Contents

I. EXECUTIVE SUMMARY............................................................................................... 2
II. BACKGROUND INFORMATION.....................................................................................5

2.1. The Applicant..........................................................................................................................5

2.2. Brief history of the Promoter...................................................................................................6
2.3. Credit history of the Plc and the shareholders..........................................................................6
2.4. The Lease.................................................................................................................................7
III. KEY SUCCESS AND RISK FACTORS...............................................................................8

3.1 Key Success factors.................................................................................8

3.2 Risk Factors..........................................................................................9
3.3 Risk Mitigating Measures.........................................................................9
3.4 SWOT Analysis.....................................................................................9
IV. MARKET STUDY....................................................................................................... 10

4.1 Market segmentation/destination...............................................................10

4.2 Domestic market..................................................................................10
4.3 Market arrangement and marketing channel.................................................12
4.4 Marketing Strategy................................................................................12
4.1. Price..................................................................................................13
V. TECHNICAL STUDY................................................................................................... 14

5.1. Plant Location......................................................................................14

5.2. Land and Building................................................................................14
5.3. Availability of Utilities...........................................................................14
5.4. Raw materials and packaging...................................................................14
5.1. Machinery and Equipment......................................................................14
5.2. Production Process................................................................................16
5.3. Project’s Implementation Schedule............................................................18
5.4. Environmental Impact Assessment of the Project..........................................18
VI. ORGANIZATION AND MANAGEMENT.........................................................................19

6.1 Organizational Structure of the Project.......................................................19

6.2 Technical Capacity of Management...........................................................19

i
 6.3 Human Resource Requirement and Availability............................................19
VII. FINANCIAL ANALYSIS............................................................................................... 20

7.1 Breakdown of Investment Requirement......................................................20

7.2 Source of Finance.................................................................................20
7.3 Expected Financial Results......................................................................20
VIII. SOCIO-ECONOMIC BENEFITS OF THE PROJECT............................................................22
IX. CONCLUSION AND RECOMMENDATION.....................................................................23

9.1 Conclusion..........................................................................................23
9.2 Recommendation..................................................................................23
X. ANNEXES................................................................................................................. 26

ii
 I. EXECUTIVE SUMMARY

Xxx Hayatu Bakery is established in 2014 E.C. for the sole purpose of baking and selling
bread in the local market. The company is established at birr 500,000 of registered capital by
Ato Xxx Hayatu. The project will be located in Welkite Town Addis Ketema sub-city,
Kebele 01.

The promoter approached Wolkite Branch seeking for financing of Bread Bakery machinery
through lease financing modality. Hence, the appraisal team conducted financial viability,
assessed the market situation and other vital aspects of the project and make proposal of
financing this request.

Bread market is not sufficiently met in Ethiopia. Huge demand for bread exists which is a
promising market for this project as well as others who are on the verge of opening other
bakeries. The data on commodity study also shows the increasing production of bread which
explains the demand for bread.

The proposed general manager is Ato Xxx Hayatu who is also the owner. All necessary
workers are also proposed to be hired. The general manager has another family owned
bakery which implies that he has the required and related work experience. Here, the socio-
economical benefit is evident; employment creation and income generation cane be
mentioned

The financial viability of the project is assessed. Hence, the total investment is Birr
3,885,725, of which Birr 3,298,354 is fixed investment while Birr 587,371 is working
capital. For lease financing purpose, the bank will finance birr 3,298,354 (100% of
machinery cost) for purchasing baking machinery and equipment while the client contributes
birr 777,145 (20% of total investment cost) for working capital purpose.

The result of financial projections shows that the project will earn a net profit of Birr 250,229
during its first year of operation and Birr 4,845,659 during its tenth year of operation. The
cash flow projection shows a positive growth in cumulative cash balance of Birr 279,635 in
the first year to Birr 17,192,870 in its tenth year operation. The assets value also grows from

1
Birr 3,885,725 to Birr 17,942,331 in the tenth year. The net present value (NPV) after tax at
a discounted rate of 11.5% is Birr 10,100,100. These imply that the project will not face
liquidity constraint and meets its debt obligation at the same time. The project will generate
an acceptable internal rate of return after tax which is 38%.

