INTEREST FREE BANKING

FINANCING BUSINESS PROCEDURE

April 2022
 Bank of Abyssinia-Interest Free Banking

TABLE OF CONTENTS
LIST OF ACRONYMS: ............................................................................................................................................ viii
PART ONE ................................................................................................................................................. ix
CHAPTER ONE ......................................................................................................................................... 1
1.1. Background .........................................................................................................................................................1
1.2. Short Title ...........................................................................................................................................................2
1.3. Definition of Terms ............................................................................................................................................2
1.4. Objectives ...........................................................................................................................................................7
1.5. Governing Rules .................................................................................................................................................7
1.6. Scope...................................................................................................................................................................7
1.7. Availability of the Procedure ..............................................................................................................................7
1.8. Procedure Owner ................................................................................................................................................7
1.9. IFB Financing Business Structure.......................................................................................................................8
1.10. Team Based Approach to IFB Financing Processing ........................................................................................ 10
CHAPTER TWO ...................................................................................................................................... 11
AUTHORITY, RESPONSIBILITY AND GENERAL ELIGIBILITY ............................................... 11
2.1. Major Authority and Responsibilities ............................................................................................................... 11
2.1.1 Authority and Responsibilities of the Chief Executive Officer (CEO) ............................................................. 11
2.1.2 Authority and Responsibilities of the Chief Credit Officer (CCO) ................................................................... 11
2.1.3 Authority and Responsibilities of the Vice President IFB ................................................................................ 12
2.1.4 Authority and Responsibilities of the Director - IFB Financing Business ........................................................ 12
2.1.5 Authority and Responsibilities of the Director – IFB Appraisal ....................................................................... 13
2.1.6 Authority and Responsibilities of the District Manager (Outlying) .................................................................. 14
2.1.7 Authority and Responsibilities of the Manager - District Business IFB (Outlying) ......................................... 15
2.1.8 Authority and Responsibilities of the Manager - District Operation (Outlying) ............................................... 16
2.1.9 Authority and Responsibilities of the IFB Financing Approving Committee ................................................... 16
2.1.10 Authority and Responsibilities of the Director -IFB Business Service ............................................................. 16
2.1.11 Authority and Responsibilities of the Manager – Credit Portfolio ................................................................... 17
2.1.12 Authority and Responsibilities of the Manager – District Business (Conventional outlying) .......................... 17
2.1.13 Authority and Responsibilities of Branch Manager .......................................................................................... 18
2.1.14 Authority and Responsibility of Sharia’h Advisory Committee (SAC) ............................................................ 18
2.1.15 Accountability and Responsibility of All Financing Performers ...................................................................... 19
2.2 Complaint Handling .......................................................................................................................................... 19
2.3 General Eligibility Criteria ............................................................................................................................... 19
2.4 Sharia’h Screening Criteria ............................................................................................................................... 21
PART TWO ............................................................................................................................................... 22
IFB MODES OF FINANCING: SHARIAH PARAMETERS, PROCESSING STEPS AND
DOCUMENTATIONS ............................................................................................................................. 22
CHAPTER THREE .................................................................................................................................. 23
SHARIA’H PARAMETERS, PROCESSING STEPS AND DOCUMENTATIONS ......................... 23
3.1. Murabaha .......................................................................................................................................................... 23
3.1.1. Sharia’h Parameters/Conditions of Murabaha .................................................................................................. 23
3.1.1.1. Sharia’h Parameters/Conditions on Murabaha Asset .................................................................................... 23
3.1.1.2. Sharia’h Parameters/Conditions on Price of Murabaha ................................................................................. 25

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3.1.1.3. Post-approval processing and documentations .............................................................................................. 27

3.2. Bai’ Salam ........................................................................................................................................................ 29
3.2.1. Sharia’h Parameters of Bai’ Salam Financing .................................................................................................. 29
3.2.2. Post approval Processing and documentations ................................................................................................. 30
3.3. Istisna’............................................................................................................................................................... 32
3.3.1. Sharia’h Parameters and Conditions of Istisna’ Financing ............................................................................... 32
3.3.2. Post Approval Processing and Documentations................................................................................................ 34
3.4. Ijarah ................................................................................................................................................................. 36
3.4.1. Sharia’h Parameters and Conditions of Ijarah Financing .................................................................................. 36
3.4.2. Post Approval Processing and Documentations................................................................................................ 37
PART THREE........................................................................................................................................... 39
INTERST FREE BANKING FINANCING PRODUCTS AND FINACING PROCESSSING ........ 39
CHAPTER FOUR..................................................................................................................................... 40
IFB FINANCING PRODUCTS ............................................................................................................... 40
4.1. Murabaha Revolving Term Financing Facility-i............................................................................................... 40
4.1.1. Specific Eligibility ............................................................................................................................................ 41
4.2. Murabaha Merchandise Financing Facility-i .................................................................................................... 41
4.2.1. Specific Eligibility ............................................................................................................................................ 43
4.3. Murabaha Merchandise Financings against Goods in Transit-i ........................................................................ 44
4.3.1. Specific Eligibility ............................................................................................................................................ 44
4.4. Import Letter of Credit Facility-i ...................................................................................................................... 44
4.4.1. Specific Eligibility ............................................................................................................................................ 45
4.5. Pre-shipment Export Financing Facility-i ......................................................................................................... 46
4.5.1. Murabaha Pre-shipment Export Financing Facility for Trading Export Business-i .......................................... 46
4.5.1.1. Specific Eligibility Criteria ........................................................................................................................... 46
4.6. Murabaha Pre-shipment Export Financing Facility for Manufacturer-Exporters-i ........................................... 48
4.6.1. Definition .......................................................................................................................................................... 48
4.6.1.1. Specific Eligibility Criteria ........................................................................................................................... 48
4.7. Murabaha Livestock Export Financing-i .......................................................................................................... 50
4.7.1. Definition .......................................................................................................................................................... 50
4.7.1.1. Specific Eligibility......................................................................................................................................... 50
4.7.1.2. Conditions ..................................................................................................................................................... 52
4.8. Operation of Pre-shipment Financing Facility-i ............................................................................................... 52
4.9. Evaluation of Export Performance of Customers ............................................................................................. 53
4.10. Pre-shipment Financing Facility-i Limit Determination ................................................................................... 54
4.11. Management of Fund Transfer from ECX Pay-in account to Customer’s Pay-out account ............................. 54
4.12. Letter of Guarantee Facility-i............................................................................................................................ 55
4.12.1. Issuance of Letter of Guarantee-i .................................................................................................................. 56
4.12.2. Types of Letters of Guarantee-i..................................................................................................................... 57
4.13. Term Financing-i .............................................................................................................................................. 60
4.13.1. General .......................................................................................................................................................... 60
4.13.2. Types of Term Financing By Purpose ........................................................................................................... 62
i. Motor Vehicle Financing-i ................................................................................................................................ 62
ii. Machinery and Equipment Purchase Financing-i ............................................................................................. 63
iii. Investment Financing for Enterprises Operating in Industrial Parks-i .............................................................. 65
iv. Partial financing-i ............................................................................................................................................. 67
v. Agricultural Term Financing-i .......................................................................................................................... 70

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vi. Import Letter of Credit Settlement Financing-i ................................................................................................ 73

vii. Murabaha Import Term Finance-i ..................................................................................................................... 73
viii. Building and Business Establishments Purchase Term Financing .................................................................... 74
ix. Smallholder Farmers Agricultural Machinery Financing ................................................................................. 76
x. Overseas Employment Agencies Financing ...................................................................................................... 78
xi. Qard-al-Hassen Term Finance .......................................................................................................................... 84
xii. Financing/Loan Buyout-i .................................................................................................................................. 84
xiii. Conversion/transfer of Conventional Loans and Advances to IFB Financings ................................................ 86
4.14. New Product Development and Approval ........................................................................................................ 86
4.15. Financing Customer Classification ................................................................................................................... 87
4.15.1. Purpose of Classification ............................................................................................................................... 87
4.15.2. Scope of Application ..................................................................................................................................... 87
4.15.3. Authority and Responsibilities ...................................................................................................................... 87
4.15.4. Period of Classification ................................................................................................................................. 88
4.15.5. Classification Criteria .................................................................................................................................... 88
CHAPTER FIVE ...................................................................................................................................... 89
FINANCING PROCESSING .................................................................................................................. 89
5.1. Financing Origination ....................................................................................................................................... 89
5.2. Interview ........................................................................................................................................................... 90
5.3. Required Financing Processing Documents...................................................................................................... 91
5.4. Credit Information Inquiry ................................................................................................................................ 92
5.5. Business Visit ................................................................................................................................................... 93
5.6. Financing Approval Form (FAF) ...................................................................................................................... 93
5.7. Financing Risk Appraisal/analysis .................................................................................................................... 94
5.8. Consultancy Service on Financing Processing.................................................................................................. 96
5.9. Financing Negotiation/Discussion .................................................................................................................... 97
CHAPTER SIX ......................................................................................................................................... 98
PRICING AND REBATE PROCEDURES ............................................................................................ 98
6.1. IFB Products Profit Rates, Fees and Charges ................................................................................................... 98
6.2. Rebate procedures ............................................................................................................................................. 99
CHAPTER SEVEN ................................................................................................................................. 100
FINANCING RISK RATING/GRADING ........................................................................................... 100
7.1. Purpose of the Rating/Grading ........................................................................................................................ 100
7.2. Scope of Application....................................................................................................................................... 100
7.3. Authorities and Responsibilities ..................................................................................................................... 100
7.4. Linked Lending Grading ................................................................................................................................. 101
7.5. Period of Rating/Grading ................................................................................................................................ 101
7.6. Rating/Grading Parameters ............................................................................................................................. 101
CHAPTER EIGHT ................................................................................................................................. 102
COLLATERAL....................................................................................................................................... 102
8.1. General ............................................................................................................................................................ 102
8.2. Types and Valuation of Collateral .................................................................................................................. 105
8.2.1. Premises, Buildings and Houses ..................................................................................................................... 105
8.2.2. Motor Vehicles ............................................................................................................................................... 105
8.2.3. Merchandise .................................................................................................................................................... 106
8.2.4. Business Mortgage .......................................................................................................................................... 107

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8.2.5. Construction /Factory Machinery ................................................................................................................... 108

8.2.6. Agricultural Machinery ................................................................................................................................... 108
8.2.7. Land Lease Right and/or Coffee Plantation .................................................................................................... 109
8.2.8. Local Guarantee .............................................................................................................................................. 109
8.2.9. Foreign Bank Guarantee ................................................................................................................................. 110
8.2.10. Deposits in BoA’s Branches ........................................................................................................................ 111
8.2.11. Negotiable Instruments................................................................................................................................ 111
8.2.12. Other Forms of Collateral............................................................................................................................ 111
a. Export Credit Guarantee ................................................................................................................................. 111
b. Personal Guarantee ......................................................................................................................................... 112
c. Corporate Guarantee ....................................................................................................................................... 112
d. Valid Import/Export Documents ..................................................................................................................... 112
e. Letter of Comfort ............................................................................................................................................ 112
8.3. Revaluation of Collateral ................................................................................................................................ 112
8.4. Replacement or Release of Collateral ............................................................................................................. 113
8.5. Legal Defects .................................................................................................................................................. 113
CHAPTER NINE .................................................................................................................................... 114
IFB-FINANCING APPROVAL SYSTEM ........................................................................................... 114
9.1 General Guidelines ......................................................................................................................................... 114
9.2 IFB Financing Decision-Making Organs ........................................................................................................ 115
9.2.1 Composition .................................................................................................................................................... 115
9.2.2 Discretionary Financing Limit ........................................................................................................................ 116

9.3 Quorum ........................................................................................................................................................... 118

9.4 The Credit Financing Decision-Making Process ............................................................................................ 118
CHAPTER TEN ...................................................................................................................................... 120
FINANCING DECISIONS AND CUSTOMER’S FILE MANAGEMENT ...................................... 120
10.1. Communicating the Financing Decision ......................................................................................................... 120
10.2. Reconsideration .............................................................................................................................................. 120
10.3. Appeal ............................................................................................................................................................. 120
10.4. Contract Preparation ....................................................................................................................................... 121
10.5. Contract Formation ......................................................................................................................................... 122
10.6. Contract for Renewable Facilities ................................................................................................................... 123
10.7. Contract Registration ...................................................................................................................................... 124
10.8. Insurance/Takaful ........................................................................................................................................... 125
10.9. Financing Disbursement ................................................................................................................................. 127
10.10. Disbursement Process ..................................................................................................................................... 130
10.11. Financing and Security File Management....................................................................................................... 130
10.11.1. Documentation ............................................................................................................................................ 130
10.11.2. Financing File-Pruning ................................................................................................................................ 132
10.11.3. Financing Files Dispatch Procedure ............................................................................................................ 133
CHAPTER ELEVEN.............................................................................................................................. 135
REGULAR FINANCING FOLLOW-UP AND COLLECTION ....................................................... 135
11.1. The Need for Regular Financing Follow-Up .................................................................................................. 135
11.2. Early Warning Signals in Regular Financing Follow-up ................................................................................ 135
11.3. Regular Financing Follow-Up ........................................................................................................................ 136

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11.4. Types of Regular Financing Follow-Up ......................................................................................................... 137

11.4.1. Physical Follow-Up ..................................................................................................................................... 137
11.4.2. Financial Follow-Up ................................................................................................................................... 137
11.4.3. Legal Follow-Up ......................................................................................................................................... 138
11.4.4. System Follow-Up....................................................................................................................................... 138
11.5. Follow-Up of Project Financing ..................................................................................................................... 138
PART THREE......................................................................................................................................... 139
CHAPTER TWELEVE .......................................................................................................................... 140
PROBLEM FINANCE MANAGEMENT ............................................................................................ 140
12.1. Definition ........................................................................................................................................................ 140
12.1.1. Conditions for treating IFB Financings as Workout cases .......................................................................... 140
12.2. The Workout Finance Management Process................................................................................................... 140
12.2.1. The Workout Process .................................................................................................................................. 140
12.2.2. Financing Recovery Negotiation Points ...................................................................................................... 143
12.2.3. Partial Settlement of a Financing through Voluntary Liquidation of Collaterals ........................................ 144
12.3. Re-Transfer/Re-classification of Regularized Financings .............................................................................. 144
12.4. Application of Penalty Rate on NPFs ............................................................................................................. 145
12.5. Conditions that Instigate Execution of Legal Decisions ................................................................................. 145
12.6. Restructuring of NPFs under ALD (After Foreclosure/Litigation Decision) .................................................. 145
12.7. Workout Cases Decision-Making Organs....................................................................................................... 147
12.7.1. Composition ................................................................................................................................................ 147
12.7.2. Workout Financings Approving Team Discretionary Financing Limit ....................................................... 148
CHAPTER THIRTEEN ......................................................................................................................... 149
WORKOUT CASES FOLLOW UP...................................................................................................... 149
13.1. General Provisions .......................................................................................................................................... 149
13.2. Types of Workout Cases Follow-Up .............................................................................................................. 150
13.2.1. Physical Follow-Up ..................................................................................................................................... 150
13.2.2. Financial Follow-Up ................................................................................................................................... 150
13.2.3. Legal Follow-Up ......................................................................................................................................... 151
13.2.4. System Follow-Up....................................................................................................................................... 151
CHAPTER FOURTEEN ........................................................................................................................ 152
WRITE OFF PROCESS ........................................................................................................................ 152
14.1. Initiation of Write-off ..................................................................................................................................... 152
14.2. Evidentiary Requirements for Write-Off ........................................................................................................ 152
14.2.1. Absence of Property .................................................................................................................................... 152
14.2.2. Insolvency ................................................................................................................................................... 153
14.2.3. Bankruptcy .................................................................................................................................................. 153
14.2.4. Higher Cost of Recovery than the Realizable Value of the Property .......................................................... 153
14.2.5. Defects in Documentation ........................................................................................................................... 154
14.2.6. Court Judgment against the Bank ................................................................................................................ 154
14.2.7. Elapse of Statutory Period ........................................................................................................................... 154
14.3. Processing of Write-off Cases......................................................................................................................... 154
14.4. Maintaining Register Book ............................................................................................................................. 155
CHAPTER FIFTEEN ............................................................................................................................. 156
LONG OUTSTANDING NPFs and POST-WRITE OFF FINANCING RECOVERY PROCESS 156
15.1. Follow up and Recovery of written off IFB Financings ................................................................................. 156

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15.1.1. Follow-up of written off Financings............................................................................................................ 156

15.1.2. Written-off Financings Recovery through Litigation .................................................................................. 158
15.2. Reinstatement of Written-off Cases and Recovery of Long Outstanding NPFs ............................................. 158
15.2.1. Process......................................................................................................................................................... 158
15.2.2. Eligibility Criteria ....................................................................................................................................... 159
15.2.3. Profit& Penalty on NPF Renouncement Conditions ................................................................................... 160
15.2.4. Approval Authorities ................................................................................................................................... 162
15.3. Sellout Long Outstanding NPFs and/or Written off Cases to Financial Institutions ....................................... 162
15.3.1. Eligibility Criteria ....................................................................................................................................... 162
15.3.2. Discount ...................................................................................................................................................... 162
15.3.3. Approval ...................................................................................................................................................... 163
15.4. Renouncement of Personal Guarantee ............................................................................................................ 163
15.5. New Financing Request .................................................................................................................................. 163
15.6. Entries on Reinstatement of Written off Financings ....................................................................................... 164
15.7. Reporting ........................................................................................................................................................ 164
15.8. Confidentiality ................................................................................................................................................ 164
15.9. Appeal ............................................................................................................................................................. 164
PART FOUR ........................................................................................................................................... 165
FINANCING DECISION ON EXCEPTIONS ..................................................................................... 165
CHAPTER SIXTEEN ............................................................................................................................ 167
FINANCING DECISION ON EXCEPTIONS ..................................................................................... 167
16.1. Approval and Level of Exceptions .................................................................................................................. 167
16.2. Revision of the IFB Financing Business Procedure ........................................................................................ 167
16.3. Repeal ............................................................................................................................................................. 167
16.4. Effective Date ................................................................................................................................................. 168

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LIST OF ACRONYMS:
1. BoA shall mean Bank of Abyssinia;
2. CEO shall mean Chief Executive Officer;
3. CRM shall mean Customer Relationship Manager;
4. CSR shall mean Corporate Social Responsibility;
5. IFB shall mean Interest Free Banking;
6. DFL shall mean Discretionary Financing Limit;
7. DP shall mean Deferred Profit;
8. IFB-CRM shall mean Interest Free Banking -Customer Relationship Manager;
9. LC shall mean Letter of Credit;
10. LG shall mean Letter of Guarantee;
11. MMFA shall mean Master Murabaha Financing Agreement;
12. MPO shall mean Murabaha to Purchase Orderer;
13. NBE shall mean National Bank of Ethiopia;
14. NPF shall mean Non-Performing Finance;
15. MoLSAshall mean Ministry of Labor and Social Affairs:
16. PD shall mean Past Due accounts;
17. SAC shall mean Sharia’h Advisory Committee;
18. (-i) shall refer to Interest Free.

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PART ONE

BACKGROUND, AUTHORITY, RESPONSIBILITY AND ELIGIBILITY

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CHAPTER ONE
1.1. Background

Whereas, in providing banking services to realize the vision of the BoA, which is “To be a
leading commercial Bank in East Africa by 2030” and achieving its mission and values, it is
of a paramount importance to excel in meeting the ever-increasing expectations of the
stakeholders of the BoA;

Whereas, financing is one of the core services that the BoA renders to its customers, it is
necessary to provide the framework for the entire financing business, implement the financing
policy of the BoA, and set objectives, standards and parameters to guide financing performers
in the overall financing processing activities;

Whereas, there is a need to address changes related to the newly implemented IFB core banking
solution and structure so as to ensure efficiency of the financing service provision by
rearranging management of some responsibilities and inclusion of new activities;

Whereas, in rendering financing to customers of BoA, there is a need to ensure alignment with
terms and conditions set under conventional credit procedure and interest free financing;

Whereas, it has been found necessary to introduce Sharia’h standards and parameters with the
view of ensuring compliance with the fundamentals of the business;

Whereas, it becomes necessary to provide customer-focused, efficient and effective interest

free financing services;

Whereas, it becomes very important to explicitly define the duties and responsibilities of the
parties involved in the financing process, so as to put in place accountability, enhance
monitoring and control over financing operations;

Now, therefore, the Executive Management Committee of BoA has issued this IFB Financing
Business Procedure to be applied throughout the Bank by all IFB financing performers.

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1.2. Short Title

This procedure shall be cited as “Interest Free Banking Financing Business Procedure” or in
short “IFB Financing Procedure”

1.3. Definition of Terms

1. Acceptance of Offer: shall refer to a document on which the Bank expressly accepts
customer’s Offer to Purchase a commodity;
2. Agency Agreement: shall refer to a standard document through which the Bank assigns
its customer to perform a specified tasks such as purchasing of asset on its behalf;
3. Bank: shall mean Bank of Abyssinia;
4. Conflict of Interest: shall mean a situation where a staff member or members of his/her
immediate family or a close friend personally gets benefit as a result of decision taken in
his/her official capacity;
5. Dedicated account: shall mean a Wadia’h account opened in the name of an employment
Agency to which disbursement of overseas employment agencies financing is credited and
it shall be blocked in favor of MoLSA for the purpose of securing a license;
6. Delivery: shall mean a standard document through which the physical transfer of the goods
by the supplier to the Bank or the Customer (as an agent of the Bank) or from the Bank to
Customer is recorded;
7. Discretionary Financing Limits (DFL): shall refer to IFB Financing approval authority
given to an individual or a team/committee established by the Bank;
8. Exceptions: shall refer to financing requests approved by variation from the terms or
conditions as stated in this procedure. However, the nature of the request or issues raised
therein is within the spirit of the IFB Financing Business Procedure;
9. Exposure Limit: shall refer to the aggregate of IFB financing or extension of financings
by the Bank to an individual or group of customers;
10. Finance Approval Form (FAF): shall mean the principal financing decision document
on which relevant information on IFB financing request, recommendations, and financing
decision of the IFB approving team are to be recorded;

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11. Financing Risk Rating/Grading: shall mean a system employed by the Bank to
differentiate the degree of financing risk of the customers/applicants;
12. Financing Workout/Recovery Management: shall mean the collection of impaired IFB
financings through negotiation with customers and/or legal means;
13. Goods Delivery Receipt: shall refer to the standard format through which the customer
receive a good from the supplier/manufacturer in accordance with the agreed terms and
condition of the respective Murabaha or Bia’ Salam Agreements;
14. Goods Receiving Note: shall refer to the standard format through which the Bank receive
a good from the supplier/manufacturer in accordance with the agreed terms and condition
of the respective Murabaha or Bai’ Salam Agreements;
15. Grace period: shall refer to the time/period that a customer is relieved from paying
principal repayments and profit payments of finances upon approval by the concerned
committee;
16. Halal: see definition of Permissible Business Activities;
17. IFB Department: shall refer to a unit of the Bank which exclusively offers Interest Free
Banking services and in charge of overseeing the IFB business of the Bank;
18. IFB Approving Committee: shall refer to any committee authorized by the CEO of the
Bank to decide on IFB financing cases;
19. IFB Financing Risk: shall mean the potential loss to the Bank when its customer fails to
meet their contractual obligation with agreed terms and conditions;
20. IFB Financing Performers: shall refer to the staff of the Bank who is involved in the
process of financing activities, i.e., customer recruitment, negotiation, property valuation,
analysis/appraisal, recommendation, approval, follow-up, collection, workout and
recovery management;
21. IFB Financing Portfolio: shall refer to the total sum IFB Financing exposure as
aggregated on the basis of parameters such as sector, business type, geographical location
etc;
22. IFB Financing Pricing: shall mean profit rate, fees, commission and others charged by
the Bank for financings extended to customers;

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23. Import Letters of Credit (L/C) Facility is a credit instrument issued by the Bank at the
request of a customer for the import of goods and services. By issuing such an instrument,
the Bank commits itself to paying to a supplier/seller, etc. (the beneficiary residing abroad)
a certain amount of money upon presentation of specified documents representing the
supply of goods and services within specific time limits and the documents confirming to
the terms and conditions stipulated on the Letter of Credit;
24. Kafalah: shall mean contract of guarantee is a contract to perform the promise or discharge
the liability of a third person in case of his default;
25. Major shareholder/s (for the purpose of signing personal /corporate guarantee): shall
mean all shareholder(s) in case of PLC. However, in the absence of all shareholders, the
relevant IFB approving team shall select shareholders who can sign the guarantee; yet the
shareholdings of those guarantors shall at least constitute 50% of the total share of the
company. Moreover, in case of Share Company, it shall mean at least top ten major
shareholder(s) and/or those shareholder(s) who owned at least 50% of the total share value
of the Company.
Notwithstanding the above, the relationship of related parties for the treatment of NPFs,
determination of a single borrower limit, and for credit risk rating shall be dealt as per the
pertinent NBE directives. However, regardless of the shareholdings one has in other
companies, customers with such relationship shall be handled by a single IFB CRM;
26. Master Murabaha Financing Agreement (MMFA)/Promise to Purchase Agreement:
shall mean a document agreement entered into by the Bank and Customer setting
provisions on how the Bank sales and the customer purchase and get ownership of a given
asset. The customer undertakes the unilateral promise to purchase an asset within this
agreement;
27. Merchandise: refers to a specific product or group of products or goods produced or
acquired for the purpose of sale, re-sale or for own use;
28. Non Performing Finances/Loans: shall refer to bad debts/financings as defined in the
Directives of the National Bank of Ethiopia;

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29. Offer to Purchase: shall refer a standard format through which the customer presents
his/her/its willingness to purchase an asset from the Bank;
30. Operation account: shall means a Wadia’h deposit account opened in the name of an
Employment Agency for the purpose of receiving commission income/service charge in
relation to his/her/its overseas employment agency business;
31. Permissible Business Activities: shall refer to any business transactions that passes
Sharia’h Industry screening as discussed in the procedure;
32. Principles: shall refer to the Sharia’h/Islamic financial principles;
33. Promise to Purchase: shall refer to a standard format in which unilateral undertaking by
a customer to purchase goods from the bank is recorded;
34. Purchase Cost: shall refer to the direct and associated cost of an asset that the Bank
incurred under Murabaha form of finance;
35. Purchase Instruction/Order: shall refer to a standard format through which a customer
order the bank to purchase goods as per the provision of MMFA/Promise to Purchase
Agreement;
36. Purchased Item Declaration: shall refer a standard format through which the customer
declares that he/she/it has made purchase of the asset in line with the purchase instruction;
37. Purchase Item Specification: shall refer to a standard format through which an agent
provides detailed specification of the asset purchased;
38. Qard-al-hassen: shall refer to a benevolent loan or a loan with no profit attached to it;
39. Rebate: shall mean amount of profit that the Bank refund to customers subject to the
fulfillment of the respective terms and condition as stated in this Procedure or in the Profit
Rebate Guideline of the Bank;
40. Sales Contract/Agreement:shall mean any of the contracts of sale signed between the
Bank and its Customers in connection with the modes of financing, i.e., Murabaha, Bai’
Salam, Istisna’ etc;
41. Sales Price/Contract Price: The price of an asset that include costs of purchasing of an
asset plus the amount of profit as computed using the applicable profit rate;

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42. Second (Parallel) Bai’ Salam: shall refer to a separate and independent Agreement in
which the Bank agrees to sell to a third party goods to be produced and delivered at a later
date, and for which full payment of the contract price is made to the producer under a
separate Bai’ Salam Agreement;
43. Schedule of Payment: shall refer to the document through which the Bank provides details
about the price, profit, installment frequency, installment amount and due dates or maturity
of sales/financing;
44. Sharia’h:shall refer to Islamic Law;
45. Sharia’h Advisory Committee: shall refer to an independent committee appointed by the
Bank to ensure all products and services, related policies and agreements of IFB financings
are in compliance with Sharia’h rules and principles;
46. Sunnah:is the body of literature which discusses and prescribes the traditional customs
and practices of the Islamic community, both social and legal, often but not necessarily
based on the verbally transmitted record of the teachings, deeds and sayings, silent
permissions (or disapprovals) of the prophet Muhammad, as well as various reports about
Muhammad's (PBUH) companions;
47. Total financing: shall mean any financial assets of a bank arising from a direct or indirect
financings (Murabaha) or commitments to advance funds by the Bank to a person that are
conditioned on the obligation of the person to repay the funds, either on a specified date or
dates or on demand usually with mark-up;
48. Un-Planned Bill: applied in Istisna financing, it refers to the basis on which bills are
settled, i.e., bills shall be settled according to the progress of the project;
49. Wakalah: shall mean is a contract of agency where a person (the principal) appoints
another person (the agent) to do a certain well-defined tasks on behalf of him for a specified
fee or commission; and
50. Waqf: shall mean an endowment of property to be held in trust and used for a charitable
or religious purpose.

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1.4. Objectives
The objective of this Financing Procedure is to:
1. Ensure standardization and uniformity of the financing process;
2. Ensure compliance with the relevant Sharia’h principles;
3. Make the Bank’s financing operation transparent;
4. Explicitly fix duties and responsibilities of all organs involved in Financing operations;
5. Enhance monitoring and control activities on the overall Financing operations of the Bank;
6. Help realize the Bank’s mission, vision, strategies; and
7. Implement the Financing Policy and governance framework.

1.5. Governing Rules

1. Laws, regulations and conventions of the country applicable to IFB business;
2. Directives of the Supervising Authorities applicable to the IFB business;
3. The Bank’s IFB Policy; and
4. The rulings of the SAC.

1.6. Scope
This Financing Procedure applies to financing process that start with recruiting potential
customers to establish financing relationship and ends up with full collection and/or write-off
financing and advances.

1.7. Availability of the Procedure

This Procedure could be accessed/ obtained on the BoA’s portal or at the IFB Financing
Department of BoA or following written request of the concerned party.

1.8. Procedure Owner

Ownership of this Procedure is vested in the IFB Sector of the BoA that will be responsible for
liaising with responsible parties, documenting, updating, communicating, interpreting and
maintaining this procedure.

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1.9. IFB Financing Business Structure

a. IFB Financing Business Structure – Head Office

BOD

SAC
CEO

Vice President - IFB

Director - IFB Director - IFB

Director - IFB
Business Service Financing Business
Appraisal Department
Department Department

Shariah Compliance
officer

Senior CRM IFB

CRM IFB
IFB Sales & District Senior Analyst IFB
IFB Products Division Collateral Valuator (Maker)
Support Division IFB Financing Analyst
Legal Advisor
Collateral valuator (Checker)
Financing Admin.
Bank Trainee

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b. IFB Financing Business Structure- Outlying District

District Manager

Manager - District Business IFB Manager - District Operation

CRSM IFB
CRO IFB Financing Analyst
Collateral Valuator (Maker) Senior Analyst
Legal Advisor Collateral valuator (Checker)
Financing Admin.

