New rural finance programme to help millions of Ethiopian farmers build resilience in the face of climate change and COVID-19

Against the backdrop of the global impacts of the COVID-19 pandemic and climate change, particularly in African countries, the Government of Ethiopia and the International Fund for Agricultural Development of the United Nations (IFAD) have launched a new US$305.7 million programme to help the most vulnerable farmers increase their resilience.

The third phase of the Rural Financial Intermediation Programme (RUFIP III) is beginning at a crucial time. Implemented by the Development Bank of Ethiopia, it will help farmers to access financial services, raise and diversify their incomes, improve nutrition and build their resilience in rural areas threatened by climate change.

The virtual launch involved project participants, government officials, UN and IFAD staff, including Solomon Desta, Vice Governor of the National Bank of Ethiopia, Yohannes Ayalew, President of the Development Bank of Ethiopia, Catherine Sozi, United Nations Resident Coordinator to Ethiopia and said Ulaç Demirag, IFAD Country Director for Ethiopia.

The funding includes a $35.1 million grant and $4.9 million loan from IFAD, with significant cofinancing from international development partners and from national financial institutions. The Government of Ethiopia’s contribution is $51.9 million and $0.9million from the beneficiaries themselves.

Ethiopia’s agriculture sector, which employs 80 per cent of the population, continues to suffer from frequent droughts aggravated by climate change. In 2017, insufficient rainfall during the rainy season led to catastrophic crop and livestock losses and left an estimated 8.5 million people in need of humanitarian assistance.

”RUFIP I and II made major contributions, not just in including 5 million customers in microfinance institutions, but also in improving regulatory capacities in microfinance, banking and lease finance supervision,” said Solomon Desta, Vice Governor of the National Bank of Ethiopia. ” RUFIP showed that microfinance is a better strategy for financial inclusion of the vulnerable poor - by comparison there are 5 million microfinance institution borrowers as against only 0.3 million in banks.”

RUFIP III will build on the lessons and experiences of the first two phases of the programme, and will scale up delivery of rural financial services tailored to the needs of the most vulnerable smallholder farmers, particularly women and young people.

“IFAD is a key United Nations agency in Ethiopia, having made more than US$750 million of investments so far and reaching 7 million vulnerable households. RUFIP III is also part of the UN response to COVID-19, helping to support smallholder farmers in accessing rural financial services,” said Catherine Sozi, United Nations Resident Coordinator to Ethiopia. “I look forward to the implementation of RUFIP III and its results and impacts.”

Through the project, rural finance institutions will be able to deliver an expanded range of financial products and services to a large number of rural poor people. It will also support the uptake of these products by rural savings and credit cooperatives and microfinance institutions through financial literacy training. It will also develop insurance products through the rural finance institutions to allow smallholder farmers to mitigate the risks related to climate change.

“RUFIP III is really about people -- it is not to simply make credit available to the rural population, to strengthen the microfinance sector in Ethiopia and to promote agro-industrialization, but to bring 13.5 million vulnerable rural households on a sustainable path to prosperity,” said Ulaç Demirag, IFAD Country Director for Ethiopia.

Despite improvements, Ethiopia’s child malnutrition rates are still the highest in sub-Saharan Africa. The programme will also promote nutrition awareness through campaigns and demonstrations, targeting the areas most vulnerable to food insecurity due to climate change. It will also help farmers and small enterprises to enhance their resilience to weather related shocks.

Since 1980, IFAD has invested $795.5 million in 20 rural development programmes and projects in Ethiopia worth a total of $2.1 billion. These have directly benefited around 12 million rural households.