Agro-processing projects, bakery business in particular, is assumed as inflicting minimal

environmental impacts. Any waste that may be emitted can easily be managed. Anyhow, the
client needs to submit a letter confirming the above said from the concerned environmental
office.

Based on appraisal analysis conducted, the project is found to be technicality feasible. The
market demand indicates the existence of demand gap for the products of the project; the
financial projections result indicates its profitability and liquidity within the projection
period. It also has significant socio-economic contributions to the society. Therefore, based
on the above justifications and the details in this document, the appraisal team recommends a
lease finance amount of Birr 3,298,354 which is subject to the terms & conditions stated at
the end of this appraisal study.

Project summary
Description Amount (Birr) Percentage
Total Fixed Investment Costs 3,298,354 85%
Working Capital 587,371 15%
Total 3,885,725 100%
Source of Finance
Description Amount D/E Ratio
Debt -DBE lease 3,298,354 81%
Equity contribution 777,145 19%
4,075,499
Expected Financial Results
Description Year-1 Year-10
Gross Revenue 11,430,720 20,679,648
Net Profit 250,229 4,845,659
Cumulative Cash Balance 279,635 17,192,870
Balance sheet 3,885,725 17,942,331
Financial Internal Rate of Return (IRR)
Description Net Present Value (NPV) Internal Rate of Return
Before Tax 14,594,289 46%
After Tax 10,100,100 38%

2
II. BACKGROUND INFORMATION

2.1. The Applicant

 Name: Xxx Hayatu Bakery
 Address: SNNP
Zone: Gurage
City: Welkite
Sub-city: Addis Ketema
Kebele 01
House No: new
Tel: 0910815117
 The project
 Name: Xxx Hayatu Bakery
 Address: SNNP
Zone: Gurage
City: Welkite
Sub-city: Addis Ketema
Kebele 01
House No: new
Tel: 0910815117
 Legal status of the company: sole proprietorship
 Date of establishment: 13/03/2014 E.C
 Type of project: Agro-processing, (Bread production)
 Project objective: manufacture of Bread and cakes for the local market
 Status of the project: New
 Shade: rent from private ownership
 Legal documents:
 Business license:
 Licensing organ: SNNP, Trade Ind. & Urban dev., Trade promotion core process
 Date of registration: 13/03/2014 E.C
 Registration No.: hno9010101/4901/2014

3
  Commercial registration certificate:
 Licensing organ: SNNP, Trade Ind. & Urban dev., Trade promotion core process
 Date of registration: 13/03/2014 E.C
 Registration No.: hno9010101/4901/2014
 Tax identification no.: 0021947399

2.2. Brief history of the Promoter

Xxx Hayatu Bakery is established by Ato Xxx Hayatu. The project is located in SNNP, Welkite;
Woreda 01. The machinery will be installed in privately rented premises. The project’s general
manager is Xxx Hayatu who has a university Degree in psychology from Jimma University. He
has no work experience except a 45 days’ service in Jimma Police office.

2.3. Credit history

2.3.1. Credit relation with DBE

As per the due diligence report, the client has no credit relation with DBE other than the present
lease financing request;

2.3.2. Credit relation with other financial institutions

The client has a credit relation with Berhan Bank S.C.:-

No. Name of the Approved Date of Periodic Outstanding Status

institution amount approval payment balance

1 Berhan International 700,000 16/01/2020 108,382.10 157,616.11 Substandard

Bank S.C

NB:- the above table exhibits that the client has a bad credit history. The respective branch
should be aware of the fact and conduct strict follow up of future credit relation with the client.

