General Guideline for Commercial Bank of

Ethiopia’s Consumer Loan Service Based on

EEP’s Foreign Currency Deposit

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1. Responsibilities of the Bank

 The Bank shall avail three types of consumer loans: Mortgage (Housing), Automobile and
Personal loans; and collect repayments on loans availed to employees who fulfill the
eligibility criteria and requirements of the Bank.
 The Bank shall determine the amount of loan, the period over which the loan is going to be
paid, and the number of loan payments per year as per the internal procedure.
 The Bank shall notify the Organization about disbursements made for the employees when
requested.
 Upon the Organization’s request, the Bank shall also provide information with regard to all
loan related information that are availed to the employees.
 The total amount of new loans available to the employees of the organization per year shall
not be more than 75% of birr equivalent of yearly foreign currency channeled by the
organization via the Bank during the previous budget year.
 If the Organization does not fulfill the requirements stipulated under Sub-Article 5 above,
but maintain foreign currency account at the Bank, it shall be eligible for financing up to
50% of Birr equivalent of the foreign currency balance of its foreign currency account.
 The bank entertains consumer credit request of the employees of eligible organization
based on first come first served basis until the threshold is met.

2. Responsibilities of the Organization

 The Organization shall channel its entire foreign currency receipts through the Bank.
 If the Organization fails to channel its entire foreign currency proceeds during the review
period and/or if the amount channeled through the Bank is less than USD 50,000.00, the
Bank shall apply the prevailing maximum lending rate on outstanding balance of loans
availed to the institutions’ employees.
 The Organization shall maintain its employees’ salary account with the Bank and the same
may be done to provident fund accounts, if any
 The organization shall provide a list of deposit accounts being used by the organization to
channel foreign proceeds along with names of the branches wherein the accounts are kept.

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  The Organization shall notify the Bank within 10(ten) working days, when a borrowing
employee terminates/suspends his/her employment contract.
 The Organization shall provide pertinent information/document(s) related to the
Organization that would be requested by the Bank: These shall include but are not limited
to the following: -
a. Establishment document; (as appropriate)
b. Renewal license /permit; (as appropriate)
c. Letter of consent from authorized personnel that authorizes employees to access
consumer loan services availed by the Bank;
d. List of authorized personnel to deal with the Bank and sign MoU;
e. A list of deposit accounts in the CBE the Organization is using to channel funds from
foreign sources; and
f. Confirmation on retirement age policy.
g. Other pertinent information/ documents requested by the bank

3. General Eligibility Criteria for Employees

An employee applying for consumer loan shall fulfill the following general requirements.
1. The applicant shall be a permanent employee of the organization who has been serving in the
organization for at least three years, and the age of the applicant and spouse shall be 18 years
and above.
2. An applicant shall have a defined and sustainable income.
3. An eligible employee shall open his/her salary account in one of the Bank’s branch.
4. If the source of the loan repayment is salary, compulsory debt repayment obligations
including repayment of the requested loan shall not exceed half of the basic salary of the
applicant. In a situation where the salary of a spouse is considered, the debt repayment
obligations shall not be more than half of the total basic salaries of the couple. However, the
maximum loan to be approved shall not exceed twofold of the amount of loan to be granted to
the applicant based on his/her salary. Their payments do not, however, include income tax,
pension/provident fund deductions and savings.
5. The applicant or his/her spouse shall fully settle any previous loss loan to the Bank, if any. To
this effect, internal records shall thoroughly be checked.
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6. The applicant and/or his/her spouse shall not have any non-performing loan in any bank.
7. The applicant shall provide credit information with regard to his/her direct or indirect liability
in any institution.
8. The age of the applicant and his/her spouse shall be 18 years and above.
9. The applicant shall submit the following documents:
i. A letter from the organization indicating the following information:
a) His/her date and term of employment;
b) His/her age and/or date of birth and retirement age;
c) His/her basic salary and obligatory deduction(s);
d) The organization’s assent or agreement to notify the Bank in writing
when the applicant terminates his/her employment contract;
e) Latest salary slips showing statutory/all deductions or a declaration
from employer giving details of income and statutory/all deductions
which is duly signed by authorized signatory of the organization; or
latest acknowledge income tax return.
ii. Identification card/Residence-Identity card (residential or employment),
driving license or passport;
iii. One latest passport size photograph;
iv. Marriage Certificate or certificate of updated non-marital status;
v. Tax payers Identification Number (TIN)
10. The following evidentiary documents shall be presented when a spouse’s income is
considered for determination of the loan.
i. If spouse of the applicant is employed, a letter from the employer specifying that;
a) The spouse is currently a permanent employee of the organization;
b) His/her age and the number of years left for retirement and years of service in
the organization;
c) Basic salary and list of compulsory debt repayments;
d) S/he has been paying salary income tax during his/her employment period in
the organization;
e) S/he has at least two years cumulative progressive work experience with the
current or different employers;

