Barriers to AgFin in Ethiopia - Desk Study

Barriers to Agricultural Finance in Ethiopia

I Abbreviations and List of Boxes and Graphs

Abbreviations

a) Abbreviations (cont.)

List of boxes and graphs

Executive Summary

II Executive Summary



The expansion of access to finance is one of the development success stories of the last four decades or so. An impressive body of technical capacity has been built. It is available well beyond development agencies and international consultancy in most countries of the Global South.



Agricultural finance has remained a challenge; distance costs are higher than for most nonagricultural loans, and the underlying activities are characterised by high market risks and uneven cash flows; or perceived by financial institutions to be so.



Small and medium enterprises (SMEs) are ‘the backbone of agricultural value chains in most developing countries’(OECD). Agricultural SMEs in Ethiopia face barriers to finance working capital and equipment for their activities, and moreover to grow and contribute to job creation.



The Government of Ethiopia (GoE) has formulated a dedicated and ambitious program of economic policy reform to modernise the economy and ease the capital constraints. This should allow (micro)financial institutions to reach out to more customers.



Currently, (M)FIs rely on over-collateralising their loans with traditional collateral (land and immovable assets). With up to 200%, Ethiopia’s financial sector has one of the highest collateral requirements of the world.

II Executive Summary (cont.)



Some MFIs that offer individual loans have started venturing into some non-traditional collateral, though marginally so, thus far.



GoE plans to open the financial sector to FDI. When competition in the financial sector increases1 , (M)FIs will have incentives to introduce a range of financial products, and some will strategically move into agricultural finance. They will be interested in the insights from this desk study and the subsequent field study.

 This study presents a thorough literature review of both academic and non-academic papers that discuss enabling and constraining determinants of SME-finance; the term ‚barrier‘ is rarely used. Many of the 56 studies in our bibliography include agricultural SMEs, but very few focus on agricultural

SMEs exclusively.



While the policy barriers to agricultural finance are very specific to Ethiopia, the demand- and supply-side barriers are broadly equivalent to those in other countries in the region.

1 Ethiopia’s Ten Years Perspective Development Plan (2021– 2030) which states i) to enhance access and quality of infrastructure to attractquality foreign direct investment;and foresees as potential areas ii) increased finance from partners and multilateralinstitutions as well as iii) an increase in the number of domesticsaving institutions.

II Executive Summary (cont.)



Ethiopia is at an early stage of liberalising its telecommunications sector. Thus, spread of mobile money is still abysmal. Internet connectivity is very weak in many parts of the country. This is mirrored by lack of integrated, robust IT-systems of the (M)FIs; which drive innovation and cost-efficient processes in most other countries.



On the supply-side, which receives most of the attention in the literature, the main barriers are:

 Lack of skills to appraise loan applications and to build risk management systems, so that a variety of collateral forms are accepted.

 Lack of skills to develop a range of agricultural finance products that serve agricultural SMEs as well, and to market them successfully.



On the demand side, the main barriers are:

 Limited business management and investment planning skills; which is interlinked with lack of choice of financial products tailored to the business models of agricultural SMEs.

 Limited financial management and record keeping.



The purpose of this study is to foster a conversation between stakeholders of agricultural SME-finance for affirming proven and identifying new approaches to overcome the barriers to agricultural finance.

II Executive Summary (cont.)



Subsequently, GIZ (with funding of the BMZ innovation fund for reform partner countries), plans to carry out a field study that contributes to relevant research questions in this field.



The draft study was presented in a validation workshop with. Feedback from the workshop has been reflected, particularly in the research questions.



Two research questions have emerged:



On supply side barriers:

What strategies have (M)FIs developed towards SME finance and/ or agricultural finance; what motivated their strategic choices; and if they have not (yet) developed such strategies, why so?



On demand side barriers:

What specific barriers have agricultural SMEs experienced when looking for finance from:

(i) formal (M)FIs

(ii) other semi-formal sources, e. g. investment funds

(iii) informal sources, e. g. friends and family (including own savings).

1. Background

1. Background

1.1 Overview of Ethiopia‘s agricultural development 1995-2018



The agricultural development of Ethiopia over the past two decades is a success story:

 Agricultural GDP grew by 6.1% on average per year.

 Crop output grew by 9.6% annually on average in the same time period (1995-2018).