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1.10. Team Based Approach to IFB Financing Processing

All financing activities shall be performed on team basis to realize the desired outcomes in an efficient and
effective way. Therefore, all Interest Free financing performers are expected to work as a team and
the Vice President IFB is entrusted in fostering such a team spirit.

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CHAPTER TWO
AUTHORITY, RESPONSIBILITY AND GENERAL ELIGIBILITY

2.1. Major Authority and Responsibilities

The key responsibility areas of each position are drawn from the redesigned financing process
and structural setup.

2.1.1 Authority and Responsibilities of the Chief Executive Officer (CEO)

1. Decides on financing requests/applications and non-performing financing resolution
strategies. However, he/she can delegate IFB financing decision and non-performing
financing-resolution authority to other teams or individual;
2. Sets, reviews, revises, suspends and cancels DFL for all IFB Financing sanctioning and
non-performing IFB financing resolution levels;
3. Approves IFB Financing Business procedure/guidelines in line with the Bank’s IFB
Policy and Governance Framework;
4. Oversees the proper application of credit/financing related laws, directives and regulation
issued by pertinent authorities;
5. Oversees the overall IFB financing management and financing quality of IFB;
6. Ensures proper implementation of IFB policy and takes appropriate action;
7. Initiates changes in IFB Policy and Governance Framework, when deemed necessary;
8. Oversees that IFB maintains a balanced IFB financing portfolio concentration as per its
risk appetite;
9. Approves the IFB Financing pricing of the Bank;
10. Chairs the Executive IF Financing Committee; and
11. As a member of financing approving team decides on financing propositions including
appeals and exceptions of the Senior IF Financing Committee.

2.1.2 Authority and Responsibilities of the Chief Credit Officer (CCO)

1. Enhance coordination of the activities between conventional credit business and IFB
financing business teams; and

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2. As a member of IFB financing approving team decides on financing propositions including

appeals and exceptions of the Senior IF Financing Committee.

2.1.3 Authority and Responsibilities of the Vice President IFB

1. Guides and coordinates the overall activities of IFB financing business process;
2. Oversees that all financing requests get timely decisions;
3. Oversees that deteriorating financings and advances get timely resolutions;
4. Ensures the application of financing related laws, directives and regulations issued by the
pertinent authorities;
5. Ensures the overall financing management and financing quality;
6. Ensures sustainability of team based financing processing;
7. Ensures that the quality of IFB financings and advances is to the satisfaction of the
stakeholders and report to the CEO as deemed necessary
8. Ensures that the Bank maintains adequate level of financing provisioning;
9. Ensures that the Bank maintains a balanced financing portfolio concentration;
10. Proposes revision of the financing policy and procedures;
11. Proposes and revises the financing Pricing;
12. Provides clarification on the procedures of IFB;
13. Supports the District Credit Business Centers in all IFB related matters through training and
experience sharing;
14. Communicates decisions made by the CEO or Executive Management Team in relation with
IFB Financing Business Procedure amendments or other IFB financing related issues;
15. Chairs the Senior Interest Free Financing Committee; and
16. As a member of IFB financing approving team, decides on financing propositions.

2.1.4 Authority and Responsibilities of the Director - IFB Financing Business

1. Guides and coordinates the overall IFB Finance Business process;
2. Recruits potential customers and maintains strong relationship with existing customers and
establishes strong business relation with all customers of the Bank;
3. Ensures that customers recruitments is as per the Bank’s directions;

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4. Confirms the existence of single point contact of customers;

5. Ensures financing requests get timely decisions;
6. Ensures that customers are properly and timely classified;
7. Ensure timely collection of IFB financing;
8. Conducts strict financing follow-up on case by case basis, and ensures the quality of
financing and provides periodic follow-up reports to the relevant organ of the Bank;
9. Ensures that deteriorating IFB finances get timely solutions;
10. Ensures the legality of IFB financing customers;
11. Ensures that properties offered as collateral are properly and timely valued;
12. Ensures that financing documents are properly maintained and updated;
13. Guides and coordinates the overall Workout Management Process of the IFB financing
business;
14. Conducts negotiation with customers, proposes resolution mechanisms, and follows-up the
restructured IFB financings and customer‘s business;
15. FollowsthestatusoflegaldecisionswhicharebeingexecutedbytheBank’sLegalTeam;
16. Proposes full or partial write-off of hopeless IFB financings;
17. Conducts post write-off follow-up in collaboration with branches and other bank units;
18. Ensures that financing documents are properly maintained and updated;
19. Maintains register book/data for written-off IFB financings;
20. Ensures that the IFB financing process is as per the Bank’s IFB Financing Business Policy
and Procedure;
21. Provides clarifications on the financing approval decisions or workout resolutions and
related conditions to financing performers as deemed necessary; and
22. As a member of IFB financing approving team, decides on IFB financing propositions.

2.1.5 Authority and Responsibilities of the Director – IFB Appraisal

1. Guides and coordinates the overall IFB appraisal process;

2. Conducts an independent IFB analysis/appraisal on all requests of customers in Addis
Ababa area and appeals of outlying area customers and on those requests beyond the

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discretions of Districts;

3. Confirms the IFB appraisal process’s adherence to the IFB financing business policy and
procedures of the Bank;
4. Ensure that proper IFB analysis/appraisal is conducted by collecting all required processing
documents and information from IFB Financing Business Team, information/data/research
output from the database of the Bank (if available) and from the market as deemed
applicable;
5. Ensures timely accomplishment of customers’ financing risk rating/grading;
6. Ensures that estimation of properties offered as collaterals are properly and timely checked;
7. Chairs the Head Office IF Financing Committee; and
8. As a member of IFB financing approving team, decides on IFB financing propositions.

2.1.6 Authority and Responsibilities of the District Manager (Outlying)

1. Guides and coordinates the overall IFB financing business process of the District;
2. Oversees that all financing requests get timely decisions;
3. Ensures that deteriorating IFB finances get timely solutions;
4. Ensures the application of financing related laws, directives and regulations issued by the
pertinent authorities;
5. Ensures the overall financing management and financing quality of the District;
6. Ensures sustainability of team based financing processing;
7. Provide inputs or information to the IFB business, if any, that may result in revision of the
financing policy and procedures;
8. Ensures that the District maintains a balanced IFB financing portfolio concentration;
9. Ensures that the IFB financing recovery and IFB workout financing management activities
of the District are handled properly; and
10. Chairs the District’s business, consumer financing and workout approving team.

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2.1.7 Authority and Responsibilities of the Manager - District Business IFB

(Outlying)

1. Recruits potential customers, maintains existing customers and establishes strong business
relationship;
2. Ensures that financing requests get timely decision;
3. Get timely and proper decisions for deteriorating finances;
4. Ensures the legality of borrowers including conducting Sharia screening;

5. Ensures that properties offered as collateral are properly and timely valued;

6. Ensures that financing documents are properly maintained and updated;

7. Conducts strict financing follow-up on case by case basis, and ensures the quality of
financing and provides periodic follow-up reports to the relevant organ of the Bank;

8. Guides and coordinates the overall Workout Management Process of the IFB financing
business district;
9. Conducts negotiation with customers, proposes resolution mechanisms, and follows-up the
restructured IFB financings and customer‘s business;
10. Follows the status of cases which have been transferred to the District’s Legal Team;

11. Proposes full or partial write-off of hopeless IFB financings;

12. Conducts post write-off follow-up in collaboration with branches;

13. Ensures that financing documents are properly maintained and updated;

14. Maintains register book/data for written-off IFB financings;

15. Decides on IFB consumer financing proposals; and
16. As a member of IFB financing approving team, decides on IFB financing propositions (for
business, consumer, and workout financings).

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2.1.8 Authority and Responsibilities of the Manager - District Operation (Outlying)

1. Conducts an independent IFB analysis/appraisal on all requests of customers within the

discretions of District;
2. Confirms the District’s appraisal process’s adherence to the IFB Financing Business policy
and procedures of the Bank;
3. Ensure that proper IFB analysis/appraisal is conducted by collecting all required processing
documents and information from District IFB Financing Business Team,
information/data/research output from the database of the Bank (if available) and from the
market as deemed applicable;
4. Ensures timely accomplishment of customers’ financing risk rating/grading;
5. Ensures that estimation of properties offered as collaterals are properly and timely checked;
and
6. As a member of IFB financing approving team, decides on IFB financing propositions (for
business, consumer, and workout financings).

2.1.9 Authority and Responsibilities of the IFB Financing Approving Committee

1. Reviews and decides on all IFB financing/workout propositions based on its discretionary
financing limit;
2. Ensures that all IFB financings/workout propositions are made in line with the IFB
Financing Business Policy and procedures and other relevant directives; and
3. Ensures that all IFB financings/workout propositions get timely decisions.

2.1.10 Authority and Responsibilities of the Director -IFB Business Service

1. Periodically reviews IFB financing portfolio of the Bank in collaboration with conventional
credit portfolio manager;
2. Compiles and reviews periodic follow-up reports of CRM Team and Financing Appraisal
Team to ensure effective follow-up of the IFB financings is in place as per the Bank’s
requirement;
3. Proposes development/revision of IFB Financing policy based on feedbacks from all

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concerned organs and own observations;

4. Periodically calculates provisioning for the IFB financings and prepare reports therein;
5. Maintains relevant data/research outputs/appraisal reports in its database to be used as an
input for financing analysis/appraisal, and other financing process activities;
6. Identify capacity and competency constraints of staff and propose adequate development
measures;
7. Conducts follow-up on timely rectification of audit findings/discrepancies related with the
financing process; and
8. As a member of IFB financing approving team, decides on IFB financing propositions.

2.1.11 Authority and Responsibilities of the Manager – Credit Portfolio

1. Enhances the coordination of the portfolio management activities between conventional

credit business and IFB financing business teams by periodically reviewing IFB financing
portfolio of the Bank in collaboration with Director – IFB Business Service;
2. In collaboration with Director – IFB Business Service, compiles and reviews periodic
follow-up reports of IFB Financing Business Team to ensure effective follow-up of the IFB
financings is in place as per the Bank’s requirement; and
3. Periodically calculates provisioning for the IFB financings and prepare reports in
collaboration with Director – IFB Business Service.

2.1.12 Authority and Responsibilities of the Manager – District Business

(Conventional outlying)

1. Enhances the coordination of the financing management activities between conventional

credit business and IFB financing business teams; and
2. Assists Manager – District Business IFB carryout his duties and responsibilities by
providing the necessary resources, logistics and personnel under his domain.

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2.1.13 Authority and Responsibilities of Branch Manager

1. Recruit potential customers and maintains strong relationship with existing customers of
the Bank;
2. Facilitate properties offered as collaterals are properly and timely valued;
3. Facilitate the registration of collaterals offered by customers;
4. Assist timely collection of IFB financing; and
5. Conduct business visit, write a due diligence report and send the same to the appropriate
IFB team, as the case may be.

2.1.14 Authority and Responsibility of Sharia’h Advisory Committee (SAC)

1. Advise the Management of the Bank on Sharia’h matters and verify the Bank's commitment
to the decisions and legal opinions (Fatwas) of the SAC and ensure their proper
implementation;
2. Provide advice and guidance to the Bank with respect to inquiries submitted to the SAC
regarding matters of Sharia’h legitimacy;
3. Verify the terms and conditions contained in IFB financing policies, procedures, contracts
, agreements, forms and the like of the of the IFB services against the precepts of Sharia’h
and issue compliance certificates;
4. Receive comments and problematic issues related to aspects of legitimacy from Sharia’h
standpoint within and outside the Bank, and respond to them as it deems appropriate;
5. Arrange and conduct training programs on Sharia’h issues as applied to the operation of the
IFB services for IFB team members and other organs of the Bank;
6. Review the financing activities of the IFB services on regular basis with the objectives of
verifying compliance with the injection of the Sharia’h and other relevant directives;
7. Prepare and submit regular report on Sharia’h compliance of the operation of the IFB
business to the Bank; and
8. Support and/or consult the Bank’s legal attorney, auditor, management or staff member of
the IFB on matters pertaining to IFB financing operations.

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2.1.15 Accountability and Responsibility of All Financing Performers

Each official or IFB financing performers engaged in financing processing is responsible for
being familiar with and practicing directives of the supervising authority and the IFB policy
and procedure of the Bank.

2.2 Complaint Handling

Where there are any complaints from customers, it shall be handled in the following manner:
1. IFB Customer Relationship Manager, Customer Relationship and Sales Manager, the
Branch Manager, as the case may be, shall be the first responsible person to solve
customers’ complaints;
2. If the case is not resolved and/or the customer is not satisfied, it shall be referred to the
respective managers of Director - IFB Financing Business or Manager – District Business
IFB (at Districts); and
3. Finally, unresolved customers’ complaints shall be presented to the Vice President IFB or
District Manager (at Districts).

2.3 General Eligibility Criteria

All customers applying for any type of Financing/facility shall fulfill the following general
eligibility criteria:
1. All persons engaged in lawful and credit worthy business/investment activities, are
eligible to borrow/get business financings;
2. The business financing applicant shall present renewed trade license for the current/latest
fiscal year, commercial registration certificate /for Private limited Companies/ or
investment license and principal registration certificate for new projects;
3. All applicants who are engaged in business shall present a tax identification number /TIN/
or tax exemption certificate for all of their income;
4. Applicants/mortgagers /guarantors who are engaged in business shall submit latest tax
clearance certificates;

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5. The Management Information System Team is responsible to collect, compile, and

provide the information when requested. To this effect, the IFB CRM, shall be responsible
to request the information from the Management Information Service Team;
6. The applicant shall fulfill at least the required minimum equity contribution as stipulated
in this IFB Financing Procedure or in the IFB financing Policy of the Bank;
7. Financing applicants must not have any non-performing finances/loans in any bank;
8. The applicant and/or his/her/its guarantor(s) shall give a written and signed consent for
the access of his/her/its credit information maintained with the Credit Reference System
and sharing of same among all other banks;
9. The applicant’s business shall be financially viable and legally acceptable;
10. The applicant’s credit risk rating shall be grade 1 or 2 or 3 or 4. However, in exceptional
cases, new or additional credit may be considered for other grades. Exceptional in this
context shall mean financings to be approved within the discretion of a designated
committee without the need to forward to the next higher financing committee for
approval;
11. In addition to these criteria, the customer has to fulfill the specific eligibility criteria for
each financing and advance indicated in each financing product line;
12. Any applicant of an interest free financing facility shall open interest free deposit account
(current, savings, etc) at any branch of the Bank.

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2.4 Sharia’h Screening Criteria

All customers applying for any type of IFB financing shall fulfill the following industry and
financial Sharia’h screening criteria:

1. Sharia’h Industry screening: refers to the types of industries in which Sharia’h doesn’t
allow individuals to deal with. Among others, the followings are the list of prohibited
business activities:
a. Applicants engaged in manufacturing and/or distribution of alcoholic products;
b. Applicants engaged in manufacturing and/or distribution of arms and weapons;
c. Applicants engaged in producing, packaging, processing or any other activity
related to pork or pork products and other non-Halal meat like dead animals meat,
d. Financial institutions dealing with interest; and
e. Any other activities not permissible under Sharia’h as determined by the SAC of
the Bank.

2. Sharia’h Financial screening: it is a process of evaluating financial statements of the

existing business/customer so as to ensure Sharia’h compatibility. In this respect, the ratio
between interest income to the company’s total income shall not exceed 5% of the
customer’s total income;
3. Financing requests which would not comply to the requirements stated under item no. 2
above shall be processed exceptionally upon the approval of the SAC of the Bank.

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PART TWO
IFB MODES OF FINANCING: SHARIAH PARAMETERS, PROCESSING STEPS
AND DOCUMENTATIONS

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CHAPTER THREE

SHARIA’H PARAMETERS, PROCESSING STEPS AND DOCUMENTATIONS

3.1.Murabaha

Murabaha shall refer to the type of mode of financing through which the Bank sales a
specified asset at a mutually agreed profit rate added on the purchase cost to be repaid
according to a defined repayment schedule in lump sum or in equal installments. The price of
goods and Bank’s profit on Murabaha transaction should be fixed and known to both parties
at the time of contract.

3.1.1. Sharia’h Parameters/Conditions of Murabaha

3.1.1.1. Sharia’h Parameters/Conditions on Murabaha Asset

1. Assets such as traded goods, production materials, property, equipment and fixtures, and,
other intangible and non-monetary assets, are eligible assets for sale provided these are not
specifically prohibited in the Quran and “Sunnah” such as usurious items, liquor and flesh
of swine;
2. Physical possession or constructive possession by the seller of an asset is required for the
asset to qualify for a Murabaha contract. Constructive possession shall be proven via
existence of physical evidence of effective transfer or receipts such as warehouse receipt,
etc;
3. Assets to be sold should exist at the time of the sale;
4. Assets to be sold should not be a thing used for impermissible purpose;
5. The delivery of the sold asset to the buyer must be certain;
6. Assets to be purchased for Murabaha sale shall be assets which are valid and can be
considered for an enforceable sale. For example, a purchase of a “Waqf” property is not
acceptable in a Murabaha sale as “Waqf” properties are restricted from being sold;
7. Transfer of ownership from the Bank to the purchase orderer/customer shall take place upon
execution of the Murabaha contract and this could be manifested by way of abandoning the

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right of ownership (Takhliyah) by the bank or enabling the purchase orderer/customer to

make full use of the asset, assuming full liability (Tamkin);
8. The Murabaha sale shall exclude any sale of currencies and debt for a deferred payment;
9. Shares may be made as asset of a Murabaha transaction;
10. Intellectual properties such as trademarks, brands and copyright, also qualify as asset of
Murabaha transaction;
11. Usufructs such as air tickets qualify as assets to be purchased and sold on Murabaha basis;
12. Services rendered as part of the subject matter of Murabaha may qualify as assets;
13. Murabaha sale shall not take effect between the same contracting parties on the same asset;
14. The revolving facility using Murabaha contract may involve separate contracts on different
assets between the same contracting parties;
15. Any asset purchased by the bank for Murabaha financing to the customer shall be specified
and differentiated from similar or other goods in the same shipment. This is to ensure
effective delivery of specified goods;
16. MPO sale by the Bank to the customer shall not be valid if bank purchases an asset from
the customer and subsequently sells the same asset to the customer. The contract shall also
be invalid if asset purchased by customer from vendor is subsequently purchased by bank
and sold to the customer based on MPO;
17. In MPO, the vendor from whom the bank purchases the asset shall be a non-related party to
the customer;
18. The purchase orderer/customer may request the bank to purchase the assets intended for the
Murabaha financing from a specific market place or a supplier. However, the bank may
decline this request for whatever reason deemed reasonable by the bank;
19. The purchase orderer/customer would apply to the bank, an order to purchase an asset with
identified specifications. The purchase orderer/customer may provide the bank with
information pertaining to the asset specifications in terms of price, availability and market
location. However, the bank reserves the right to conduct its own assessment on the asset
ordered to be purchased;

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20. Assets purchased by the bank according to the purchase orderer/customer’s requirements
may be delivered to the purchase orderer/customer prior to the conclusion of the Murabaha
contract;
21. Loss or damage of goods in the possession of the purchase orderer/customer prior to the
conclusion of the Murabaha contract due to negligence of the purchase orderer/customer
shall be borne by the purchase orderer/customer;
22. Alternatively, the Bank may incorporate in the contract to exempt itself from any defect in
the asset. The Bank may, upon agreement by the purchase orderer/customer, assign the right
of recourse from the vendor for the defect, to the purchase orderer/customer;
23. The Bank shall reject a Murabaha application by the purchase orderer/customer who has
already established a contractual relationship with the supplier aimed at acquiring cash
rather than trading the goods under transaction;
24. If the Bank has appointed the purchase orderer/customer as an agent, the purchase of assets
by or for and on behalf of the Bank and the ultimate sale of such goods to the purchase
orderer/customer shall all be independent of each other and shall be separately documented;
and
25. A Murabaha contract shall not be rolled -over because the assets once sold by the Bank
become property of the purchase orderer/customer and, hence, cannot be resold to the same
or other banks for the purpose of obtaining further financing.

3.1.1.2. Sharia’h Parameters/Conditions on Price of Murabaha

1. The basis of Murabaha sale price shall be determined based on the acquisition cost with a
disclosed added mark-up amount or percentage to be determined upon concluding the
Murabaha contract;
2. The mark-up shall be determined based on a mutual agreement between the Bank and the
purchase orderer/customer;
3. The agreed mark-up that is determined shall not be subjected to price variation or affected
by currency fluctuation as payment due is pre-determined at agreed currency;

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4. In an agreement where several Murabaha contracts are separately concluded and executed,
each Murabaha contract mark-up may be priced differently;
5. If several commodities in several Murabaha contracts are sold to the same purchase
orderer/customer, the total purchase price plus the total mark-up may be stated in one clause
in the Master Murabaha Financing agreement, provided that the details of each asset’s
purchase price and markup must be appended to each sale contract;
6. At the time of concluding a Murabaha contract, both the Bank and the purchase
orderer/customer may mutually agree to vary the financing tenure and adjust the mark -up
that was initially promised in the “Wa’d”/unilateral promise undertaking;
7. The acquisition cost, which forms the cost portion of the Murabaha purchase price, may
include direct expenses which refer to costs incurred to enable the acquisition of goods by
the Bank and delivery of the goods to the customer. This include expenses such as for
transportation, storage, assembling, taxes, insurance or Takaful or any valid expenses
established by customary practice. Any indirect expenses shall not be included in the
acquisition cost;
8. Whenever a purchase order involves a transaction requiring the issuance of a Letter of
Credit (LC), the Bank may include the commission for issuing the LC as part of the total
cost;
9. Any additional direct expenses not specified in the agreement relating to a Murabaha
contract incurred post conclusion of the Murabaha contract shall be borne by the customer.
These additional charges, however, shall not be taken into consideration in determining the
Murabaha sale mark-up;
10. Any discount on cost of acquisition obtained upon purchase by bank shall be accorded to
the purchase orderer/customer with a proportionate reduction in mark-up amount at agreed
rate;
11. The Bank and the purchase orderer/customer may agree to make settlement in a currency
which is different from the currency specified in the contract at the prevailing exchange
rate on the day of payment;

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12. Rescheduling of debt in another currency is not permissible. However, full settlement of
outstanding debt in another currency is permissible and it shall be executed based on the
exchange rate of the settlement date;
13. Early payments by the purchase orderer/customer would not result rebate or discount of
total profit to be paid as per the contractual agreement unless the bank offers rebate by its
own discretion;
14. In case of default by the purchase orderer/customer, the Bank will adjust the security
deposit (if any) or collateral to extent of the purchase orderer/customer’s liability; and
15. Any evidence of indebtedness will not be assigned or transferred on the price different from
its face value.

3.1.1.3. Post-approval processing and documentations

1. As per Customer’s financing requirement the Bank assesses the creditworthiness of the
proposal and decides on the request. The customer signs security contract and
MMFA/Promise to Purchase Agreement with the Bank. The respective IFB-CRM and
mortgagor/customer shall sign on these Agreement;
2. The Bank registers collateral(s) at appropriate registering authorities, if any;
3. The customer deposits Hamish Jiddiyah/security deposit and/or Urbon/down payment, if
any;
4. The customer submit “Purchase Request” and “Purchase Item Specification”;
5. The customer signs “sales contract” with the Bank. The respective IFB-CRM and
mortgagor/customer shall sign on these Agreement;
6. Based on item no. 4 above, the Bank issues “Purchase Instruction” and the respective branch
manager/IFB CRM shall sign the “Purchase Instruction”;
7. If purchase is to be made through agency, the respective IFB CRM and Legal
Advisor/officer of the Bank shall co-sign the Agreement with the agent/customer shall;
8. If purchase is made by the Bank, the IFB CRM and Legal Advisor/officer of the Bank shall
sign purchase Agreement with the supplier/vendor of the asset;

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9. If payment is made directly to the supplier’s account, the Director -IFB Financing
Business/Manager – District Business IFB shall authorize payment instruction as prepared
by respective IFB CRM;
10. If payment is made through the issuance of CPO, the Director -IFB Financing
Business/Manager – District Business IFB and respective IFB CRM shall co-sign and
instruct the respective branch to prepare CPO in the name of the vendor/supplier. The
customer shall accept the CPO by signing on the standard “Receipt of CPO” formats, if
required;
11. The customer issues confirmation of delivery of the purchased asset using the standard
“Purchased Item Declaration” format. The Bank may assign IFB CRM/Officer to witness
the same;
12. The IFB-CRM shall collect receipts for payments made to suppliers. In case if the asset is
purchased through agency, the agent shall collect the receipt and forward it to the respective
branch managers/IFB-CRM;
13. The customer shall present “Offer to Purchase/Purchase Declaration”;
14. The Bank shall sign “Acceptance of Offer”. The respective branch manager/IFB CRM shall
sign on this document; and
15. The IFB-CRM shall provide customers with system generated “Schedule of Payments”.

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3.2. Bai’ Salam

Bai’ Salam shall refer to a type of financing through which the Bank pays the full contract price
of goods/commodities in advance at the time of contract for the purchase of goods/commodities
that will be delivered by the customer/supplier at a specified time/date in the future. The Bank
sells the same goods/commodities to a customer/third party through an independent Second
Bai’ Salam Agreement.

3.2.1. Sharia’h Parameters of Bai’ Salam Financing

1. The Bai’ Salam financing shall be used to address the short term working capital
requirements of farmers/producers/manufacturers of Goods/Commodities tradable on
market;
2. Purchase price in Bai’Salam shall be fully advanced to the seller/customer at the
commencement of the contract;
3. The specification and characteristics of the output shall be determined as accurately as
possible at the time of the contract, only minor variation is tolerated. The Bank shall agree
with customer/supplier on the specifications, quantity, date of delivery, place of delivery of
goods/commodities before the signing Bai’ Salam Agreement;
4. It must also be ensured that the commodity is possible to be delivered when it is due;
5. Due date of delivery shall be agreed at the commencement of the contract;
6. The place of delivery shall be known;
7. Before delivery, goods will remain at the risk of seller/customer;
8. After delivery, risk will be transferred to the purchaser/Bank;
9. Possession of goods can be physical or constructive;
10. In the case of parallel Bai’ Salam, there shall be two separate and independent contracts,
one where the Bank acts as buyer and other in which it is a seller. The two contracts cannot
be tied up and performance of one should not be contingent on the other;
11. Bai’ Salam arrangement shall not be used as a buy back facility where the seller in the first
contract is also the purchaser in the second;

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12. Even if the purchaser in the second contract is a separate legal entity but owned by the seller
in the first contract, it would not tantamount to a valid Parallel Salam agreement;
13. The Bank can appoint the customer as its agent to sell the commodity in the market / third
party;
14. The duration of Bai’ Salam Agreement shall be a production cycle or twelve months,
whichever is shorter and the date of delivery of Goods/Commodities of Bai’ Salam
Agreement shall be at least one month from the date of finance/disbursement;
15. The goods/commodities in Bai’ Salam Agreement shall have stable price and it shall be
available in the market place throughout the period of Bai’ Salam Agreement;
16. The customer/supplier shall be able to provide collateral acceptable to the Bank;
17. The Bank shall sign the Second Bai’ Salam Agreement with customer/third party which is
not affiliated with the customer/supplier of the goods/commodities and/or owned by the
customer/supplier; and
18. At the time of signing the Second Bai’ Salam Agreement, the Bank can accept advance
payment of percentage value of the Sales Price of the Goods/Asset from the customer/third
party as a sign of purchase commitment. Remaining balance shall be paid at delivery.

3.2.2. Post approval Processing and documentations

1. The Customer expresses its desire to get financing probably to meet the expenses to be
incurred during manufacturing, procurement, production or processing of the goods;
2. The Bank and the Customer/supplier enter into a Bai’ Salam Contract and agree on goods
specification, delivery date and Salam Price;
3. The customer/supplier signs “Written Offer for Sale of Goods” in line with the approved
terms and conditions of the Bank;
4. The Bank signs Second Bai’ Salam Agreement with a third-party;
5. The Bank accepts “Written Offer for Purchase of Goods” from customer /third-party;
6. The Bank receives advance payment from the third-party, if any;
7. The Bank registers collateral offered of customer/supplier at appropriate registering organ;

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8. The Bank makes full payment in advance as a purchase price under the Salam Contract to
the customer /supplier;
9. Payment shall be made directly to the customer/supplier account and upon the approval of
same by Manager - IFB Financing Business;
10. The customer/supplier delivers the goods to the bank/its agent as per the agreement either
in installments or in a single consignment by signing on “Notice of Delivery”;
11. The Bank sells the goods to the third party/ultimate buyer exercising its promise to purchase;
12. The third-party settles the remaining amount of the sells Agreement;
13. The third-party accepts the commodities/goods by signing on “Goods Receiving Note”; and
14. The difference between the advance/price paid to the bank by the third party/ultimate buyer
and the price paid by the Bank to the customer/supplier would be the Profit of the bank.

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3.3. Istisna’

1. Istisna’ is a contract of sale of specified items to be manufactured or constructed with an

obligation on the part of Bank/seller to deliver them to the buyer/customer/purchaser
upon completion.
2. The Bank may use this mode of financing to entertain IFB project financing requests of
medium and long term nature.

3.3.1. Sharia’h Parameters and Conditions of Istisna’ Financing

1. In Istisna’ contract, there are two distinct contracts, in the first Istisna’ contract, the bank
acts as the seller/supplier and concludes the contract with the original purchaser/customer
to supply certain goods to be manufactured/constructed as per agreed upon
specifications. In the second contract, the bank acts as the purchaser and enters into a
contract with the original contractor / manufacturer to purchase certain goods to be
manufactured by the contractor/manufacturer as per agreed upon specifications between
the bank and the contractor/manufacturer.
2. Istisna’ contract is valid for objects that can be manufactured or constructed. It is invalid
for natural and finished products.
3. The agreement should describe complete specifications of the goods/assets/services or
manufactured items sale price, date and place of delivery.
4. It is not permissible that the subject-matter of an Istisna’ contract be an existing and
identified capital asset.
5. The price and mode of payment must be known at the conclusion of the contract. i.e., the
payment of price will be as per mutual agreement. For instance, full in advance, fully
deferred to delivery, partially advance and partially at delivery, in full payment after
delivery. However, all modes of payments are permissible.
6. A clear Istisna’ contract shall be entered between the Bank and the customer. On the
other hand, the Bank may enter into a Parallel Istisna’ with the third party
manufacturer/Contractor, but this contract shall not be tied up with the first contract.