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 f) Latest salary slips showing statutory/all deductions or a declaration from
employer giving details of income and statutory/all deductions which is duly
signed by authorized signatory of the organization; or latest acknowledged
income return.
g) One latest passport size photograph
h) Tax payers Identification Number (TIN)

ii. If the spouse is a business person, S/he shall prove that they were in business for at
least three years and present the following:
a) Renewed trade license;
b) Tax Identification Number;
c) Tax receipts of at least two years;
d) Tax clearance certificate;
e) CCR/provisional/audited financial statement of recent year; and
f) Evidence that all expenses and liabilities are properly accounted.
iii. The income of the spouse shall be compared with his/her declared income for tax
payment purposes as evidenced by tax receipts; and the determined net income shall
be used to supplement the borrowing capacity of the applicant employee to take the
specified loan.
iv. The applicant employee shall sign a letter of commitment to report fair and reliable
figures with regards to his/her marriage partner’s income. Attempt to exaggerate and
misrepresent a partner’s income shall entail penalties to the extent of not being entitled
to any credit.
v. The spouse shall be a joint borrower and sign the loan contract along with the
applicant.
vi. The applicant shall sign an undertaking contract to collect and effect the periodic
repayment of the loan on his/her spouse’s behalf. Besides, the employee shall give its
consent to the bank to collect the periodic loan repayment from his/her salary without
regard to the loan payment surpassing the half salary threshold. This shall be made
part of the loan contract.

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11. An employee can be entitled to more than one loan products at a time/over time as long as
the total amount of loan requested is within total borrowing capacity of the applicant and
his/her spouse.
12. If both husband and wife are employees of the organization:
i. they are individually entitled to all loan products as long as one’s salary is not
considered to supplement borrowing capacity of the other,
ii. They can apply to be joint/principal borrowers but in this case they are treated as a
single borrower.
iii. If one of the spouses leaves the organization and he/she is the only principal borrower
the spouse who is still working in the organization can request to maintain on his/her
name. However, the loan and mortgage/pledge contract and the loan record shall be
amended to either a joint borrowing or the current employee will be the principal
borrower.
13. The applicant shall fulfill the specific eligibility criteria for each loan products.

4. Loan Products, Feature and Additional Conditions

A. Mortgage (Housing) Loan

1. Mortgage Loan is a term loan granted for the construction or purchase/acquisition of

residential house. Mortgage loan shall be used for:
i. Construction of new residential house;
ii. Construction of additional house within an existing compound such as service
quarters or main house, as the case may be;
iii. Purchase/acquisition of residential house.
2. Notwithstanding the eligibility requirements and conditions set herein below, the applicant
shall provide the following documents;
i. For construction of a house:
a) Work permit;
b) Bill of quantity;
c) Ownership certificate and approved plan;
d) Lease certification/current lease payment receipts as appropriate;