Together, the regions of Oromia, Amhara and SNNR produced over 90% of these crops.

 This has been achieved intensively, i.e. the yields for major cereal crops (teff, barley, wheat, maize, sorghum) more than doubled since the end of the last century.

Box 1: Financial Inclusion

According to the 2018/19 Ethiopia Socioeconomic nationally representative Survey (ESS), about 30.4% of adult Ethiopians had an account at a formal financial institution.

According to the Global Findex database (2017) (reporting the % of adults aged 15+ having an account with a formal financial institution or a mobile money provider) this compares as follows to other regional countries:

Ethiopia: 35% | Kenya: 82% | Tanzania: 47% | Zambia: 46% | Nigeria: 40%

1. Background (cont.)

1.1 Overview of Ethiopia‘s agricultural development 1995-2018 (cont.)



The Government of Ethiopia has played an important role in these achievements:

 Agricultural public spending has been substantially higher than in other African countries; about half of it went into infrastructure and productivity improvement.

 In particular, Ethiopia has been running the largest extension program in Africa with one of the highest extension agent-to-farmer ratios in the world (Till 2021).

1.2 Agricultural transformation

 Agricultural transformation requires markets for farm inputs, technological change, local availability of inputs, production incentives for farmers and sufficient transportation (Mosher 1966:7, quoted by Till).

 OECD (2021) observed that “[…] SMEs are the backbone of agricultural value chains in most developing countries.”



Accordingly, the Government of Ethiopia has emphasized the role of markets more strongly in recent years, particularly since 2018.



In Ethiopia’s Ten Years Perspective Development Plan (2021 – 2030) the focus on modern agriculture is an important factor of the first pillar „Ensuring quality economic growth“.

1. Background (cont.)

1.3 Roles for entrepreneurs (= operators of agricultural SMEs)

SMEs play an important role in Ethiopia's transition to a functional market economy, as many sectors are still dominated by public enterprises.

Increase efficiency and effectiveness of delivering agricultural inputs, transportation and aggregation of harvest.

Overcome critical supply issues (e.g. for agricultural inputs).

Economies of scale in processing, beyond post-harvest handling.Agricultural SMEs aggregate the outputs of mostly smallholder farms, both as traders and as off-taking processors.

Contribute to closing the investment gap for modernising the agricultural sector.

Create off-farm agricultural jobs (for Ethiopian youth).

Contribute to local value creation.

However, SMEs lack access to finance to play their roles, to leverage on their own investment, and to generate economic growth.

1. Background (cont.)

1.4 SME-finance: missing middle phenomenon



Ethiopia is characterised by the “missing middle” phenomenon:

 Small firms are neither being served by commercial banks nor by microfinance institutions (MFIs).

 Commercial banks rarely lend in amounts below USD 50,000, whereas MFIs mostly offer group loans that do not exceed USD 1,500.

Box 2: Number of SMEs in Ethiopia

According to the Entrepreneurship Development Center (EDC), the total number of existing MSMEs within Ethiopia reaches 1.5 million. 80% of them are micro-enterprises. SMEs collectively comprise the remaining 20%, which amount to about 300,000 firms. However, the Government of Ethiopia counts only about 20,000 SMEs, most of which are in the manufacturing sector.



The “missing middle” is common in many developing countries with a large number of micro and some large enterprises, but few small and medium enterprise (World Bank, 2015)

The discrepancy probably depends on GoEagencies primarily counting enterprises established with public support. There is no reliable estimate of the total number of agricultural SMEs in Ethiopia, among others because it is not clear if agri-processors are counted among manufacturing or agricultural sector.



Dalberg (2018, p. 4) infers from its sources of information –

administrative and survey data of financial institution in Kenya, Rwanda, Tanzania, Uganda and Zambia - that ”bank lending to agri-SMEs requiring $100k+ is limited, heavily collateralized, and not tailored to agri-SMEs’ seasonal cash flows and other needs.”

In comparison, in Kenya the number of licensed MSMEs amounts to 1.56 million, whereof 7.1% are small and 0.7% are medium sized enterprises (according to the “2016 National Micro, Small and Medium Establishment (MSME) Survey”, Kenya National Bureau of Statistics.

1. Background (cont.)

1.5 GIZ initiative (and AFC mandate)



Revisiting and sharpening the understanding of constraints to agricultural SMEs’

access to finance is a timely move to support GoE’s efforts to build markets and strengthen competition, to harness private sector resources for the next part of Ethiopia’s development journey.

