Based on advice from WBG FCI, the National Bank of Ethiopia (NBE) adopted a policy shift for leasing activities in early 2019, correcting some earlier restrictions with respect to a single obligor limit, a cap on interest rates, and the requirement for foreign-owned leasing companies to open regional offices. As a result, the first foreign-owned independent capital goods finance company (Ethiolease) sought and received a leasing license in June 2019. While Ethiolease has been able to start operations, its viability remains in doubt due to some unresolved regulatory issues. The most critical unresolved issues relate to some specific directives issued by NBE, namely the requirements for foreign-owned leasing companies to maintain (a) a debt/equity ratio below 1.5x (Directive No. FXD/47/2017), (b) a sectoral and industry weighting of at least 60% for SMEs and 65% for manufacturing (Directive No. CGFB/10/2019), (c) foreign-owned leasing companies are not permitted to borrow from the local financial system, and (d) any external borrowings must be priced within the (fairly tight) limits prescribed by the NBE (Directive CGFB/10/2019). Finally, there is insufficient clarity with respect to the effectiveness of using lease contracts/assets to secure international borrowings under Ethiopia’s updated secured transactions framework (Movable Property Security Right Proclamation No. 1147/2019). The NBE is currently conducting a further review of the regulations governing leasing and capital goods business. This opens up an opportunity to argue for a change to the leasing activity restriction outlined in (a) and (b) above, which could significantly improve the prospects of operating a foreign-owned leasing company in a financially viable manner. The team believes that positive changes in (a) and (b) should be enough to tip the scale for foreign investors. It is not anticipated that it would be possible to effect material changes to the borrowing restrictions outlined in (c) and (d) within the project time frame, though any such opportunity will of course be seized if it materializes. The proposed project is aligned with the country priorities identified in the CPSD and the IFC country strategy for Ethiopia. The Ethiopia CPSD identifies improving access to credit for the private sector and reform of enabling sectors (such as logistics) as key priorities; these are linked to the ability of the leasing industry to grow and supply financing to a larger segment of the economy, including agricultural equipment, medical equipment, manufacturing equipment. Continued adjustment of the regulatory and policy framework for investment and trade is noted in the country's strategy to be critical to attracting foreign investment in sectors such as leasing.

Indicator	Cumulative
Number of recommended laws/regulations/amendments/codes enacted or government policies adopted	1
Value of IFC financing facilitated (US$)	0
Number of reports (assessments, surveys, manuals, Phase I/strategic option reports, research, analytical, evaluations, etc.) completed	3
Number of new laws/regulations/amendments/codes/government policies drafted, or contributed to the drafting	null

Performance Standard	Description and Potential Impact	Mitigation
PS 1. Assessment and Management of Environmental and Social Risks and Impacts	Under the IFC access to information policy, if an agreement is signed with a client during project implementation, it shall be disclose publicly within 60 days, as per stipulated guideline.	Ensure information is disclosed if an agreement is signed with client, to guarantee transparency and build stakeholders confidence