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7. Before delivery, goods will remain at the risk of manufacturer/seller. After delivery, risk
will be transferred to the purchaser/customer.
8. Possession of goods can be physical or constructive.
9. The construction/manufacturing period of the Istisna’ Asset shall not exceed a maximum
of three years. However, the Bank can extend the period up to five years depending on
the nature and cash flow of the business;
10. All Istisna’ finance shall be extended on “Un-Planned Bill” basis;
11. The term of financing shall not exceed fifteen years beginning from the date of delivery
of the Istisna’ Asset. In exceptional circumstances, the Bank may provide a financing for
term extending up to twenty years;
12. The Manufacturer/supplier shall be willing to produce/manufacture an asset in line with
the specification, quantity, date of delivery or period of delivery, place of delivery based
on the First Istisna’ Agreement;
13. The manufacturer/supplier shall be able to avail Letter of Guarantees acceptable by the
Bank;
14. The Bank shall sign Istisna’ Agreements for a fixed contract price. However, the
Agreement can be amended upwards or downwards upon the approval of the respective
committee for reasons acceptable by the Bank. Any change in contract price shall be
stipulated in the respective first and second Istisna’ Agreement;
15. The customer/purchaser shall be able to offer collateral acceptable to Bank or the Bank
can accept the Istisna’ asset itself as a collateral; and
16. The first Istisna’ Agreement shall not be cancelled once works under the respective
second Istisna’ Agreement has begun. However, if the Bank or the manufacturer/supplier
of the Istisna’ asset did not commit resources for the construction/production of the asset,
the contract can be amended or cancelled with a written declaration of either party.

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3.3.2. Post Approval Processing and Documentations

1. The Bank as seller and the Customer as purchaser execute the first Istisna’ contract
whereby the specification of the subject of Istisna’, Istisna’ price, the mode of payment
and the delivery of the property are stipulated in a very clear form.
2. If the financing is not approved for the 100% value of the Istisna’ cost, the
customer/purchaser deposits the approved amount of Urbon/down payment. This amount
shall be kept under “payable/blocked account” for its eventual payment to the
manufacturer/supplier which is adjusted in the Istisna’ purchase price.
3. The Bank get registered collateral provided by the customer/purchaser if the
customer/purchaser has offered additional collateral and/or the Istisna’ Asset itself if it
is partly made/constructed and offered to the Bank as a collateral;
4. The manufacturer/supplier signs on “Written Offer for Manufacture of Goods”;
5. The Bank enters into second Istisna’ Financing Agreement being purchaser with the
manufacturer/supplier on the same terms and conditions of the Istisna’ agreement signed
with the Customer except the Istisna’ price approved by the Bank. The IFB CRM together
with the Attorney shall sign this contract;
6. The Bank may ask performance guarantee and in case of any advance payment, the
Advance Payment Guarantee from the manufacture/supplier to serve as a guarantee for
the advance payments made by the Bank;
7. The IFB CRM and the Director- IFB Financing Business/Manager, District Business IFB
at district shall jointly release payment/s to the manufacturer/supplier subject to
inspection of the work in progress by the Bank’s valuators and as per the approved
disbursement schedule. As appropriate, the customer shall be required to submit
his/her/its satisfaction report before effecting any payment;
8. The manufacturer/supplier disclose the completion of the asset to the Bank/ its agent;
9. The manufacturer/supplier/contractor delivers the property on the delivery date to the
Bank under the parallel Istisna’ contract.
10. The Bank accepts the Goods/Asset by signing on “Goods Receiving Note”;

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11. The Bank being seller delivers the property under the first Istisna’ contract to the
Customer on the relevant delivery date.
12. The customer accepts the Goods/Asset by signing on “Goods Delivery Receipt”; and
13. The customer makes repayment in line with the terms and conditions of approval.

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3.4. Ijarah

1. Ijarah shall refer to a type of Shria’h mode financing whereby the Bank (lessor), leases
out the identified asset such as vehicles, building, machinery and equipment etc., either
purchased or manufactured or constructed, to a customer (lessee) at an agreed rental
payment and lease period; and
2. During the lease term, the ownership of the asset remains with the Bank (lessor) while
the customer (lessee) only has the right to use the asset.

3.4.1. Sharia’h Parameters and Conditions of Ijarah Financing

1. It is necessary for a valid contract of lease that the corpus of the leased property remains
in the ownership of the lessor, and only its usufruct is transferred to the lessee.
2. All the liabilities emerging from the ownership shall be borne by the lessor, but the
liabilities referable to the use of the property shall be borne by the lessee.
3. The period of lease must be determined in clear terms.
4. The lessee cannot use the leased asset for any purpose other than the purpose specified
in the lease agreement.
5. The lessee is liable to compensate the lessor for any harm to the leased asset caused by
any misuse or negligence on the part of the lessee.
6. Any harm or loss caused by the factors beyond the control of the lessee shall be borne by
the lessor.
7. It is permissible that different amounts of rent are fixed for different phases during the
lease period, provided that the amount of rent for each phase is specifically agreed upon
at the time of effecting a lease.
8. The economic life of the Leased Asset shall not be less than five years;
9. The maximum term of the lease period shall not exceed the economic life of the Leased
Asset;
10. The contract period of the Ijarah financing shall not exceed a maximum term of ten years;
11. The rental amount shall be determined by considering the Purchase Cost of the Leased
Asset, costs associated with the purchase of the asset and profit of the Bank;

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12. The rental comprises of two main components, the fixed and variable representing the
cost of the property and the Bank’s profit respectively which is paid in accordance with
the agreed upon terms and conditions in the Ijarah contract.
13. The Bank can make periodic adjustment to the profit rate of the Ijarah Financing.
However, the Bank shall not add or deduct more than 5% profit rate to the initially agreed
profit rate of the respective Ijarah Agreement;
14. The customer/lessee shall agree to cover all costs incurred in connection with delivery of
the Leased Asset up to the point of delivery;
15. The customer/lessee shall agree to cover all costs in relation with maintenance and day-
to-day operation of the Leased Asset;
16. Lease period shall start upon delivery of the Leased Asset to the customer/lessee;
17. The lessee cannot release the asset without the permission of the Bank; and
18. At end of the lease period and/or up on full settlement of the outstanding obligation by
the customer/lease, the Bank shall transfer the ownership of the Leased Asset to the
customer/lease for free.

3.4.2. Post Approval Processing and Documentations

1. The customer/lessee deposits the approved amount of Urbon/down payment and security
deposit;
2. The customer/lessee signs the overall Ijarah Agreement with the Bank. The Attorney
together with the respective IFB CRM shall sign this agreement;
3. The customer/lessee signs “Promise to Lease” undertaking;
4. The Bank registers collateral, if there is any additional collateral, at the appropriate
registering authorities;
5. If required, the Bank may prepare “Letter of Commitment”. The respective IFB CRM
shall issues “Letter of Commitment”;
6. If the purchase of the asset is to be made through agency, the Attorney shall co-sign on
Agency Agreement with IFB CRM;

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7. The Bank issues “Purchase Instruction”. The respective IFB CRM shall sign on the
“Purchase Instruction”;
8. If the purchase is made directly by the Bank, the IFB CRM together with the Attorney
sign on purchase Agreement with the supplier/vendor of the asset;
9. As appropriate, the Bank assign its officer upon delivery of the asset to the customer;
10. The customer issues “Purchased Item Declaration” upon delivery of the asset;
11. If payment is made directly to the supplier’s account, the Director - IFB Financing
Business/Manager – District Business IFB at district shall approve payment instruction
as prepared by respective IFB CRM;
12. If payment is made through the issuance of CPO, the Director - IFB Financing
Business/Manager – District Business IFB and respective IFB CRM shall co-sign and
instruct the respective branch to prepare CPO in the name of the vendor/supplier. The
customer shall accept the CPO by signing on the standard “Receipt of CPO” formats, if
required;
13. The Bank signs a unilateral Conditional “Promises to Gift” undertaking. In this
undertaking, the Bank promises to provide the asset to the customer in form of gift at the
end of the lease period/up on settlement of the outstanding balance; and
14. If the ownership is in name of the bank, it shall be transferred to the customer upon
settlement of the outstanding obligation.

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PART THREE
INTERST FREE BANKING FINANCING PRODUCTS AND FINACING
PROCESSSING

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CHAPTER FOUR

IFB FINANCING PRODUCTS

4.1. Murabaha Revolving Term Financing Facility-i

1. A Murabaha Revolving Term Financing Facility-i is a type of financing with a “revolving

nature” that is availed using Murabaha mode of financing.
2. A Murabaha revolving term financing Facility-i can be used for purchases of items both
from local and foreign markets.
3. The Bank extends Murabaha Revolving term Financing-i to a customer(s) with a working
capital need of recurrent nature;
4. The aggregate price of purchase to be made under this facility shall not exceed the
approved facility limit;
5. Each advance/separate contract in Murabaha revolving term financing facility shall be
repaid within a maximum period of two years and the profit markup shall be determined
by considering the repayment duration of each contract;
6. Each advance/separate contract shall not be less than 10% of the approved limit.
However, the Bank may accept contracts with value of less than 10% of the limit if the
remaining/utilized portion of the facility limit demands as such;
7. The Bank shall approve identical payment terms (i.e. one month, three months, six
months, etc.) for all financing request that a customer lodges under a given Murabaha
Revolving Term Financing facility-i. Or, each sales contract under a given Murabaha can
be settled in a lump-sum at once (such as three or six months). Such a decision shall be
made based on the working capital cycle of the business;
8. Murabaha Revolving Term Financing Facility-i shall be reviewed every year unless the
Bank demands it to be reviewed by the IFB Financing Approving Team for any remedial
action when the performance of the account is deteriorating or for any reasons acceptable
by the Bank;
9. The customer or his/her legal agent shall submit renewal request one month prior to the
expiry date, and the concerned IFB CRM shall advise the customer accordingly; and

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10. Each advance shall be made strictly against presentation of proforma invoice for the
purpose the facility limit was approved; accordingly, the IFB-CRM shall take necessary
measures to ascertain validity of the proforma invoice. Nevertheless, presenting
exhaustive proforma invoice at appraisal stage shall not be mandatory.

4.1.1. Specific Eligibility

In addition to the General Eligibility Criteria, customers shall fulfill the following
requirements:
1. A Murabaha revolving term facility-i may be extended to an applicant who has
established at least a one-year banking relationship with the Bank as a
customer/borrower or depositor. However, depending on the nature and type of business,
the Bank may entertain customers with less than one year relationship and/or no
relationship with the Bank at all;
2. Utilization of the of the revolving term finance account shall be rated at time of renewal
or anytime when it is deemed necessary;
3. The outstanding balance of the Murabaha revolving term facility-i shall be within the
approved limit at the time of the processing of the renewal; and
4. The revolving account’s movement shall be collected from MIS/BoA’s branches, and it
shall be analyzed and properly rated at a time of renewal.

4.2. Murabaha Merchandise Financing Facility-i

1. A Murabaha Merchandise Financing Facility-i is a Murabaha based short-term financing

facility provided by the Bank against which the merchandise or documentary evidence
(Railway Receipt, Warehouse Receipt and Airway Bills) is held as a pledge or collateral
for the financing. It can also be referred to as a short term financing facility where the
Bank purchases merchandise from the market in order to sell it for its customers by
adding an agreed amount of markup on its original purchase amount;
2. Murabaha Merchandize financing facility-i shall not be facilities on goods owned or
produced by the customer;

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3. Murabaha Merchandise Financing-i facilities shall be reviewed every year unless the
Bank demands it to be reviewed by the IFB Financing Approving Team for any remedial
action when the performance of the account is deteriorating;
4. Each sales/advance shall be settled within 180 days; however, the bank may approve a
maximum of one year depending on the product/merchandise pledged;
5. Depending on the type of merchandise, customer classification and credit risk grading
level, the maximum advance rate for Merchandise Financing Facility shall be 70%.
However, for customers who deserve unsecured merchandise financing, the Bank may
extend the facility beyond 70% advance rate;
6. The Bank extends one-time or revolving merchandise financing-i facilities:
i. A one-Time Merchandise Financing-i is a Murabaha based merchandise financing
facility whereby the sales contract remains enforceable only until the maturity period
of the financing period; and
ii. A revolving Merchandise Financing Facility-i is a Murabaha based merchandise
financing facility revolving within a specified limit, which can be reviewed
periodically prior to maturity.
7. The sum of each outstanding sales at a time made by the Bank can stretch up to the
approved facility limit;
8. Prior to effecting any disbursement for Murabaha merchandise financing facility, the
IFB CRM shall visit the storeroom of the merchandise to be pledged, to verify the types
and conditions of the goods and the storeroom, as presented below:
i. Verify the goods/commodities to be held as a security is purchased and sold to the
customer through the Bank’s Murabaha arrangement;
ii. Check the quantity, by conducting a physical observation of the merchandise, and the
physical condition of the pledged merchandise;
iii. Determine the cost of the merchandise. The Bank’s Purchase Cost shall be
considered;
iv.While the merchandise delivered by the supplier to the Bank, the IFB CRM along
with the branch manager or his delegate should witness in person the arrival and

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storage of the purchased merchandise and confirm the same to the appropriate
financing management team in writing;
v. The Bank shall pay the purchase cost of the merchandise to the supplier based on the
report submitted by IFB-CRM and Branch manager or his/her delegate; if there is
request from the suppliers side, the Bank shall give letter of undertaking to the
supplier confirming payment of purchase price upon delivery or storage of the
merchandise to the customer’s warehouse;
9. The IFB CRM, in the presence of Branch Manager, shall make sure that security guards
(watchmen) have been recruited and assigned to watch over the storeroom. The Bank
or the customer shall employ the watchmen, but the borrower shall bear the expense. A
room for the watchmen shall be arranged outside the storeroom;
10. Profit calculation of Murabahah Merchandise shall start from the date the merchandise
is bought and stored as collateral in the warehouse of the customer;
11. After confirming the appropriateness of the merchandise, validating the quantity of the
merchandise, determining the cost of the merchandise, verifying the dependability of
the storeroom and assigning guards, the Branch Manager shall lock the storeroom and
keep the key in the safe custody of the Bank. The second key of the storeroom remains
in the hands of the borrower; and
12. To ensure check and balance, the branch shall check the merchandise. Withdrawal of
merchandise shall be made in the presence of the branch manager or his delegate after
collecting the proportionate amount of Murabahah sale/selling price.

4.2.1. Specific Eligibility

1. Goods acceptable for advance of Murabaha Merchandise financing-i facility shall be
marketable items, and
2. The Murabaha financing shall base on customs declaration for imported goods, valid
invoices for locally purchased merchandise.

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4.3. Murabaha Merchandise Financings against Goods in Transit-i

4.3.1. Specific Eligibility

i. It is the Murabaha based financing facility availed to reliable and creditworthy
customers, similar to the merchandise financing against the pledge of physical
goods, except that in this case the financing is used for the settlement of L/C or
CAD documents prior to the physical pledge of the goods;
ii. The goods must be imported via the BoA and the customer has faced that she/he/it
has a shortage of financing to settle the L/C documents;
iii. The customer shall deposit at least 30% returnable/as the case may be/ Hamish
Jiddiyah and the L/C shall be opened using this security deposit;
iv. The customer shall apply for a financing after the Bank has advised her/him/it on
the arrival of the letter of credit documents;
v. A transistor shall clear the goods. And the documents shall be released to the
transistor upon the signing of a tripartite agreement among the borrower, the
transistor and the Bank;
vi. As part of the obligation of the transistor, a clause to deliver the goods to the BoA
at the place appropriate for the pledge shall be included in the agreement; and
vii. The facility shall be settled or converted to a Murabaha Merchandise financing
as the case may be.

4.4. Import Letter of Credit Facility-i

1. The import letter of credit facility-i is a “Murabaha” based financing product that the
BOA extends to the applicants who are engaged in import business, or other applicants
who import for various purposes on payment of a certain percentage of the value of the
document while opening a Letter of Credit;
2. Depending on the financial strength of the customer, the letter of credit facility-i account
performance and marketability of the import goods, the minimum margin to be paid for
murabaha based Import Letter of Credit facility shall be 30% of the document value.

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However, the Bank may consider below this minimum margin as the case may be for
prominent customers;
3. Import Letter of Credit facility-i shall be reviewed every year unless the Bank demands
it to be reviewed by the IFB financing approving team before this period for any
remedial action when the performance of the account is deteriorating;
4. The sum of each advances made by the Bank (net of each margin paid by the customer)
shall not exceed the facility limit. However, the customer can use the facility up to the
approved limit;
5. The Bank may extend a one-time and/or revolving Murabaha Import Letter of Credit
Facilities:
i. A one-time Import Letter of Credit Facility-i is a non-renewable letter of credit facility
extended to applicants, such as investors, importers, and others that have no Import
Letter of Credit Facility or who want to import over and above the existing Import
Letter of Credit Facility limit; and
ii. Revolving Import Letter of Credit Facility-i is a form of credit facility where the
limit is reviewed periodically when the customer fulfills the Bank‘s requirements.
6. The Bank may allow its prominent customers to open a letter of credit on acceptance
and/or deferred payment basis (for both import and export) strictly as per NBE’s
directives. However, the facility shall have a full collateral coverage and it has to be
approved by the Financing Approving organs at the Head Office.

4.4.1. Specific Eligibility

Importers applying for an Import Letter of Credit Facility-i shall present valid trade licenses,
an investment certificate or appropriate license from the concerned government organ and
Performa Invoice.

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4.5. Pre-shipment Export Financing Facility-i

4.5.1. Murabaha Pre-shipment Export Financing Facility for Trading Export

Business-i
1. It is a Murabaha based finance extended for purchase of raw materials, processing and
converting them into finished goods, warehousing, packaging, and transporting the
goods until the time of shipment. The financing shall be availed against valid
sales/export contract or bona-fide purchase order from a foreign buyer and/or against
the presentation of acceptable collateral.
2. For ECX traded items, the advance amount shall be channeled through ECX (Ethiopian
Commodity Exchange) account; and
3. Unlike the conventional practice, the Bank shall not avail Pre-shipment Export Facility
without Sales Contract.

4.5.1.1. Specific Eligibility Criteria

In addition to the general eligibility criteria stated in this IFB Financing business procedure, the
applicant must fulfill the following requirements:

1. If the facility is to be availed against sales contract, export contract or bona-fide purchase
order:
i. The applicant must have earned at least USD 100,000 or equivalent of other
currencies during the last twelve months preceding the application date and this
shall be confirmed based on appropriate receipts and he/she/it shall offer collateral
that covers at least 50% of the approved facility limit/amount;
ii. If the applicant is new exporter or existing exporters that do not fulfill the condition
stated herein above:
a. He/she/it should have been engaged in any viable business at least for two years;
or
b. He/she/it shall offer collateral that covers at least 75% of the approved facility
limit/amount.

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2. The applicant shall present valid sales contract/a bona-fide purchase order from a foreign
buyer and the method of payment indicated in the sales contract shall be irrevocable
letter of credit and/or cash against document (CAD) and/or advance payment or other
acceptable mode of payments approved by the National Bank of Ethiopia;
3. If the applicant is engaged in coffee export business, the maximum advance rate shall
be 95% of the value of the sales contract and the advance amount shall be channeled
through ECX (Ethiopian Commodity Exchange) account or to the supplier/vendor’s
account if the applicant has permit to purchase out of ECX and/or presents agreement
signed with the supplier which is authenticated by the concerned organ;
4. If the applicant is engaged in sesame export, the maximum advance rate shall be 80% of
the contract value and, the advance amount shall be channeled through ECX account or
to the supplier/vendor’s account if the applicant has permit to purchase out of ECX
and/or presents agreement signed with the supplier which is authenticated by the
concerned organ. For other exports, however, the advance rate shall not exceed 70% of
the contract value;
5. The concerned committee may relax the advance rate up to 100% when it believes that
the customer shall earn or channel more FCY to the BoA;
6. The facility can be one-time or revolving and, in revolving pre-shipment financing
facility, the sum of advances shall not exceed the limit approved;
7. With the exception of public enterprises & cooperatives/unions/Federations, major
shareholder(s) shall sign personal/corporate guarantee for the financing. Moreover,
depending on the nature of the business and level of risk, the Bank may request and/or
accept third party personal or corporate guarantee.
8. For ECX traded items all advances shall be channeled through ECX pay-in account, and
if the customer fails to buy the intended goods, all the advances shall be credited back
to the financing account unless the customer prefers to retain the money in the pay-in
account for the next auction.
9. The export proceed shall be channeled to the exporter‘s account only through the BoA’s
branch that maintains the pre-shipment financing account;

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10. The Bank, on exceptional circumstances, may forfeit the profit on this facility to
prominent customers;
11. The proportion of the export proceeds required to be channeled for the settlement of the
advances of pre-shipment export finance shall be 5% plus the percentage of the financing
amount for all export items, except Coffee to which it is 3% plus the percentage of the
financing amount. The remaining balance shall be credited to the customer‘s own
account. Nevertheless, exporters may be allowed to channel export the full proceeds to
their account as the case may be.

4.6. Murabaha Pre-shipment Export Financing Facility for Manufacturer-

Exporters-i

4.6.1. Definition
Pre-shipment export facility for manufacturer-exporters-i is a Murabaha based facility
extended to those manufacturers engaged in the manufacturing of textiles and apparels,
leather and leather products, agro-processing etc. exclusively/partly for the export market.
The facility is availed to curb the working capital financing shortage in such areas as
purchase of raw materials, processing and converting raw materials to finished goods,
warehousing, and packaging, transporting goods and others up to the final shipment to the
export market.

4.6.1.1. Specific Eligibility Criteria

In addition to the general eligibility criteria stated in this credit business procedure, the
applicant must fulfill the following requirements:
1. The applicant shall be engaged in manufacturing business which is partly or fully
involved in the export market. To this end, he/she/it shall present the necessary trade
(export) license. However, if the applicant is still at investment stage (as evidenced
by the relevant investment license), the request shall be accepted only if the applicant
has already started trial production for the export market. This shall be confirmed by

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the IFB Customer Relationship Manager and accompanied by available relevant

documentary evidences;
2. For a fresh request, nevertheless, an applicant may not be required to meet the
understated requirements as set forth for trading export business:
a. Channel at least USD 100,000 for the preceding twelve months period; or
b. Have a minimum of two years of experience in other business.
3. The applicant shall offer collateral covering at least 50% of the request.
4. The applicant shall present lease agreement that witness permit to operate in an
industrial park or evidence witnessing ownership of an industrial park, if he/she/it is
operating in an industrial park;
5. The financing shall be made against sales/export contract/ a bona fide purchase order
for the export of the manufactured goods. The method of payment indicated in the
sales contract shall be Irrevocable Letter of Credit (LC) and/or Cash against
Document (CAD) and/or Advance Payment and/or other acceptable mode of
payments approved by the National Bank of Ethiopia;
6. The facility can be a one time or revolving, and in revolving pre-shipment export
financing facility, the sum of advances shall not exceed the total limit approved;
7. Irrespective of the type of product manufactured for export, the maximum advance
rate shall not exceed 80% of the sales contract. However, the Bank may exceed the
stated advance rate as the case may be. The disbursement of the advance shall be made
directly to suppliers/service providers of the manufacturer, on the basis of valid sales
contracts and/or service agreements concluded. However, if clients (suppliers) of the
manufacturer-exporter are availed with contract based channel financing, the Bank's
disbursement could be limited to the maximum allowable advance amount less
advances already made to clients (suppliers) of the manufacturer- Exporter to avoid
double financing. Therefore, performers can settle pre- shipment advances made on
the basis of channel-financing using pre-shipment export advances of the exporter;

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8. Each advance shall be released in lump sum or phase-by-phase, as per the requirement
of the business. To this end, the IFB CRM shall monitor the utilization of the
disbursed fund;
9. With the exception of public enterprises and Co-operatives/Unions/Federations,
major shareholders shall sign personal/corporate guarantee or the applicant shall
present letter of intent of the parent company for the facility limit. Moreover,
depending on the nature of the business and the level of risk, the Bank may request
and/ or accept third party personal or corporate guarantee;
10. The export proceeds shall be channeled to the exporter's account only through the
BoA branch that maintains the pre-shipment financing account; and
11. The proportion of the export proceeds required to be channeled for the settlement of
advances shall be 3% plus the percentage of the advance made. The remaining balance
(if any) shall be credited to the applicant's own account. The incremental rate (3%)
on top of advanced financing amount shall be used to cover profit and other relevant
charges.

4.7. Murabaha Livestock Export Financing-i

4.7.1. Definition
It is a Murabaha based facility extended to customers engaged in export of livestock for the
purpose of purchase and resale of live animals for export purposes. The facility could be one-
time or revolving based on the customer’s demand and volume of the business.

4.7.1.1. Specific Eligibility

In addition to the general eligibility criteria stated in this procedure, the applicant must fulfill
the following requirements:
1. The applicant shall present sales contract from a foreign buyer for a specific quantity of
cattle in type and other characteristics;
2. The method of payment shall be in line with the relevant National Bank of Ethiopia’s
(NBE) directive;

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3. The sales contract shall clearly state the method of payment permitted and the related
payment shall be channeled through the Bank of Abyssinia;
4. The applicant should have been in the business of livestock export at least for three year
prior to the date of application, and this shall be supported by evidence of export proceeds
documents;
5. The applicant shall present evidence for exporting livestock worth of at least USD
500,000 or equivalent of other currencies during the previous twelve months prior to date
of application;
6. The applicant shall offer collateral covering at least 75% of the request;
7. If the applicant could not fulfill the criteria stated in item numbers 4,5 and 6 above,
he/she/it shall offer collateral as per the Financing Business Procedure for at least 100%
of the approved limit;
8. The applicant shall have appropriate place for quarantine either own property or rented
facilities;
9. The maximum amount of financing (total financing exposure) to be provided to any
applicant for Livestock Export Purposes shall not exceed Birr 50,000,000 (fifty million);
10. With the exception of public enterprises and Cooperatives/Unions/Federations, major
shareholders shall sign personal/corporate guarantee for the financing;
11. The amount of financing to be granted shall be a maximum of 70% of the value of the
sales contract;
12. The source of repayments (for the settlement) of the financing shall be export proceeds.
The financing to be granted shall be determined based on assessment of financial needs
and repayment capacity of the applicant;
13. The Murabaha may be disbursed on a phase by phase basis as per the sales contract
presented; and

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4.7.1.2. Conditions
1. Ranch carrying capacity and shade for the quarantine of live animals should be put in
place and copies of ownership certificate or rent contracts of same is required for at least
two years from the date of application; and
2. Proper insurance coverage for the cost of livestock starting from purchase to shipment
date shall be purchased after financing disbursement at least for amount equivalent to
the subsequent disbursements by making Bank of Abyssinia as first Co-beneficiary, if
an insurance policy is available in any of the Insurance Companies operating in Ethiopia.

4.8. Operation of Pre-shipment Financing Facility-i

1. Pre-Shipment Export Financing Facility-i shall be renewed every year unless the Bank
demands it to be reviewed in less than this period by the financing approving team for
any remedial action when the performance of the account is deteriorating. In addition to
this, the facility must be reviewed and presented to the IFB financing approving team’s
deliberation, for the purpose of evaluating performance, every six months. In this regard,
the IFB-CRM shall take the initiation and send the customer’s file along with pertinent
information/documents to the IFB appraisal team for subsequent appraisal;
2. Each Pre-shipment Export Financing Facility-i contract shall be settled within 180 days.
However, the maximum settlement period of the facility shall not exceed 270 days;
3. Before making disbursement on pre-shipment facility, the related sales
contracts/purchase orders and/or Letter of Credit instruments presented for financing
must be properly examined for availability of sufficient time for export of the
commodity;
4. Pre-shipment advances shall be settled from the export proceeds.

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4.9. Evaluation of Export Performance of Customers

1. Customers must channel export proceeds that settles the financings made through the
Bank. This shall be made part of the financing contract;
2. The foreign currency earnings expected from pre-shipment advances can be determined
based on the individual contract financed by the Bank;
3. If the customer is availed with more than one facility, the performance shall be measured
against the summation of FCY earnings expected from the individual facility;
4. If a customer is found performing below the expected performance level, depending on
the case, the Bank shall take the following measures as appropriate: These shall be made
part of the financing contract.
i. Reduce the existing facility limit as deemed necessary;
ii. Reduce the maximum advance rate;
iii. Facility callback;
iv. Cease disbursement of the existing pre-shipment export financing facility;
v. Initiate workout management process; and
vi. Others.
5. When the customer fails to settle the advance within the availability period of the facility
or fail to channel the corresponding FCY via BoA, the Bank may charge the penalty and
damage rate set, respectively;
6. The Bank shall take more than one measure as the case dictates. Moreover, measures to
be taken and those facilities that would be affected by those measures shall be decided
by the respective-IFB financing approving committee;
7. As appropriate, the decision made by the respective committee may stipulate the
necessary conditions to be met by the borrower to relinquish the disincentives applied
on those financing facilities; and
8. Exporters who/that settled their export contracts using local currency ought to be
blacklisted.

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4.10. Pre-shipment Financing Facility-i Limit Determination

1. Limit setting for pre-shipment financing facility-i shall be approached in a manner that
considers customer’s previous experience, his/her/its export plan as well as availability
of extra cleaning/processing and logistics capacity;
2. So as to ameliorate the financing capacity of customers and tackle the deceiving nature
of pre-shipment advances sanctioned by banks, limits provided by other banks shall not
be considered whilst arriving at the financing amount; and
3. Number of working capital cycles for the determination of pre-shipment export
financing facility limit shall be one, two or three per year depending on the nature of the
export items. Furthermore, the number of working capital cycle proposed may vary
depending on the season and the nature of the customer’s business.