 Private sector credit is an important pillar of that agenda. The National Bank of Ethiopia (NBE) has executed several reforms already, notably:

 Abolition of the "27% rule" (priorAction 7), which required banks to invest the equivalent of 27% of their loan portfolio in state bonds, is an important step towards improving the liquidity of private banks and lending to the private sector. Some banks have already announced interest rate cuts as a result of the reform (e.g. Awash Bank).

 Creation of a registry for movable collateral (see box at the right).

Box 3: How to make the movable asset register work?

Many studies have noted the lack of a movable asset register. GoE has responded to this, and with support of the World Bank created such a register in 2020.

To make the new institution work, NBE has asked FIs to include the proportion of loans based on movable collateral in their statutory reports from QIII 2021.

There is a drive to allocate at least

5% of loan portfolios to credit secured with such collateral (NBE Circular No MFISD/01/2020).



To that backdrop, GIZ has contractedAFC to study the barriers to agricultural finance that (incorporated) SMEs face, through this desk study and subsequently through contributing to the body of empirical work.

For example, participants of GIZ’s stakeholder workshop highlighted this requirement; it draws their attention to issues and opportunities of movable collateral.

2. Objectives of the Study

2. Objectives of the Study

Through rigorous analysis conducted here, GIZ aims to contribute to a common understanding of the stakeholders of the barriers to agricultural finance for SMEs in the agricultural sector. This shall serve as a basis for intensified cooperation and targeted intervention to overcome barriers.

1. Build a common understanding of barriers to finance for SMEs in the Ethiopian agricultural sector, as a basis for further analysis and joint action.

2. Create (a graph of) an actor analysis (i.e., which are the key financial institutions, government and development partners)

3. Research gaps and perspectives:

Identify key gaps in the existing literature concerning barriers to agricultural finance for SMEs in the Ethiopian agricultural sector.

Formulate research questions.

3. Methodology

3. Methodology



Identification of potential studies:

This study is based on secondary data.

Search was performed in English.

Key search terms, used in varying combinations:

Ethiopia | SME | agri | agriculture | finance | barrier | gap | constraint | investor

Note: We excluded COVID19 as a topic, as we expect it to be a temporary not a structural influence.

A brief overview of some COVID19-related developments is given in Annex 11.2.

Only included studies published in or after 2010.



Main research data bases used: Google (Scholar),AgEcon, SSRN.



Focus on Ethiopian studies, however for a more holistic picture also considered other regional studies.

3. Methodology (cont.)

1

3.2 Number of studies



The pre-screening is based on titles and abstracts of the papers and resulted in a short-list around 130 studies. These papers were assessed more thoroughly. Papers off-topic, lacking in quality or significance were excluded.

 This process resulted in a list of 56 studies that were considered relevant for this study.



In addition, further sources like descriptive publications, websites, e.g. from the Agricultural TransformationAssociation, news, and articles, e.g. from the Economist, informative reports on e.g. existing development programmes like the Green Innovation Centres, policy-papers, e. g. AACCSA on the creation of a robust private sector in Ethiopia1 , were checked for further background information.



For the demand-side barriers, entrepreneurship and entrepreneurship training literature were additionally scanned and are reflected in the according section of this study.

This study features eight chapters (public deficit, trade, ease-of-business, competitiveness, skilled labour, land, digital economy and access to finance (!). The latter comprises of desk review and supply- and demand side survey. Seven of the papers included in this study were also found by their desk review.

3. Methodology (cont.)

3.3 Research Gaps



Having assessed the literature and getting a clear picture of the state of the art of the literature on SME’s Agricultural Finance Barriers in Ethiopia, research gaps could be identified.



The literature confirms the scarcity of research on this topic. Dalberg (2018) states: “There is limited evidence available on the economics of financing SMEs especially agricultural SMEs making it difficult to identify where market interventions are required and how they should be calibrated to incentivize increased lending without distorting markets.”



In addition, besides deducing the gaps, some authors pointed out the need for further research in their studies.

3.4 Validation Workshop



On 8th September 2021, the desk study was presented and discussed during a half-day validation workshop to stakeholders from financial institutions and development partners, among others. The workshop attracted 32 participants (excl. AFC). Inputs from the workshop are reflected (and referred) in this final version of the desk study. In particular, the focus of the research questions was adapted following the suggestions of the workshop’s participants.

