay
5 percent interest rate on the balance of the fund. The
MSE operators must agree to pay a service fee of 1.5
percent in order to sustain the credit guarantee
scheme. Although startup enterprises have the
opportunity to get full guarantee coverage after
meeting the 20 percent regular saving requirement,
enterprises involved in the export product and growth￾oriented sectors only need to save 15 percent of the
loan size to benefit from the credit guarantee scheme.
Other types of enterprises (with the exception of
growth-oriented and exporting MSEs) are expected to
produce alternative collateral to access loans from
MFIs. Although the credit guarantee fund was
established by the regional governments and the MFIs
with good intentions, the implementation was
inadequate and misguided. Instead of establishing the
credit guarantee schemes as independent facilities or
institutions and operating on the basis of best practice,
MFIs deliberately managed the schemes as part of their
organizational setup and used them as additional tools
to partly reduce their liquidity gaps. There is a need to
revisit the guarantee schemes in the five regions and
restructure them as independent organizations to
guide and monitor their implementation.
NBE/DBE’s export guarantee scheme
The Government of Ethiopia, through NBE, provides
an export guarantee scheme for non-coffee exports to
facilitate exporters’ access to bank credit with
minimum property or other collateral equivalent to at
least 40 percent for producer exporters and 50 percent
for other exporters on the amount of loan requested.
The implementation of the export credit guarantee
scheme was transferred from NBE to DBE in 2007.
Annex 3: Establishing lease financing
institutions to address the collateral
issue 
According to the governments’ performance
assessment of the first three years’ implementation of
the MSE development strategy, the growth and
expansion of the priority or growth-oriented
sectors/enterprises, particularly in the manufacturing
sub-sector, was far below the planned targets. Lack of
financial resources to buy machinery and related
investment materials was identified as a key constraint
33
Annexes
Opening Doors: A Performance Evaluation of the Development Credit Authority (DCA) in Ethiopia
34
limiting the engagement of MSE operators in the
manufacturing sub-sectors. To address this issue, the
government took drastic measures by establishing five
lease finance companies in the four regions (Oromia,
Amhara, SNNP and Tigray) and Addis Ababa city
administration, and allocated a 2 billion Birr bank loan.
The implementation of lease financing facilities
required: drafting and issuing a new lease financing law,
which was issued in less than three months; identifying
the appropriate property registering government
institution; allocating budget for the companies;
identifying the regulatory and licensing institution
(NBE); addressing the double payment of the value￾added tax (when clients finally buy the machinery);
hiring the right CEOs and key staff; providing training
and exposing the staff to best practices in the rest of
the world (Mauritius and Nepal); and developing the
strategic plan, operational and other manuals, etc.
However, operationalizing the finance lease companies
took much longer than expected.
Annex 4: Definition of micro- and small enterprises in Ethiopia
Annex 5: First-time borrowers from a DCA facility by sector and bank
Level of the enterprise
Microenterprise
Small enterprise
Sector
Industry 
Service 
Industry 
Service 
No. employees
≤ 5
≤ 5
6–30
6–30
Net asset 
≤ Birr 100, 000 ($6,000 or £4,500)
≤ Birr 50,000 ($3,000 or £2,200)
≤ Birr 1.5 million and ≥ Birr 100,001 ($6,000–90,000 or
£4,55–70,000)
≤ Birr 500,000 and ≥ Birr 50,001 ($3,000–30,000 or
£2,200–23,000)
While the majority of MFIs uniformly uses the MSE
definition that is laid out in the first five-year MSE
development strategy, commercial banks do not seem
to uniformly distinguish among small, medium and
large enterprises.
Sectors
Agriculture
Education
Energy
Health
Manufacturing
Other services
Tourism
Trade/ commerce
Transportation
NA 
Total
Awash
Bank
1
0
1
Bank of
Abyssinia
0
0
1
11
1
0
0
0
13
Coop. Bank 
of Oromia
0
0
0
Dashen 
Bank
17
12
8
1
38
Nib Int.
Bank
1
40
0
0
41
Oromia Int.
Bank
3
3
Zemen 
Bank
6
1
7
Total
28
0
1
51
0
1
12
8
1
1
103
35
Annexes
Annex 6: Summaries of loan portfolio guarantees under DCA
Partner name
Awash Int.Bank
Bank of
Abyssinia
Coop. Bank of
Oromia
Dashen Bank
Target sector
Agri
Agri
General
General
Health
Agri
Agri
Agri
Guarantee summary
USAID/Ethiopia seeks to provide two private commercial banks, Awash International Bank (Awash)
and Bank of Abyssinia (BOA), with a Development Credit Authority (DCA) loan portfolio guarantee to
expand access to credit to the coffee, food grains, horticulture, and livestock/livestock products
sectors.
USAID/Ethiopia seeks to provide two private commercial banks, Awash International Bank (Awash)
and Bank of Abyssinia (BOA), with a Development Credit Authority (DCA) loan portfolio guarantee to
expand access to credit to the coffee, food grains, horticulture, and livestock/livestock products
sectors.