4
2.4. The Lease
A) Lease amount requested:
Amount: Birr 2,000,000
Purpose: To cover cost of bakery machinery & equipment
B) Lease amount Proposed:
Amount: Birr 3,297,209
Purpose: To cover cost of bakery machinery & equipment
C) Variation: Birr -824,209
Reason for Variation:
Table 2.1: Variation
Amount Amount
Reason for
Description Requested for proposed for lease Variation
Variation
lease machineries machineries
Machineries &
Equipment 2,473,000 3,297,209 -824,209 as per technical
report
Total 2,473,000 3,297,209 -824,209

5
III. KEY SUCCESS AND RISK FACTORS

3.1 Key Success factors

3.1.1. Macro level success factors

 Machinery and equipment are imported duty free

3.1.2. Sector level key success factor

 Agro-processing is among the government’s favored sectors
 The sector is one of the priority areas of the bank

3.1.3. Firm level success factor

 Character
The promoter has a bad credit history in relation to his loan from Berhan Int. Bank S.C.
This should be a warning for any business/credit relation he will have with DBE.
 Capacity
Ato Xxx Hayatu has a higher institution educational background. According to the due
diligence report, the client is currently working in other bakery, which he owns. Hence, it
can be said he has the necessary work experience.
 Capital
As per the Trade license, the paid up capital is birr 500,000 which is not sufficient
enough to cover the expected equity contribution.
 Collateral
The machinery to be purchased will be registered as property of the Bank until the lease
in agreement is fully paid off.
 Compliance
All the required legal documents are present. Therefore, it is possible to say the project
complies with all laws & regulations.

6
 3.2 Risk Factors

3.2.1. Firm level risks

 May face Shortage of wheat flour

3.3 Risk Mitigating Measures

 The promoter should hoard wheat flour and may also purchase imported wheat from
government organ

3.4 SWOT Analysis

Strengths Opportunities

Satisfactory educational background Huge unmet demand for products

Well experienced general manager/owner Availability of finance/loan with
favorable interest rate.
Weaknesses Threats

Bad credit history with local bank  Price fluctuation of raw material
(wheat)

7
IV. MARKET STUDY

4.1 Market segmentation/destination

Bread is characterized by short shelf life and its consumption is on daily basis. Hence,
domestic market is the only market destination for it. In addition, the market destination for
bread is further directly related to the location where the bakery be commenced.

4.2 Domestic market

4.2.1. Demand for bread

Bread represents a substantial part of the daily food around the world including Ethiopia.
Bread consumption preference can be affected by its quality, design and hygiene which in
turn affect its marketability. In Ethiopia, bread consumption has gradually increasing in urban
areas because of high population growth, migration of people to urban areas, and increases in
condominium living (R.Dibaba, 2019). This indicates that urban populations are the major
demanders of bread. Urban population data that were projected by Central Statistical Agency,
2022 to 2037 is presented in table below.

Table 4.1: Projected Population Size, 2022 - 2037

Projection Year Urban population Size (in Numbers)
2022 23,880,000
2027 29,311,000
2032 35,488,000
2037 42,388,000
Source: CSA, Population Projections for Ethiopia 2007-2037

4.2.2. Supply of bread

In Ethiopia, the supply of bread is from various bakery industries with varying production
capacity; cottage to large scale bakery industries. As indicated in CSA report on large and
medium scale manufacturing survey (particularly, 2012/2013 to 2016/2017), bread production
experienced ups and downs due to different reasons, including shortage wheat flour. Since there
is no registered data that shows list of all entire bakeries with their production capacity, it is
difficult to get such data. But annual bread production data is presented in the table below.

8
Table 4.2: Bread production data (in tons/year)
Year Production (in tons)
2012/13 261,740
2013/14 291,390
2014/15 118,222
2015/16 172,614
2016/17 228,805
Source: CSA Report on Large and Medium Scale Manufacturing Survey, 2012/13 to 2016/17

4.2.3. Demand gap

From the above tables, we can calculate the per capita consumption of bread in urban area of
the country as follows:

Table 4.3: PCC of bread in urban areas, projection of years 2022-2037

Projection Urban population Size growth Production growth

PCC/ton
Year (in Numbers) rate (in tons) rate
2022 23,880,000 355,393 0.015
2027 29,311,000 23% 512,954 44% 0.018
2032 35,488,000 21% 740,369 44% 0.021
2037 42,388,000 19% 1,068,607 44% 0.025
average 0.020

Source: Bread raw data Feb 2022, FAO and appraisal team computation

From the above table we can interpret as follows: in the year 2022, urban population is
assumed to consume 1.49% or 14.88kg per year. Similarly, by the year 2027 the per capita
consumption increases to 1.8% or a single person is assumed to consume 17.5kg per year.
According to a data extracted from FAO1, a person consumes 200gm per day and that is
approximately 73kg per year. This shows there is huge unmet demand.