4.11. Management of Fund Transfer from ECX Pay-in account to Customer’s Pay-
out account
In order to prevent malpractices such as withdrawal of the financing amount before buying
the intended goods from ECX Pay-in account and diverted to some other purposes, there is
a need to follow-up and treat the fund transfer process from pay-in account to Pay-out
account as follows:
1. The concerned Banking organ, upon receipt of the electronic payment instruction from
ECX to transfer from Pay-in account to the customer’s Pay-out account, especially
withdrawals, shall immediately communicate the concerned Branch Manager and the
concerned Director -IFB Financing Business Team in writing (via fax);
2. The Branch Manager upon receipt of the information shall block the account until further
instruction is obtained from the respective IFB CRM or Director -IFB Financing
Business;
3. The Director - IFB Financing Business Team, upon receipt of the information shall
immediately instruct IFB CRMs to verify the transaction and provide appropriate advice
to the concerned Branch Manager;

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4. The IFB CRM shall communicate the Branch Manager (in written form) whether the
fund to be credited back to the financing account or to be released to the customer;
5. If the withdrawal instruction is from the disbursed financing, the fund shall be credited
back to the financing account;
6. If the customer withdraws the financing/loan from the pay-in account, without prior
approval of the Bank, and the fund is credited back to the financing/loan account, the
same sales contract shall not be considered for financing/loan disbursement, he/she/it
shall bring another sales contract; and
7. The communication between the Bank’s ECX settlement Team/Organ, the Branch and
IFB Financing Performers shall be strictly made on time within the same date.

4.12. Letter of Guarantee Facility-i

1. A Letter of Guarantee-i is a Kafalah based Facility issued by a Bank is a written

promise/irrevocable obligation by the Bank to compensate (pay a sum of money) to the
beneficiary (local or foreign) in the event that the obligor fails to honor his/her/its
obligations in accordance with the terms and conditions of the agreement/contract;
2. The BOA may extend a one-time or renewable Letter of Guarantee-i facilities:
i. A one-time Letter of Guarantee-i Facility is a non-renewable letter of
guarantee extended to applicants who have no recurrent guarantee
requirement; and
ii. Renewable Letter of Guarantee-i facility is a form of facility where the
facility is reviewed periodically. The Bank may avail the facility to
customers who have recurrent requests.
3. Regarding the terms and conditions of the contract concluded between the beneficiary
and the obligor, the Bank‘s Legal Adviser/Officer shall check the document to protect
the interest of the Bank;
4. The facility shall be availed for one year and shall be reviewed every year unless the
Bank‘s IFB Financing approving team demands it to be reviewed in less than this period
for any remedial action when the performance of the account is deteriorating;

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5. The Bank provides guarantee services to both local and foreign customers;
6. A foreign-currency permit from the NBE should, however, be obtained for any form of
guarantee that the Bank is requested to issue in favor of foreign beneficiaries; and
7. The duration (term) of any guarantee instrument will depend on the contractual
agreement signed by the parties involved.

4.12.1.Issuance of Letter of Guarantee-i

The Bank may issue a Letter of Guarantee in favor of beneficiary under any of the following
situation:
1. When a local customer requests the Bank to issue a letter of guarantee in local currency
to a local beneficiary:
i. The Branch Manager and his/her Business or Operation Manager shall jointly issue
Letter of Guarantee to the beneficiary against cash collateral (for 100% coverage).
However, before issuance of a letter of guarantee against cash collateral, a receipt for
collection of the respective commission shall be attached and filed for further
reference at the Branch;
ii. The Bank shall use standard contract format for guarantee but under special
circumstances, the Legal Adviser/Officer may design the guarantee document taking
into account the specific terms and conditions of the contract;
iii. If the guarantee request is backed by non-cash collateral, the IFB CRM and the Legal
Adviser/Officer shall jointly issue a Letter of guarantee in favor of a beneficiary, after
properly approved by IFB Financing approving committee through formal IFB
financing approval process;
iv.The Bank shall collect the appropriate guarantee fee, as per the Bank‘s term and tariff
book, before issuance of the guarantee instrument;
v. Guarantee confirmation requests, if any, shall be handled by the Director – IFB
Financing Business or Director – IFB Appraisal or Manager – District Business IFB
or Manager – District Operation (for outlying).

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2. When a local customer requests the Bank to issue a Letter of Guarantee in a foreign
currency to a foreign beneficiary;
i. The International Banking Services may issue Letter of Guarantee-i when a local
customer requests the Bank to a foreign beneficiary against cash collateral; and
ii. If the guarantee request is backed by non-cash collateral, it shall be processed and
approved through the IFB Financing Approving team, and International Banking
Services shall issue the guarantee in favor of the beneficiary.
3. When a correspondent bank requests the Bank to issue a guarantee in favor of a local
beneficiary, the International Banking Service shall issue the guarantee in favor of the
beneficiary based on its procedure.

4.12.2.Types of Letters of Guarantee-i

a. Bid Bond-i

1. Bid/Tender Bonds-i are guarantees issued by the Bank in favor of a designated

beneficiary upon the request of the bidder, representing the commitment of the Bank to
meet the claims that may be made by the beneficiary in the event that the bidder who
purchased the guarantee from the Bank withdraws from the bid during the bid period or
fails to accept the award when he/she/it becomes the winner;
2. The Bank issues a Bid Bond-i to either local or foreign beneficiaries; and
3. Issuance of Bid bonds-i by the Bank to foreign beneficiaries shall be done after obtaining
a foreign currency permit from the NBE.

b. Performance Guarantee-i

1. A Performance Guarantee-i is a type of guarantee that the Bank issues in favor of a bid
organizer (beneficiary) at the request of the applicant to meet any claims to be made
by the beneficiary, in case the applicant fails to deliver the goods or to perform the
services in accordance with the terms and conditions of the contract; and

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2. A Performance Guarantee-i ensures that the applicant will duly perform the contract
on the basis of the terms and conditions agreed by the tender organizer or the
beneficiary.

c. Advance Payment Guarantee-i

1. An Advance Payment Guarantee-i is a guarantee issued by the Bank in favor of a buyer
who makes the advance, upon the request of the seller or the contractor who received
the advance, representing a commitment on the part of the Bank to repay the sum certain
in money, in case the seller or the contractor fails to honor the contract terms in their
entirety, or in part, and the seller, or the contractor, does not himself/herself/itself return
the advance;
2. The applicant shall submit to the Bank a contract that she/he has signed with the
beneficiary that indicates the price of the contract, the percentage of the advance-
payment guarantee, the duration of the contract and other conditions. The financing
applicant shall also provide certificates of performance from her or his previous
employers, if any;
3. An Advance Payment Guarantee-i ensures that the seller, or contractor, will return the
advance payment made by the beneficiary, in case of failure to supply the goods or
services on time, in part or in their entirety;
4. The guarantee agreement may be constructed to reflect a proportionate reduction of the
advance as the contract is performed; and
5. In the case of Advance Payment Guarantee-i, Advances made on Advance Payment
Guarantee facility can be used as one form of collateral.

d. Suppliers’ Credit Guarantee-i

1. Suppliers’ Credit Guarantees-i are guarantees issued by the Bank to provide security to
a local or foreign supplier/beneficiary on behalf of a local customer (debtor),
representing a commitment on the part of the Bank to meet any claims to be made by
the beneficiary, in case the debtor (local buyer) fails to repay in accordance with the
terms and conditions of the contract; and

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2. Suppliers’ Credit Guarantees-i arise when a local customer enters into a purchase
contract with either a local or a foreign supplier agreeing to repay the purchase price,
usually on an installment basis over a longer period of time.
e. Retention Guarantee-i
1. The Bank may issue a retention guarantee-i in favor of a beneficiary who accepts to
release the retention undertaking to pay a sum of money to the beneficiary, in the event
that the seller or the contractor fails to perform his/her/its obligation as per the terms
and conditions of the contract;
2. A Retention Guarantee-i arises when a seller or a contractor wishes to collect any
retention held on a contract by presenting a bank guarantee to the party accepting the
release of the retention (beneficiary)
f. Steamers’ Guarantees/Letters of Indemnity for Missing Documents-i
These guarantees are issued by the Bank at the request of a customer in favor of a carrier,
in circumstances where the bill of lading is missing /delayed but the goods/cargo/ arrive
earlier. It shall, however be handled by the International Banking Service. In this regard,
the customer shall block 110% of the invoice value before issuance of the guarantee.
g. Customs Duty Guarantee-i
These are guarantees issued by the Bank in favor of the Customs Authority (the
beneficiary) to meet the requests of the beneficiary in respect of customs duties in
circumstances where the goods imported without payment of customs duties are not re-
exported and the respective customs duties have not been paid.
h. Customs Dispute Settlement Guarantee-i
These are guarantees issued by the Bank at the request of a customer in relation to
disputes that may occur between the customs authority and the customer for an allegedly
unpaid custom charges and when the former demands the customer to present bank
guarantee until such time that the dispute is settled.
i. Other Forms of Guarantee-i
The Bank may entertain guarantee requests of customers depending on the risk and
benefits involved therein.

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4.13. Term Financing-i

4.13.1.General
1. Term Financing-i is a financing granted for working capital and/or project finance to
be repaid within a specific period of time usually with profit. The financing can be
availed for the purchase and sale of movable and immovable assets, raw materials,
services etc.
2. It is availed either in the form of Murabaha, Istisna’, Ijarah or Bai’ salam mode of
finance. The Bank shall employ Bai’ Salam term financing if and only if the Murabaha
financing cannot be employed due to the nature of the request of the customer;
3. The Bank may extend term finance in the form of Istisna’mainly for project financing
in addition to Murabaha;
4. The Bank shall mainly use Ijarah form of financing for term finances extended for
leasing;
5. The financing-i can be repaid in a lump sum on maturity, or in periodic installments (i.e.
monthly, quarterly, semi-annually, or annually),depending on the nature of the business
and its cash flow. The Bank extends Short, Medium and Long Term Financing.
6. Short-term financing-i could be granted up to a maximum of one year;
7. Medium-term financing-i has a maturity period longer than one year, but not exceeding
a maximum period of five years;
8. Long-term financing-i has a maturity period longer than five years but not exceeding a
maximum period of twenty years;
9. During grace period, the customer may be relieved from both principal and profit
repayments;
10. Depending on the nature and cash flow of the business, the Bank may provide a
maximum grace period of six months for short-term financings, three years for medium
term financings, and five years for long-term Murabaha or Istisna’ financing,
respectively;

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11. The Bank may extend Medium- or Long-Term financing-i for working capital,
projects/businesses whose nature justify, or require, such periods of time for
implementation and repayment of the financings;
12. Long-Term Murabaha financing is intended for the financing of working capital, the
acquisition and/or leasing of fixed business assets (leased land, buildings, machinery,
equipment, public transport vehicles, trucks and trailers, etc.), the establishment of a new
project and the expansion of an existing business. Project financings may include
working capital finance;
13. The Bank may extend term financing for the purpose of working capital, purchase of
fixed asset for replacement, and/or construction of supplementary buildings, such as
employee cafeteria, which are not directly related with the production capacity of the
business/project;
14. The applicant for a Long-Term financing shall submit a detailed study of the capital
investment and working capital required on the project or a business plan/feasibility
study;
15. For any project financing, the applicant shall contribute at least 30% of the total project
cost or shall offer acceptable collateral other than the project for the proportionate
amount for contribution less than 30%.
16. The applicant’s equity contribution could be expressed in terms of invested resource,
blocked cash or valid receipt which indicates the payment of the required equity
contribution. On case of valid receipt, however, it shall be accompanied with a
supporting letter from the issuing company specifying the amount paid and receipt no
issued.
17. The project financing structure and disbursement modalities shall be made considering
the smooth implementation of the project. In doing so, financing performers shall
schedule disbursements of the financing on a phase-by-phase basis or at a time along
with the equity contributions of the promoter. The 30% equity contribution in case of
phase by phase disbursement may not be mandatory as the committee may allow the
customer to contribute it phase by phase with the disbursement.

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18. In any project financing, the IFB CRM and the Director, IFB Financing Business is
empowered to release the phase-by-phase financing disbursement as per the terms and
conditions of the financing approval. However, if there is a variation from the financing
decision, the disbursement request of the customer shall be deliberated by the
appropriate IFB -Financing Approving Team.

4.13.2.Types of Term Financing By Purpose

i. Motor Vehicle Financing-i

a. A Motor Vehicle Murabaha term financing granted for the purchase of motor
vehicles for borrowers in the transport sector as well as other business sectors;
b. The financing does not, however, include the cost of spare parts and luxury items;
c. The vehicle to be bought should be held as collateral and registered with the
legally empowered organ; and
d. The financing shall be repaid within a maximum period of five years.

Specific Eligibility
1. The motor vehicles to be bought shall preferably be brand new. However, the Bank
may finance others as the case may be.
2. The financing could also be extended to transport sector or other business sectors as
well—to buy vehicle, including, large-, medium- and small-sized trucks, mini-buses,
pickups and automobiles that are needed to facilitate the borrower‘s business;
3. The customer should make an equity contribution amounting at least 35% of the
purchase value of the vehicle to be bought. Furthermore, the amount of the equity
contribution shall, nonetheless, be determined based on the type of the business, the
customer’s credit-risk grade and relationship with the Bank;
4. If the vehicle is to be imported from abroad, the applicant shall open L/C in one of
BOA‘s branches with the required margin paid and the Bank shall cover the remaining
purchase price.

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5. If the vehicle is to be imported on duty-free basis, the customer must submit a document
that bears testimony to that, together with his/her/its application.
6. Applicants for fuel cargo trucks shall submit a tripartite agreement—that is, involving
the borrower/association, the oil company and the BoA. Such an agreement has to
explicitly stipulate that the oil company will transfer the payment directly to the
customer’s Murabaha account until such time as the financing has been fully settled.
7. The tripartite agreement also has to incorporate assurances from the oil company that
the truck‘s service will continue uninterrupted for a given number of years.
8. The applicant shall deposit equity contribution as required in a blocked account with
BoA after the financing is approved so that it will be forwarded to the supplier. In this
regard, advance payments made to suppliers can be considered as equity if backed by
valid supporting documents.

ii. Machinery and Equipment Purchase Financing-i

i. Machinery & Equipment Murabaha Financing is extended in the form of term finance for
the purchase of Agricultural, Industrial, construction and other machinery such as tractors,
combines, harvesters, factory machines, dozers, graders, loaders, excavators, scrapers,
rollers, asphalt pavers, crushers, concrete batching plants, concrete pavers, cranes, drilling
rigs, wagon drills, chip spreaders, and concrete mixer mounted on trucks, dump trucks and
others;
ii. The financing does not, however, include the cost of spare parts and luxury items; and
iii. The machinery to be bought shall be held as collateral and registered with the appropriate
government organ.

Specific Eligibility
1. The machinery/equipment to be bought shall preferably be brand new. However, the
Bank may finance others as the case may be;
2. The applicant shall deposit equity contribution as required in a blocked account within
a BOA Branch after the Murabaha Financing is approved so that it will be forwarded

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to the supplier. In this regard advance payments made to suppliers can be considered
as equity if backed by valid supporting documents;
3. The borrower should make an equity contribution amounting at least 40% of the
purchase value of the machinery/Equipment to be bought. Furthermore, the amount
of the equity contribution shall, nonetheless, be determined based on the type of the
business, the customer’s credit-risk grade and relationship with the Bank;
4. If the machinery/Equipment is to be imported from abroad, the applicant shall open
L/C in one of BoA’s branches with the required margin paid and the Bank shall cover
the remaining purchase price;
5. If machinery/equipment is to be imported on duty-free basis, the applicant must
submit a document that bears testimony to that, together with his/her/its application;
and
6. The applicant shall submit pro forma invoices for the machinery/equipment to be
purchased.

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iii. Investment Financing for Enterprises Operating in Industrial Parks-i

It is a financing type extended in the form of Murabaha term finance for enterprises
operating in industrial parks for the purpose of acquiring fixed assets such as machinery,
equipment, furniture and fixtures, vehicles etc. as well as financing permanent (initial)
working capital requirements. The finance may include cost of basic spare part items in
case of machinery financing.

Specific Eligibility
1. The applicant must operate in an industrial park;
2. The applicant shall secure the necessary permit from concerned organs to operate in
an industrial park;
3. The applicant shall submit principal business registration certificate and
business/investment license issued by the regional states or from the Ethiopian
Investment Commission;
4. Lease agreement which confirms factory shade use right signed between Industrial
Park Developer and the Industrial Park Enterprise must be presented. However, if the
industry park is developed by the enterprise itself; the applicant shall present
documentary evidences witnessing ownership of the park. Moreover, consent from the
relevant government body allowing the enterprise to offer the developed park for bank
financing mortgage must be obtained;
5. The machinery/equipment/ vehicle etc. to be purchased shall be held as collateral and
registered with the legally empowered organ;
6. The Murabaha shall be granted for a maximum period of lease period less one year;
7. Investors shall make an equity contribution of at least 30% of the total
project/investment cost;
8. If the Industrial Park Enterprise is also a developer of the park, the buildings
/construction /civil works executed shall be considered as equity contribution and
mortgaged as collateral by the Bank, by securing the required consent from the relevant
government office;

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9. If the machinery/equipment/vehicle is to be imported from abroad, the applicant shall

open L/C in one of BoA’s branches;
10. If the machinery/equipment/vehicle is imported duty-free, the applicant shall submit a
document that bears testimony to that, together with his/her/its application; and
11. The applicant shall submit pro forma invoice for the machinery/equipment/vehicle to
be purchased.

Covenant

The applicant shall channel majority of his/her/its export proceeds, as well as bank
transactions through the BoA. Failure to perform as expected shall entail, payment of
compensation amounting to 2.01% multiplied by outstanding financing amount for damages
made on the Bank. The Bank could also call back the facility. These shall be made part of
the Murabaha Financing agreement.

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iv. Partial financing-i

1. It is a financing scheme extended in the form of Murabaha term finance whereby the
Bank covers a portion of the auction price of foreclosed and acquired properties
presented for sale by the Bank;
2. These properties mean buildings, vehicles, machinery and business establishments that
are either held as collateral or acquired by the Bank;
3. The purpose of partial financing scheme is to expedite the recovery of the Bank‘s non-
performing finance and to foster the disposal of acquired properties; and
4. The repayment period shall be determined based on the cash flow of the business/ the
applicant and physical condition of the property. However, maximum repayment period
as indicated in the table below shall be applied. The bank may extend grace period as
deemed necessary.

No. Type of property Maximum Repayment Period

1. Buildings/Business Establishments 15 years

2. Vehicles 3 to 5 Years
3. Machinery 5 – 7 years

Specific Eligibility
1. The applicant (business or employees) should have a reliable source of income for the
repayment of the financing;
2. If the source of repayment is salary:
i. Applicant’s obligations inclusive of the repayment to the Bank should not exceed one
third of his/her salary that has to be confirmed by a letter from the employer. The
Bank may consider the salary of the spouse;
ii. The employee shall present recent income tax payment and employment certificate
from the employer;
iii. The employee shall settle the requested Murabaha finance one-year before his/her
retirement age; and

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iv. The employee shall present an undertaking letter from the employer which states that
the employer shall notify the Bank immediately in case of termination of service or
dismissal.
3. The applicant shall pay minimum Urbon/down payment of 30% of the floor price for
auction value greater than Birr 10,000,000(Ten million Birr) and 30% of the winning
price for auction value less than Birr 10,000,000 (Ten million Birr) immediately and
offer the property purchased as collateral;
4. If the value of building or business establishment is greater than Birr 10 million, the
Bank may relax the minimum Urbon/down payment requirement up to 10%. However,
for business establishments that are sold by negotiations the Bank may lift such
requirement.
5. In case of financing foreclosed properties, if the requested amount exceeds the floor
price of the auctioned/foreclosed property, the applicant should offer additional
collateral in the form of building or other acceptable collateral to fully cover the excess
amount of Murabaha finance. However, in the case of acquired properties, no need to
request additional collateral;
6. The Bank shall consider the auction floor price of foreclosed property as the collateral
value of the approved Murabaha sale; and
7. If the applicant is new to the Bank and to the business, the source of repayment shall be
the income from the purchased property. Moreover, the applicant shall sign an
undertaking to submit the business license and tax identification number from pertinent
issuing government organ soon after the purchased property is transferred to the
applicant‘s name.

Ownership/Title Transfer
1. The IFB-CRM shall collect all relevant documents from the buyer and visit the auctioned
property and/or the business premises of the buyer, if any;
2. The IFB-CRM shall request the Loan Recovery/Legal Service Team /Acquired Assets
Administration Team, in writing, to ascertain whether the auctioned property is free from

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any court injunction, debts or other impediments and incorporate the same in the due
diligence report;
3. The IFB-CRM shall collect copies of pertinent documents from the Loan
Recovery/Legal Services Team /Acquired Assets Administration Team and facilitate the
financing process;
4. If the Bank approves the financing request, the IFB-CRM shall communicate the same
for the customer and shall get MMFA and security contracts signed by the customer;
5. The IFB-CRM shall send copy of the FAF and the signed contracts along with a letter
requesting the Loan recovery/Legal Services Team /Acquired Assets Administration
Team to get the ownership right transferred to the buyer and the security contracts
registered with the authorized registrar office;
6. The Loan Recovery/Legal Services Team /Acquired Assets Administration Team, upon
receiving the documents, shall write a letter to the registrar, with a copy to the IFB
financing business Team, to renounce the previous registration in the name of the
defaulter and transfer the ownership right to the buyer and register same for the
Murabaha commitment therein;
7. The IFB-CRM shall communicate the applicant to avail himself/herself in the respective
registrar authority and effect payments necessary to accomplish the ownership right
transfer and the registration;
8. The Loan Recovery/Legal Services Team /Acquired Assets Administration Team shall
collect the ownership certificate/s and/or two original copies of security contracts from
the Registrar Office when the process is finalized;
9. The IFB financing business Team shall send the respective IFB financing performer and
receive the Title deed and/or the Librie from the Loan Recovery/Legal Services Team
/Acquired Assets Administration Team;
10. Upon receiving the credentials, the IFB-CRM along with the Director -IFB Financing
Business shall disburse the finance automatically to the defaulter’s financing account;
11. The IFB-CRM, after crediting the sales proceeds to the defaulter’s account, shall notify
the respective Loan Recovery/Legal Services Team as to the crediting of the sales

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proceeds to the defaulter’s account and authorize the release of the property for the
applicant;
12. In case of Acquired Assets, the IFB-CRM shall notify the Acquired Assets
Administration regarding the crediting of the sales proceeds to the relevant Bank’s
Account and authorize the release of the property to the applicant;
13. The Loan Recovery/Legal Services Team /Acquired Assets Administration Team shall
release the property to the applicant; and
14. The approved finance amount for partial financing of a foreclosed or acquired property
shall be credited to the defaulter’s account within 30 days. However, if there is any
problem on the transfer of the property, the financing approval shall be cancelled and
the case shall be returned or notified to the Loan Recovery/Legal Services Team
/Acquired Assets Administration Team.

v. Agricultural Term Financing-i

a) Agricultural Working Capital Financing-i

It is a short term or medium term Murabaha based financing granted for the purpose of
purchasing, processing, distribution and etc. of agricultural inputs and outputs.

Specific Eligibility:
a) If the applicant is a cooperative, associations or unions/Federations, it shall:
i. Organize themselves into an Association and acquire legal personality from the
concerned governmental organ;
ii. Present Minutes of a resolution on the finance request passed by at least three-fourths
of the members of the General Assembly of their
Association/Cooperative/Unions/Federations or as per their memorandum and/or
articles of association;
iii. Shall have at least one year business experience with a good business track record;
iv. Provide a document that confirms acquiring or renting basic infrastructure, such as
appropriate office and store (working premises); and

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v. Employ a professional Manager and an Accountant/Bookkeeper.

b) Commercial Farming Term Financing-i

1. It is short to long term Murabaha based financing granted to Associations, Cooperatives,
Unions, Private Limited Companies, Share Companies or Individuals engaged in
modern commercial farms or agro-processing industries for working capital and/or
acquiring/leasing/constructing fixed assets such as buildings, agro-processing
machinery and equipment (such as water pumps, generators, combiner, harvesters,
tractors, vehicles, etc.) for plantations, crop production and animal husbandry etc. in
small/medium/large-scale farming;
2. The Bank gives priorities to modern commercial agriculture ventures that produce for
export market;
3. The Bank may finance both rain fed and irrigation system farming. However, in case of
irrigation farming, the applicant shall present a permission letter to use the nearby
river/waterfall/ for irrigation purpose from the concerned government organ;and
4. The Bank may provide a maximum grace period of five years for plantations (such as
coffee farm) and three years for other agricultural produces.

Specific Eligibility
1. The applicant shall present project feasibility study that shows the viability of the
business (if the Murabaha request is project financing);
2. For new or expansion projects the applicant shall contribute at least 40% of the project
cost from his/her/its own source of income. However, if the applicant is able to offer
additional collateral in the form of building and/or other acceptable forms of collateral,
the equity contribution shall be lowered to 20% in proportionate to the value of the
collateral;
3. The applicant shall recruit adequate number of agricultural experts in the area to manage
the overall farm activities;

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4. The applicant shall provide land holding certificate and/or land lease agreement (as the
case may be) to the Bank. The land holding/lease right shall be binding until the tenure
of the financing period plus two years and shall be registered by the appropriate
registering government organ as collateral for the financing;
5. The applicant should present evidence that lease payment of the current period (due
amount) is effected to the concerned authority;
6. The applicant shall have a minimum of 30 hectares of land for project applicants.
However, for high value crops (e.g., vegetables, fruits, etc...), the Bank may finance the
farm regardless of the size of the land;
7. Applicants shall present a letter from Woreda or Zone or Ministry of Agriculture
regarding suitability of the weather and soil for production of the specified products;
8. In case of project expansion, the investment already undertaken by the promoter‘s own
finance can be considered as equity contribution after valued by the Bank’s valuator;
9. If the financing involves civil works, the applicant shall provide design, specification
and bill of quantities for farm infrastructure (buildings and constructions);
10. Applicants shall purchase appropriate insurance coverage (if any) for the farm and
properties thereon as deemed necessary;
11. Major shareholder/s of a limited liability company shall sign personal/corporate
guarantee for the Murabaha finance;
12. If the financing is required for Coffee Plantation, in addition to the above criteria;
a. The applicant shall hire guards to protect the farm from theft;
b. Forest coffee (coffee plants that are not planted by the project) shall not be considered
as equity contribution and collateral; and
c. The land holding/lease right shall be binding until the tenure of the financing period
plus five years and shall be registered by the appropriate registering government
organ.

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vi. Import Letter of Credit Settlement Financing-i

1. Import Letter of Credit Settlement financing-i is a form of Murabaha based financing

extended to a borrower by converting the outstanding import letter of credit document’s
value either to a Murabaha merchandise financing facility or a Murabaha term financing
when a customer is unable to clear the L/C documents due to shortage of working capital.
However, if the financing is to be granted in the form of merchandise financing, all the
criteria stated for merchandise financing against goods in transit (GIT) shall be fulfilled;
2. It is granted to customers of the Bank who encounter temporary cash flow problem to
settle the net- margin-held on the import L/C document value;
3. If it is converted to a merchandise financing facility, the requirements stated under
merchandise financing facility shall apply. For conversion to a merchandise financing
facility, a tri-partite agreement shall be signed among the customer, the Bank and
Ethiopian Shipping and Logistic Services Enterprise or any other legal transitory;
4. Accrued interest on advance account if any shall be fully paid in cash at the time of
request.
5. Before releasing the import L/C document, the Bank shall conclude a MMFA agreement
and mortgage/pledge (if any) contracts with the applicant and make collateral
registration (if any) with appropriate registrar office; and
6. The Bank shall finance only import letter of credits or CAD opened at its end.

vii. Murabaha Import Term Finance-i

Murabaha Import Term Finance-i is a short or medium term Murabaha based financing that
the Bank extends to its customers who are engaged in import business, or other applicants
who import for various purposes on the bases of deferred payment against acceptable
collateral. The finance is similar to the term finance which is granted for the purpose of
working capital except the following:

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7. The approved term finance shall be used only for Letter of credit and/or CAD
Opening/Settlement;
8. The letter of credit shall be opened preferably at any one of BOA branches, and the co-
consignee on the import documents shall be the BOA;
9. The customer shall deposit at least 30% returnable/as the case may be/ Hamish Jiddiyah
plus commission charges and the L/C shall be opened using this security deposit;
10. Up on arrival of the L/C documents, the L/C shall be settled by the approved Murabahah
Import term finance and the customer’s security deposit shall be refunded to the
customer as the case may be, and the L/C documents shall be released to the customer
after ensuring completion of all Murabaha financing steps;
11. Any cost overrun due to exchange rate fluctuation or cost increment beyond the invoice
price presented shall be covered by the applicant;
12. The financing can also be extended to cover indirect/associated costs related with the
imported item such as insurance, freight, customs duty and others as the case may be.
13. If the L/C is opened through other bank, the IFB CRM shall apply the following
additional terms:

i. The IFB CRM should make sure that the items to be imported are as per the approval
made by the concerned interest free financing committee;
ii. The Letter of Credit shall be opened both in the name of applicant and Bank of
Abyssinia, BOA as co-importer;
iii. Payment shall be effected to the Bank upon receiving all essential documents,
verification through any convenient methods; and
iv. The IFB CRM should strictly follow-up the process and check its sharia
permissibility at every stage of the import process.

viii. Building and Business Establishments Purchase Term Financing

1. It is a Murabaha based medium or long term financing scheme whereby the Bank covers
a portion of the acquisition cost of properties.

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2. The repayment period shall be determined based on the cash flow of the
applicant/business and physical condition of the property. However, the maximum
repayment period shall be twenty years.
3. The Bank may provide a maximum grace period of five year for purchase of buildings
and business establishments depending on the nature and cash flow of the business.

Specific Eligibility Criteria

1. The applicant /business should have a reliable source of income for the repayment of the
financing.
2. The applicant shall pay minimum cash urbon/down payment of 30% of the purchase
price of the asset and offer the property purchased as collateral or shall offer acceptable
collateral other than the property to be acquired for the proportionate amount for
contribution less than 30%.
3. If the applicant is new to the Bank and to the business and the source of repayment is
the purchased property, business plan and forecasted cash flow statement that justifies
full repayment of the Murabaha shall be submitted. Moreover, the applicant shall sign
an undertaking to submit the business license and tax identification number from
pertinent issuing government organ soon after the purchased property is transferred to
the applicant’s name.

