Research Journal of Finance and Accounting www.iiste.org ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.4, No.1, 2013 144 The evaporating cloud diagram: a tool to resolve conflicts in the Ethiopian Banks Birhanu Beshah 1* Daniel Kitaw 2 1. School of Mechanical and Industrial Engineering, Addis Ababa University, PO box 7754, Addis Ababa, Ethiopia 2. School of Mechanical and Industrial Engineering, Addis Ababa University, Addis Ababa, Ethiopia * E-mail of the corresponding author: bireabesha@yahoo.com Abstract Project financing is the most important role and at the same time it is the most risky business in the banking industry. The purpose of this study is to analyses the difficulties and conflicts in the project financing processes of bankers by applying evaporating cloud diagram as a tool. The result clearly indicted that if the decision making process becomes improved then the risks of the business evaporates. Keywords: project financing, multi-criteria decision making, evaporating cloud diagram 1. Background The evolution of banking which lasted for centuries until two types of modern banking developed in the industry advanced economies in the late nineteenth century was an integral part of the expansion of capitalism. The techniques of banking developed in the 17 th century which facilitated the industrial and territorial expansion that began about the same time. The two systems of banking are the market oriented financial systems characterized by a division of functions and the bank oriented financial system characterized by universal banking. In market oriented financial systems, specialized financial institutions including banks, financial markets and market intermediaries cater to the different financial needs. In a bank oriented financial system savings are largely directly transferred from those who generate them to those wishing to use them by the intermediation of banks (Machiraju, 2005). The history of banking in Ethiopia dates back to the turn of 20 th century when the Bank of Abyssinia was established in 1905 in Addis Ababa marking the introduction of banking in the country. Twenty six year later, Bank of Abyssinia was legally replaced by Bank of Ethiopia shortly after Emperor Haile Selassie came to power. The new Bank, Bank of Ethiopia (http://www.nbe.gov.et/), was a purely Ethiopian institution and was the first indigenous bank in Africa. These days Ethiopian banking sector comprises a central bank (National Bank of Ethiopia), three public and over ten private owned banks. Among them, Commercial Bank of Ethiopia (CBE), Development Bank of Ethiopia (DBE), and Construction and Business Bank (CBB) are government owned and Awash, Dashen, Wegagen, United, Nib, Birhan, Bunna, Zemen, Abay, Lion, Oromia, etc are privately owned banks. Financial sectors of Ethiopia can play a major role in economic development of the country. Every sector like domestic trade, import and export trade, agriculture, agro-industries, hotel and tourism, manufacturing, construction, transport, services (education, health, etc) and others are un-imaginary to run with out finance. Fulfilling financial requirements of different sectors is the task of Ethiopian banks by financing projects and giving loans. To carry out the multi faceted role of finance, banks, particularly those owned by the government, currently offer Medium-term and long-term loans (Project Loan). The purposes of the loan are: to finance new projects, to support the expansion of existing projects, to investments and to meet working capital needs. Eligibility of the requested loan is decided by the Bankers. Since project financing mainly focuses on the project itself to recover its cost, the selection of project proposal or decision to finance a project or not is a crucial step. If infeasible projects are financed, the project itself, the bankers and the decision makers will be at loss. At large, the country’s financial institutions will be in bankruptcy. To avoid the occurrence of such problem, banks use a lot of criteria and procedures to reach on decisions.