Small and medium-sized enterprises (SMEs) play a major role in emerging economies, contributing significantly to national GDP and job creation. SME development has therefore become a priority for many nations, including Ethiopia. Unfortunately, however, access to finance has become a significant hurdle for SMEs and start-ups, particularly for those in Ethiopia where the national financial sector’s mandate and ability to support and fund innovative projects and enterprises is severely limited.
The funding gap for SMEs in Ethiopia was estimated at $6.1 Billion in 2021. The root causes of this financing gap in Ethiopia are multifaceted, with high collateral requirements imposed by financial institutions and steep borrowing costs being among the primary challenges. These financial hurdles leave many innovative and promising small businesses struggling to secure the funds they need to sustain and grow their ventures.
The National Bank of Ethiopia’s 2023 report on financial stability revealed that commercial banks held a total of Birr 1.9 trillion in loans and bonds as of June 2023. Surprisingly, 73% of these loans were concentrated among only 0.05% of borrowers, each of whom received loans exceeding 10 million Birr. As a result, a few large borrowers dominate the financial sector’s lending, making it difficult for SMEs and startups to obtain loans from commercial banks.
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