Ownership/Title Transfer
1. The IFB-CRM shall collect all relevant documents from the buyer and seller and visit
the property and/or the business premises of the buyer and facilitate the financing
process;
2. If the Bank approves the financing request, the IFB-CRM shall communicate the same
for the customer and shall get MMFA and security contracts signed by the customer;
3. The IFB CRM can write an undertaking letter of immediate direct payment to the seller
after finalization of the title transfer and registration of security contract;

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4. The IFB CRM shall send the signed security contracts along with a letter requesting the
seller to get the ownership right transferred to the buyer and the security contracts
registered with the authorized registrar office;
5. The IFB CRM shall communicate the applicant to avail himself/herself in the respective
registrar authority and effect payments necessary to accomplish the ownership right
transfer and the registration;
6. The IFB CRM shall collect the ownership certificate/s and/or two original copies of
security contracts from the Registrar Office when the process is finalized;
7. IFB financing business team shall send the respective Financing Administrator and
receive the Title deed from the Registrar Office;
8. Up on receiving the credentials, the IFB CRM along with the Director - IFB Financing
Business shall disburse the finance to the sellers account.

ix. Smallholder Farmers Agricultural Machinery Financing

Smallholder Farmers Agricultural Machinery Financing is Murabaha based term financing

extended for purchase of brand-new agricultural machineries such as Tractor with its
accessories (disc plough, disc harrow, ridger, leveler, planter, sub soiler, and tractor mounted
sprayer, etc.), combine harvester, motor operated thresher, motor pumps, bailer, etc.

Eligibility

1. The applicant shall present landholding certificate and current year land rent payment
receipt;
2. The applicant shall have a minimum of 2 hectare of land but not more than 29 hectare;
3. If the applicant is a cooperative, association or union, it shall present:
i. Registration certificate from Regional or National Cooperative agency;
ii. Minutes of resolution on the financing request passed by at least three-fourths of
attendees of the General Assembly or as per memorandum and/or articles of
association;

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iii. Confirmation letter from Woreda Administration attesting that at least 50% of
members of the cooperative/union/association are landholders and they are
engaged in farming activity;
4. If the financing request is for purchase of tractors, combine harvesters or other heavy
agricultural machineries, the applicant shall submit confirmation letter from Woreda or
Zone or region or Ministry of Agriculture which assures suitability of the area for
mechanization (i.e tractor and combiner operation). Moreover, the letter should state:
i. The total arable land in the specific Wereda/zone/region in hectares;
ii. Areas suitable for mechanization at specific Wereda/zone/region in hectares;
iii. Areas of land mechanized in the specific Wereda/zone/region so far;
5. The applicant shall present a Business Plan which shows financial viability and
repayment capacity of the business;
6. The applicant shall make equity contribution of at least 30% of the purchase value of the
agricultural machinery solely in cash.
7. To ensure equitable distribution, the Bank shall entertain financing request for only one
agricultural machinery at a time per individual applicant except it is a cooperative or
union. For applicants requesting for more than one machinery financing at a time, taking
the additional machinery to be financed as collateral, the applicant shall provide other
collateral equivalent to at least 40% of value of the additional financing approved;
Condition
1. The applicant may lodge its financing request at any nearby BoA branch;
2. The Branch Manager/CRO shall collect required documents from applicants, prepare
due diligence report and send to district or HO IFB Financing center, as the case maybe;
3. For purchase of tractor, the financing request shall include accessories/implements
(essential items like disc plough and disc harrow). However, the financing shall not
include cost of spare parts for any agricultural machinery;
4. Agricultural machineries purchase financed by the Bank could be used for both rain-fed
and irrigation system farming of the applicant and renters;

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5. The Agricultural machinery to be bought shall be held as collateral and registered with
the appropriate government organ;
6. The Woreda where the applicant is located shall undertake to support the Bank in
surrendering the machinery financed and finding attachable properties, if any, in case of
default, so as to ensure amicable settlement of the financing;
7. The financing shall be repaid within a maximum period of five years and the Bank may
provide a maximum grace period of six months;
8. The applicant shall submit pro forma invoices for the specific agricultural machinery to
be purchased;
9. The applicant shall give undertaking letter to recruit skilled agricultural machinery
operator or present testimony document that confirms he/she can perform the overall
farm machinery operation activities;
10. The Branch Manager shall sign the financing and mortgage/pledge contracts with the
applicant.

x. Overseas Employment Agencies Financing

Overseas employment agencies financing product refers to a non-revolving Qard-al-Hassan
contract based financing extended to applicants engaged in making a worker available to an
overseas employer by concluding a contract of employment with such a worker as per
Ethiopia’s Overseas Employment proclamation No. 923/2016.

a. Eligibility

The applicant shall fulfill the under listed specific eligibility criteria and shall present
necessary documents as follows;
1. The applicant can be sole proprietor or business organization.
a. If the applicant is sole proprietor, he/she shall be an Ethiopian citizen and have
operating capital not less than Birr one million;
b. If the applicant is a business organization, the sole objective shall be overseas
employment exchange service and all its members are Ethiopian citizens and

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have paid up operating capital not less than Birr one million in shares or
contributions;
2. The applicant shall submit copy of the following documents:
a. Business registration and trade name enabling the applicant to operate as an
Agency;
b. If the applicant operates the activity as a business organization, copies of its
memorandum of association and articles of association authenticated by relevant
government body;
c. Certificate of clearance from police confirming that the following individuals
were not involved in crimes:
▪ For sole proprietor: the individual applicant;
▪ For partnership: its members; and
▪ For private limited company and share company: Board of Directors,
management bodies, as well as the officials and employees;
d. Office address of the applicant and certificate of ownership if he/she/it is owner
of the office or original copy of the contract of lease authenticated by Documents
Authentication and Registration Office, if the office is leased;
e. Credentials of the General Manager which verify he/she has got at least first
degree and three years of managerial experience;
f. Certificate showing the attendance of the owner and the general manager in pre-
license training, if the activity is operated by sole proprietor; or if it is operated
by a business organization, a certificate showing the attendance of the members
and management members of the business organization in pre-license training;
g. Business plan covering repayment period of the financing and same shall ensure
ability of the applicant to repay the requested financing amount;
h. Testimonial for the applicant has opened a decent office or partnered with citizen
of the destination country duly licensed to engage in overseas employment;
i. A verification that the representative under sub-article (h) has accepted the
representation and this is verified by the Ethiopian Mission or if there is no

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Ethiopian Mission in the country of destination through the latter’s mission here
in Ethiopia and confirmed by the Ministry of Foreign Affairs;
j. Confirmation letter issued by appropriate organ that the applicant is authorized
to freely enter into and exit from the receiving country.
3. Tax clearance certificate.

b. Conditions
1. The applicant shall open at least two Wadia’h deposit accounts: one dedicated account
and one operation account at one of BoA’s branches (in Addis Ababa) in his/her/its
name;
2. The applicant shall raise at least ETB equivalent of 70% of the USD100,000 requirement
on cash or in form of acceptable collateral or a combination of them based on the
prevailing exchange rate at date of financing disbursement;
3. Without contravention to repayment capacity of the applicant, if whole or part of the
equity is raised in cash, the Bank shall approve financing that matches ETB equivalent
of USD100,000 less cash contribution;
4. The major shareholders of the business organization shall sign personal guarantee;
5. The Bank shall always reserve the right to debit the dedicated account, without
applicant’s approval for same, for settling outstanding balance of the Oversea
Employment Agencies Financing loan account opened in the name of the applicant if
the Ministry relinquishes its interest/claim on the blocked account.
6. The balance in dedicated bank account shall bear any financial benefit whatsoever to the
borrowing account holder, other than serving the purpose defined under Article 60(1) of
proclamation No. 923/2016.
7. The applicant shall pay financing processing fee. The fee shall be collected without
regard to absence of physical collateral;
8. The applicant shall undertake to channel all his/her/its foreign currency commission
income/service charge or any payment in relation to the overseas employment agency
business through the BoA;

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9. The maximum tenure for the loan shall be four years inclusive of six months grace
period. Depending on preference of customers, the loan repayment can be set on monthly
or quarterly basis;
10. Notwithstanding, points stated above, however, the performance of this facility shall be
reviewed every year for any remedial action when the performance of the account is
deteriorating or for any reasons acceptable by the Bank;
11. The periodic loan repayment shall be made from commission income/service charge
received from abroad;
12. The applicant shall undertake to replenish the dedicated account balance within 10 (ten)
working days if the Ministry of Labor and Social Affairs (MoLSA) instructs the Bank to
debit the account.

Processing, Approval, Disbursement and Issuance of Confirmation Letter

1. The financing processes from receiving application letter up to disbursement and follow-
up of periodic loan repayment shall be handled at center IFB Financing Business
department;
2. The applicant shall pay annual confirmation service charge of 1% ETB equivalent of
USD100,000 (as per the prevailing exchange rate at date of financing disbursement)
until the loan is fully settled;
3. Upon fulfillment of all the necessary legal conditions and signing of financing, pledge
and/or mortgage contract if any but before disbursement of the approved financing, the
CRM shall write letter to dedicated account opening branch to issue Confirmation
Letter;
4. The CRM shall disburse the financing to a dedicated account only;
5. Upon receipt of the CRM letter, the dedicated account opening branch shall receive
request letter from the applicant, ensure that the stated sum of money as per the CRM’s
letter is available in the account, block the account and issue Confirmation Letter. The
branch shall immediately send to the CRM a copy of the Confirmation Letter
acknowledged by the applicant.

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6. Unless circumstances require otherwise, for which satisfactory evidence shall be

presented, the first Confirmation Letter shall always be written at date of financing
disbursement;
7. The applicant shall not use dedicated accounts to his/her/its normal business operations
or personal use. In addition, no deposit/withdrawal transactions shall be allowed to/from
dedicated accounts unless the balance needs to be updated in accordance with exchange
rate variations. However, all debit transactions shall be made upon presentation of
authorization letter from MoLSA;
8. If the applicant settles the loan before its expiry date or as per schedule, the applicable
Confirmation Letter issuance service charges thereafter shall be handled as per the term
and tariff book of the Bank;

Follow-up
1. The CRM shall closely follow-up periodic repayment of the loan and monitor foreign
currency inflows in line with number of workers deployed. The loan repayment shall be
made from proceeds of commission/service charge the applicant received and kept in
his/her/its operation account with the BoA;
2. The CRM shall receive periodic reports from the Agency about list of workers deployed.
a. For the first twelve months from date of financing disbursement, the CRM shall
collect the report every three months. If the applicant fails to deploy workers
within three months from date of disbursement, the CRM shall write reminder
letter stating the facts; and same shall continue if no improvement is observed.
However, serving a reminder letter shall not be neglected even if the applicant
repays the loan from other sources.
b. For subsequent years, the CRM may ask for the report semiannually depending
on favorable performance of the applicant;
3. The Bank may decline to issue Confirmation Letter for subsequent periods if the Agency
fails to deploy workers within the first one year. Furthermore, the Bank may use the
blocked balance to settle outstanding balance of the loan and this shall be approved by

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the relevant committee. However, the CRM shall receive authorization from the
Ministry for this effect;
4. The Agency shall renew his/her/its license before its expiry;
5. The Bank may relieve the Agency from paying 1% service charges for one time
Confirmation Letter issuance if his/her/its total foreign currency incoming transfer
through the BoA is at least USD100,000 per annum. This shall be approved by the IFB
Financing Approving Committee;
6. Care should be placed at all times that one dedicated account is used for one instance of
licensing and subsequent license renewals only.
7. Whenever the Ministry gives instruction to debit dedicated accounts, the account
opening branch shall pass the necessary transaction as per the Ministry’s instruction at
date of communication and inform same to the CRM, the Agency and the Ministry;
8. The Agency shall replenish the dedicated account balance within 10 (ten) days;

Penalties
1. The Bank shall apply penalty charge of 5% on the loan, after ascertaining on its yearly
review that the Agency fails to channel foreign currency at least equivalent to the loan
repayment or if the Bank confirms that portion/whole of payments to the Agency in
relation to his/her/its overseas employment agency business is transferred through other
banks.
2. The penalty shall be approved by the IFB Financing Approving Committee.
3. If the requirement set under (item 1) is not satisfied due to reasons beyond control of the
Agency, the Bank may not apply the penalty. However, the Agency shall continue
repayment of the periodic installment as per schedule;
4. The penalties indicated under (item 1) shall take effect only on the amounts/balances
settled on LCY during the respective yearly review period;
5. The penalty collected in this manner shall be used for charitable causes.

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xi. Qard-al-Hassen Term Finance

1. Qard-al-Hassen financing is a type of term finance that is availed for projects with
benevolent purposes without profit. It is extended based on the principles of IFB and
one of the core values of the Bank as part of CSR activities;
2. The applicant shall pay Financing processing fee;
3. The financing request shall undergo through formal financing process but is subject to
the approval of the CEO upon the recommendation of VP -IFB;
4. In case of project financing, applicants may be relieved from equity contribution
requirements set under this procedure;
5. The total financing extended through this facility shall not exceed 2% of the total IFB
financing portfolio at any time.
Eligibility
1. The applicant shall present appropriate licenses from the concerned organs; and
2. The Customer shall offer acceptable collateral to secure the finance.

xii. Financing/Loan Buyout-i

1. Financing/Loan Buyout-i is a type of arrangement wherein the bank buys
loans/financing from other banks.
2. The Bank involves in this activity in exceptional circumstances to allow customers to
adhere to their values by settling loans which they borrowed from other banks;
3. The Financing/Loan buyout-i shall be availed to buy the principal sum only. Any balance
over and above the principal amount like interest and other charges in connection with
the Financing buyout shall be fully covered by the applicant;
4. The main objectives of Financing Buyout can be to:
i. Regain ex-customers of the Bank;
ii. Attract new customers from other banks;
iii. Increase quality of finance by strengthening the collateral position in cases whereby
BOA held the collateral as a second degree;

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iv. Establish business relationship with applicants who can be good source of foreign
currency, significantly support the Bank in its deposit mobilization efforts, and prove
to be creditworthy clients;
5. For the purpose of cross collateralization, the bank may consider buyout of interest free
financings for applicants having both interest free and interest bearing loans while
offering single collateral for both facilities;
6. The loan/finance to be taken over may be restructured (to a reduced amount, conversion
to other forms of financing type, etc) based on negotiation and business cash flow;
7. The applicant shall offer collateral(s) which shall fully cover the amount approved;
8. Status of the loan to be bought shall not be categorized under NPLs at the time of
processing; and
9. The customer shall lodge written request.

Eligibility
For ease of implementation, the following activities shall be undertaken while buying the
loan/financing:
1. BoA checks whether the collateral is pledged as a second degree or not and the existence
of any injunction order;
2. The IFB CRM shall collect all necessary documents and obtain legal advice, if deemed
necessary;
3. The BoA and the would-be customer shall conclude the financing and mortgage/pledge
Contracts (if any);
4. The loan/financing-selling bank shall provide undertaking letter to the BOA that it
would release original title deed certificate/Librie and other documents held along with
the letter of loan/financing settlement;
5. The BoA issues Cashier‘s Payment Order (CPO) for settlement of the outstanding
principal loan/financing;
6. The selling bank shall deliver original title deed certificate/Librie and confirmation letter
of full settlement of the debt addressing to the registering organ.

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xiii. Conversion/transfer of Conventional Loans and Advances to IFB Financings

1. Loan conversion/transfer is an arrangement where the Bank engages in conversion of
loans advanced through conventional side of the BoA to IFB;
2. The Bank involves in this activity in exceptional circumstances to allow customers to
adhere to their values by transferring loans and advances which are maintained with
BoA;
3. Unless the loan requires restructuring, the IFB-CRM shall ensure that the loan to be
converted shall be categorized within similar product group under IFB;
4. Status of the loan to be bought shall not be categorized under NPLs at the time of
processing;
5. The business shall be appraised and its financial soundness shall ensure repayment of
the loan within remaining payment period;
6. Unless circumstances require otherwise, the converted financing shall be repaid within
remaining payment period of the loan as per conventional loan contract;
7. The previous credit record and repayment history shall form part of the new financing
file;
8. The CRM in charge of loan follow-up under conventional wing shall send report to IFB
wing addressing repayment performance and character of the applicant;
9. The applicant shall not have any credit cases with the bank under legal proceeding;
10. The applicant shall enter into a new financing and mortgage contract before conversion
of the loan and the financing contract shall clearly state that it is a continuation of/related
to the previous loan contract.
11. For loans to be converted from within the BoA, the conventional and IFB credit and
financing processing units, respectively, shall work in consultation with each other.

4.14. New Product Development and Approval

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1. New product development may be initiated by the CEO,Vice President- Interest Free
Banking, IFB Financing Business Team, IFB Appraisal Team, Sharia’h Advisory
Committee, and IFB Product Team;
2. Viability of the new product shall be assessed by the Marketing team;
3. The Sharia’h Advisory Committee provides Sharia’h compliance approval on the
proposed product;
4. The CEO/Executive Management Team upon the recommendation of the Marketing
team, shall decide on the new IFB product proposal; and
5. The IFB Business Service Team develops appropriate procedures for the newly
developed product.

4.15. Financing Customer Classification

4.15.1.Purpose of Classification
The major purposes of financing customer classification are:
a. To identify those customers who contribute higher value to the profitability and
growth of the Bank;
b. To enhance service quality and customer satisfaction.

4.15.2.Scope of Application

This financing customer classification is used to facilitate the classification of existing

and potential customers engaged in business activities. However, the guideline is not
applicable for Non-Business Customers of the Bank.

4.15.3.Authority and Responsibilities

a. Classification of New Customers shall be made by the Director – IFB Financing
Business team;
b. Director – IFB Financing Business team, after classifying the customer, forwards
the case IFB CRMs;

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c. Where the re-classification involves intra-transfer of customers from one team to

another the respective IFB CRM shall present their re-classification proposal
Director – IFB Financing Business;
d. Director – IFB Financing Business shall decide the re-classification of customers
and communicate same to the respective IFB CRMs for proper implementation.

4.15.4.Period of Classification
a. All new customers shall be classified upon lodging their financing request.
b. Review of the classification on existing customers shall be conducted every year
during the fourth quarter of the fiscal year or at any convenient time upon
approval by the Director – IFB Financing Business.

4.15.5.Classification Criteria
Classification of financing customer shall be done based on the parameters and criteria
to be set and circulated on a separate guideline.

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CHAPTER FIVE
FINANCING PROCESSING

5.1. Financing Origination

1. The IFB CRM/Director-IFB Financing Business Team/Branch Manager/District
Managers is principally responsible for recruitment of potential customer.
2. The customer or his/her/its legal agent may present formal financing request to the Bank
in writing in person or through electronic media;
3. At his/her/its convenience, a customer can present financing application to the Branch
or IFB Business Centers (to IFB CRM for existing customers or to Director-IFB
Financing Business or District/IFB Business Managers (for outlying Districts) for new
customers. For corporate customers, the IFB CRM may collect documents at customer‘s
business premises;
4. The Branch forwards the request to IFB Financing Business Center immediately after
accepting the documents provided by the customer and deliver the checklist for the
remaining so that the customer would fulfill the necessary documents at Center.
However, for branches located more than 30 km from the center, documents shall be
forwarded after completion of all the required documents as per the checklist. If the
customer‘s credit application is accepted, the IFB CRM shall provide acknowledgment
letter after fulfillment of all the necessary documents. However, acknowledgement letter
for project financing request shall be provided after the documents are reviewed by
Financing Analysts;
5. The Branch collects and send customer‘s application, submitted at the branch, along
with relevant documents to the IFB Financing Business Team for new customer or to
the respective IFB CRM for existing customer. For outlying area financing requests that
are beyond the discretionary lending limits of the districts, the IFB CRM at the Head
Office Financing Business Center shall collect all the required documents and
information and conduct the due diligence report in collaboration with the concerned
District Office;

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6. Director- IFB Financing Business is also responsible to collect financing application of

new customers that apply for a financing at IFB Financing Business Centre and classify
them and introduce them with IFB CRM;
7. The IFB CRM is responsible for conducting the due diligence assessment on the
customer by collecting all the required financing processing documents from the
customer. However, it has to be aligned with the objectives of the financing business,
which are mainly maintaining quality financing portfolio, timely financing delivery and
cost effectiveness; and
8. The Legal Adviser/Officer is responsible to provide appropriate legal opinion regarding
the legality of the business and related issues in written form as requested by financing
performers.
9. If the Branch is located beyond 30 km from the IFB Financing Business Center, the
Branch shall conduct the due diligence by collecting all the required financing
processing information and documents and send to the center as the case may be. And
the IFB CRM shall check completion of it, re-produce due diligence report and forward
to the IFB Appraisal Team and recommend after completion of the IFB Appraisal.
Business visit, to collect financing processing documents/information, from the center
especially for remote branches, shall be done based on the amount of finance requested
and/or relevance of the remaining information in consultation with the respective
Director-IFB Financing Business.

5.2. Interview
1. The main objective of conducting interview is to solicit adequate and complete
information and to conduct due diligence on the application;
2. Immediately after financing request has been lodged, the IFB CRM will conduct a
detailed face-to-face interview with the applicant to obtain full information pertaining
to the financing request. The interview, as appropriate, should cover the eligibility
criteria and the following additional items:
i. The essence of the applicant’s business;

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ii. Business conditions, such as production, sales, etc.;

iii.The types of products or services handled;
iv. The amount and nature of other liabilities of the borrower;
v. The cash-flow from which the facility is to be repaid, taking into account working
capital and capital spending requirements;
vi. The collateral being provided;
vii. Any other information considered necessary to assess the risk of the proposal.
3. On the basis of the information gathered through interview, the IFB CRM shall decide
on the request. If the customer is not eligible, he/she may reject the financing application
in consultation with his/her immediate Supervisor and report to the Director-IFB
Business Service in writing stating the reasons for rejecting the request.

5.3. Required Financing Processing Documents

1. If the Customer’s application is accepted, the IFB CRMs shall collect all finance
processing documents as per the checklist;
2. The IFB CRM shall ensure that the financing applicants have submitted financial
statements (including balance sheet, income statement, and cash-flow statement). The
statements may be actual and/or projected in the following manner:
i. All businesses established as share companies which have been in business at least
for one year shall submit the latest fiscal year audited financial statements within one
year from the closing date of the financial year, regardless of the requested finance
type and amount;
ii. All businesses established as private limited companies, sole proprietorship and
partnership who have been in business for a year or above and whose total financing
exposure is Birr 5,000,000 (Birr five million) and above shall submit the latest fiscal
year audited financial statements within one year from the closing date of the
financial year;
iii. The financial statements presented by the applicant shall be prepared and audited
by external auditors. External auditors, in this regard, shall mean persons/companies

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who have certificates of professional competence duly authorized by the relevant

institutions/authorities and those organs established at the federal or regional level to
organize and register cooperative societies in line with proclamation No. 147/1998;
iv.All businesses established as private limited companies whose total exposure is less
than Birr 5,000,000 (Birr five million) shall present provisional financial statements
for the latest three consecutive fiscal years, prepared in accordance with the
Generally Accepted Accounting Principles (GAAP) or International Financial
Reporting Standards (IFRS);
v. Sole proprietorship and partnership businesses, whose total financing exposure
exceeds Birr one million but is less than Birr five million, shall present provisional
financial statements for the latest three consecutive fiscal years, prepared in
accordance with the Generally Accepted Accounting Principles (GAAP) or
International Financial Reporting Standards (IFRS);
vi.However, a Commercial Credit Report (CCR) may be used for a business established
as a sole proprietorship and partnership and whose total financing exposure is below
Birr one million;
vii. Newly established businesses shall present projected financial statements; and
viii. The IFB CRM and/or the designated performer at the Branch shall be individually
and severally responsible, to the extent possible, for crosschecking the information
contained in the financial statements.

5.4. Credit Information Inquiry

1. Credit information inquiry shall mainly be initiated by IFB CRMs. However, when
deemed necessary, Analysts and IFB Financing Approving Team/individual member(s)
may request or can have access to credit information inquiry.
2. The credit information originator shall forward his/her inquiry to the Management
Information System as the case may be.

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3. The Management Information System shall collect credit information through NBE and
provide the information to the inquirer through online access dialup system, fax or any
other medium of communication.

5.5. Business Visit

1. For existing customers, business visit is one of the regular activities of the IFB CRM;
2. For new customers, upon receipt of the Customer Application Form and the supporting
documents, the IFB CRM shall conduct a business visit. However, for branches located
beyond 30 km from the center, business visit from the center shall be done based on the
amount of financing and the relevance of the remaining information whereas the Branch
provides all the required information as the case may be;
3. The purpose of the visit is to verify or evaluate the factual information contained in a
Customer Application Form and supporting documents through observation and to
make an objective assessment of the business. The IFB CRM has to identify the reason
for variation; and
4. The IFB CRM provides findings of the business visit to the IFB Financing Analyst.

5.6. Financing Approval Form (FAF)

1. Any financing approval shall be made on Financing Approval Form (FAF);
2. The FAF is to be originated by the IFB CRM/Credit Officers when any of the following
situations arise:
i. A fresh financing request;
ii. Renewal of any financing facility;
iii. Restructuring of problem finances/loans;
iv. Legal actions on problem finances/loans;
v. Events that necessitate changes in the decisions of IFB financing approving
team/individual, alterations of financing amounts, collateral, maturity period, grace
period, or initiation and suspension of legal action;
vi. Reconsiderations and Appeals on a financing decision; and
vii. Other financing related issues as deemed necessary.

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3. The IFB CRM shall properly prepare FAF and send to Appraisal Team for analysis
accompanying all required financing processing documents including other qualitative
information based on the format designed for this purpose;
4. All financing documents to be presented for financing decisions shall be either originals
or copies that have been checked against the originals. If the IFB CRM cannot retain the
original, he/she shall write or stamp ‘Checked against Original´ and put his/her signature
and the date on each copy;
5. Documents that are not legible or bear deletions without signature or where the seals are
difficult to identify shall not be accepted;
6. Having ascertained that the supporting documents are complete, the IFB CRM shall use
a thick mark to indicate same on the checklist that is to be attached to the FAF; and
7. Nonetheless, customers’ change of branch request shall be facilitated by IFB CRM
together with the Director IFB Financing Business (Outlying-District Manager/Business
Manager) without FAF.

5.7. Financing Risk Appraisal/analysis

1. Financing Risk analysis refers to a critical assessment of a business entity to see
whether it is strong enough to warrant financing to it, and related risks;
2. Financing Risk analysis is generally done to assess the creditworthiness of an applicant
and involves examining the ability of a borrower to repay debt of some kind. Financing
analysis should screen out both the positive and the negative aspects of each financing
request;
3. Financing Risk analysis is performed based on the information obtained from the
following sources:
i. Customer‘s application letter and Financing Request Form (FRF);
ii. Qualitative information from the IFB CRM;
iii. Interview or discussion from the IFB CRM;
iv. Financial statements;
v. Supporting documents;

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vi. Range of accounts/revolving finance account utilization/ account performance;

vii. Credit information report;
viii. Legal opinion and opinion of the SAC, if any; and
ix. Other pertinent sources.
4. The analyst shall carry out a comprehensive analysis in order to determine the strength
of the business; and do so with the highest ethical and professional standards of
conduct;
5. Content of risk analysis/appraisal shall follow the Financing and risk analysis format.
Using this format the analyst ensures that all significant and relevant issues related to a
specific case are covered and the final recommendation/sanction is based on a proper
analysis of the borrower‘s circumstances both from financial and non-financial aspects;
6. Depth of risk analysis/appraisal:
i. Intensity of the financing risk analysis may vary based on the nature of financing
request; type of the business the customer is engaged in; and level of associated
financing risk. The report shall address the content and key issues that are relevant
to the request; and
ii. In case of existing borrower(s)/customer(s), the Financing Risk Analysis Report shall
concentrate on new developments of the business and summarized on a few pages as
far as possible.
7. To properly appraise the financing request, the analyst shall gather adequate information
about the customer from different sources on historical financial statements, projections,
business strategy, skills and experience in management and personal character, etc; and
8. The IFB CRM is responsible to gather the required documents/information in the
required manner from customers when a request arises from the IFB Analyst or
Financing Approving Team.

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5.8. Consultancy Service on Financing Processing

1. If there is a shortage of skilled human power or to strengthen the efforts of financing

officers while appraising/assessing financing requests, the Bank may appoint external
consultant/s (individual/s or organization/s);
2. Consultant/s may be assigned to assess a project proposal either the marketing aspect or
the technical/engineering aspects or the financial aspects or both or other specific
activities to be incorporated with the overall project proposal assessment. However,
external consultant/s assessments alone shall never be used as an input for final decision;
it shall always be accompanied with internal experts’ assessment in line with this
procedure;
3. The Vice President - IFB, Director – Financing Appraisal, Director – Financing Business
or IFB Financing Approving Committee may initiate the need to use external
consultant/s;
4. To appoint external consultant/s, the Bank may use the following two approaches:
i. The Bank may recruit a pool of external consultants from which a specific
consultancy service agreement will be concluded when the need arises. In this regard,
the Bank shall:
a. Look for expression of interest from external consultant/s on various fields or
activities;
b. Establish a team of experts to evaluate and select competent consultant/s;
c. Approve and sign memorandum of understanding with selected consultant/s,
and
d. When a specific consultancy service is required, the Bank may select
consultant/s from the pool based on their merits and sign a consultancy service
agreement.
ii. The Bank may recruit potential consultant/s based on head count recommendations.
In this regard, the Bank shall:

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a. Find capable consultant/s based on the recommendations of different

individuals who may have the knowhow on the field where a consultancy
service is required;
b. Approach and discuss with the recommended consultant/s about the intention
of the Bank;
c. Sign a consultancy service contract with the selected consultant/s.
5. In any of the above methods, to appoint a consultant or team of consultants, the Director–
Financing Appraisal and/or the Director – IFB Financing Business shall prepare a
proposal to be approved by the CEO or Vice President - IFB. In doing so, any conflict of
interest shall be avoided.

5.9. Financing Negotiation/Discussion

In the case of project financing, the IFB CRM may discuss with the customer on the
following issues, and provides feedbacks to the IFB Financing approving committee.
i. Financing repayment period including grace period and repayment amount;
ii. Disbursement modalities;
iii. Equity contributions;
iv. Terms and conditions of the financing disbursement; and
v. Other related issues.
The objective of the discussion is to reconfirm the customer`s commitment, capacity,
readiness and challenges or problems.

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CHAPTER SIX
PRICING AND REBATE PROCEDURES

6.1. IFB Products Profit Rates, Fees and Charges

1. The Bank shall refer the approved interest rates of the Bank as its Base Lending Rate
(BLR) or Benchmarking Rates;
2. The Bank shall add a risk premium ranging between 0.15% - 1.5% to the BLR for all
Murabaha, Istisna’ and Bai’ Salam and Ijarah based IFB finances. The premium is
expected to compensate for the risks that would possibly arise due to delay in
repayments, irregularities of repayments and loss of opportunities due to the “fixed
prices” nature sales contracts or financing agreements;
3. The commission and charges for the IFB Guarantees-i product shall be in line with the
approved rates applied for conventional guarantee products;
4. The Bank will communicate the applicable markup rate upon the conclusion of the sales
contracts and prior to the delivery of the asset;
5. As opposed to the conventional practices, annual effective rate shall be employed to
price IFB financing products. The Bank shall apply a two-decimal digit flat rates;
6. The Bank shall produce effective IFB financing rates on annual basis;
7. The IFB financing team shall refer to approved fees and charges of the BoA’s
conventional banking services to determine processing and administration charges of
IFB financing products. The applicant shall pay property estimation and financing
processing fee as per the terms and tariff set for business borrowers. S/he/It shall also
cover expenditures in relation to revenue stamps, stamp duty charges, title transfer fees,
etc. by his/her own.

