Pre Shipment Loan Utilization in Exporting Agricultural Products in Ethiopia

International trade continues to grow every year as nations expand their global sales and new nations join in. Today, over 225 nations are active in trade resulting in over $9 Trillion dollars in global business every year. Ethiopia, though existing part is small in amount, is one of those nations that incessantly increase their contribution in this global business. However, in Ethiopia, as in some other African countries, the export business is dominated by agricultural products accounting roughly for 70-80 per cent of export earnings. One of the common complaints, from Ethiopian agricultural product Exporters, is that they receive minimal support from their banks for export trade transactions. After spending significant time and resources to develop export sales, they often can not secure the funds they need to complete the orders. Thus a key finance service specifically required by these exporters is a short term working capital loan that is used to fulfill international sales orders. Consequently, the main purpose of this study was assessing the utilization of pre- shipment loan by agricultural product exporters in Ethiopia; focusing on those products which hold the highest fraction in the export business. The result of the study in general suggests that the provision of pre shipment working capital credit is characterized by a continuous increasing trend with annual average growth rate of 147% for three consecutive years from 2004- 2006.Although the provision of pre shipment working capital loan increases more than 100% annually, it still constitute small percentage of the total loan provided by the banks. And also the amount of pre shipment export credit in the study period is found to be very low relative to the total export value in the same period. For this reason the researcher suggests that, in order to satisfy needs of exporters in the country and benefit from the opportunities in the international market by expanding the export business, the disbursement of pre shipment credit should be increased more than what actually exists. This can be achieved through encouraging and supporting commercial banks to provide the loan to small and medium emerging exporters who have little experience and knowledge about the foreign trade; easing the requirements of both the commercial banks and government guarantee schemes; facilitating other export financing mechanisms; enhancing the capacity and experience of emerging agricultural product exporters about the international business; and strengthening and increasing the capability of those sectors which are organized with the aim of expanding the export sector in Ethiopia like Ethiopian export promotion agency