1. INTRODUCTION
1.1. BACKGROUNDS OF THE STUDY
Financial institutions are a company whose primary functions is to intermediate between lenders and
borrowers in the economy. (Saunders and Cornet, 2004).Financial institutions are what make financial
markets work. Without financial institutions financial market would not be able to move fun from who
save to people who have productive investment opportunities ; and thus have important effects on the
performance of the economy as a whole (Berhanu , 1999).
Developmental banks are specialized institutions set up to support private and governmental sector
development in developing countries. They are usually majority-owned by national governments and
source their capital from national or international development funds or benefit from government
guarantees. This ensures their creditworthiness, which enables them to raise large amounts of money on
international capital markets and provide financing on very competitive terms (Asmelash, 2003).
"Development banks have operated in developed and developing countries for a long period of time.
However, it was in the 1950’s and 1960’s that they become more common as financial intermediaries
providing financial services within the broad frame work of the national development plans" (Wendy,
2012, p.2).
Development Bank of Ethiopia which was established in 1909 is the only bank in Ethiopia characterized
by having project based lending tradition. Today investment plays a very crucial role in fostering a
countries economic development by increasing real capital, increasing productivity, creating employment,
increasing export and import trends and so on which in turn plays a crucial role in alleviating poverty
specially in under developed countries. However, many obstacles hinder its development especially
financial shortage in Ethiopia from financial institutions ( Mendola, 2007).
1.2. Background of the Organization
The development bank of Ethiopia (DBE) is one of the financial institutions engaged in providing short,
medium and long term development credits. DBE’s distinguishes feature is its “project” based lending
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tradition. Project financed by the Bank are carefully selected and prepared through appraised, closely
supervised and systematically evaluated. Since its establishment in 1909, the bank has been playing a
significant role in promoting overall economic development of the country.
Mission of DBE
“The Development Bank of Ethiopia is a specialized financial institution established to promote
the national development agenda through development finance and close technical support to
viable projects from the priority areas of the government by mobilizing fund from domestic and
foreign sources while ensuring its sustainability.
The Bank earnestly believes that these highly valued objectives can best be served through
continuous capacity building, customer focus and concern to the wider environment”.
Values of DBE
 Commitment to mission
 Customer focus
 Integrity
 Team work
 High value to employees
 Learning organization
 Concern to the environment
Vision of DBE
“100% success for All Project Financed by DBE” (Development Bank of Ethiopia)
www.dbe.com.et)
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1.3. STATEMENT OF THE PROBLEM
Credit is as one of the important tool that supports the success of development project, which contributes
towards economic development. Similarly, Development Bank of Ethiopia (DBE) provides sustainable
credit facility for those engaged in agriculture, industrial and other agro processing, which can result in
development of the country. Currently DBE gives due attention to the government focused priority area;
that can generate foreign currency to the country and reduce high unemployment rate. So in order to
maintain the objective the bank needs to strengthen its liquidity position of the bank by enhancing its loan
recovery performance. However, provision of credit alone does not support the economic development of
the country rather it accompanied by the existence of factor conducive to efficient utilization of the fund
in order to assure the repayment of the loan in accordance with the agreement. This has an impact on
continuing sustainable credit facility for those who want for a productive purpose (MenberemariamTizazu,
2005).
In countries like Ethiopia, sectors like agricultural, industrial (especially small scale industries) and
services play extremely crucial role in the development of the country. However, these sectors not
growing to the extent needed due to many constraints. (MenberemariamTizazu, (2005)..The main
problem in most financial institutions in Ethiopia is the use of collateral based financing system which
creates a bottleneck problem in the country’s investment growth. (African Development Bank Annual
Report; 2012).
The research done by Abiyot (2017), on the impact of gasha microfinance institutions in poverty
reduction to assess the role played by the microfinance institutions in the economic status of clients tried
to show that gasha microfinance have a positive contribution to the wellbeing of the society.
Also The study by Samson (2017), on the effect of microfinance on poverty reduction to see the changes
in the investment made by the microfinances with that of the change in the poverty level .The findings
shows that there are some difficulties in the loan approval level so the researcher recommended that loan
size should be increased to meet this demand
Most of the other researches done on this area focus only the role of the financial institutions related to
poverty reduction as per the researcher knowledge there is no researcher paper done on the role of the
financial institution with that project financing as this projects are also the main activities to change the
life of individuals and the country as whole so inorder to fill this gap the study will be on The role of
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financial institutions in project financing in a case of Developmental Bank of Ethiopia Addis Ababa
branch.
1.4. Objectives of the Study
The general and the specific objectives of the study are the following:
1.4.1. General Objective
The general objective of the study was to assess the role of Development Bank of Ethiopia in project
financing of the country.
1.4.2. Specific Objectives
The specific objectives of the study are:
* To show the credit operation of DBE.
* To analyze the credit operation performance of the bank.
* To compare the role of the bank in financing development projects of the country with that of
the total capital of the country’s project under operation during the period under analysis.
1.5. Research Questions
The study will try to look into the following questions:
* What operation process does DBE follow to grant a credit to development projects?