1
FAO. 2018. Dietary Assessment: A resource guide to method selection and application in
low resource settings. Rome.

9
 4.3 Market arrangement and marketing channel
Concerning the marketing arrangement for bread the existing factories sell their products in
three ways. The first one is door to door selling to different shops in this case the factory
transport the product till buyers by adding cost of transport to the product price.
The second one is selling its product to wholesalers and the third one is selling its product at
factory gate price and in this case the price reduces since it does not cover transport cost.

Figure 2: Marketing Channel for Bread Production

Bread Manufacturer

Retail Shops Wholesalers Factory Outlets

Consumer Retail shops Consumer

Consumer

4.4 Marketing Strategy

The bakery industry is highly competitive because most bakeries are small to medium size
producers that serve a highly fragmented market. Competition among the key players in the
industry is based on price, quality, differentiation, and nutritional value. The industry is
homogeneous and product differentiation is necessary to separate from competitors. The longer a
company competes in a particular industry, the more efficient they become leading to decreased
costs. This has a huge impact on the industry.

10
The promoters have set a marketing strategy that best suits their company;
 Conduct a market segmentation and identify which segment to focus to sell to
 The 4 P’s
a. Product: as an incentive, the clients will sell bread with package of seeds
b. Price: competitive price will be set; price includes the product and the package of seeds
c. Place: making products available through both online and offline methods
d. Promotion: using social media and tangible objects to promote the products
 Studying the market trend and make the products adaptable to variety of occasions
 Competitors’ research: studying the strengths and weaknesses of competitors

4.1. Price
Below is a table depicting price of products the client plans to sell
Table 4.1.: price
No Product type Price
1 100 gram bread 5

11
 V. TECHNICAL STUDY

5.1. Plant Location

The project site is located in Gurage zone Welkite Woreda 01. The machinery will be installed in
a rented house. The house rent is 2,000 birr per month.

5.2. Land and Building

The promoter submitted rent agreement which was evaluated by the technical team of the bank.
The promoter will pay Birr 2,000 per month for five consecutive years. Hence, the technical
team confirms the shade would be enough for all proposed machineries but on the contrary, there
are incomplete construction works that need to be completed by the promoter (source: civil
report date August 01/2022).

5.3. Availability of Utilities

As per the civil report, the rented shade has no electric power.

5.4. Raw materials and packaging

The major raw material required for the production of Bread is wheat flour. Other than that,
common salt, edible oil, yeasts and improver are added to produce bread. All raw materials are
available locally

Table 5.1.: raw materials and packaging

Major maw material Other elements Packaging materials

wheat flour common salt Plastic bags
Water edible oil
yeasts
improver

5.1. Machinery and Equipment

The company approached the Bank to establish Bakery plant through lease financing modality.
Based on the submitted proforma invoice, the technical team of the bank has proposed
machinery which they found appropriate for the planned project. Hence, the estimated total
machinery cost is Birr 3,297,209.