3. Methodology (cont.)

3.5 Definitions (cont.)



The term ‘barrier’is rarely used in the literature on (Agri-) SMEaccess to finance, and it is not defined explicitly, but rather by (presumed) common usage.

Box 4: Example for defining a barrier

Collateral is a barrier that (M)FIs create deliberately.

In some countries, policy-makers regulate how much collateral (M)FIs are to ask for. However, that is not the case in Ethiopia.

Collateral is therefore a supply-side barrier.



Thus, this desk study and the subsequent field study go beyond the existing literature. They generate explicit understanding of barriers that hinder agri-SMEs accessing finance from the formal financial sector.

 Hence, we define barriers as conditions that (i) largely on their own constitute an obstacle and (ii) fall (practically) exclusively within the agency of either class of actors in the financial sector, i.e., we differentiate between public policy barriers, demand-side barriers, and supplyside barriers.

Without doubt, there are systemic factors that shape the choices of (M)FIs, for instance lack of competition, and the options of SMEs, for instance lack of awareness of Ethiopia’s new movable asset register.

Lack of a movable asset register was a policy-barrier that Ethiopia’s policy-makers removed recently.

Lack of competition might not be a barrier, as it depends on several factors and not only one.

Many authors point out that prohibition of foreign direct investment is a major shaper of competition in the financial sector, so that constitutes a policy-barrier.

3. Methodology (cont.)

3.5 Definitions (cont.)



Policy barriers are induced by policy-makers; demand-side barriers are induced by the AgriSMEs themselves; and supply-side barriers are induced by the financial service providers.

 Most conditions are contingent on many factors, i.e., they exist in a system. Participants of the validation workshop pointed out, for instance, that the SME-ecosystem in Ethiopia needs to be understood to understand the shape of agri-SMEs’ access to finance.

 This study is not an eco-system study; as it does not cover all factors influencing the SME’s ecosystem, like for example environmental or social factors.

4. Scope of Desk Review

4. Scope of Desk Review

4. Scope of Desk Review (cont.)

 Annex 11.5 shows the different characteristics of the studies that were reviewed.



Figure 2 (previous slide) visualises the perspective of geography of the studies and how many of the ones covering Ethiopia were focused on agricultural SMEs.



Those studies that survey SMEs have sample sizes ranging from 20 to 519. An exception are the World Bank studies (from 2015 and 2020), which have substantially larger samples (1.600 SMEs with more than 10 employees, 2.797 in the service sector, including micro enterprises, and 2.369 female-owned SMEs respectively).

Figure 3: Map of regions/ cities covered by empirical studies on entrepreneurs

5. Findings I:

Barriers to Agricultural Finance for SMEs in Ethiopia

5. Findings I: Barriers to Agricultural Finance for SMEs in Ethiopia

Box 5: Ethiopia’s macro-economic context in a nutshell

5.1 Policy barriers

5.1.1 Macro-economic gaps



Inflation has been above 10% p.a. for most years since 2010, and it has been rising since 2017, to over 20% p.a. in 2021.

 Ethiopia experiences constant forex shortages. For instance, at the time of writing banks have been instructed to stop lending, because this fuels the black market for forex where rates are substantially higher than the official exchange rate.

Any country can expand its national income if it can export more goods and services than it imports. By the accounting logic of national accounts, this represents a net-capital export.

Equivalent, if a country imports more than it exports, it contracts its national income. This represents a net-capital import. This describes the macroeconomic situation of Ethiopia.



These problems that affect SMEs as well as their (potential) financiers are based on three persistent problems:

1. Exports < imports

2. Savings < investment needs

3. Tax collection < government spending

If net-exports (i. e. exports minus imports) are negative, a floating currency of the country would depreciate; this makes imports more expensive and exports less expensive (hence exporters more competitive). However, Ethiopia does not allow its currency to depreciate as much. Therefore, there is a forex-shortage in the country and hence a black market for forex.

Countries which have a high savings rate, such as common in South-East Asia, can finance their capital stock that way (rather than through negative net-exports).