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6.2. Rebate Procedures

1. Upon its discretion, the Bank shall refund 90% of the unpaid profit amount when the
customer settles the all outstanding financed amount early or before maturity date of the
finance/loans. The refund is applicable only upon early settlement of the respective
financing and if only if the financing was not turned to NPF status in its entire repayment
period of the finance. However, this shall not be part of the contract as the rebate is
concluded upon the discretion of the Bank;
2. Rebate is not applicable for pre-shipment financing; and
3. Rebate shall not be applied on Bai’ Salam Agreements.

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CHAPTER SEVEN

FINANCING RISK RATING/GRADING

7.1. Purpose of the Rating/Grading

1. To assist financing decision making process;

2. To help in monitoring and controlling the quality of financings;
3. To timely manage early warning signals;
4. To maintain application of uniform risk rating/grading standards; and
5. To help in setting profit rate and maintain appropriate level of financing provisioning.

7.2. Scope of Application

1. This financing risk rating/grading is applicable to all financing customers, except for
new customers and/or newly established business. New businesses shall mean
businesses with less than one year experience (including projects other than expansion)
at the time of application. New customers shall mean any applicant without prior
financing relation with the Bank. New customers and/or newly established business
entities shall automatically be rated as Grade-3. However, expansion project financing
in similar business line shall be rated based on the rating system stated in this procedure.

2. For those customers first graded/rated by the conventional wing within less than six
months from the date of the current financing application, the same rate shall apply
without further need for re-grading in IFB.

7.3. Authorities and Responsibilities

1. The financing risk rating/grading of regular financings at the corporate financing level
(Head Office) shall be made by an analyst and shall be checked and approved by another
analyst. In doing so, the Director– IFB Financing Appraisal shall organize the maker
and checker arrangement and closely supervise the overall rating activities. If there are
any un-reconciled issues, the Director – Appraisal shall reassess and approve the rating;

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2. The financing rating/grading of regular finances at the District/Outlying/ level shall be

made by a credit/financing analyst and approved by another credit/financing
analyst/Manager – District Operation.
3. The financing rating/grading of non-performing finances shall be made by the IFB CRM
and approved by the Director - IFB Financing Business/Manager – District Business
IFB (for outlying Districts).

7.4. Linked Lending Grading

Shareholders in the applicant company having 50% or more stake in a related/sister company
or having shareholders of first degree consanguinity as major shareholders, shall take the risk
rating of the parent company, or the related/sister company, or company being graded/rated
(the applicant), whichever is the worst grade/rate.

7.5. Period of Rating/Grading

1. All customers shall be graded/rated upon each financing request. However, those
customers rated/graded less than six months from the rating/grading period may be
excluded;
2. Bulk review of the financing risk rating/grading shall be made in every year. However,
those customers rated/graded less than six months from the rating/grading period may be
excluded; and
3. Upon observation of early warning signals, the customer‘s rating/grading shall be revised
at any time. In this regard, the IFB CRM shall prepare a report and forward to the Director
– IFB Financing Appraisal/Manager – District Operation (Outlying) to effect proper
rating/grading adjustment.

7.6. Rating/Grading Parameters

The financing risk rating/grading shall be done based on the parameters and score sheets to
be developed and circulated on a separate guideline.

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CHAPTER EIGHT

COLLATERAL

8.1. General
1. The Bank in principle follows cash flow-based lending/financing. The primary protection
against losses is the ability and willingness of the customer to repay the financing/s;
2. Collateral shall be considered as one of the risk mitigating factors after proper
underwriting/appraisal of the finance proposal. Hence, collateral shall never be a
substitute for creditworthiness, which is the existence of adequate cash flow to repay the
financing;
3. Collateral is considered as second way-out. Nonetheless, a security position shall not
render financing performers complacent;
4. Movable or immovable assets to be offered for collateral shall be those, which are readily
marketable, accessible, and relatively stable in value, easily transferable, functionally
versatile and insurable;
5. Collaterals, which are acceptable and can be registered with a legally empowered
registrar, include; real properties (premises, buildings and houses), motor vehicles,
construction and agricultural machinery, corporeal elements of business entities, Sharia
compliant shares etc;
6. Acceptable collaterals, which may not be registered by registrar office include;
merchandise, bank guarantee, IFB deposits in banks, Corporate/personal guarantee, and
valid import and export documents;
7. The Bank may accept second-degree mortgage /pledge as collateral if the applicant‘s
business is attractive/feasible and the value of the collateral is adequate enough to cover
all financing/loan. Moreover, the Bank may also consider it for loan/financing recovery
purpose;
8. While determining the values of collaterals, the Bank may use cost, sales comparison and
income valuation approaches, as appropriate;
9. The Bank may extend secured or unsecured financing;

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10. In order to extend unsecured IFB financings (i.e. below the Bank‘s minimum required
collateral coverage), the customer shall fulfill the following conditions:
i. The Customer‘s financing risk level shall be Grade 1or 2 or 3 or 4;
ii. With the exception of public enterprises, financial institutions and
Cooperatives/Unions, the major shareholder(s) shall sign personal/corporate
guarantee for the finance. Moreover, the Bank may demand third party guarantee, if
necessary.
11. While extending unsecured financing, the recommending and/or approving organ shall
be comfortable with viability of the customer‘s business (first way-out);
12. However, if the customer fails to fulfill the above conditions under item ‘10‘, at a
minimum:
i. For grade 1 and 2 customer, 60% of the financing shall be covered by collateral.
ii. For grade 3 customer, 70% of the financing shall be covered by collateral.
iii. For grade 4 and above customer, 85% of the financing shall be covered by
collateral.
iv. For financings to be secured against cash and cash substitute (as defined in the
NBE’s respective directive) the minimum collateral coverage shall be 50%
regardless of its level of risk grade.
v. For Micro-Finance Institutions, Unions, Cooperatives or other Associations that
could obtain a credit-guarantee, the minimum collateral coverage shall be:
a. At least 30% of the financing, if it is cash collateral; or
b. At least 40% of the financing, if it is Bank guarantee; regardless of the
financing risk grade.

13. Every acceptable properties/documents that is held as collateral by the Bank is required
to be insured by appropriate Insurance Company and same should be confirmed before
effecting any disbursement. In case of real properties, values for location and fence and
compound may be deducted from the estimated value of the collateral for insurance
purpose and in case of project financing where the approved financing is to be disbursed

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on a phase- by-phase financing scheme, the insurance coverage requirement may be

aligned with the disbursement schedules;
14. Moreover, in case insurance coverage on financings granted to agricultural sector, if the
financings are granted against physical collaterals other than the lease right and fixed
investments on the farm, insuring the physical collaterals might be adequate;
15. The IFB CRM, shall collect all the required documents for valuation, conduct due
diligence on documents and properties and forward to the Director -IFB Financing
Business/ Manager – District Business IFB (for outlying district) so that they can assign
Collateral Valuator (Maker);
16. The Collateral Valuator shall make valuation of acceptable collateral based on the
relevant Collateral Valuation Manuals/Guidelines of the Bank;
17. However, when deemed necessary, up on approval by the CEO, the Bank may use
external valuators to undertake collateral valuations;
18. The appropriateness of any collateral valuation undertaken by the Collateral Valuator
(Maker) shall be evaluated/verified by the Collateral Valuator (Checker);
19. Before conducting valuation, the IFB CRM shall ascertain the location and existence of
the asset to be estimated;
20. After finalizing the valuation, the Collateral Valuator (Maker) will forward the valuation
results with the required valuation documents to the Director -IFB Financing Appraisal
or Manager –District Operation (for outlying district);
21. The Director -IFB Financing Appraisal or Manager –District Operation (for outlying
district) shall assign the case to the Collateral Valuator (Checker);
22. In case of valuation discrepancies, the Collateral Valuator (Checker) shall discuss with
Collateral Valuator (Maker) and reach on consensus before forwarding the estimation to
the concerned Financing performer/s of the Bank; and
23. The IFB CRM, shall make a scheduled or surprise visits to the place where the collateral
is located so as to check the physical condition, modification, and physical existence of
the property.

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8.2. Types and Valuation of Collateral

8.2.1. Premises, Buildings and Houses

This category includes:
1. Premises, buildings and houses under private holdings, co-operative associations and
public enterprises;
2. Buildings/houses and land-based developments on progress if the level of completion is
acceptable by the registering organ (private, public, or co-operatives). In case of buildings
financed by the Bank, the buildings are considered as collateral regardless of the
buildings‘ construction level of completion;
3. Buildings/houses and developments on projects.
4. The valuation of premises, buildings and houses shall be made as per real property
estimation manual of the Bank.

8.2.2. Motor Vehicles

1. Motor vehicles include trucks (dry and fuel cargo) with or without trailers, buses,
automobiles, tractors and combine-harvesters etc.;
2. The Collateral Valuator (Maker) shall value vehicles based on the Mechanical valuation
Guideline of the Bank;
3. The value to be considered shall be 100% of the value estimated by the Collateral
Valuator and as discounted/adjusted by the analyst thereafter as per item No.8.3 sub item
no. 3;
4. The Bank may consider the insurance value of motor vehicles. However, the value shall
be deflated by 75% ;
5. Invoice value shall be considered as collateral value for brand new motor vehicles; and
6. For imported motor vehicles final invoice value by considering cost, insurance and
freight (CIF) value, customs clearance costs, inland transportation costs, etc. shall be
considered as collateral.

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8.2.3. Merchandise
1. Merchandise shall be held as collateral only when the facility extended in the form of
Murabaha merchandise facility;
2. In order to be acceptable as security, Murabaha merchandise shall meet the following
conditions:
iii. Its value must be determinable;
iv. The product should not be perishable; and
v. The product must be insurable.
3. The Bank through either a sole or a dual control shall effect the physical possession of
the pledged merchandise;
4. In the absence of physical possession of the merchandise, the Bank can accept Railway
Receipts, Airway Bills and Warehouse Receipts as documentary evidences so as to hold
as collateral;
5. Valuation of Merchandises shall be determined as follows:
a. Imported Merchandise
i. The value of imported merchandise shall be the sum value of Cost, Insurance
and Freight (CIF), customs clearance costs, inland transportation costs, and
packing costs (if any). The IFB CRM is responsible to determine the value of
the merchandise; and
ii. The IFB CRM shall obtain customs declaration from the customer.

b. Locally Manufactured Goods

The IFB CRM shall determine the value of merchandise based on the supplier‘s invoice
or evidence of the cost of production compared to the market value.

c. Agricultural Products
The IFB Financing Management Team of the Bank shall compile the market value of
agricultural commodities which are traded at ECX floor and provide to credit performers
to be used as the basis for valuation of same.

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8.2.4. Business Mortgage

1. Business mortgage is a security arrangement whereby financings are approved against
security of the corporeal and incorporeal element of business entity;
2. The corporeal elements of a business mortgage are those that are tangible and may consist
of building, motor vehicles, equipment, machinery, goods and other movable items;
3. The incorporeal elements of a business mortgage include goodwill, trade name, and
trademark, the right to lease the premises in which the trade is carried on, patents,
copyrights, and other special rights attached to the business itself;
4. For collateral purpose, only corporal elements of a business mortgage will be valued;
5. Registration of buildings and motor vehicles are undertaken by the concerned registering
organ. Whereas, incorporeal and corporeal elements of a business, other than buildings
and motor vehicles, shall be registered at Ministry/ Bureau of Trade or other appropriate
registering organ;
6. Valuation of business mortgage shall be determined as follows:
a. The IFB CRM shall obtain customs declaration from the customer, the detailed
technical specification, invoices, parts and assembly drawings, if any,
manufacturers address and date of production of the items held as security as part
of a business mortgage and provide to Collateral Valuator (Maker) for valuation;
b. Collateral Valuator (Checker) evaluates/checks the collateral valuation result;
c. In case of locally manufactured items, the Collateral Valuator (Maker) shall
determine the estimated cost and market value of the items. The collateral value of
items shall be the lower of cost or market value;
d. In case of imported items, the amount listed in the customs declaration shall be the
basis for determining the total value for items;
e. The cost of used machinery, equipment, furniture and other corporal elements shall
be evaluated by the Collateral Valuator (Maker); and
f. For brand new machinery, equipment, furniture and other corporal elements; the
Bank may accept Cost, Insurance and Freight (CIF), customs clearance costs,
inland transportation costs, packing costs (if any) and other relevant costs.

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8.2.5. Construction /Factory Machinery

1. It refers to machinery used for construction and Manufacturing purposes. These are
dozers, graders, loaders, excavators, scrapers, rollers, asphalt pavers, crushers, concrete
batching plants, concrete pavers, cranes, drilling rigs, wagon drills, chip spreaders etc.
and factory Machinery;
2. Valuation of these machinery shall be determined as follows:
i. By considering cost, insurance and freight (CIF) value, customs clearance costs,
inland transportation costs and etc, if the machinery is brand new. The IFB CRM
shall obtain and consider the invoice price;
ii. For used machinery, the collateral value shall be determined by bank‘s engineer as
per the bank‘s estimation guideline; and
iii. For already pledged machinery, the collateral value shall be the value as
discounted/adjusted by the IFB Analyst based on the initial estimate made by the
Collateral Valuator.

8.2.6. Agricultural Machinery

1. It refers to machinery used for agricultural purposes. These include: coffee-washing and
pulping mill, combine harvester, water pump and generator, tractor, drilling rig and
others; and
2. The collateral value of machinery pledged to a financing shall be determined as follows:
i. If the machinery is brand new, cost, insurance and freight (CIF) value, customs
clearance costs, inland transportation costs and etc shall be considered. The IFB
CRM shall obtain and consider the invoice price;
ii. If the machinery is used, the collateral value shall be determined by Bank‘s
mechanical engineer as per the Bank‘s estimation guideline; and
iii. For already pledged machinery, the collateral value shall be the value as
discounted/adjusted by the IFB Analyst based on the initial estimate made by the
Collateral Valuator.

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8.2.7. Land Lease Right and/or Coffee Plantation

1. The bank shall accept coffee plantation and/or the land lease right of the applicant as
collateral;
2. The value of the leased land shall be the amount actually paid by the leasee per the lease
agreement;
3. The value of the coffee trees, related civil works and other investments shall be estimated
by the Bank‘s valuator or external valuators selected by the Bank, as appropriate;
4. In order to hold the coffee plantation as collateral, the age of the plant shall be taken into
account; and
5. The lease right and/or land holding certificate (LHC) and the coffee plantation shall be
registered by appropriate registry organ.

8.2.8. Local Guarantee

1. Local guarantee refers a written undertaking issued by a local bank, insurance company,
FDRE Ministry of Finance or Regional States/City Administrations with confirmation of
the FDRE Ministry of Finance, as a guarantor of the borrower, stating its legally binding
commitment to pay on demand and without any contestation a sum equal to the value of
the Guarantee to the BoA in the event of default by the borrower.
2. While accepting the Guarantee, legal advice or opinion shall be obtained from the Bank’s
Legal Advisor/Officer to protect interests of the Bank;
3. The Legal Advisor/Officer of the Bank shall check legality and unconditionally of the
guarantee;
4. The CRM shall get confirmation from the issuing body regarding authenticity and
genuineness of the Guarantee;
5. The Guarantee letter shall be confirmed/signed by President/Vice President or delegated
person (at Head Office) of the respective issuing bank/insurance company. If the
Guarantee is issued by FDRE Ministry of Finance or Regional States or City
Administrations, the confirmation shall be signed by the Minister or State Minister or
delegated person of the FDRE Ministry of Finance;

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6. Expiry date of the Guarantee shall be at least three months later than expiry/maturity/full
settlement date of the financing;
7. In case of guarantee from banks/insurance companies, the value of the Guarantee shall
not be more than 15% of ‘total capital’ of the issuing bank/insurance company (‘Total
Capital’ shall include paid-up capital, legal reserve and other unencumbered reserve
acceptable to the NBE and held by the bank/insurance company as per SBB/53/2012).
8. The BoA shall, from time to time, evaluate performance of issuing banks or insurance
companies or federal or regional or city administration (financial or capacity to honor
obligations/guarantee) and may shortlist eligible issuers from whom the Bank accepts
guarantee as collateral; and
9. The Guarantee shall fully cover the financing facility (100% coverage).

8.2.9. Foreign Bank Guarantee

1. A foreign bank guarantee refers to a written undertaking issued by a foreign bank as a
guarantor of the customer, stating its legally binding commitment to pay on demand and
without any contestation a sum equal to the value of the guarantee to the bank in the event
of default by the customer. While accepting the bank guarantee, legal advice or opinion
should be obtained from Legal Adviser/Officer of the Bank;
2. The value of the guarantee shall be expressed in Birr or in a convertible foreign currency
and shall be determined based on the collateral requirement stated above under section
8.1 item no. 12;
3. The foreign bank guarantee, received through International Banking Service‘s ‘SWIFT‘,
shall be confirmed by the International Banking Service per se;
4. The foreign bank that issues the guarantee shall have a risk grade of ‘A’ and above as per
Standard and Poor‘s rating or equivalent of Moody‘s or Fitch in their latest rating; and
5. The Bank‘s Legal Adviser/Officer shall check the documents to protect the interest of the
Bank.

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8.2.10. Deposits in BoA’s Branches

These include any type of Sharia’h compliant saving, demand and time deposits
maintained in any branch of the BoA. A letter of consent from the customer that
authorizes the BoA to have all rights on the account must be filled and presented as per
the standard format of the Bank. Such deposits shall be blocked until the financing is
fully settled.

8.2.11. Negotiable Instruments

a. Share Certificates

The Bank shall accept fully paid Share Certificates issued by Sharia’h compliant
financial institutions and other companies as security in the following manner:

i. Only 100% of the par value of Share shall be taken;

ii. A contract of pledge shall be signed between the shareholder and the BoA and
the former handovers the Share certificates to the Bank;
iii. The Sharia compliant financial institution or company that issued the share shall
also give its confirmation in writing that witness registration of the certificate and
undertake not to transfer same to any person without a written consent of the
BoA;
iv. The Shares shall be registered by the issuing financial institution or companies
for the finance amount; and
v. The BoA will not advance any finance by holding its own shares as security.

8.2.12. Other Forms of Collateral

a. Export Credit Guarantee

Export Credit guarantee scheme is a guarantee issued by the Development Bank of
Ethiopia (DBE) for the purpose of covering a portion of financing losses incurred by the
BOA in case the borrower fails to pay back.

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b. Personal Guarantee
This refers to a legally binding written commitment issued by individual(s) to cover the
outstanding financing balance in case the customer defaults. The Bank shall thoroughly
scrutinize the capacity of the guarantor. The Bank’s Legal advisor/Officer shall give
his/her legal advice thereon.
c. Corporate Guarantee
It refers to a legally binding written commitment issued by a corporate entity stating that
the guarantor shall cover any outstanding financing balance in case of default by the
borrower. The Bank shall thoroughly scrutinize capacity of the guarantor. The
company’s memorandum or article of association shall authorize the general manager to
issue corporate guarantee in the name of the company and this shall be presented to the
Bank. The Bank‘s Legal Adviser/Officer shall give his/her legal advice.
d. Valid Import/Export Documents
It refers to valid documents involved in Import and Export Letter of Credit.
e. Letter of Comfort
i. Though it is not legally binding document, the Bank may request parent
company‘s letter of comfort when it believes it facilitates the recovery of the
financings.
ii. The Bank may accept those collaterals not mentioned in the above list, where
these collaterals are legally acceptable and the same is approved by the CEO.

8.3. Revaluation of Collateral

1. Premises, buildings and houses shall be revalued in every five years. However,
revaluation of collateral shall be undertaken at any time based on the following
conditions:
i. When a sudden price decline of the property held as collateral is ascertained or
suspected;
ii. When reports are received indicating that the property held as collateral has sustained
damages or master plan changes have affected the collateral;

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iii. When construction is added to it;

iv.When foreclosure decision is made against collateral; and
v. Other reasons.
2. The revaluation of collateral can be initiated by the customer or IFB CRM, as appropriate,
based on the above stated conditions;
3. The estimated value of Machinery, Motor vehicles and corporal elements of a business
mortgage shall be adjusted based on the following yearly depreciation rate by IFB
Financing Analysts.
a. After the functionality and existence of the property (ies) is ascertained by the IFB
CRM; the value of the Machinery shall be depreciated at a rate of 7% per annum for
factory Machinery and 10% for construction Machinery, Corporeal elements of
business mortgage & Motor Vehicles; and
b. Whereas the value of the vehicle and machinery shall be depreciated proportionately
for the remaining years till the book value is Zero.
4. In the case of motor vehicle, the IFB CRM shall collect evidentiary document that affirm
the annual inspection has been made on the vehicle(s) road worthiness; and
5. The Collateral Valuator (Maker and checker) shall be responsible for revaluating the
collateral as per the Bank‘s valuation guidelines.
8.4. Replacement or Release of Collateral
When a customer presents a request to release collateral, after analyzing the risk and
formal approval by the appropriate IFB financing committee, the financing officer may
replace or release the collateral.

8.5. Legal Defects

1. If properties offered as collateral found to have legal defects as well as construction
defects, it shall be disclosed to financing approving and other concerned financing
performers so as to proactively and retroactively mitigate associated risk; and
2. The risks of the legal defects and mitigating factors shall be clearly stated.

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CHAPTER NINE
IFB-FINANCING APPROVAL SYSTEM

9.1 General Guidelines

1. All IFB Financings, except those that are to be approved by the CEO, shall be approved
by a team composed of three members. Each approving team member is appointed by the
CEO or his/her delegate based on the competence, proven judgment, experience, etc. to
the level required to perform his/her roles effectively;
2. Discretionary Financing Limits (DFL) of IFB Financing Approval team shall be set by
the CEO based on amount of financing and financing risk grade;
3. In case of affiliated companies, DFL shall be set based on the group‘s total exposure limit
and risk rating. The CEO may also revise the DFL thereof periodically;
4. The CEO or his/her delegate shall communicate the DFL to the appropriate IFB
Financing Approval team in writing;
5. The CEO shall change, suspend or reinstate the IFB Financing Approval team/individual
member(s) based on, inter alia, the following main factors:
i. Findings of the Internal Audit, Risk Management, etc.;
ii. Feedback obtained on the quality of the Financing (NPFs recovery rate, etc.)
approved by the IFB approving team/individual concerned;
iii. The competence and commitment of IFB approving team/individual member(s);
iv. The complexity and volume of the financing cases handled by the various IFB
approving teams/individual;
v. Changes in demand for financing requests due to variations in the economic
environment of localities or sectors; and
vi. Lack of character and integrity, breach of confidentiality, frequent absence,
conviction for a criminal act, or transfer to other locations, etc.
6. Each individual approving or recommending an IFB financing proposal carries full
accountability for that decision—severally as well as collectively—and shall exercise
independent, informed financing judgment;

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7. Financing approval shall be made as per the IFB Financing Business Procedure of the
Bank;
8. All financing decisions by the IFB approving team will preferably be made by a
consensus. In the absence of a consensus, decisions will be made by a majority vote;
9. Financing decision on appeal cases shall be decided by the next higher IFB Approving
Team/Individual;
10. The IFB Financing approving team/individual member(s)/delegate(s) present in the
meeting shall sign on the Finance Approval Form (FAF);
11. The IFB Approving Team/Individual shall clearly indicate adequate and relevant reasons
for its decision;
12. The IFB Financing Approving team/individual shall independently deliberate and decide
on the financing request/proposal;
13. Each IFB approving team/individual can decide on the unsecured financing and advances
within its discretionary financing limit; and
14. Each of the approving team/individual members is accountable to the CEO.

9.2 IFB Financing Decision-Making Organs

9.2.1 Composition
The compositions of the IFB financing decision-making bodies of the Bank are the following:

S
No. Approving Team's Name Composition
1 CEO CEO
1. Chief Executive Officer (Chairperson)
Executive Interest Free Financing
2 2. Chief Credit Officer (Member)
Committee
3. Vice President IFB (Member)
1. Vice President IFB (Chairperson)
2. Director - IFB Financing Business
3 Senior Interest Free Financing Committee
(Member)
3. Director - IFB Appraisal (Member)
Head Office Interest Free Financing 1. Director - IFB Appraisal
4
Committee (Chairperson)

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S
No. Approving Team's Name Composition
2. Director - IFB Financing Business
(Member)
3. Director - IFB Business Service
(Member)
1. District Manager (Chairperson)
2. Manager - District Operation
District (Outlying) Interest Free Financing
5 (Member)
Committee
3. Manager - District Business IFB
(Member)

9.2.2 Discretionary Financing Limit

Discretionary Financing Limit of each Financing Team/Individual is presented as follows:

a. IFB Financing Business Center – Head Office

‘X’ -DFL by Customer’s Credit Risk Grade

Amount of
IFB Financing finance (Total Bankable Non-Bankable
Financing Approving Financing
Business Team’s Exposure
Team Name including the 1 2 3 4 5 6 7 8
new request)
*In’ Birr
Head
Office
All Qard al
IFB All Grades
CEO Hassen Term
Financing
Financings
Business
Center
Executive
Interest
Free X>200,000,000
Financing EIFFC EIFFC EIFFC EIFFC EIFFC EIFFC EIFFC EIFFC
Head
Committee
Office
50,000,000<X<
IFB
200,000,000
Financing Senior
*Appeal and
Business Interest
exception cases
Center Free
on consumer & SIFFC SIFFC SIFFC SIFFC SIFFC EIFFC EIFFC EIFFC
Financing
mortgage
Committee
finance

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‘X’ -DFL by Customer’s Credit Risk Grade

Amount of
IFB Financing finance (Total Bankable Non-Bankable
Financing Approving Financing
Business Team’s Exposure
Team Name including the 1 2 3 4 5 6 7 8
new request)
*In’ Birr
X< HOIFFC HOIFFC HOIFFC HOIFFC HOIFFC SIFFC SIFFC SIFFC
50,000,000
All Consumer NA
Head and Mortgage
Office Finance.
Interest Appeal and All grades
Free exceptions on
Financing District
Committee regular/workout
cases
All write-off
proposals of the
Districts

b. Outlying Districts Financing Business Centers

‘X’ -DFL by Amount of finance (Total

Customer’s Credit
Approving Committee Financing Exposure including the new
Risk Grade
request) *In’ Birr
District (Outlying) Interest • X < 10,000,000.
Free Financing Committee • All Consumer and Mortgage Finance. All grades.
of All Districts • All workout loan cases of the District.
N.B:
1. All exception, appeal and renegotiation of financings (rescheduling/restructuring, wavier
of periodic repayment, reconsideration, etc.) shall be decided by the next higher
committee;
2. All workout finance cases and write off proposals of the Addis Ababa Financing Business
Center shall be decided by the respective IFFC at the Head Office based on their
respective discretionary financing limit;
3. For financings already approved by outlying districts, cases of exception, appeal and
renegotiation of financings shall be decided by HOIFFC, but for financings initially
approved by EIFFC, the renegotiation shall be decided by the committee itself; and

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4. The decision passed by the EIFFC shall be final (no appeal shall be considered on the
decision of EIFFC).

9.3 Quorum
All IFB Financing Approving Team members shall always attend the IFB financing
approving team‘s meeting. However, if a member (at Head Office and the District
Manager at outlying) is out of duty, he/she may delegate to a capable performer and the
delegation shall be approved by the Vice President - IFB. However, any delegations for
other members of the outlying financing approving teams shall be approved by the District
Manager. The IFB financing approving team is considered to have quorum when at least
two of its permanent members and one delegate are present. In the absence of this, the
financing request shall be presented and decided by the next higher financing approving
team/ or the same approving team shall decide on the cases upon approval of the delegates
by CEO/ Vice President – IFB.

9.4 The Credit Financing Decision-Making Process

1. The IFB CRMshall collect/receive the customer‘s application with a complete set of the
required documents/information and forward it to theDirector -IFB Appraisal or Manager
– District Operation (outlying), and also forward brief report to the IFB financing
approving team members so as to make them aware on the financing application;
2. The Director -IFB Appraisal or Manager – District Operation (outlying)shall direct the
customer‘s financing application to the IFB Financing Expert/IFB Analyst/Credit
Underwriter for financing analysis/appraisal processing;
3. The IFB Financing Expert/IFB Analyst/Credit Underwriter may request whatever
information needed from the IFB CRM and independently conduct detail financing and
risk analysis/appraisal;
4. After finalizing his/her/their analysis report, the IFB Financing Expert/IFB
Analyst/Credit Underwriter shall forward it to the IFB CRM;
5. Based on the analysis report, the IFB CRM shall put his/her own recommendation and
reasons thereon and forward it to the appropriate IFB financing approving team for

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deliberation and approval. However, to expedite the financing delivery process, the IFB
Financing Expert/IFB Analyst/Credit Underwriter shall forward the analysis report to the
IFB financing approving team and IFB CRMat a time;
6. Both the IFB CRM and the IFB Financing Expert/IFB Analyst/Credit Underwriter shall
present themselves as resource persons during the IFB financing approving committee’s
meeting;
7. The appropriate IFB financing approving committee will independently review,
deliberate and decide on the financing proposal;
8. All financing recommendations made by the IFB CRM and the IFB Financing Expert/IFB
Analyst/Credit Underwriter and decisions made by the IFB financing approving
committee must always be accompanied by valid reasons;
9. The IFB financing approving committee members shall sign on the FAF. The IFB CRM
should make sure that all members in a quorum have signed on the FAF.

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CHAPTER TEN
FINANCING DECISIONS AND CUSTOMER’S FILE MANAGEMENT

10.1. Communicating the Financing Decision

1. Every financing decision shall be immediately communicated by the respective IFB
CRM through a letter which clearly states the terms of the financing decision and
conditions set to be fulfilled before disbursement of the financing, if any to the customer
with a copy to the concerned District and branch; and
2. When the financing decision is declined, the letter should clearly state the reason for the
decision.

10.2. Reconsideration
Any customer, who has a request for an amendment or who has new developments after
the financing is approved but before the financing is disbursed, which may lead the
previous approving committee to decide otherwise may lodge a reconsideration request
through the IFB CRM. Reconsiderations shall be deliberated by the same financing
performers that approved the finance. In case of re-approval, the case shall be deliberated
according to the DFL of the respective approving committee.