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 e) Current tax payment receipts; and
f) Marriage certificate, or otherwise
ii. For purchase of a house:
a) Valid purchase/sales contract registered by an authorized government body. If
the city/town, where the residential house to be purchased is located, does not
register house sale contract before ownership title transfer to the purchaser,
the applicant shall be entertained with unregistered sales contract until the
loan is approved. However, disbursement shall be effected after ownership
title is transferred to the applicant’s or his/her spouse’s name, signing of loan
and mortgage contract by the applicant(s) or his/her agent, registration of the
collateral with the appropriate government organ and finalizing the purchase
of insurance policy for the residential building to be purchased;
b) Ownership certificate and approved plan;
c) Current lease payment receipt, as appropriate;
d) Current tax payment receipt; and
e) Marriage certificate, or otherwise.
3. An equity contribution of at least 5 percent of the cost/value of the house as estimated by the
Bank’s Collateral Valuator or the agreed upon contract/purchase price, whichever is lower
shall be made. In the case of purchase and construction the required equity contribution shall
be determined for both purchase and construction.
4. The Loan Amount shall not exceed 95 percent of purchase price or bank collateral valuators
estimate or borrowing capacity; whichever is lower.
5. The loan shall be repaid within a maximum tenure of 20 years or the remaining employment
period less one year whichever is lower. There shall be a maximum of one year grace period
(for construction). The total tenure of the loan shall include the grace period and the accrued
interest during the grace period shall be repaid on monthly basis. However, the grace period
shall be excluded from the loan amortization/loan amount determination.

B. Automobile Loan

1. Automobile loan is a term loan granted for financing the acquisition of a brand-new
automobile. The loan is extended against pledge of the automobile to be acquired.

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2. Purchase of used car is not allowed.
3. The applicant shall contribute at least 10 percent of the purchase price of the automobile to be
purchased shall be made as equity contribution. The loan amount shall not exceed 90 percent
of the value of the automobile. However, the loan at no time shall not exceed the amount
determined based on half of the monthly basic salary of the applicant and his/her spouse (if
considered) minus obligatory debt payments if any.
4. The maximum loan repayment period shall be 10 years or the remaining employment period
before the organization’s retirement age minus one year, whichever comes first. No grace
period shall be given for repayment of the loan.
5. The loan shall not be used to purchase a vehicle for commercial purpose.

C. Personal Loan:

1. The loan is granted for covering the applicant's urgent financial requirements like expenses for
domestic or foreign travel, medical treatment of self or family members, education fee, or any
kind of personal expense. However, it shall not be used for commercial purpose.
2. Personal loan can only be granted against pledging collateral of a building or vehicle registered
in the name of the borrower or his/her spouse.
3. The loan amount shall not be more than Birr 3.5 million or maximum allowable amount as per
capacity determination, whichever is lower.
4. The loan shall be granted for a maximum of 5 years or the remaining employment period
before the organization’s retirement age minus one year, whichever comes first. No grace
period shall be given for the start of the repayment of the loan.

5. Lending Interest Rate

a) The interest rate applied on all loan products shall be 7 percent.

b) If the employee leaves the organization, the Bank shall apply an additional rate of 3%
above the prevailing maximum lending rate on the remaining outstanding loan balance
starting from the date the employee left the Organization.
c) If the borrower fails to repay the loan for three consecutive months, the Bank shall apply an
additional 3% penalty interest on the remaining balance without serving additional notice.

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 d) If the Organization fails to channel the minimum expected FCY ($50,000) per annum while
it is still operational, the Bank shall apply the prevailing maximum lending rate on
outstanding balance of loans already availed to its employees after interest rate change
approval made by the bank.
e) If the Bank terminates the credit provision /facility given to the organization, it shall apply
the maximum lending interest rate on outstanding balance of the loans already availed to
employees starting from the date the facility is terminated.

6. Other Issues to consider

a) The applicant shall cover loan processing and collateral estimation fee, if required.
b) Early loan settlement is encouraged by the bank and bears no penalty.
c) Other income such as Rental income shall be considered if the contract is registered by an
authorized government body
d) All allowances shall not be considered for loan amount determination

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 Annexes
Loan Limit (Borrowing Capacity) Determination Example

Retirement Age: 60 Years

Maximum Repayment Period:

Mortgage (House) Loan: 20 Years (240 Months)

Automobile Loan: 10 Years (120 Months)
Personal Loan: 5 Years (60 Months)

Loan Limit = (Half of Employee & his/her Spouse Gross Salary – Obligatory Debt pay’s of both
the employee and his/her spouse) * Loan Factor @ n number of months