5. Findings I: Barriers to Agricultural Finance for SMEs in Ethiopia (cont.)

1

5.1 Policy barriers

5.1.2 Liberalisation



Throughout the 20th century, Ethiopia pursued a state-centred, highly interventionist economic policy. This largely suffocated private sector development. (Pinto, 2019)



During the 2010s, the government introduced an SME-policy and agency, FEMSEDA. This agency was recently replaced by FeSMMIPA and FeUJCFSA (Pinto, 2019). However, the main spirit of economic policy was still shaped by the previous philosophy. Fanta (2012) finds that reforms that allowed private Ethiopianowned banks to operate since about 2000 did not have any effect on SME-access to finance.



USAID notes that “[t]he formal private sector in Ethiopia has very little capacity and involvement in the Ethiopian economy. […] The private sector has a relatively low 27 per cent contribution to the economy, and creates a meagre 5.5 per cent of the formal workforce. [..] the private sector in Ethiopia has one of the lowest rates of formal business creation in the world. Comparatively, Ethiopia has very low private sector investments in the country; 8.8 per cent compared to a sub-Saharan average of 18 per cent”1

Cited from an USAID-presentation on the case of expansion of the WarehouseReceipt System (WRS)in Ethiopia. Year, event, and target group of the presentation are not indicated. From references used it, can be dated to be from 2019 or 2020.

5. Findings I: Barriers to Agricultural Finance for SMEs in Ethiopia (cont.)

5.1 Policy barriers (cont.)

5.1.2 Liberalisation (cont.)



Furthermore, in the agricultural sector SMEs have played a relatively smaller role because the GoE has given priority to cooperatives. While this desk review has not looked into the role of cooperatives, it is apparent that they have been supported massively by GoE, e. g. through the cooperative promotion agency promoting formation of primary cooperatives from kebele level upwards.

 Since 2018, the government has adopted a new approach which emphasizes liberalization, in particular:

 Opening the telecommunications market (ongoing; MTN received the first foreign telco-license in May 2021).

 Opening the financial sector for foreign-owned financial institutions from 2023.

 Foreign firms are restricted from entering the m/e-banking and e-commerce market of Ethiopia, it is still only open for domestic investors. (NBE-Directive No. ONPS/02/2020)



Ethiopia’sTen Years Perspective Development Plan (2021 – 2030) states under the strategic pillar “Private sector's leadership in the economy” to enhance access and quality of infrastructure to attract quality foreign direct investment.

5. Findings I: Barriers to Agricultural Finance for SMEs in Ethiopia (cont.)

5.1 Policy barriers (cont.)

5.1.3 Legal environment



The current credit information system in Ethiopia is operating sub-optimally. The World Bank (2015) reports that financial institutions are constrained by the contractual environment and do not exploit the public credit reference bureau well. Another study advises to allow private credit reference services to expand the scope of information (as well as of its users). The World Bank suggests to enhance the regulatory, legal, and supervisory framework of the NBE that underpin the establishment and supervision of a private credit bureau.

 “Faced with a dearth of information, financial institutions impose unduly large collateral requirements in order to minimize their exposure and risk.” (World Bank, 2020:46)



Leasing as an alternative financing instrument fits perfectly in the Government’s vision to increase access to finance to agri-related SMEs with insufficient collateral.



The vision is reinforced by the fact that the policy makers have found it relevant to further amend the actual capital goods leasing proclamation 103/1998 as amended by the 807/2013 proclamation by aligning it to international best practices.



Leasing as an innovative financial product for agricultural SMEs, purposely for the financing of agricultural machinery, increases the quantity and quality of lending for eligible lessees (private agricultural service providers, aggregators, processors, farmers, cooperative unions).

5. Findings I: Barriers to Agricultural Finance for SMEs in Ethiopia (cont.)

Policy barriers (cont.)

5.1.3 Legal environment (cont.)



The existing commercial laws of the country do not properly and clearly address m-banking and e- banking at large. Ethiopia is just in the process of enacting legislation that deals with e-commerce which covers enforceability of the validity of electronic contracts, digital signatures, and electronic transactions. Drawing on experiences from Kenya and Uganda (among others), consumer protection concerns will inevitably emerge as a topic; from the current desk-review, it is not a topic that affects (agri-) SMEs.



The regulatory body faces challenges in terms of timely approving innovative products. It took about seven months to get a license for mobile and agent banking for one commercial bank.