* What credit operations does the bank have?
* To what extent currently DBE is contributing to the countries investment growth and its role in
financing development projects?
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1.6. Significance of the study
The study will have an importance from different perspectives. The first one is it helps the researcher to
get a knowledge about operations and processes followed by financial institutions to grant a credit. The
second one is it helps Development Bank of Ethiopia to provide its financial service efficiently and
successfully to become “World class Development Bank ‘’ by providing information about its
shortcomings. Third, it serves other researchers as a benchmark for further study in the area.
1.7. SCOPE OF STUDY
Although DBE grants development credits to various from small sectors to large ones, the research will
be limited to main sectors i.e. agriculture, industry and service sector projects financed by the bank. This
is designed objectively to have more dependable and manageable data, to have specific objectives and to
derive reliable conclusion. In addition, emphasizing on the main sectors enables the work to be more
focused.
1.8. Research Design and Methodology
1.8.1. Research Approach
The main focus of the study will be Development Bank of Ethiopia. It is one of the financial institutions
engaged in providing short, medium and long term development credits in Ethiopia. Its distinguishing
feature is project based lending tradition and that is why the study is interested to focus on DBE. The
research study areas will be the project loans which are granted by the bank to agriculture, industry and
service sector in the country. So, the study will use mixed method of research approach to identify the
activities of the bank in the country’s investment growth.
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1.8.2. Research Design
The research design sets the conceptual structure with in which a study had conducted. It was an
important component of any research study as it derived the subsequent stage of the study. It constituted
the blue print for collection, measuring, presentation and analysis of data collected (Cramer and Howitt,
2004).
In this study descriptive research design will be used. The research is on the role of financial institution in
project financing in development bank of Ethiopia Addis Ababa branch so the study will give full details
to show the research activity gone to be carried out.
1.8.3. Population Size
The target populations are the employees and the customers of the developmental bank of Ethiopia in
Addis Ababa branch. Currently there are about 1800 customers and 50 employees working in the bank.
1.8.4. Sampling Techniques and Sample size
As Delport (2005) cited by Cramer and Hewitt (2004) one of the most frequent problems in research
design is the determination of the appropriate sample size. One may ask why sample size so important.
The answer to this is that an appropriate sample size is required for validity. If the sample size is too small,
it will not yield valid results. An appropriate sample size can produce accuracy of results. Moreover, the
result from small sample size was questionable and sample size that is too large, resulted in wasting time
and money. It is also unethical to choose large sample size.
The research will be conducted on a total population of 25 of which 10 employees including a manager
will be selected based on judgmental sampling technique, because the study requires a special know how
about financing projects that the researcher was tries to kind a full and adequate information from them.
1.8.5. Types and source of Data
The data that will be used in this particular purpose will be primary data and secondary data collected
from Development Bank of Ethiopia Addis Ababa branch. The primary sources will be obtained from
observing the organization physically, personal interview and via questionnaires that are both open ended
and close ended questionnaires. The secondary source of data used in this particular study will be
Documents obtained from Development Bank of Ethiopia, Regularly published news of the bank,
Ethiopian Investment Agency publications and related unpublished researches.
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1.8.6. Method of Data Collection
The primary data collection tools and techniques used for this study will be collecting by using structured
observation a questionnaires both open ended and close ended questionnaire and the secondary data’s will
be collected by the documents given from the bank and other published and unpublished resources.
1.8.7. Methods of Data Analysis
The data collected will be analyzed through different quantitative methods. As research will be
descriptive research method i.e. analyzing existing phenomena, hence quantitative techniques showing
amount of loan disbursed for different projects at different time, their collection percentage and amount of
non-performing loan with perspective of different sectors will be analyzed.
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Reference
Abiyot, U. (2017). Imapct of Gasha microfinance institution s.co in the reduction of povery.
Asmelash. H, (2003). The Impact of Microfinance in Ethiopia: the case of DCSI in Ganta
Afeshum Woreda of Eastern Tigray. MA Thesis, Department of RLDS, AAU
Berhanu. L, (1999). Micro enterprise credit and Poverty Alleviation in Ethiopia: The case of the project
office for the creation of Small Scale Business Opportunities in Addis Ababa, MA Thesis, Addis Ababa
University.
.Cramer, D. and Howitt, D. (2004). Statistics SAGE Publications Ltd, london.
Development Bank of Ethiopia. www.dbe.com.et
Menberemariam,T. (2005). A Role of Development Bank of Ethiopia in Agricultural Sector
(Unpublished Senior Essay), Addis Ababa, Ethiopia.
Mendola, M.(2007). Agricultural Technology Adoption and Poverty Reduction: A propensity Score
Matching Analysis. Bangladesh Journal, 32:372393.
Samson, N. (2017). Effect of microfinance institutions on poverty reduction : A critical scrutiny of
theoretical literature
Wendy, D. (2012). The Role of Financial Institutions in Promoting Investment (Unpublished Senior
Essay), Addis Ababa, Ethiopia.
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