Where n is the remaining period to retirement minus one year or maximum repayment period for
a specific loan product, whichever is lower shall be used

Example One: Employee with the age of 35 and a gross salary of 20,000.

n = Minimum of:
the Remaining period to retirement minus one year = (Retirement Age – Employee Age) – 1
Year = (60 yrs -35 yrs)-1yr =24 yrs or 288 Months) and

Maximum loan repayment period for each loan product

Therefore, n is = 20 yrs or 240 months for mortgage, 10 yrs or 120 months for automobile & 5
yrs or 60 months for personal loan

Loan Limit with no other debt payment obligation:

Mortgage (House) Loan= Half of Gross Salary*loan factor @ 240 months= (10,000*128.98) =
1,289,800

Automobile Loan= Half of Gross Salary * loan factor @ 120 months = 10,0000*86.13= 861,300

Personal Loan= Half of Gross Salary *loan factor @ 60 months = 10,000*50.50= 505,000

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Example Two: Employee with the age of 45 and a gross salary of 20,000.

n = Minimum of:
the Remaining period to retirement minus one year = (Retirement Age – Employee Age) – 1
Year = (60 yrs - 45 yrs)-1yr =14 yrs or 168 Months) and

Maximum loan repayment period for each loan product

Therefore, n is = 14 yrs or 168 months for mortgage, 10 yrs or 120 months for automobile & 5
yrs or 60 months for personal loan

Loan Limit with no other debt payment obligation:

Mortgage (House) Loan= Half of Gross Salary *loan factor @ 168 months= (10,000*106.91) =
1,069,100

Automobile Loan= Half of Gross Salary *loan factor @ 120 months = (10,000*86.13) = 861,300

Personal Loan= Half of Gross Salary *loan factor @ 60 months) = (10,000*50.50) = 505,000

Example Three: Employee with the age of 51 and a gross salary of 20,000.

n = Minimum of:
the Remaining period to retirement minus one year = (Retirement Age – Employee Age) – 1
Year = (60 yrs - 51 yrs) -1yr =8 yrs or 96 Months) and

Maximum loan repayment period for each loan product

Therefore, n is = 8 yrs or 96 months for mortgage, 8 yrs or 96 months for automobile & 5 yrs or
60 months for personal loan

Loan Limit with no other debt payment obligation:

Mortgage (House) Loan= Half of Gross Salary *loan factor @ 96 months= 10,000*73.35=
733,500

Automobile Loan= Half of Gross Salary *loan factor @ 96 months = 10,000*73.35 = 733,500

Personal Loan= Half of Gross Salary *loan factor @ 60 months) = 10,000*50.50 = 505,000

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Example Four: Employee with the age of 45, a gross salary of 20,000 and 1,000 other debt
payment obligatory deduction (eg. Loan from Credit Association)

n = Minimum of:
the Remaining period to retirement minus one year = (Retirement Age – Employee Age) – 1
Year = (60 yrs - 45 yrs)-1yr =14 yrs or 168 Months) and

Maximum loan repayment period for each loan product

Therefore, n is = 14 yrs or 168 months for mortgage, 10 yrs or 120 months for automobile & 5
yrs or 60 months for personal loan

Loan Limit with 1,000 birr other debt payment obligation:

Mortgage (House) Loan= (Half Salary-other debt pay’t) *loan factor @ 168 months= (10,000-
1,000) *106.91= 962,190

Automobile Loan= (9,000*86.13) = 775,170

Personal Loan= (9,000*50.50) = 454,518

Example Five: Employee with the age of 45, a gross salary of 20,000 and his/her Spouse
gross Salary of 40,000.
N.B The Spouse salary considered for the loan is only up to the employee’s gross salary
equivalent. Total Gross Salary to be considered= 20,000 + 20,000 = 40,000 only

Loan Limit with no other debt payment obligation:

Mortgage (House) Loan= Half of Gross Salary *loan factor @ 168 months= 20,000*106.91 =
2,138,200

Automobile Loan= Half of Gross Salary *loan factor @ 120 months = 20,000*86.13 = 1,722,600

Personal Loan= Half of Gross Salary *loan factor @ 60 months) = 20,000*50.50 = 1,010,000

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