Directives No. 801/2021 Directives for Amendment of External Loan and Supplier’s Credit Directives No. FXD/47/2017
Whereas, the National Bank of Ethiopia is vested by its establishment proclamation no. 591/2008 and Investment Proclamation no. 1180/2020to regulate foreign exchange and having determined the procedures of registration to external loan is essentially set to be a criterion of regulating foreign exchange;
Whereas, an investor who acquires an external loan shall have also obliged to register such a loan with the National Bank of Ethiopia in accordance with the directives of the National Bank of Ethiopia;
Now, therefore, in accordance with Articles 20 and 27(2) of the National Bank of Ethiopia Establishment (as amended) proclamation No. 591/2008 and article 21(1 and 2) of Investment Proclamation no. 1180/2020, these directives are hereby issued as follows:
Article 1 Short Title
These directives may be cited as “External Loan and Supplier’s Credit Directives No./801/2021.”
Article 2 Definition
In these Directives, unless the context requires otherwise:
- “All-in-cost ceiling” means rate of interest, other fees and expenses in foreign currency excluding commitment fee and pre-payment fee.
- “Bank “means a company licensed by the National Bank of Ethiopia to undertake banking business or a bank owned by the Government;
- “Exporter” A person that sells goods or services that generate foreign currency;
- “External loan” means a loan acquired from an eligible recognized lender and approved and registered by the National Bank of Ethiopia;
- “Foreign capital” means paid up capital obtained from foreign sources, and includes the re-invested profits and dividends of a foreign investor and registered by pertinent government body;
- “Foreign Investors” means a foreigner or an enterprise wholly foreign nationals, having invested foreign capital in Ethiopia or a foreigner or an Ethiopian incorporated enterprise owned by foreign nationals jointly investing with domestic investor, and includes an Ethiopian permanently residing abroad and preferring treatment as a foreign investor;
- “Guarantee “means any signed undertaking, however named or described, providing for payment on presentation of a complying demand;
- “Investor” means a domestic or a foreign investor having invested in Ethiopia;
- “Manufacturing Sector” means sectors that consist of Ethiopian investors who produce goods for domestic market for consumption and/or as inputs for manufacturing, agriculture and other economic activities.
- “Supplier’s credit” means an interim short term financing provided by a third party supplier;
- “Usance Letter of credit” means a deferred payment letter of credit payable at a determined future date after presentation of conforming documents;
- “Person” means any natural or juridical person;
Article 3 General
- External loan guaranteed by Federal Government of Ethiopia shall be registered by the National Bank of Ethiopia by presenting the agreement and the guarantee issued there to.
- An eligible borrower except stated under article 3.1 shall first get approval from the National Bank of Ethiopia before entering to external loan and supplier’s credit agreement with the lender/supplier.
- An eligible borrower sha1l register the foreign loan remitted in cash or in kind by producing the necessary documents.
- No repayment in convertible foreign currency may be allowed for the purpose of payment of external loan or supplier’s credit unless registered by the National Bank of Ethiopia.
- A Bank is allowed to open issuance letter of credit for an exporter who imports equipment, raw materials, machineries and accessories for his export business against future export proceed.
Article 4
Eligible Borrowers and Requirements
4.1 Exporter
- An exporter is eligible to acquire an external loan or supplier’s credit provided that the acquired loan is going to finance an export – oriented investment that generates foreign currency.
- A domestic investor who is engaged in projects that generate foreign currency is eligible to acquire external loan.
- The following requirements shall be fulfilled for approval and registration of external loan or supplier’s credit to be acquired by an exporter:
- Application letter;
- Valid export license given by pertinent licensing authority;
- For External loan; The draft loan agreement with detailed terms showing interest rates and applicable charges, loan disbursement schedule, repayment schedule, borrower-lender relationship, purpose of the loan and other particulars as may be deemed necessary by the National Bank of Ethiopia
- For suppliers credit; Pro-forma invoice with repayment period and term of payment
- Document justifying the capacity to repay the loan
4.2 Foreign Investor
- A foreign investor is eligible to acquire external loan when it fulfills all requirements of article 4.2.2 and 4.2.3 of these directives
- The debt to equity ratio may not exceed 60:40 of the foreign capital
- The following requirements shall be fulfilled for approval of external loan and/or supplier’s credit to be acquired by foreign investor:
- Application letter;
- Valid investment or any other valid business license given by pertinent licensing authority as the case may be applicable;
- Foreign capital registration certificate issued by pertinent government body
- For external loan, the draft loan agreement with detailed terms showing interest rates and applicable charges, loan disbursement schedule. repayment schedule, borrower-lender relationship, purpose of the loan and other particulars as may be deemed necessary by the National Bank of Ethiopia;
- For suppliers credit; Pro-forma invoice with a minimum 180 days credit period and a minimum of 1 year for external loan repayment period.
4.3 Manufacturing Sector
- A Manufacturing sector is eligible to acquire external loan when it fulfills all requirements of article 4.3.2 and 4.3.3 of these directives.
- The debt to equity ratio may not exceed 60:40 of its paid up capital
- The following requirements shall be fulfilled for approval of external loan and/or supplier’s credit to be acquired by Manufacturing Sector.
- Application letter;
- Valid Manufacturing business license given by pertinent licensing authority as the case may be applicable;
- Capital registration certificate issued by pertinent government body
- For external loan, the draft loan agreement with detailed terms showing interest rates and applicable charges, loan disbursement schedule. repayment schedule, borrower-lender relationship, purpose of the loan and other particulars as may be deemed necessary by the National Bank of Ethiopia;
- For suppliers credit; Pro-forma invoice with a minimum 1year credit period and a minimum of 1 year for external loan repayment period.
Article 5
Approval and Registration of External Loan
- The National Bank of Ethiopia shall issue approval letter for external loan and suppliers credit if all conditions are fulfilled under article 4.1, 4.2and 4.3
- The National Bank of Ethiopia shall register external loan up on presentation of the following documents:
- Application letter;
- A bank advise (if the loan is in cash);
- Customs declaration and all relevant shipping documents (if the loan is in kind);
- Copy of external loan approval letters
- The National Bank of Ethiopia shall register external loan up on presentation of the following documents:
Article 6
All- in- Cost Ceilings
- The all-in-cost ceilings for external loan shall be:
Average Maturity Period | All-in-cost Ceilings |
Up to three years | six month LIBOR or Equivalent in EURIBOR Plus 2% |
Three years and up to five years | six month LIBOR or Equivalent in EURIBOR Plus 3% |
More than five years | six month LIBOR or Equivalent in EURIBOR Plus 5% |
- When changing international market requires, the National Bank of Ethiopia may vary the all in cost ceiling stated here in above.
Article 7 Guarantees
Any form of guarantee may not be issued by government and banks for private loan.
Article 8 Repayment of External Loan
- The National Bank of Ethiopia shall approve repayment of external loan provided that the repayment request is as per the conditions mentioned in article 5 of these Directives.
- The following documents should be presented to the National Bank of Ethiopia for approval of an external loan repayment:
- Application letter;
- Copy of external loan registration letter and
- Loan repayment schedule showing the computation of principal, interest and other charges as may deemed necessary by the National Bank of Ethiopia.
Article 9 Repeal
Registration of External Loan and suppliers’ or Foreign Partners’ Credit Directives No FXD/47/2017 is hereby repealed and replaced by these Directives.
Article 10 Effective Date
These Directives shall enter into force as of June 15, 2021.
Categories: Directives