As enterprises grow in size, the percentage of women-owned enterprises decreases. Women
entrepreneurs named a lack of access to financing as the largest impediment to growth. In order to
address this situation and enable women entrepreneurs to grow their businesses beyond the bounds
of microfinance, USAID/Ethiopia entered into a $4.28 million loan portfolio guarantee with BoA for
women-owned and managed enterprises.
In order to encourage Ethiopian bank intervention with a new investment class, USAID/Ethiopia
entered into a loan portfolio guarantee with two banks to promote lending to diaspora. The facility
will enable diaspora to access $12.84 million in financing to start businesses in Ethiopia.
USAID/Ethiopia plans entered into a $13.4 million, ten-year, multi-bank loan portfolio guarantee for
private health providers offering HIV/AIDS and TB services. This guarantee will work with two banks,
Bank of Abyssinia and Nib Bank, guaranteeing allocated amounts of $4.47 million each, while
leaving $4.47 million unallocated.
Through this six-year, $7.3 million DCA loan portfolio guarantee with Bank of Abyssinia and Zemen
Bank, USAID/Ethiopia aims to support its Feed the Future (FTF) strategy by providing a loan
guarantee facility to participating banks. The guarantee will largely serve as a credit enhancement
tool for loans extended to agricultural equipment suppliers and leasing companies, which will
increase the ability of farmers and other agribusinesses to acquire necessary agricultural equipment,
thereby strengthening the ability of farmers and agribusiness enterprises operating in USAID /Ethiopia￾supported value chains and regions to move towards mechanization of activities, thus enhancing
farming yields.
A $10 million competitive loan portfolio guarantee (LPG) designed to encourage lending to Ethiopian
agriculture value-chain participants. This investment, in concert with USAID/Ethiopia’s crop value￾chain program ‘Agriculture Growth Program-Value Chain Enhancement’ will serve as part of
USAID/Ethiopia’s flagship Feed the Future agriculture program, while also delivering on USAID’s
contribution to the Government of Ethiopia’s (GoE’s) Agricultural Development Program (AGP).
USAID/Ethiopia has been tasked as the lead implementer in galvanizing private sector participation in
the selected commodity value-chain activities. This guarantee was part of a suite of credit
enhancement facilities being designed to support the Mission’s agriculture portfolio in 2013.
USAID/Ethiopia plans a $10 million loan portfolio guarantee (LPG) designed to encourage Dashen
Bank’s scaled-up participation in the bank’s pilot insurance-backed agribusiness credit products for
cooperatives.
Opening Doors: A Performance Evaluation of the Development Credit Authority (DCA) in Ethiopia
36
Nib Int. Bank S.C.
Oromia Int. Bank
Zemen Bank
General
Health
Agri
Agri
Agri
Agri
In order to encourage Ethiopian bank intervention with a new investment class, USAID/Ethiopia
entered into a loan portfolio guarantee with two banks to promote lending to diaspora. The facility
will enable diaspora to access $12.84 million in financing to start businesses in Ethiopia.
USAID/Ethiopia plans to establish a $13.4 million, ten-year, multi-bank loan portfolio guarantee for
private health providers offering HIV/AIDS and TB services. This guarantee will work with two banks,
Bank of Abyssinia and Nib Bank, guaranteeing allocated amounts of $4.47 million each, while
leaving $4.47 million unallocated.
A $10 million competitive loan portfolio guarantee (LPG) designed to encourage lending to
Ethiopian agriculture value-chain participants. This investment, in concert with USAID/Ethiopia’s crop
value-chain program ‘Agriculture Growth Program-Value Chain Enhancement’ will serve as part of
USAID/Ethiopia’s flagship Feed the Future agriculture program, while also delivering on USAID’s
contribution to the Government of Ethiopia’s (GoE’s) Agricultural Development Program (AGP).
USAID/Ethiopia has been tasked as the lead implementer in galvanizing private sector participation
in the selected commodity value-chain activities.
Through this six-year, $7.3 million DCA loan portfolio guarantee with Bank of Abyssinia and Zemen
Bank, USAID/Ethiopia aims to support its Feed the Future (FTF) strategy by providing a loan
guarantee facility to participating banks. The guarantee will largely serve as a credit enhancement
tool for loans extended to agricultural equipment suppliers and leasing companies, which will
increase the ability of farmers and other agribusinesses to acquire necessary agricultural equipment,
thereby strengthening the ability of farmers and agribusiness enterprises operating in USAID
/Ethiopia-supported value chains and regions to move towards mechanization of activities, thus
enhancing farming yields. In addition, further qualifying borrowers will be cooperative unions,
smallholder farmers, agricultural input suppliers, seed companies, fuel and agricultural equipment
providers, transporters, warehouse owners, aggregators, post-harvest processors, smallholder
farmers’ organizations holding forward delivery – or direct contracts from the United Nations World
Food Programme under the Purchase for Progress Initiative.