12
Table 5.2.: machinery list and price

Unit price Total price Total price

Description of machineries Quantity Model
(USD) (USD) (ETB)
Rotary Oven 1 Model: ATDF 150 12,650.00 12,650 679,273
French bread tray & trolley 2 745.50 1,495 80,278
Flat tray with trolley with 14
2 632.00 1,264 67,874
flat trays
Mixer 1 Model: ATSM80 4,588.00 4,588 246,364
Volumetric divider 1 Model: ATK60T 4,600.00 4,600 247,009
Molding machine 1 Model: ATF2 2,415.00 2,415 129,679
Bread slicer 1 ATED 920.00 920 49,402
Proof with steam generator 1 ATPC 6,110.00 6,110 328,092
Diesel generator 1 AP33 15,120.00 15,120 811,906
Capital goods total price, International procurement 49,162 2,639,877
Subtotal - 1 49,162 2,639,877
sea freight from delivery port to Djibouti port 2,950 158,408
Transportation insurance up to the project site 79 4,234
Port clearance at Djibouti 940 50,476
Port handling cost at dry port - 5,613
Inland haulage (Djibouti to dry port) - 59,771
Port clearance at dry port - 5,692
Storage cost (for 12 days after 1 week) 150 9,113
Transportation cost (dry port-project site) - 9,000
Unloading cost at project site - 4,000
Installation cost (round trip tickets, perdiem and insurance) - 100,000
Scanning fee 7 vehicle identification, inspection & registering fee - 2,412
Subtotal - 2 53,280 3,048,594
Bank charge (for irrevocable LC & confirmed LC) 1,721 92,696
Subtotal - 3 55,001 3,141,289
Contingency (5%) 2,750 157,064
Grand total 57,751 3,298,354
Altuntop Bakery equipment Invoice# : 00000450/PR/MC/HO/21 and date
exchange rate: 1USD=53.6975
26/09/2022

13
 5.2. Production Process
Dough that we make in our bakeries follows all of these 10 steps from start to finish. This
ensures we produce the best quality bread without compromising taste, texture, nutrition or our
artisan craft.

a. Ingredient Selection & Scaling

Using good quality ingredients is crucial to making good bread. We use instant dry yeast (‘rapid
rise’) in our breads. Instant dry yeast is a good option as it has a long shelf life and does not
need to be proofed in water before using.

b. Mixing

There are two stages to the mixing process: the first is to incorporate ingredients, the second is to
develop the structure of the dough, otherwise known as the gluten network. When using a
tabletop mixer, keep it to the lower speeds to avoid damaging the motor.

c. Fermentation

Also referred to as rising, or proofing, this is where the yeast starts to do its work, converting
sugars into carbon dioxide, alcohol and organic acids. Every dough has a different primary
fermentation time, depending on its formulation.

d. Divide and Pre-Shape (rounding)

When the dough is properly fermented, it is time to divide it to the desired size and give the
divided pieces a pre-shape. A pre-shape is an intermediate shape—a loose suggestion to the
dough of where it’s headed that will make final shaping easier.

e. Bench proofing

After the dough has been pre-shaped, it needs to rest for a short time before final shaping. Bench
rest is typically 15-20 minutes long and during that time, the gluten network, which has been
made more elastic through handling, will relax and become more extensible.

14
 f. Make up and panning

There are different shapes and then placed in pans or on baking sheets.

g. Proofing

Proofing is a continuation of the process of yeast fermentation that increases the volume of the
shaped dough. Bakers use two terms so they can distinguish between fermentation of the mixed
dough and proofing of the made-up product before baking. Proofing temperatures are generally
higher than fermentation temperatures. Under-proofing results in poor volume and dense texture;
while over-proofing results in coarse texture and some loss of flavor.

h. Baking

Lean dough are typically baked at a very high temperature, around 450-475°F. Enriched breads
are typically baked around 350-400°F. In most cases, a smaller loaf should be baked at a higher
temperature than a larger one, so that it will take on the right amount of color in its baking time.
There are a few different ways to determine that a loaf is properly baked—by color, by the
hollow sound you hear when you knock on the bottom of the loaf, and by internal temperature (at
least 190°F for lean breads, 165°F for enriched breads).

i. Cooling and storing

Although it is tempting to eat hot bread right of the oven, that’s not the best way to really taste its
subtle flavors. When bread first comes out of the oven, it is still filled with excess moisture and
carbon dioxide. The bread needs time to cool so that the moisture and gas will dissipate. After
cooling, the texture, flavor and aroma of the bread will have developed into what they should be
and you will have a flavorful, palate-pleasing loaf.

