AmendmentInvestment

Directives for Amendment of External Loan and Supplier’s Credit (Directive No. 801/2021)

National Bank Of Ethiopia801/2021

Summary

These directives amend the External Loan and Supplier’s Credit Directives No. FXD/47/2017. They regulate the procedures for registration of external loans and supplier's credits, setting conditions, requirements, and all-in-cost ceilings for eligible borrowers including exporters, foreign investors, and manufacturing sectors. The directives also specify conditions for loan approval, registration, and repayment, and repeal the previous directive.

Who's affected

Exporters, foreign investors, and manufacturing businesses seeking to obtain external loans or supplier's credits.

Action required

Businesses seeking external loans or supplier's credits must review the new requirements, ensure they meet eligibility criteria, and comply with the application, approval, and registration procedures outlined in these directives.

Key points

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  • Amends Directives No. FXD/47/2017.
  • Sets new registration and approval procedures for external loans and supplier's credits.
  • Defines eligibility criteria and requirements for exporters, foreign investors, and manufacturing sectors.
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    • Establishes all-in-cost ceilings for external loans.
    • Repeals previous directive on the same subject.
    • Effective from June 15, 2021.

Requirements

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  • External loan guaranteed by the Federal Government of Ethiopia must be registered by presenting the agreement and guarantee.
  • Eligible borrowers (except those with government guarantee) must obtain approval from the National Bank of Ethiopia before entering into an agreement.
  • Foreign loans remitted in cash or in kind must be registered by producing necessary documents.
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    • No repayment in convertible foreign currency is allowed for unregistered loans.
    • Exporters importing equipment, raw materials, machineries, and accessories for their export business can get usance letters of credit against future export proceeds.
    • Exporters must submit an application letter, valid export license, draft loan agreement (for external loan) or pro-forma invoice (for supplier's credit), and documents justifying repayment capacity.
    • Foreign investors and manufacturing sectors must meet debt-to-equity ratio requirements (not exceeding 60:40).
    • Foreign investors and manufacturing sectors must submit an application letter, valid business/manufacturing license, capital registration certificate, draft loan agreement (for external loan) or pro-forma invoice (for supplier's credit).
    • Minimum credit period for supplier's credit for foreign investors is 180 days, and minimum repayment period for external loans is 1 year.
    • Minimum credit period for supplier's credit for manufacturing sector is 1 year, and minimum repayment period for external loans is 1 year.
    • National Bank of Ethiopia requires specific documents for registration of external loans, including application letter, bank advise (for cash), customs declaration and shipping documents (for in-kind), and copy of approval letters.
    • Repayment of external loans requires an application letter, copy of loan registration letter, and loan repayment schedule.
    • All-in-cost ceilings for external loans are defined based on the average maturity period.

Rights and permissions

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  • An exporter is eligible to acquire an external loan or supplier's credit if it finances an export-oriented investment generating foreign currency.
  • A domestic investor engaged in projects generating foreign currency is eligible for external loans.
  • A foreign investor is eligible to acquire external loans upon fulfilling specified requirements.
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    • A manufacturing sector is eligible to acquire external loans upon fulfilling specified requirements.
    • The National Bank of Ethiopia can vary the all-in-cost ceiling when international market conditions require.
    • The National Bank of Ethiopia shall approve repayment of external loans if conditions are met.

Restrictions

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  • Debt to equity ratio for foreign investors and manufacturing sectors may not exceed 60:40 of foreign capital or paid-up capital respectively.
  • Pro-forma invoice for supplier's credit for foreign investors must have a minimum 180 days credit period.
  • Minimum repayment period for external loan for foreign investors is 1 year.
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    • Pro-forma invoice for supplier's credit for manufacturing sector must have a minimum 1 year credit period.
    • Minimum repayment period for external loan for manufacturing sector is 1 year.
    • Any form of guarantee may not be issued by government and banks for private loans.

Objectives

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  • To regulate foreign exchange by establishing criteria for registering external loans.
  • To ensure investors register external loans with the National Bank of Ethiopia.
  • To set procedures for the approval and registration of external loans and supplier's credits.
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    • To define eligible borrowers and their respective requirements for obtaining external financing.
    • To establish all-in-cost ceilings for external loans.
    • To repeal and replace previous directives on the subject.

Organizations

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  • National Bank of Ethiopia
  • Federal Government of Ethiopia

Legal references

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  • National Bank of Ethiopia Establishment Proclamation No. 591/2008
  • Investment Proclamation No. 1180/2020
  • Directives No. FXD/47/2017
Original sourcehttps://justice.gov.et/en/directives/directives-for-amendment-of-external-loan-and-suppliers-credit-directive-fxd-47-2017-directive-no-801-2021/
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