10.3. Appeal
1. The Bank entertains appeal in order to maintain customer‘s satisfaction;
2. Any customer, dissatisfied with the Bank‘s decision on a financing application may lodge
an appeal through the Branch or IFB Financing Business Centre within 30 days from the
date a financing decision is communicated;
3. If the appeal is lodged at Branch, the Branch shall forward the appeal to the concerned
IFB CRM for further scrutiny;
4. The IFB CRM forwards the case to the Director- IFB Financing Appraisal or Manager –
District Operation so that he/she shall assign the case to the IFB Financing Expert/IFB
Analyst/Credit Underwriter that has not previously handled the case;

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5. The IFB Financing Expert/IFB Analyst/Credit Underwriter processes the request by

incorporating justifications forwarded by the customer in view of the Bank‘s policy and
procedure and the reasons given by the approving team;
6. The appeal proposal shall be reviewed both by the IFB Financing Expert/IFB
Analyst/Credit Underwriter and IFBCRM, and be forwarded to the next higher/concerned
the IFB-Financing approving team. In case of appeal from outlying districts, the financing
appraisal shall be conducted by the Financing Appraisal Team at the Head Office level;
and
7. The IFB-Financing approving team shall review and decide on the appeal proposal.

10.4. Contract Preparation

1. Contract refers to both financing/sales and security contract. Contract preparation
commences immediately after getting the customer‘s consent for acceptance of the terms
and conditions of the financing decision;
2. The Bank shall have standard financing/sales and mortgage contract formats. However,
if the financing approval requires additional clauses to the standard format, the concerned
Legal Adviser/Officer in collaboration with the IFB-CRM prepares and/or designs tailor
made contracts as per the terms and conditions of the financing decision;
3. For Branches that are located over 30 km radius from the IFB Financing (District or Head
Office) Business Center, the Legal Adviser/Officer together with the respective IFB
CRMshall prepare the financing/sales and mortgage/pledge contracts and send to the
branch to be signed by the Branch Manager on behalf of the Bank, as the case may be;
4. The contract, inter alia, shall stipulate the borrower‘s/guarantor‘s profile, the amount of
the facility, drawdown deadline, profit rate, availability period, final maturity date, agreed
repayment schedule, description of collateral, the rights and liabilities of the parties to
the contract, and other appropriate items;
5. The contract shall always protect the interests of the Bank;
6. Contracts shall be prepared at a minimum of four copies;

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7. Separate contracts shall be prepared for financing/sales and mortgage contracts as the
case may be;
8. For District IFB Financing Centers, legal advisors/officers and/or credit administrators
under Manager – District Business (conventional) shall carry out the duties stated in this
procedure.

10.5. Contract Formation

1. The contract shall be signed between the Bank, the customer and/or his/her spouse and
the guarantor/mortgagor or his/her spouse (if any);
2. For Branches that are located within 30km radius from the IFB Financing (District or
Head Office) Business Center, contracts shall be signed by the IFB CRM on behalf of
the Bank with the respective customer and/mortgagor/guarantor. The Legal
Adviser/Officer of the Bank shall cosign the contracts to authenticate the appropriateness
and correctness of the contracts;
3. As the case may be, for branches that are located over 30km radius from the IFB
Financing Business Center, the Branch Manager, after signing the contract on behalf of
the Bank, shall register the contracts with the concerned government body, get collateral
insured, and send the registered contracts, for disbursement of the financing to the IFB-
CRM and Legal Adviser/Officer at the respective IFB Financing Business Center. The
Legal Adviser/Officer shall check the completeness of the contracts and sign before filing
and if there are any discrepancies, communicate to the branch for immediate rectification.
However, if the customer comes to the center at his/her own initiation, contracts can be
concluded at the center;
4. Witnesses shall sign in the space provided attesting that they have seen the parties signing
the contracts;
5. If the customer and/or mortgagor are/is an illiterate person or visually impaired, his/her
hand thumb impression (finger prints) shall be obtained in all the documents in front of
the witnesses thereof;
6. Parties to the contract shall sign throughout all contract documents;

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7. After the contracts are correctly prepared and signed, revenue stamp shall be affixed to
each original contract in accordance with the prevailing terms and the tariff book of the
Bank. Stamp duty charges have to be also collected per the existing regulations of
appropriate government organ. Sufficient copies of contracts shall be prepared so that
one copy is given to the customer and/or mortgagor;
8. For District IFB Financing Centers, legal advisors/officers and/or credit administrators
under Manager – District Business (conventional) shall carry out the duties stated in this
procedure.

10.6. Contract for Renewable Facilities

1. The financing/sales contract for Revolving Term Finance, Pre-shipment-i and Guarantee
facilities-i (if backed by collateral) shall be concluded for the facility limit;
2. For revolving facilities-i, pre-shipment-i and Guarantee facilities-i (if backed by
Collateral), renewal at a reduced limit, a supplementary facility contract indicating the
new limit shall be prepared and signed. However, the IFB-CRM shall ensure that the
balance has come down to the new limit before the contract is signed;
3. For revolving facilities-i, pre-shipment-i, Guarantee facilities-i (if backed by Collateral)
renewal at an increased limit, new contracts shall be prepared for the additional amount;
4. The financing/sales contract for facilities such as merchandise financing facilities-i need
not be concluded for the facility limit; rather, contracts shall be signed by the Customer
Relationship Manager and Legal Adviser/Officer for each advance/financing to be made
to the customer;
5. Financing/sales contract/MMFA for Pre-shipment Export credit facility-i shall be
concluded for the facility limit. However, the financing/sales contract/MMFA shall
clearly states that, customer written application for each advance, sales contract/ letter of
credit, disbursement instruction letter, and loan/financing debit tickets as the case may
be, implicitly are part of the loan/financing contract. Moreover, the stated documents, if
they could not be generated from the core banking system, shall be held as security
documents and shall be kept in safe custody;

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6. In this case, the IFB-CRM shall make sure that the presented sales contract/s are proper
and as per the required Bank standard, and the customer written application has clearly
incorporated the amount of each advance requested before disbursing the financing;
7. Before renewal of revolving facilities-i and pre-shipment facilities-i on the system, if
there is any outstanding balance, declaration of indebtedness shall be signed by the bank
and the customer; and
8. For District IFB Financing Centers, legal advisors/officers and/or credit administrators
under Manager – District Business (conventional) shall carry out the duties stated in this
procedure.

10.7. Contract Registration

1. Security contracts signed between the Bank and customer shall be registered with the
authorized government organ;
2. The Financing/Credit Administrator is responsible for effecting the registration of the
security contracts and collecting them. The Bank‘s Legal Adviser/Officer shall be
responsible for confirming the registration of the security contracts at the appropriate
governmental office. But for that of outlying Branches located more than 30km from the
IFB Financing Business Centers, as the case may be, it might be the responsibility of the
Branch;
3. The designated Legal Adviser/Officer shall ensure whether the security contracts are duly
registered and ascertain that the Registrar Office has retained copies of the documents.
The original certificates of ownership of the collaterals shall be kept in the safe custody
of the Bank. The Legal Adviser/Officer is also responsible for proper follow up of the
expiry of statuary period of contracts;
4. Security contracts shall be registered with the appropriate/concerned registering organ;
and
5. For District IFB Financing Centers, legal advisors/officers and/or credit administrators
under Manager – District Business (conventional) shall carry out the duties stated in this
procedure.

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10.8. Insurance/Takaful
1. Before disbursement of the financing, the Bank shall secure appropriate insurance
policies for all insurable collateral where the Bank is explicitly included as first and co-
beneficiary. Insurable collateral includes: buildings, houses, motor vehicles,
merchandises, corporeal elements of business mortgage, machinery, agricultural
plantation and produces, etc;
2. The Bank requires the borrower to purchase insurance policies as appropriate.
3. Upon transporting of seized vehicles to the central or regional pool, pending acquisition
or foreclosure, transit insurance shall be purchased for the transit time only;
4. Renewal of insurance policies for motor vehicles under the custody of the Bank, pending
foreclosure or are acquired shall be limited for risks of fire and theft. The maximum
renewal period shall be for one year. However, immediately after the property is sold, the
insurance policy shall be cancelled and the Bank shall request refund from the insurance
company;
5. Vehicles held as collateral for NPF/Ls and whose whereabouts is known but not brought
under the custody of the Bank shall be insured for risks of fire and theft for a maximum
of one year;
6. Notwithstanding the above, movable properties held as collateral for NPF/Ls and whose
whereabouts is not known for more than two years should not be insured;
7. Insurance renewal premium for properties held as collateral shall not be paid provided
the value of the property is significantly reduced due to depreciation (age), mishandling,
loss (disappearance), natural calamities, or originally exaggerated estimation and its
current value is not worth insuring. Nonetheless, cancellation of the insurance policy shall
be effected after obtaining approval of the respective IFB financing approving team;
8. Every acceptable property/documents that are held as collateral by the Bank are required
to be insured by appropriate Insurance Company before effecting financing
disbursement. However, in case of project financing where the approved financing is to
be disbursed on a phase- by-phase financing scheme, the insurance coverage requirement
may be aligned with the disbursement schedules. Furthermore, in case of real properties,

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values attached for location and fence and compound can be excluded from the sum
insured;
9. Prior to accepting an endorsement of insurance policies, the IFB CRM shall carefully
examine the policies to ensure that all the relevant risks to which the collateral is exposed
are covered;
10. The Financing/Credit Administrator and IFB CRM are responsible for follow-up and
renewal of insurance policies. He/she shall prepare insurance follow-up cards or may use
internally developed software applications that prompts the expiry of statutory period of
contracts and insurance policies. The IFB CRM, Financing administrators, and property
administrators, as the case may be, shall be responsible for any damage that may arise
because of inadequate insurance coverage or non-renewal of the policy upon expiry;
11. An insurance policy is considered renewed only after the Bank‘s written renewal request
has been delivered to the Insurance Company and same is duly acknowledged by a receipt
with premium payment;
12. Insurance premium payments to properties held as collateral shall be effected before or
on issuance of cover by the Insurance Company;
13. The designated Legal Adviser/Officer shall verify the appropriateness of the insurance
policies;
14. If the limit is revoked and the outstanding balance is less than the insurance premium,
the IFB CRM shall consult the customer for his/her/its consent whether to renew the
insurance policy or settle the outstanding financing balance;
15. If the Bank is not interested to renew the insurance policy, the policy shall be cancelled
on time; and
16. For District IFB Financing Centers, legal advisors/officers and/or credit administrators
under Manager – District Business (conventional) shall carry out the duties stated in this
procedure.

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10.9. Financing Disbursement

1. Financing facility shall be disbursed after proper execution of all financing contracts,
security documents and insurance policies. Once the financing and security contracts are
properly signed, registered and insurable collaterals are properly insured, the approved
financing will be credited to the customer‘s, suppliers’, sellers’ etc account upon
fulfillment of all preconditions;
2. Before disbursement of the financing, copy of each contract shall be given to the
customer. The original financing contract, with the revenue stamp affixed, must be kept
at the respective IFB Financing Business Centers in safe custody together with other
security documents;
3. Prior to effecting any disbursement, the IFB CRM, the Financing/Credit Administrator
or the respective Director or Manager, as the case may be, shall check the specific
documents in the financing file of the financing applicant against the established
documentation checklist to ensure conformity, completeness in documentation and
registration formalities;
4. Disbursement shall be made in accordance with the disbursement terms and conditions
specified in the financing decision;
5. Should the Bank discovers warning signals/adverse developments subsequent to approval
of a financing request but before disbursement of the finance, the IFB CRM shall
recommend appropriate remedial action and forward to the approving team for
reconsideration;
6. If a customer fails to conclude a contract as per the approved terms and conditions within
120 days from the date of approval, it will automatically become unapproved. In such
cases, the IFB CRM shall advise the customer to apply for re-approval to the respective
approving committee. However, if the IFB CRM gets strong justification, he/she may
extend the conclusion of the contracts of approved financing for additional 60 days
/totally up to 180 days/. Furthermore, after concluding a financing contract, the financing
shall be disbursed fully or partially within nine months’ time, otherwise the case shall be
presented to the IFB Financing approving committee for re-approval by the IFB-CRM;

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7. Notwithstanding the stipulation under item 6 above, in case of project financing, the
finance shall be disbursed as per the schedule of the project and the terms and conditions;
8. In case of project financing, if the promoter fails to commence the implementation as per
the agreed work schedule (if there is no progress on the project work) for the last one
year, subsequent to signing of the contract, the approval and contract shall be cancelled
and the borrower/financing customer shall apply afresh. And this stipulation shall be
incorporated in the contract agreement;
9. Nevertheless, the Bank may exceptionally extend the project implementation waiting
time beyond one year if the lag in project progress is believed to be due to acceptable
reasons;
10. Motor Vehicle/Construction or Agricultural Machinery Financing Disbursement:
A. If the vehicle or machinery is to be purchased from local supplier:
i. The applicant shall be advised to submit a contractual agreement signed by
himself/herself/itself and the supplier and raise the amount of equity contribution.
If the supplier wants advance payment, the Bank may effect same upon the
written consent of the borrower from the blocked equity contribution. On
exceptional cases, however, advance payments effected can be considered as
equity if backed by valid supporting documents;
ii. Before effecting disbursement, the IFB CRM shall also communicate the
approval to the supplier, advising him/her/it to undertake the following:
a. Submit the actual invoice or a letter, confirming the agreed final price;
b. Confirm that the motor vehicle/construction machinery is brand new;
c. Transfer the title of ownership to the buyer; and
d. Complete the registration process, in collaboration with the concerned Bank
staff, and hand over the ownership booklet (libre) to the Bank.
iii. The customer shall buy an insurance policy that names the Bank as the first and
co-beneficiary of the policy;
iv. The proceeds of the financing shall be paid directly to the supplier against a
written consent of the customer; and

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v. If the Bank believes there will be high risk in ownership transfer and registration
of the property as collateral, it may require the customer to cover the cost by
himself/herself/itself and refund the approved amount after completion of the
registration.

B. If the vehicle or machinery is to be directly imported from abroad:

i. The applicant shall be advised to submit the final agreed price and open
irrevocable letter of credit by depositing his/her/its equity contribution (if
any) as margin held or if the customer is not required to deposit equity
contribution, the letter of credit could be opened at zero percent margin.
However, the L/C shall be opened by the applicant/agent/partner etc. as
appropriate;
ii. Before effecting disbursement/before settlement of the outstanding letter
of credit;
a. The customer shall provide undertaking letter to facilitate the transfer
and registration process in collaboration with the concerned Bank staff,
and hand over the ownership booklet (libre) to the Bank;
b. The IFB CRM shall strictly follow-up the progress until the registration
process is finalized;
c. If the Bank believes that there will be high risk in ownership transfer and
registration of the property as collateral, it may require the customer to
settle the outstanding letter of credit by itself and refund the approved
amount after completion of the registration; and
d. If the body of the vehicle is to be made by local manufacturer, the
customer shall bring an agreement/contract with the manufacturer or
undertaking letter as appropriate, where the manufacturer is responsible
to complete the body work, the registration process, in collaboration with
the concerned Bank staff, and hand over the ownership booklet (libre) to
the Bank.

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iii. The customer has to buy an insurance policy that names the Bank as the
first co- beneficiary of the policy;
iv. The proceeds of the financing shall be utilized for opening/settlement of
letter of credit opened at BoA or other banks as the case may be and for
covering of other related costs; and
v. If the final agreed price exceeds the amount shown in the Performa
invoice, the customer shall cover the difference.
11. For District IFB Financing Centers, legal advisors/officers and/or credit administrators
under Manager – District Business (conventional) shall carry out the duties stated in this
procedure.

10.10. Disbursement Process

1. IFB CRM, as an in putter, shall originate facility limit setting, disbursement and other
financing related transactions and the Director-IFB Financing
Business/Manager/Operation Officer or his/her delegate as appropriate or District
Business IFB or Operation Manager (in case of outlying districts) is responsible to
authorize the transactions made by the in putter; and
2. In the case of facility, the approved limit shall be set at the IFB Financing Business Center
with proper check and balance as per number ‘1‘above and the Branch may facilitate the
transactions, as required.

10.11. Financing and Security File Management

10.11.1. Documentation
1. The respective IFB Financing Business Centers are required to maintain two types of
files for each financing relationship: a Financing File and a Safe Custody File;
2. Financing File is the file that contains all financing -related documents plus financing
related correspondence. The respective Financing Administrator shall ensure that the
customer‘s file contains the financing documents described under the Financing File
Documentation Checklist;

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3. Safe Custody File is the file that contains all legal and collateral-related documents;
4. Before documents are kept in safe custody, their completeness and legality shall be
confirmed by the respective Legal Adviser/Officer;
5. After disbursement has been effected, so as to protect the legal interest of the Bank and
the customer, the financing and safe custody files shall be maintained centrally at the
respective IFB Financing Business Centers in secured and safe conditions and in a way
that ensures easy retrieval of the files in case needed. Nevertheless, staff financing safe
custody and financing files can be handled at Branches or District (outlying) as the case
may be;
6. All safe custody files shall be held under the dual control of two Financing/Credit
Administrators. Whether they may hold two different physical keys or one holds the
physical key and the other combination code of safe custody/vault/ to maintain check
and balance. However, the respective Director or Manager shall oversee the
effectiveness of the process. A duplicate key and the combination code shall be handed
over to Director -IFB Financing Business/District Manager. In the absence of the
assigned custodians/Administrators, written delegation shall be made with a formal
approval of the respective Director or Manager;
7. In case a need arises to change or modify any security document, the Legal
Adviser/Officer shall check the necessity of the modification and assure that the
changed /modified documents are free from any defect.
8. Brief particulars of contractual and security documents should be recorded in register
book /security lodgment book/ taking and handing over format prepared for the purpose.
9. The Financing Administrator or Property Administrator should ensure that the
following recent documents should be located in the left hand side of the financing file:
i. Customers Financing-Risk Rate/Grade Worksheet and Action Plans;
ii. Range of Accounts;
iii. Bad Debt Review Form for NPF/Ls; and
iv. Documentations Checklist.

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10. For District IFB Financing Centers, legal advisors/officers and/or credit administrators
under Manager – District Business (conventional) shall carry out the duties stated in
this procedure.

10.11.2. Financing File-Pruning

1. The Financing Administrator or Property Administrator or custodian is responsible to
undertake financing file pruning on a regular basis to assist proper file storage
requirements and easy access to the current information;
2. When a financing file is considered bulky and requires pruning, all correspondence and
reports over the last twelve-month period (the period can be reduced when the file is still
considered to be bulky) should be transferred to the old financing file before the new
financing file is created. The Financing Administrator is also responsible to maintain the
last financing application and the FAF, with related annexes, in the new financing file;
3. The new financing file then replaces the old financing file. The financing files shall be
numbered and stored consecutively. The financing file number, the date of the pruning
and the dates covered should be clearly written on the face of the financing file being
stored and must also be recorded on the inside left cover of the replacement financing
file;
4. The Financing Administrator or Property Administrator or custodian as the case may be
must maintain a central index card of all stored financing files in a numerical order. A
central index card should contain the storage number, the customer‘s name, and the date
of the financing file pruning and the dates covered.
5. When the financing account is closed, Financing Administrator or Property
Administrator or custodian as the case may be must complete an index card with the
following information:
i. Customer‘s name and address;
ii. Number of relevant files;
iii. Period covered;
iv. Date last account closed; and

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v. Storage numbers allocated to the closed file.

6. The index card should be stored in an alphabetical sequence and reviewed annually by
the Director or Manager.
7. For District IFB Financing Centers, legal advisors/officers and/or credit administrators
under Manager – District Business (conventional) shall carry out the duties stated in this
procedure.

10.11.3. Financing Files Dispatch Procedure

1. To keep track of the movement of the financing documents and establish responsibility
for their security, all exchanges of the financing documents between teams or within
teams shall be strictly made through the Financing/Credit Administrator or Property
Administrator or Custodian as the case may be, using the document dispatch system of
the Bank.
2. All financing files of customers must contain a list of all original/copy documents
received and retained as the case may be and copy of security documents. But all original
security documents shall be held in safe custody. The list of all original Security
documents received and retained by the Financing/Credit Administrator shall be signed
by the IFB CRM, Legal Adviser/Officer and Financing/Credit Administrator/Branch
Manager or his/her delegate (staff).
3. To avoid loss of documents and enhance convenience, Financing/Credit Administrator
shall take the following into consideration, and act on them accordingly, whenever
documents are to be dispatched to any bank organ within the BoA:
i. Financing/Credit Administrator or Property Administrator or custodian will forward
only photocopies of the original documents kept with him/her, unless originals are
specifically requested for; and
4. Photocopies of documents forwarded must first be checked against the originals held
and must bear the signature of the Financing/Credit Administrator or Property
Administrator or custodian.

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5. For District IFB Financing Centers, legal advisors/officers and/or credit administrators
under Manager – District Business (conventional) shall carry out the duties stated in this
procedure.

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CHAPTER ELEVEN

REGULAR FINANCING FOLLOW-UP AND COLLECTION

11.1. The Need for Regular Financing Follow-Up

A financing granted on the basis of sound analysis/appraisal might go bad because the customer
may not meet his/her/its obligations per the terms and conditions of the financing contract. It is
for this reason that follow up and monitoring is essential. Therefore, in the follow-up function,
the Bank shall:
i. Ensure compliance with terms and conditions;
ii. Monitor performance to check continued viability of operations;
iii. Make periodic assessment of the health of the financing;
iv. Ultimately ensure recovery of the installments of the principal and
markup/profit in case of Murabaha term financing as per the scheduled
repayment program; and
v. Identify early warning signals, if any, and initiate remedial measures
thereby averting loss from possible default.

11.2. Early Warning Signals in Regular Financing Follow-up

i. Decline in risk grading/ratings;
ii. Lack of commitment on the part of management;
iii. Sluggish periodic financing repayments/delay in meeting term
commitments to the bank;
iv. Frequently bouncing of cheques;
v. Any legal proceedings against the customer;
vi. Suspicion of fraud;
vii. Failure to keep terms and condition of Letter of Guarantees; and
viii. Other indicatives.

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11.3. Regular Financing Follow-Up

1. The IFB CRM is principally responsible for regular financing follow-up on a case-by-
case basis.
2. For branches located within 30 km from the center, all types of follow up shall be done
by the IFB CRMs;
3. For branches located beyond 30 km from the center, regular and frequent follow up of
customer and business visit shall be done by the Branch as the case may be. IFB CRMs
shall be responsible for bulk follow up. He/she shall visit customers of the branch as a
whole periodically;
4. However, he/she shall get monthly reports on the status of all financings and take
appropriate measures. If there are customers who need special attention due to huge
amount of financing or any other signal, the IFB CRM shall make strict follow up
regardless of the distance;
5. IFB CRMs shall strictly follow up corporate and commercial customer financings on a
case-by-case basis regardless of the distance from the center;
6. In so doing the IFB CRM identifies those customers that need special attention and
categorize them as “watch list” for further close follow-up and appropriate remedial
action;
i. Management of workout loans/bad finances of the IFB financing shall
be handled by the respective IFB financing center at Head Office and
District within their own discretionary financing limit;
ii. If the decision is legal action, the IFB CRM transfers the case along with
relevant documents to the respective IFB Financing Approving Team for
execution. If the decision is restructuring/ rehabilitation, the IFB CRM
amends and updates all documentations (Contract, registration,
insurance, etc); and
iii. In case of financings granted in the form of facility such as Revolving
financings-i, Letter of credit and Pre-shipment financing-i, etc., the IFB

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CRM should confirm periodically that the facilities shall continue until
the specified renewal period. Otherwise, he/she shall forward the case to
the concerned IFB approving team for deliberation.

11.4. Types of Regular Financing Follow-Up

Basically there are three types of financing follow up systems, which the IFB CRM is
expected to perform. These are:
i. Physical Follow-Up;
ii. Financial Follow-Up;
iii. Legal Follow-Up; and
iv. System Follow-Up.

11.4.1.Physical Follow-Up
1. Physical follow up helps to ensure existence and operation of the business, status of
collateral properties;
2. If there are early warning signals in customer`s business, the concerned IFB CRM shall
visit and ensure the physical existence and status of collateral properties.

11.4.2.Financial Follow-Up
1. Financial follow-up is required to verify whether the assumptions on which financing
decision was taken continues to hold good both with regard to customer’s operation and
environment;
2. The Bank shall pay directly to third parties/designated beneficiaries (such as suppliers,
contractors, etc.) as per the terms and conditions of disbursement reached at the time of
financing negotiation; and
3. The concerned IFB Customer Relationship Manager shall make strict and continuous
follow up on each customer‘s murabaha revolving facility and pre-shipment account
performance. However, the Customer Relationship Manager shall at least quarterly
confirm to the respective Director or Manager that the account has been performing with
a standard acceptable to the Bank.

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11.4.3.Legal Follow-Up
1. The purpose of legal follow up is to ensure that the legal recourse available to the Bank
is kept alive at all times. It consists of obtaining proper documentation and keeping them
alive, registration and proper follow up of insurances;
2. The IFB CRM and the Legal Adviser/Officer/ the Financing/Credit Administrator as the
case may be are jointly responsible for legal follow-up;
3. Some of the major legal follow up issues include:
i. Whether contracts are properly executed by appropriate persons and
documents are complete in all aspects;
ii. Obtaining revival letters in time (revival letter refers to renewal letter for
registration of security contracts that have passed the statutory period as
laid down by the law).

11.4.4. System Follow-Up.

In addition, the IFB CRMs are responsible for ensuring financing transactions involving
disbursements, repayments, and fund transfers made on the iMAL core banking module
are properly reflected in similar GL lines on the T24 module.

11.5. Follow-Up of Project Financing

1. Since a project financing is repayable out of cash generated over a period of time, it is
essential that a project be monitored on an ongoing basis throughout the maturity of the
financing period; and
2. Follow up for project financing can be divided into two categories:
i. Follow-up during implementation stage; and
ii. Follow-up after commencement of production.

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PART THREE
PROBLEM FINANCE MANAGEMENT

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CHAPTER TWELEVE

PROBLEM FINANCE MANAGEMENT

12.1. Definition
Problem financing/loans shall mean financings that are not paid as per the agreements made
between the customer and the Bank including non-performing financings (NPL/Fs) as defined
in the Directives of the National Bank of Ethiopia.

12.1.1.Conditions for treating IFB Financings as Workout cases

1. Financings will be treated as workout cases when one of the following conditions are
met.
i. Immediately, when a financing is classified as an NPL as per NBE’s pertinent
directive;
ii. When a customer is rated Grade-6 or above as per the Financing Risk Grading
parameters;
iii. When there is a potentially adverse condition on the business/finance, as
identified by the IFB CRM;
iv. Immediately, when the restructured finance fails to perform as per the
conditions set during approval; or
v. Others
2. Owing to the number and magnitude of workout finance cases, problem finances (as
defined above) at the district financing business centers shall be managed by the
respective financing management team of the district.

12.2. The Workout Finance Management Process

12.2.1.The Workout Process

1. The IFB CRM fills the Bad Debt/Finance Transfer Form properly and forwards to
Director –IFB Financing Business/Manager – District Business IFB along with a
financing file through a covering letter;

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2. Once a problem financing is treated as the Workout case, the concerned Branch shall
automatically open an independent suspense or A/Receivable account and accumulates
any amount to be paid on behalf of the customer such as insurance premium, estimation
fee, registration fee, court fee, etc.;
3. The Director –IFB Financing Business/Manager – District Business IFB assigns IFB
CRM to handle the case;
4. The Director –IFB Financing Business/Manager – District Business IFB, together with
the assigned IFB CRM design negotiation strategies and action plans. The respective
IFB CRM shall provide adequate information on the history of the financing to the
newly assigned IFB CRM team that is responsible to design the negotiation strategies;
5. The IFB CRM is principally responsible for non-performing IFB financings negotiation
and follow-up on a case-by-case basis, evaluates and determines the viability of the
customer’s business;
6. Before the IFB CRM commences negotiation with the borrower, he/she has to examine
the financing file thoroughly and gets technical support from the Legal Adviser/Officer
and others and negotiates with the borrower in line with the negotiation strategies;
7. The IFB CRM shall draw up an action plan for its detailed implementation if the
underlying problems are deemed correctable. If the recovery of the financing is feasible,
appropriate decisions must be made as to the particular elements to be included in the
recovery package, which may include any one or a combination of the following
options:
i. Injection of additional financing, as appropriate;
ii. Restructuring/extension of the repayment period with the consent of the concerned
parties (customer and mortgagor/guarantor);
iii. Requesting additional collateral or change of collateral;
iv. Cross-collateralizing multiple financings;
v. Putting additional covenants;
vi. Arranging sellout/buyout of loans/financing and advances/financings to/from
other banks as per the governing rules;

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vii. Arranging the sale of the business to a third party with the consent of the customer;
viii. Arranging transfer of financing from one customer/borrower to other customer
upon request by the customer/borrower, based on the mutual agreement of both
the customer/borrower and the would-be buyer of the financing, when an
acceptable agreement is submitted to the Bank and a new buyer of the financings
is deemed to be better than the actual customer. Such arrangement shall, however,
get prior approval of the SAC;
ix. Voluntary liquidation of collateral;
x. Voluntary realization of other assets of the borrower/settlement by the
mortgagor/guarantor;
xi. Replacement or improvement of the management of the borrower’s business;
xii. Assigning a co-manager or a controlling staff to work with the
customer/borrower’s company on behalf of the Bank;
xiii. Persuading owners, shareholders, and directors/managers of customer/borrowers
to enter into a personal guarantee contract with the Bank; and
xiv. Other appropriate options to recover the NPFs.
8. If agreement is reached or negotiation is deemed exhausted, the Director – IFB
Financing Business/Manager –District Business IFB shall assign the case to IFB CRM
who is not initially involved in the negotiation with the defaulter so as to identify and
measure risks and prepare resolution proposals;
9. After review, the IFB CRMs recommend on the workout strategies and forward the
proposal to the respective IFB Financing Approving team/individual and may present
in the committee’s meeting as resource persons;
10. The appropriate IFB Financing Approving team/individual shall independently review
and decides on the workout proposal as per the discretionary approval authority
indicated in this procedure;
11. All workout finance recommendations made by the IFB CRM and decisions made by
the IFB Financing Approving team/individual must always be accompanied by valid
reasons;

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12. All the IFB Financing Approving team members must sign on the Workout Financing
Approval Form. The IFB CRMs should make sure that all members in a quorum have
signed on the Workout Financing Approval Form;
13. The IFB Financing Approving team/individual shall inform its/his/her decision to the
concerned IFB CRM;
14. The IFB CRM communicates the decision to the customer;
15. The amendment contract, which is prepared by the Legal Adviser/Officer shall be
signed by the IFB CRM and the customer/borrower;
16. The IFB CRM is responsible for strict follow-up of the case until the customer’s
business is proved to generate sustainable cash flow to warrant full settlement of the
debt through legal action or other remedial action;
17. Once decision is made to pursue the legal route, the case shall be transferred to the
Financing Recovery Team/the Legal Service Team (in case of outlying districts) for
legal execution;
18. The concerned IFB CRM should supply all the information he/she has, if any, to the
pertinent legal team and follows up the implementation of the decision;
19. Partial collections from the NPFs shall be made as per the pertinent civil code No.1752
of the country. Repayments shall firstly be applied to costs, then to profit, and finally
to the principal amount; and
20. The number of iterations and minimum cash collection for rescheduling, restructuring
or renegotiating of financing shall be governed as per the Directives of the National
Bank of Ethiopia.