15
 5.3. Project’s Implementation Schedule
The project implementation starts from lease processing. The next stage is procurement of
required machinery, installation of machinery & submission of acceptance certificate. The last
stage is commencement of production after recruitment of the required employees. It should be
noted that there are remaining construction works that need to be finalized. Hence, we
recommend the promoter completes all necessary construction works before the machineries
arrive.

Table 5.3.: implementation schedule

2022 2023
Type of Activities Novembe Decembe Januar Februar Marc Apri Ma
r r y y h l y
Lease Processing
Completion of construction
work
Procurement of Machinery
Procurement of raw materials
Machinery installation &
certificate acceptance
Commencement of Production

5.4. Environmental Impact Assessment of the Project

Although agro-processing businesses are environmentally friendly, the case should be confirmed
by the concerned environmental protection office.

16
VI. ORGANIZATION AND MANAGEMENT

6.1 Organizational Structure of the Project

The company will recruit 7 employees including the general manager.

General Manager

Project manager

Administrative section
Production section

Fig: organizational structure

6.2 Technical Capacity of Management

The proposed general manager is Ato Xxx Hayatu who has a BA Degree from Jimma University in the
field Psychology.

6.3 Human Resource Requirement and Availability

Successful operation of a project needs different categories of human resources, management staff and
workers with sufficient skills and experiences. As stated earlier, the project plans to recruit experienced
staff during the project implementation. It will also provide on job training. Accordingly, it will create job
opportunity for about 8 people.

Table 6.1: HR requirement

Description No. of workers Salary/month Annual salary (Birr)
General manager 1 4,000 48,000
production section
Machine operator 1 2,500 30,000
Baker 2 2,000 48,000
Administrative section
Accountant 1 2,500 30,000
Cleaner 1 1,000 12,000
Guards 1 1,000 12,000
Total 7 180,000

17
VII. FINANCIAL ANALYSIS

7.1 Breakdown of Investment Requirement

The total investment cost of the project is estimated to be Birr 3,885,725 of which Birr
3,297,209 (85%) is fixed investment, Birr 587,371 (15%) working capital. The detail of fund
allocation is shown below

Description Existing Planned Total

Baking Machinery 3,297,209 3,297,209
Sub Total - 3,297,209 3,297,209
Working Capital - 587,371 587,371
Total 3,884,580

7.2 Source of Finance

The Bank will finance 100% of the total investment cost Birr 3,297,209 while the remaining,
Birr 777,145 shall be covered by the equity contribution of the promoter. Detail of source of
finance is presented here under.

Equity contribution DBE Lease Total

Description
in cash Finance investment

Baking Machinery - 3,297,209

3,297,209
Working Capital 777,145 - 777,145
7.3 Expected Financial Results

Here, our objective is to provide information about the financial position, performance and
changes in financial position of the project to make rational economic decision. Hereunder, we
will try to look Profit/loss or income statement forecast, cash flow and balance sheet projection,
financial rate of return and sensitivity of the project for potential variables.

7.3.1 Profit/loss forecast

Profit/loss forecast presents the results of project’s operations during a period of time. It shows
income earning from the project and expenses incurred in attaining the income. The projected
profit/loss statement of the project reveals that the project will earn net profit of Birr 250,229
during its first year of its operation and earn profit of Birr 4,845,659 at the 10th end year of

18
projection. This indicates that the project could run profitable business venture and can maintain
objective of its establishment at competitive quality and price.

7.3.2 Cash flow forecast

The forecasted cumulative cash balance shows a balance of Birr 279,635 in the first year and
will grow up to Birr 17,192,870 at the 10th year of project period, demonstrating that the project
will not face liquidity constraint to finance its operational costs as well as debt obligation.

7.3.3 Balance Sheet Projection

Balance Sheet Projection is used to provide insight into assets and debts of the project at a
particular point in time. Total assets of the project expected to rise from Birr 3,885,725 during
the first operational year to Birr 17,942,331 the tenth project year.

