The importance of manufacturing project to economic growth is unquestionable in that itrnbenefits the economy at large in terms of creating employment opportunity, increasing inrnthe GDP of the nation, import substitution and the like. On the other hand, banks thatrnfinance manufacturing projects get large amount of income and profit if they providernloans to large and/or more number of projects. However, care should be taken as to thernchallenges of manufacturing project financing since they are risky and are undertakenrnin uncertain, forecasted business environment on the one hand and they need hugerninvestment capital on the other. Hence, the purpose of this study is to assess thernchallenges and prospects of manufacturing project financing by Commercial Bank ofrnEthiopia and give the required recommendation as a remedy for solving or reducing therneffects of the challenges and utilize the prospects in a better manner.rnThe study employed both quantitative and qualitative research approaches to achievernthe intended objectives. Both primary and secondary data types were used to collectrndata from managerial and non-managerial credit performers and internal records of thernbank. Review of credit documents, questionnaire and semi-structured interview werernused for collecting both primary and secondary data types. Simple random andrnpurposive sampling technique was used to select sample employee respondents of CBE.rnMoreover, descriptive survey method was used. All the close ended questions of thernquestionnaires were analyzed quantitatively using mean, frequency counts andrnpercentages. Accordingly, the study revealed that the absence of quality andrncompleteness of manufacturing project proposals submitted by customers and poorrncredit culture of customers of the bank, low level skill of credit performers, lack ofrnsupport of research unit to credit process of the bank, and absence of adequate datarnand information in the CBE for credit processing , less availability of data and up-to-daterndata & information outside CBE are major challenges of the manufacturing projectrnfinancing by the CBE.rnIn addition to this the current credit risk grading system of the CBE is found to bernimportant for conducting credit analysis. However the challenges observed is that thernparameters are subjective and broad in definition. In areas like Business risk andrnManagement risk are found to be subjective to rate. No industry average in the sector. InrnCustomer relationship risk especially in rating indicators like customer integrity andrnhonesty is a challenge to rate. Finally recommendations were made based on the resultsrnof the study. Key recommendations include giving proper advice and seminars torncustomers, and intensive training, strengthening research& development andrnManagement information system process of the bank, better the bank prepares its ownrnindustry average which can be used for internal rating purpose, develop and implementrninternal rating systems with larger numbers of grades to distinguish finer degrees ofrncredit risk, and setting a policy of submission of project proposals done by knownrnconsultancy firms