12.2.2.Financing Recovery Negotiation Points

The IFB CRM shall consider and negotiate the following points with the borrower or the
concerned parties:
1. The customer’s/borrower’s/guarantor’s proposal for repaying his/her/its debt;
2. Source and capacity of repayment (down payment and periodic repayments);
3. Settlement conditions;

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4. Collateral;
5. Tenure/duration of restructuring or rescheduling of the financings;
6. Additional covenants, if any, etc.

12.2.3. Partial Settlement of a Financing through Voluntary Liquidation of Collaterals

If a customer decides to reduce the total outstanding balance by selling some of the properties
held as collateral in order to reduce the regular periodic repayment, etc., the IFB CRM should
consider the following:
1. For vehicles, the IFB CRM may consider the Bank’s current expert valuation, or the
customer’s offer price through negotiation with third parties, as obtained, whichever is
the highest;
2. In case the IFB CRM finds that the voluntary liquidation proposal is to the best
advantage of the Bank, he/she has to ensure that the security coverage is still better than,
or at least equal to the former; and
3. When a voluntary liquidation towards the partial settlement of a financing involves
collateral in the form of buildings, the building should be estimated as per the Bank’s
collateral valuation procedure. The IFB Financing Approving Team shall compare the
valuation result against the borrower’s price quotation and consider whichever is higher
for decision.

12.3. Re-Transfer/Re-classification of Regularized Financings

1. Cases shall be reclassified as regular finances or will be transferred back to the original
IFB CRM where the customer’s business is believed to generate sustainable cash flow
to warrant full settlement of the debt and fulfills the relevant NBE directive;
2. If the workout strategy was approved by the IFB Financing Approving Team for the
second time, the IFB CRM prepares proposal substantiating with facts obtained from
the performance of the business and forwards to the IFB Financing Approving Team
for approval;

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3. In all other cases, management of the account along with the financing file will remain
with the newly assigned IFB Customer Relationship Manger until it is either settled or
the debt is written off.

12.4. Application of Penalty Rate on NPFs

1. The customer shall undertake to pay a self-imposed penalty of 3% per annum beginning
from 90 days elapse or as soon as the financing account turns into NPF, of the respective
repayment for all types IFB financing modalities.
2. The 3% penalty rate shall be waived for a restructured/rescheduled IFB financings.
3. The penalty collected from problem finance shall only be used for charity purposes.
4. For penalty calculated after substandard status, as per the pertinent directives of NBE,
the performers shall check that the system raises accounting entry by debiting the Past
Due/PD account of the customer/borrower and crediting Charity Fund Account.

12.5. Conditions that Instigate Execution of Legal Decisions

Legal process can be executed under any of the following mechanisms:
1. When a workout financing case under Head Office or District Business IFB is decided
not recoverable through amicable means.
2. When the relevant IFB Financing Approving Team decides to recover the debt through
legal means upon the proposal of the concerned IFB CRM. The CRM shall deliver all
pertinent documents to Loan Recovery/Legal Service Team for legal execution.

12.6. Restructuring of NPFs under ALD (After Foreclosure/Litigation Decision)

1. When a defaulter appeals against a legal action and tries to cooperate with the Bank by
effecting repayment and/or offering additional collateral, the Bank should be ready to
take the opportunity and start negotiations with him/her/it, if negotiating with the
defaulter is in the best interests of the Bank.
2. The customer should submit a letter of application for the suspension of the decision or
for an immediate rescheduling of the financings under foreclosure and litigation to the

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IFB Head Office or District Business IFB (in case of outlying branches) by indicating
his/her/its commitment.
3. The Bank has to seek a minimum down payment that is to be determined and set based
on negotiation with the defaulter to have the foreclosure decision suspended for three
months provided that the Bank would lose nothing in the process.
4. If the customer requests for an immediate rescheduling, substantiated by sufficient
repayment capacity, the IFB CRM may demand for a higher down payment and
additional collateral, when necessary. For rescheduling the financing, the IFB CRM
should consider all the repayments the customer might have made after the foreclosure
decision has been made as a good gesture toward the Bank. Furthermore, the Bank may
consider down payments collected for suspension, as advance payment, for
rescheduling the debt.

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12.7. Workout Cases Decision-Making Organs

12.7.1.Composition
The compositions of the Workout cases decision-making bodies of the Bank are the
following:
a) Head Office Workout Financings Decision Making Organs

S
No. Approving Team's Name Composition
1. Chief Executive Officer (Chairperson)
Executive Interest Free Financing
1 2. Chief Credit Officer (Member)
Committee
3. Vice President IFB (Member)
1. Vice President IFB (Chairperson)
2. Director - IFB Financing Business
2 Senior Interest Free Financing Committee
(Member)
3. Director - IFB Appraisal (Member)
1. Director - IFB Appraisal
(Chairperson)
Head Office Interest Free Financing 2. Director - IFB Financing Business
3
Committee (Member)
3. Director - IFB Business Service
(Member)
1. District Manager (Chairperson)
2. Manager - District Operation
District (Outlying) Interest Free Financing
4 (Member)
Committee
3. Manager - District Business IFB
(Member)

b) Outlying Area Financing Business Centers

S
No. Approving Team's Name Composition
1. District Manager (Chairperson)
2. Manager - District Operation
District (Outlying) Interest Free Financing
1 (Member)
Committee
3. Manager - District Business IFB
(Member)

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12.7.2.Workout Financings Approving Team Discretionary Financing Limit

The Discretionary Financing Limit of the Workout Financings Approving Team/Individual
is presented as follows.
i. Head Office Workout Financings DFL
‘X’ -DFL by Customer’s Credit Risk Grade
IFB Financing Amount of finance Bankable Non-Bankable
Financing Approving (Total Financing
Business Team’s Exposure including
Team Name the new request) *In’ 1 2 3 4 5 6 7 8
Birr
Executive All grades
Interest Free
X>200,000,000
Financing
Committee
Senior All grades
50,000,000<X<
Head Interest Free
200,000,000
Office Financing
IFB Committee
Financing X< All grades
Business 50,000,000
Center Head Office Appeal and exceptions All grades
Interest Free on District workout
Financing cases
Committee
All write-off proposals
of the District

ii. Outlying Area Workout Financings DFL

X-DFL by Amount of
Approving Financing (Total Credit
Customer’s Credit Risk Grade
Committee Exposure including the new
request) *In’ Birr
Outlying Districts
Workout All Workout Financings cases
All Grades
Financings of the District
Approving Team

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CHAPTER THIRTEEN
WORKOUT CASES FOLLOW UP

13.1. General Provisions

1. The IFB CRM is principally responsible for workout financing follow-up on a case-by-
case basis.
2. The IFB CRM undertakes close follow-up of his/her respective cases not only to confirm
repayment of currently maturing debts but also he/she has to ensure continuity of the
repayment for the financing duration.
3. In this regard, the IFB CRM should carry out assessment of the borrower’s business
viability by indicating key performance indicators such as profitability, activity level,
management of the business, etc.
4. In so doing, the IFB CRM identifies those Non Performing Financing that need special
attention for further close follow-up and appropriate remedial action.
5. The IFB CRM shall contact customer/borrowers, visit and advise them to settle the arrears,
overdue amounts, improve utilization of the facility within mutually agreed time or get
better business management and performance.
6. If the customer/borrower does not respond positively within the agreed time, the IFB CRM
shall send a written notice to the borrower advising that immediate repayment should be
made. The IFB CRM shall also arrange for a meeting with the borrower to discuss the
matter.
7. Should all efforts made under items (5) and (6) above fail to produce the desired result, the
IFB CRM shall closely follow-up and negotiate with the borrower and seek for possible
resolution for the problem at hand. Finally, the IFB CRM should produce remedial proposal
and present the case with relevant documents to the respective IFB Financing Approving
Committee/Team to deliberate on the case.
8. If the decision is legal action, the Director-IFB Financing Business/Manager – District
Business IFB at outlying districts shall forward the case to Loan Recovery/Legal Service
for proper legal action. But the IFB CRM is responsible to make strict follow-up on the

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status of the legal proceeding of the case. If the case is not resolved through remedial
actions, the IFB CRM is also responsible to initiate the write-off proposal to the IFB
Financing Approving Committee and conduct post write-off follow-up for the written-off
cases.

13.2. Types of Workout Cases Follow-Up

Basically there are three types of Workout Cases follow-up systems, which the IFB CRM is
expected to perform. These are:
i. Physical Follow-Up;
ii. Financial Follow-Up;
iii. Legal Follow-Up; and
iv. System Follow-Up.

13.2.1.Physical Follow-Up
Physical follow-up helps to ensure existence and operation of the business, status of collateral
properties, correctness of declared financial data, quality of goods, conformity of financial
data with other records (such as register books), availability of raw materials, labor situation,
marketing difficulties observed, undue turnover of key operating personnel, change in
management set up, etc.

13.2.2.Financial Follow-Up
1. Financial follow-up is required to verify whether the assumption on which the restructuring
decision was taken continues to hold good both in regard to borrower’s operation and
environment.
2. The concerned IFB CRM has to make strict and continuous follow-upon each customer’s
financing account performance and reports to the Director– IFB Financing Business and
Manager- District Business IFB.

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13.2.3.Legal Follow-Up
1. The purpose of legal follow-up is to ensure that the legal recourse available to the Bank is
kept alive at all times. It consists of obtaining proper documentation and keeping them alive,
registration, and proper follow-up of insurances.
2. The IFB CRM and the Legal Adviser/Officer are jointly responsible for legal follow-up.
3. Some of the major legal follow-up issues include:
i. Whether contracts are properly executed by appropriate persons and documents are
Complete in all aspects;
ii. Obtaining revival letters in time (revival letter refers to renewal letter for registration
of security contracts that have passed the statutory period as laid down by the law);
iii. Ensuring sales/financings/mortgage contracts are updated timely;
iv. Examining the regulatory directives, laws, third parties claim, etc.

13.2.4. System Follow-Up.

In addition, the IFB CRMs are responsible for ensuring financing transactions involving
disbursements, repayments, and fund transfers made on the iMAL core banking module
are properly reflected in similar GL lines on the T24 module.

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CHAPTER FOURTEEN

WRITE OFF PROCESS

After having fully exhausted all possible means for the recovery of IFB financings and
ascertaining that the property found in the name of the borrower/guarantor, their spouses, or
the collateralized property is proved not to cover the financing fully. And after having
ascertained that there is no other attachable property to cover the remaining balance fully or
partially, the initiating organ may request the Loan Recovery Unit/Legal Service (Outlying
Districts) to compile evidences that justify the financing or part of the financing it proposed
for write-off is unrecoverable.

14.1. Initiation of Write-off

Write-off proposals (partial or full write-off) can be initiated by the IFB CRM or Branch
manager.

14.2. Evidentiary Requirements for Write-Off

1. Proposals for write-off should be supported by authentic and sufficient evidence as
indicated below;
2. Write-off initiating organs should ensure that supporting documents are complete and
authentic;
3. If initiating organs find it beyond their capacity to present supporting documents, they
should justify it; and
4. Write-off recommendation shall be accompanied by documentary evidences from
appropriate offices as indicated below except for Financings and advances up to principal
balance of Birr 20,000 for Addis Ababa city branches and Birr 10,000 for outlying
branches.

14.2.1.Absence of Property
1. Report by Kebele or, in the case of rural areas, other local administration office reports, on
the basis of their records, regarding the address or forwarding address of the

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customer/borrower/guarantor concerned and information pertaining to the business of the

customer/borrower/guarantor;
2. Report by the municipality or competent authority confirming, on the basis of its records,
that the customer/borrower/guarantor does not own property (building/land);
3. Report by the Ministry (Bureau) of Trade and Industry or any authorized organ confirming,
on the basis of its records, that the borrower/guarantor does not own any other business
establishment;
4. Report by the Transport Bureau or any competent authority confirming, on the basis of its
records, that the borrower/guarantor does not have any vehicle;
5. Report by the originating organ that it is not aware of any property owned by the owner;
and
6. In case of partial write-off, current valuation report from the Bank’s property valuators
and/or a court evidencing that the value of the collateral or the attachable property (the
amount recoverable) can be used for the settlement of part of the financing that will not be
written-off. This is to determine the amount to be partially written-off.

14.2.2.Insolvency
Where the recommending organ believes that the debtor/guarantor is insolvent, it has to present
a call-report, which indicates insolvency of the customer/borrower supported by the financial
statements of the borrower. It must also be clearly shown that rescheduling the debt will not
solve the problem.

14.2.3.Bankruptcy
Where the customer/borrower/guarantor is declared bankrupt, the recommending body must
produce a copy of the court decision to that effect.

14.2.4.Higher Cost of Recovery than the Realizable Value of the Property

1. The Legal Adviser/Officer (at IFB Head Office Financing Business Team or IFB District
Financing Business Team) in collaboration with the IFB CRM shall determine the legal and
other related costs involved to recover the debt. In order to determine the realizable value

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of the property, valuation shall be done as per the Bank’s property estimation procedure. If
the need arises, external consultants shall appraise the property.
2. The originating organ shall compare the cost of recovery against the realizable value of the
property as determined above and recommend for write-off, if he/she found out that taking
the case to Court would not be to the benefit of the Bank.

14.2.5.Defects in Documentation
If the assigned Legal Adviser/Officer (at IFB Head Office Financing Business Team or IFB
District Financing Business Team) believes that there is no legal ground to sue, he/she should
present his/her legal opinion to the IFB Financing Approving Committee in writing within a
week. If the Committee supports the stand of the Legal Adviser/Officer, the case shall be
presented for write-off.

14.2.6.Court Judgment against the Bank

When final appellate court passes judgment against the Bank, copy of the court ruling and a
written statement by the Legal Adviser/Officer that all legal means have been exhausted shall
be obtained.

14.2.7.Elapse of Statutory Period

In this case, no evidentiary documents for absence of properties are required for approval.

14.3. Processing of Write-off Cases

The initiating organ for write-off proposal:
i. Shall identify financing to be written off in accordance with the requirements laid
down in the IFB Financing Business Policy provisions for Write-off.
ii. Should complete the format for recommending and approving financing for write-
off.
iii. Attach the required evidentiary/supporting documents or gives justification/s for
missing documents and forward to approving teams.
iv. The approving team puts its recommendation and forwards it to the BoD for
approval

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14.4. Maintaining Register Book

1. The Director– IFB Financing Business and Manager- District Business IFB shall maintain
a central registry of all written-off IFB financings together with the supporting documents.
2. The Management Information System Team of the Bank for periodic review and control
and credit information inquiry shall maintain copy of the list of written-off cases at any
level.
3. The initiating organ and/or Branches shall also maintain records of their own written-off
cases.

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CHAPTER FIFTEEN
LONG OUTSTANDING NPFs and POST-WRITE OFF FINANCING RECOVERY
PROCESS
Write-off does not imply that a claim thereof would not be lodged. Rather it is a technical term
for removal of the account from the balance sheet. Therefore, when a debtor becomes solvent
or property is found in the name of the defaulter/guarantor or the debtor/guarantor or third party
is willing to pay a debt, or if any financial institutions operating in Ethiopia is willing to buyout
the written-off financing and advances, the Bank shall take an appropriate action to recover the
outstanding amount. Moreover, this approach shall also be applied to those long outstanding
NPFs and cases under litigation whose recovery is remote.

15.1. Follow up and Recovery of written off IFB Financings

15.1.1.Follow-up of written off Financings

i. Follow-up by the Bank

The Bank shall conduct follow up on written off financings as follows:
a. The IFB Financing Business Team /District Financing Business Team shall maintain
proper record of all written-off IFB financings of the Bank;
b. Branch Manager shall maintain proper record of all written-off IFB financing of the
Branch;
c. Stock of written-off financings shall be reviewed periodically and priority shall be
given in their order of contract date or the last litigation date starting from the earliest
in order to initiate the proposal for the appropriate decision;
d. The IFB CRM is in charge with conducting post write-off follow-up in collaboration
with the concerned branches;
e. If any attachable property is found in the name of the customer/borrower or
guarantor, the IFB CRMor the Branch manager shall report to the Director– IFB
Financing Business or Manager- District Business IFB as the case may be; and

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f. The Director– IFB Financing Business or Manager- District Business IFB, upon
verification shall forward the case for litigation.

ii. Follow-up of written-off cases with Support of an Informer

The Bank may strengthen its follow-up in collaboration with external informers as follows:
a. Informer shall mean a person who provides adequate information to the Bank on the
existence of attachable property in the name of the borrower or guarantor;
b. The Bank may pay 5% of the total net income gained from the sales value of the
property sold to the informer as commission (Net income= sales value-other costs
incurred to sale the property-refund to the customer if any);
c. The Informer shall provide adequate written information on the attachable property
to the Bank including specific address, ownership, how he/she obtain the
information and others as requested by the Bank;
d. The informer shall never get the information from Bank's staff;
e. The information shall be presented to the Director– IFB Financing Business and
Manager- District Business IFB as the case may be ;
f. The Director– IFB Financing Business and Manager- District Business IFB shall
ensure that the Bank does not have any information on the stated attachable
properties. If the Bank has the information, the proposal shall be rejected;
g. The Director– IFB Financing Business and Manager- District Business IFB shall
verify the information and provide undertaking letter to the Informer stating that, if
the Bank could sell the attachable property following all the legal proceedings, it
will pay 5% of the total net income gained from the sales value of the property;
h. After collection of all the sales proceeds of the attachable property, the Director–
IFB Financing Business and Manager- District Business IFB as the case may be
shall authorize the concerned branch to effect payment to the informer; and
i. The Bank shall not disclose the informer's name to a third party.

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15.1.2.Written-off Financings Recovery through Litigation

Upon written-off financings, the Bank conducts post write-off follow-up as enumerated in
this procedure, while conducting the follow-up, the Bank may find attachable property in
the name of the customer/borrower or guarantor, in this regard; the Bank shall proceed as
follows:
i. Ensure that the property is in the name of the borrower or guarantor;
ii. Compile all the necessary documents and forward the case to the respective
Legal/Loan Recovery Team for litigation;
iii. Litigation shall proceed as per the litigation procedure; and
iv.Up on sale of the attachable property, the sales proceeds shall be considered as other
income.

15.2. Reinstatement of Written-off Cases and Recovery of Long Outstanding NPFs

While the Bank conducts financing recovery follow-up on those long outstanding NPFs
and/or written-off cases, the customer/borrower or guarantor or other third party (applicant)
may be interested to pay the debt with their own initiation by negotiating with the Bank. In
this regard, the Bank shall proceed as follows:

15.2.1.Process
1. Recovery of long outstanding NPFs and reinstatement of written-off cases shall be
processed in line with the workout Financing Procedure;
2. The defaulter/guarantor or any third party shall submit written application, repayment
plan and other relevant proposal documents to the Director– IFB Financing Business
and Manager- District Business IFB as the case may be;
3. If application is lodged at branches, the Branch Manager shall forward it to the Director–
IFB Financing Business in Addis Ababa or to the Manager- District Business IFB in
outlying areas;
4. After collection of application with supporting documents, Director– IFB Financing
Business for Head Office Financing Business Center or to the Manager- District

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Business IFB for outlying districts shall assign the case to the IFB CRM for further
negotiation and processing;
5. The IFB CRM shall negotiate with the applicant to recover long outstanding NPFs or to
reinstate the written-off cases and the estimation of collaterals if any;
6. The IFB CRM reviews the case, proposes recommendations and forward to the
respective IFB Financing Approving Committee for deliberation and decision;
7. The respective IFB Financing Approving Committee shall independently review,
deliberate and decide on the financing proposal as per the discretionary approval
authority;
8. After obtaining the approval of the committee, the IFB CRM shall communicate the
decision to the customer in writing;
9. The Legal Adviser/Officer shall design and prepare financing and mortgage contracts
for the reinstated financing or restructured long outstanding NPFs as per the conditions
stated during approval by incorporating all legal requirements;
10. The Financing/Credit Administrator/Property Administrator shall ensure the registration
of mortgage and financing contracts by the appropriate organs and the property is backed
by appropriate insurance policy;
11. The IFB CRM shall take overall management and follow -up of the reinstated financing
or restructured long outstanding NPFs;
12. The applicant could pay the debt at a time or on installment basis. However, if the
applicant's proposal is to pay the debt on installment basis, there shall be defined and
sustainable source of income;
13. The maximum financing repayment period shall be 15 (fifteen) years; and
14. The Bank may issue letter of clearance to the customer after he/she/it fully settled the
debt, as per the above stated agreements.

15.2.2.Eligibility Criteria
1. The applicant shall be willing to conclude a new financing and/or mortgage contract, at
least with all the liabilities attached in the original contracts; and

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2. The applicant shall pay at least 5% of the total debt (principal plus profit) as down
payment for negotiation.

15.2.3.Profit& Penalty on NPF Renouncement Conditions

Based on the proposal of the applicant on how to pay the debt (lump sum payment, down
payment, installment period, repayment period, source of income, collaterals, etc), the Bank
may renounce a certain portion of the accumulated profit as follows:

Applicant’s Offer The Bank’s Offer

1. If the applicant is willing to pay the debt at a The Bank may renounce 50% of the
time or at lump sum, uncollected profit and penalty amount.
2, If the applicant is willing to pay the debt on
installment basis and offer collaterals that could The Bank may renounce 25% of the
cover >100% of the total remaining debt uncollected profit and penalty amount.
(principal plus profit/penalty),
3.If the applicant is willing to pay the debt on
installment basis and offer collaterals that could The Bank may renounce 20% of the
cover 75% (inclusive) up to 100% of the total uncollected profit and penalty amount.
remaining debt (principal plus profit/penalty),
4.If the applicant is willing to pay the debt on
installment basis and offer collaterals that could The Bank may renounce 15% of the
cover 50% (inclusive) up to75% of the total uncollected profit and penalty amount.
remaining debt (principal plus profit/penalty),
5.If the applicant is willing to pay down
The Bank may renounce 20% of the
payment of at least 50% of the total debt and
uncollected profit and penalty amount.
the remaining on installment basis,
6.If the applicant is willing to pay down
The Bank may renounce 15% of the
payment of at least 30% of the total debt and the
uncollected profit and penalty amount
remaining on installment basis,
7.If the applicant is willing to pay down
The Bank may renounce 10% of the
payment of at least 20% of the total debt and
uncollected profit and penalty amount
the remaining on installment basis,
8.If the applicant is willing to pay down
The Bank may renounce 5% of the
payment of at least 10% of the total debt and
uncollected profit and penalty amount
remaining on installment basis,
9.If the applicant is willing to pay only the
The Bank may renounce 3% of the
minimum down payment (5%) and remaining
uncollected profit and penalty amount
on installment basis,

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Applicant’s Offer The Bank’s Offer

Profit and penalty amount renouncement
shall be first made to pay down payment
and related percentage stated herein above.
10.If the applicant is willing to offer collateral
And then after, the second profit and
and interested to pay down payment less than
penalty amount renouncement shall be
the minimum down payment,
made based on the value of the collaterals
offered and related renouncement
percentage stated herein above.
The profit and penalty amount
renouncement percentage shall be
11.If the applicant is interested to pay down determined by taking average of the upper
payment more than the minimum down and lower percentages stated herein above.
payment and if the offer falls between either of However, to take the average of the two,
the above stated down payment percentage, the down payment offer shall at least
exceed by 5% from the minimum down
payment in the range.

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15.2.4.Approval Authorities
Approval Limit (Principal amount of written-
Approving Committee/Individual
off Financings and advances)
CEO Appeal and Exception of the Executive IFFC
Executive IFFC at the Head Office All requests of the IFB Financing Business
Center at Head Office within its DFL
Appeal and Exception of the Senior IFFC
Senior IFFC at the Head Office All requests of the IFB Financing Business
Center at Head Office within its DFL
Appeal and Exception of the Head Office IFFC
Head Office IFFC at the Head Office All requests of the IFB Financing Business
Center at Head Office within its DFL
Appeal and Exception of the District Financing
Approving Team
Outlying District IFB Financing All requests of the IFB Financing Business
Approving Committee Center at Outlying Districts

15.3. Sellout Long Outstanding NPFs and/or Written off Cases to Financial Institutions
If any of the financial institutions operating in this country is interested to buyout long
outstanding NPFs and/or written-off cases, the Bank shall process as follows subject to the
approval of the SAC:

15.3.1.Eligibility Criteria
1. The applicant shall fulfill all the legal requirements;
2. The applicant shall come up with a proposal on how to collect the debt from the
defaulter; and
3. The applicant shall fully settle the long outstanding NPFs and/or the written-off
financing amount to be sold in cash upon signing an agreement.

15.3.2.Discount
If a financial institution is willing to buyout the long outstanding NPFs and/or written-off
financings and fulfils all the eligibility criteria stated above, the Bank may discount up to
50% of the uncollected profit and penalty amount.

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15.3.3.Approval
The approval to sellout written-off financings and the agreement therein shall be made by
the Chief Executive Officer.

15.4. Renouncement of Personal Guarantee

For financing granted against personal guarantee, if borrowers are willing to pay their debt
and request to be relieved from the guarantee, it shall be treated as follows:
1. Financings that have been granted against personal guarantee and written off as per the
Bank's IFB Financing Business policy and procedure;
2. The guarantor/Customer or any interested organ shall submit written application,
repayment plan and other relevant proposal documents to the Director– IFB Financing
Business or Manager- District Business IFB or Branch as the case may be;
3. The customer's application to renounce financing granted to other persons against their
personal guarantee and to pay their own financing shall be decided by the Head Office
Interest Free Financing Committee (Outlying centers or Addis Ababa arrears as the case
may be), regardless of the normal discretionary financing or write off decision limits;
4. The applicant shall pay his/her/its debt (both principal, profit and penalty) as per the
agreement to be made between the Bank and himself/herself/itself. If the customer could
not settle the financing at once, the customer shall present an undertaking letter to the
bank based on the agreement reached.
5. The Bank shall issue letter of clearance to the customer after he/she/it fully settle the
debt, both principal, profit and penalty amount;
6. If the customer could not pay the debt at once, the bank may write letter of undertaking
which states that the bank will write letter of clearance after full settlement of the debt;
7. Each repayment of the financing shall be fully recognized as other income as stipulated
in the IFB Financing business procedure.

15.5. New Financing Request

1. An applicant who has been agreed and concluded a financing contract to pay long
outstanding NPFs and/or written-off cases as enumerated in this procedure will be

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eligible for new financings as far as he/she/it fulfills all other requirements related with
the requested financing;
2. However, provision of new financings shall never be a precondition for negotiation on
recovery of long outstanding NPFs and/or reinstatement of written-off financings; and
3. Provision of new financings in this regard, except article 2.2 (item-6), shall be handled
as per this procedure.

15.6. Entries on Reinstatement of Written off Financings

1. Written-off and reinstated financing shall remain off-balance sheet items and when there
is collection it shall be considered as other income;
2. Accounting entries shall be made as per the Accounting Procedure of the Bank; and
3. The Branch, Director– IFB Financing Business and Manager- District Business IFB
(outlying districts) shall maintain a ledger for control and collection follow-up.

15.7. Reporting
The Director– IFB Financing Business and Manager- District Business IFB (outlying districts)
shall produce a detailed report on restructured long outstanding NPFs and/or reinstated
Financings on a monthly basis.

15.8. Confidentiality
All information related to Write-off, reinstatement and about informer (identity, address and
name) shall be kept confidential. It shall not be disclosed to any external parties and internal
organs of the Bank who are not involved directly or indirectly in the write-off process. Its
breach would entail administrative and legal measures.

15.9. Appeal
1. Any customer dissatisfied with the Bank's decision may lodge an appeal or reconsideration
request within 30 days from the date a financing decision is communicated;
2. For cases at Head Office the appeal proposal shall be processed as per the financing business
procedure and be forwarded to the respective approving team/individual and for cases

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initially decided by outlying district financing approving team the case shall be decided by
the HOIFFC; and
3. The IFB Financing Approving Team shall review and decide on the appeal proposal.

PART FOUR

FINANCING DECISION ON EXCEPTIONS

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CHAPTER SIXTEEN

FINANCING DECISION ON EXCEPTIONS

16.1. Approval and Level of Exceptions

This IFB Financing Business Procedure is expected to cover the majority of the financing
provisions presented to the Bank. There may, however, be occasions when the performers
are led to believe that a financing/workout proposal shall be exceptionally approved even
though it does not strictly comply with the Bank’s financing procedure.
For the purpose of this IFB Financing Procedure:
• Exceptions shall mean that financings approved by variations from the
IFB Financing Procedure. However, the nature of the financing request or
the issues raised therein is within the spirit of the IFB Financing procedure.
In this regard, IFB financing requests shall be treated as follows:
1. IFB financings/workout proposals approved on exception shall be limited based on the
level of risk exposures; and
2. IFB financings /workout proposals to be approved by exception from the Procedure
shall be decided by the next higher IFB Financing Approving Team. However, such
decisions shall be justified with sound reasons and shall be reported to the CEO on
quarterly basis.

16.2. Revision of the IFB Financing Business Procedure

This IFB Financing Business Procedure shall be revised in every three years. However, if a
need arises, it may be amended at any time.

16.3. Repeal
Any directive, manual or procedure and circular or memorandum, issued on regular IFB
financing provision, financing recovery management, and reinstatement of long outstanding
NPFs and written-off financings is repealed and replaced by this IFB Financing Business
Procedure.

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16.4. Effective Date

This IFB Financing Business Procedure is approved by the Chief Executive Officer of the Bank
of Abyssinia and shall be effective as of the ---------------------.

__________________________
Bekalu Zeleke
CEO

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