7.3.4 Financial Internal Rate of Return

(IRR)

Description Net Present Value (NPV) Internal Rate of Return

Before Tax 14,594,289 46%

After Tax 10,100,100 39%

19
VIII. SOCIO-ECONOMIC BENEFITS OF THE PROJECT
 Employment opportunities: The project will create employment opportunities to 7
employees as a result it will hence contribute to the reduction of unemployment.
 Government revenue from tax payment: Apart from creating employment opportunity
for the public, it will also pay profit taxes for the Government. The personal income tax
collected from the employee is also the other source of Government revenue.
 Economic Growth: By involving in the production, the project will enhance the
economic growth of the country.

20
IX. CONCLUSION AND RECOMMENDATION

9.1 Conclusion
We have gone through all issues that determine the success or failure of the project. We tried to
assess creditworthiness of the client and the capacity and technical knowledge of the key
management staff; hence, we can conclude the proposed management staff is capable enough to
manage all affaires of the project. Besides, all other relevant employees are proposed.

The market condition for the proposed product is also evaluated. Looking at the demand
projection, we can conclude that the products have promising unmet demand.

Technical viability of the project is also assessed based on the technical team’s proposal. Based
on the submitted pro forma invoice, all machineries and equipment which are technically viable
are included.

Financial viability of the project is also evaluated; hence, the project is found financially viable.
Even at different scenarios the project is forecasted to remain viable.

Establishment of the project has socio-economic advantages like; tax revenue to the government,
creating job opportunity for 7 employees.

9.2 Recommendation
Based on the above aforementioned market, technical and financial assessments, the appraisal
team-II finds the project to be viable and bankable. Therefore, the appraisal team, at its level
approves lease financing of Birr 3,297,209 for the establishment of bakery business subject to the
following terms and conditions.

21
 9.2.1 Terms and conditions

i) Terms
(a) Equity Contribution
The promoter shall block Birr 777,144.94 where this sum will be utilized after the bank issues
acceptance certificate to the lessee. The sum Birr will be released to the promoter for different
working capital requirements of the project.

(b) Lease cost disbursement

The Lease amount (Birr 3,297,209) shall be disbursed to the supplier for procurement of the
planned machineries on behalf of the Leaser upon verification by the Branch that the client has
blocked the required equity contribution.

(c) Lease Repayment

The lease cost is planned to be repaid every three months (quarterly) within 6 years with 24
equal installments of Birr 192,146 with 11.5% service charge. The first repayment is planned to
begin on May 31, 2023 and the last repayment will be on July 31, 2029.

ii) Conditions
 Insurance: Purchase of insurance policy in the name of DBE
 Current Account: The promoter should open current account with DBE.
 Record Keeping: The Company should maintain proper record keeping system.
 L/C Opening: The Company should open letter of credit (L/C) in DBE.
 Repair and maintenance: The promoter should properly insure, repair and maintain the
machineries to be leased.

22
 iii) Other Conditions
- according to the Capital Goods Procurement and rent manual (የካፒታል ዕቃ ዱቤ ግዢ
እና ኪራይ ውል፤ የማምረቻ ቦታ በኪራይ ለሚያደርጉ ቅጽ 2), article 11 (የማምረቻ
ቦታ/ግንባታ/ መጠለያ አቅርቦት), sub article 11.2 states in case of default of the lessee,
the bank will replace the defaulter lessee with another client without disrupting the
shade rent agreement; i.e., the original shade rent agreement will still be intact; and the
shade rent agreement will continue until the lease repayment period.
Therefore, the submitted shade rent agreement should be amended accordingly before
LC opening.
- The promoter should deposit Birr 776,916 in block account for working capital
purpose.
- According to the tax clearance submitted, Ato Xxx Hayatu has an existing bakery
business; hence, audited financial report of previous consecutive years should be
submitted
- Availability of electricity should be confirmed by the technical team before LC opening
- Credit information from local micro-finance institutions should be submitted before
final appraisal study is submitted
- Raw material supply agreement should be presented before final appraisal study is
issued

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X. ANNEXES
- Pro forma Invoice

- Assumptions

- Operating cost

- Working capital

- Fund allocation

- Repayment schedule

- Implementation Plan

- Depreciation

- Profit or Loss

- Cash Flow

- Balance sheet

- IRR

- Summary

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