To attract native Ethiopians like Wubeshet Hailu, a United States resident of Maryland, the Commerical Bank of Ethiopia unveiled a new diaspora mortgage scheme.
Woubshet, who visits his homeland frequently, was excited by the scheme. Living in the United States since 2005 with his family, the 42-year-old motivational speaker and teacher is convinced that the initiatives are wonderful ways to draw in the diaspora.
“I want to come back and reside here,” he says. “Yet the interest rate is too high, not at all competitive to what I could get in America.”
The interest rate by Commercial Bank for taking out a diaspora mortgage loan ranges between 8.5pc and 11.5pc with a loan term of 20 years.
In the United States where Woubshet lives, a 30-year mortgage with a five percent or lower interest rate can be commonly obtained.
The Bank launched the scheme in the presence of over 500 members of the diaspora community earlier this month.
“We introduced the scheme to encourage the diaspora to invest in the homeland,” says Emebet Melese, the Bank’s Quality Assurance Credit Business Director. “The diaspora is the main source of our foreign currency, which we are trying to capture through different schemes.”
Non-resident Ethiopians and non-nationals of Ethiopian origins are all eligible for the mortgage loan. The Bank offers two packages that applicants can choose from.
The first service package requires the applicant to save the amount of equity by opening a diaspora mortgage savings account before applying for the loan.
This package has four options with equity contributions ranging from 20pc to 50pc. The higher rates are given to those whose career path and income level cannot be substantiated formally.
The interest rate ranges from 8.5pc to 10.5pc with a maximum term of 20 years. The mortgage plan includes a grace period of a maximum of a year for new construction, and half a year for acquisitions.
“The applicants for this package have to pay the loan with hard currency,” Emebet said.
The second package enables the applicant to pay the loan in local currency, after raising the equity contribution in foreign currency, within 15 years. The initial equity can range between 40pc and 60pc, and the interest rate increases from 9.5pc to 11.5pc.
“The second package is set up for diaspora that move back to Ethiopia after starting the loan process,” Emebet says.
But Commercial Bank is not the only bank to extend the services. Private banks such as Wegagen, Nib, Abay and Zemen have all been providing mortgage loans for the diaspora for more than a year and they face similar complaints as Commercial Bank their interest rates are too high.
“We have conducted studies on how much the interest rates should be and took the experiences of neighbouring countries like Kenya,” says Emebet. “The package we offered is inclusive of the different job behaviour of the diaspora.”
Experts welcomed the move, yet have reservations on the success of the new scheme.
“Introducing a mortgage product is a good step,” Abdulmenan Mohammed, a financial expert with 15 years of experience. “But Commercial Bank’s interest rates are more than twice what is being charged for mortgages in Europe and the United States.”
The Bank though is confident that these products will be competitive, given that they have flexible offerings.
“We offer loans in local currency,” argues Emebet. “There is also a huge difference in value between the local and foreign currencies.”
Non-resident Ethiopians like Wubshet also question whether the applicant can go through the years paying the loan.
“The diaspora community has a lot on its plate, including helping out its family back home,” argues Wubshet.
The Bank has considered such instances. When the applicant requests to move from the first package to the second to pay the loan with local currency, the Bank demands 30pc of the remaining payment to be paid in foreign currency.
With all the challenges and with an ambitious plan to boost foreign currency earnings, the Bank is set to promote the product all over the globe.
“We will take the product and promote it to our clients abroad,” says Bacha Gina, the new president of Commercial Bank.
For Abdulmenan, the bank needs to go a long way before the product becomes successful.
“The impact of the new product on the economy depends on the size of the demand for the product and the availability of housing stock for sale,” argues Abdulmenan. “The government needs a genuine policy for housing developers, local buyers and other related industries.”
Economists argue that the mortgage scheme was set up to strengthen the diaspora’s engagement in the nation’s economy and to generate foreign currency, which was a point stressed by President Mulatu Teshome (PhD) during his address to the House of Federations and parliament.
Ethiopia has seen a decline in foreign exchange since 2014, according to a World Bank report, while remittances have stagnated in the previous two years.
“The diaspora engagement programs in America and the Middle East will be expanded to Europe,” Mulatu said. “We will also implement different strategies other than the [Diaspora Trust Fund].”
Some experts say that heavy reliance on the diaspora can have disadvantages.
“Relying on the diaspora to resolve the forex crunch results in domestic consumption being controlled by non-nationals,” Nemera Mamo (PhD), an economist at Queen Mary University in London, England.
Others suggest that the initiative to engage the diaspora is correct but that the focus should be to get them to invest in the country by easing the business environment.
“The bureaucratic hurdles in various public offices, where they have to pay taxes, obtain business licenses, get credit and deposit and lease land, should be more efficient,” Abdulmenan says.
But Woubshet is adamant on where he stands on Commercial Bank’s mortgage schemes.
“With high rates, I won’t be considering the offer of the Bank,” he says.
The Ethiopia Diaspora Association declined to comment on the matter as Commercial Bank did not send a full brief and documentation.
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