A $2.5 million facility to increase DCA guarantee authorization limit for Zemen Bank. The new
proposed guarantee will enhance Zemen’s ability to provide more equipment financing credit, as
well as credit to support other DCA-supported value-chain activities, as needed. The total DCA
guarantee commitment to Zemen will be $6,155,928 after this follow-on transaction is executed.
In 2014, USAID/Ethiopia entered into a US$ 2.25 MM non-revolving portable guarantee
commitment agreement with AGFlow Ventures, the holding company of Mekelle Farms, Ethiopia’s
largest producer of day-old chicks. This seven-year, 50 percent portable guarantee aims to increase
access to finance for AGFlow Ventures and Mekelle Farms, enabling them meet their goals of further
expanding in the north of Ethiopia, as well as opening up new chicken production facilities and
distribution networks in the south. The loan guarantee agreement with Zemen converts a portion of
that portable guarantee into a loan guarantee.
Annex 7: Information provided by
SHOPS to potential borrowers under
DCA for private health facility service
providers 
What is DCA?
Development Credit Authority (DCA) is a USAID
funded program aimed at increasing access to finance
for private health facility service providers.
Who implements DCA?
Abt Associate Inc, in Ethiopia provides technical
assistance to implement DCA.
What is the objective of DCA?
DCA aims to increase accessibility and improve the
quality of health commodities and services focusing on
HIV/AIDS and TB services.
DCA facilitates your access to finance
USAID’s DCA program works with non-governmental
organizations and for-profit enterprises to increase
access to finance for private health service providers
through training and business counseling. In order to
support the private health service providers, DCA has
signed guarantee agreements with local financial
institutes, Bank of Abyssinia and Nib.
What is the benefit of the program?
DCA uses partial credit guarantees to mobilize local
financing. Guarantee agreements encourage private
lenders to extend financing to under-served borrowers,
like the health sector. As a result of this, banks reduce
their collateral requirements to up to 50 percent for the
private health service providers.
Important facts about the DCA Program
• USAID shares up to 50 percent of your risk
(collateral coverage)
• Banks are using their own capital to lend you the
money
• The bank expects the loan to be repaid on the
specified time
• Loans are made at interest rates consistent with
other products offered by the bank
• Banks will follow their standard procedures for
analyzing loan requests
• Only applicants that meet the bank’s eligibility and
loan documentation requirements will be successful.
Which facilities qualify for a DCA loan?
• Clinics at different levels
• Specialized clinics
• Hospitals
• Nursing schools
• Pharmacies
• Laboratories
Qualifying facilities must provide HIV and TB services
and products
• Testing and counseling
• Antiretroviral Therapy (ART)
• Treatment of injecting drug users (IDUs)
• PMTCT testing and treatment
• PEP services
• Family planning counseling and contraceptive
methods
• TB screening and treatment
• Treatment of other opportunistic infections (OIs)
• Cotrimoxizole (CTX) prophylaxis)
What services must you offer to qualify you for a DCA
Loan?
Facilities must allocate the DCA loan to activities that
will increase the types of HIV and TB clinical services
being offered 
• Purchase to medical equipment
• Infrastructure change – renovation of building
• Distribution of medicine
• Working capital – qualified human resources,
improved communication and recording system and
more
Services provided by SHOPS Ethiopia to DCA loan
qualifiers
• Qualified health providers must prepare feasibility
study for loan application by themselves, but they
can get advice from SHOPS Ethiopia technical staff
free of any fee
• SHOPS Ethiopia technical staff will provide a client￾centered consulting approach to review, comment,
and provide guidance of the content of your
feasibility study 
• The final loan application document will be
approved and submitted to the DCA banks
simultaneously by SHOPS Ethiopia staff
• SHOPS Ethiopia will provide a post-loan monitoring
service for proper utilization of the loan
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Annexes
Loan application checklist
If you have decided to apply for a loan using the DCA
program, use the following check list to ensure a
smooth and productive process.
1. Collect the appropriate documents for your
application
2. Use the checklist below to ensure you have
everything the bank will ask for to complete
application:
• Business Feasibility Study
• Bank Loan Application
• Business Financial Statements
• Business Certificate
• Marriage certificate
• Tax Clearance
• Resumes 
• Collateral
Make sure the required documents are orderly and
accurate. All information you provide will be verified
by the bank and the organization guaranteeing the
loan.
How can you apply?
If you are interested and eligible for the DCA loan
service, contact W/rt Fifa Zerai, SHOPS Ethiopia office:
Haile Gebresellasie Avenue
Yeka Subcity Kebele 11/12
Rebecca Building 5th floor
Phone: 0116 61 3551 
E-mail: Fifa_Zerai@phsp-et.com
Please fill in the application form; we will then contact
you to schedule an appointment.
Opening Doors: A Performance Evaluation of the Development Credit Authority (DCA) in Ethiopia
38
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Annexes
Annex 8: Interview schedule
Opening Doors: A Performance Evaluation of the Development Credit Authority (DCA) in Ethiopia
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