ASSESSMENT OF EXPORT TRADE FINANCING PRACTICES OF COMMERCIAL BANKS IN ETHIOPIA

Abstract

Foreign trade has increasingly become a keystone of economic prosperity in many countries. Export trade is one of the foreign trades which have vital importance for developing countries like Ethiopia to fill the foreign exchange gap of a country and to rise in accumulation of reserves allowing a country to balance their finances (Fakhri and Ilaha, 2010). One of the ways of boosting exports is making finance available to the export sector. This can be done through provision of enough and cheap credits to the sector (Phillips, 1991). The research was therefore initiated to assess the various aspects of export trade financing practice in Ethiopia by commercial banks. The study is non experimental research & the basic methods of data collection used were: interviews with bank professionals & survey questionnaires to exporters. The questionnaire was collected from 71 exporters out of a total sample of 96 exporters’ selected using Slovins’s formula from a population of 2,525 exporters. Their responses were compiled & analyzed using techniques such as percentages, tabulation and appropriate statistical graphs. The findings obtained showed that lack of finance has been a major problem to the growth of their business. The basic factors aggravated the problems are loan covenants needed by financial institution, lack of collateral, inability of bank staff to inform and assist exporters & poor support of government in terms of export credit guarantee scheme. The paper finally recommended the change in the attitudes of banks conservative lending practice so that getting ride of impediment of exporters to access export credit. The paper also suggested that the Ethiopian government has to strengthen its support and greatly enhance the export promotion in terms of easily availability of export credit guarantee.