To reduce transaction costs of loan contracts, NBE created a movable collateral registry which became operational this year. NBE obliges banks to secure a minimum of 5% of total disbursed loans against movable inventory only. Besides, banks can also lend to MFIs that have greater liquidity requirements, which can be counted towards the portfolio disbursed against movable inventory. (MCR/01/2020)



Bureaucracy in company registration and getting a license, instability in tax policy and high tax rate have a negative significant effect on financial performance of small business enterprises. (Gelaye, 2020).

5. Findings I: Barriers to Agricultural Finance for SMEs in Ethiopia (cont.)

Policy barriers

5.1.4 Infrastructure



As of the end of FY 2018/19, Ethiopia had 138,127 km (85,825 miles) of all-weather roads – about 39% of the required road network in the country.

The new rail system began commercial operations in 2018. It comprises 656 km railway network that links the capital city AddisAbaba to the port of Djibouti.

 However, road network constraints in the rural economy are still felt.

According to the World Health Organization (WHO), Ethiopia has the highest rate of traffic fatalities per vehicle in the world. Roads in Ethiopia are poorly maintained, inadequately marked, and poorly lighted.”3

2 InternationalTrade Administration:“Ethiopia - Country CommercialGuide”, accessed Aug 2021: https://www.trade.gov/knowledgeproduct/ethiopia-road-and-railways

3 Country Reports: “Trafficand Road Conditions in Ethiopia”,accessed Aug 2021: https://www.countryreports.org/country/Ethiopia/traffic.htm

Finance

5. Findings I: Barriers to Agricultural Finance for SMEs in Ethiopia (cont.)

Policy barriers (cont.)

5.1.4 Infrastructure (cont.)



Availability and quality of IT infrastructure is one of the challenges which impacts the agent banking business. Interruption in services of telecommunications due to technical or nontechnical issues and non-availability of any parallel system as alternative may cause disruption in service availability. Similarly, congestion in network may become a bottleneck in providing quality of service to agent banking users.



Furthermore, electric power breaks up frequently. The inconsistent availability of power supply in the country, particularly in rural areas, is one of the challenges for the implementation and continuous availability of mobile and agent banking services. The utility disruptions, software or hardware failures can cause a lack of service availability and information loss.



In some places there are inadequate water supply and waste (disposal) management systems. (Gelaye, 2020)



All of these translate into costs for SMEs which affect their ability to compete in the market.

5. Findings I: Barriers to Agricultural Finance for SMEs in Ethiopia (cont.)

characteristics of the

of the firm

of the manager

positively correlated with access to finance:

firms are managed by the owner (owner-manager) or not.

studies note that SMEs often lack of the required human resources and management systems along the HR cycle.

when SMEs grow, they encounter challenges in setting up financial and operational

Financial management gaps are most acutely felt, because the enterprise runs into liquidity problems and, viz-a-viz lenders or investors, lacks financial records that state its business case.

systems

5. Findings I: Barriers to Agricultural Finance for SMEs in Ethiopia (cont.)

5.2 Demand-side barriers (cont.)

5.2.1 Management capacity & governance structure (cont.)



Lack of management skills and experience and the application of poor accounting practices hinder the SMEs’ ability to formulate a qualified demand for capital and to raise finance. For instance, Dalberg (2018) notes “financial reporting, accounting, governance and growth strategy” as TA-needs of agri-SMEs in East Africa (from the perspective of the FIs, they do not see these as profitability drivers, though).

The application process for a loan is difficult for SMEs (slide 43 lists some of the documents required).

 6% of small and 5% of medium sized companies indicated “application procedures were complex” as a reason for not applying for a loan (World Bank, 2015).

 Conversations from the stakeholder workshop gave examples of agri-SMEs that do have well prepared business documents (such as validation of assets etc.), but nonetheless see their loan application rejected (because of the type of collateral); this shows that narrow focus on collateral over-shadows demand-side issues.



These are interlinked with operational management and business planning (‘strategic management’). When the team expands, the entrepreneur needs to make sure that everybody knows their roles and performs them, and receives feedback on their performance, even if the manager-owner is not around.

5. Findings I: Barriers to Agricultural Finance for SMEs in Ethiopia (cont.)

5.2 Demand-side barriers (cont.)

5.2.1 Management capacity & governance structure (cont.)

Accordingly, SMEs also regularly miss the governance structure required for an enterprise that has outgrown its owner-manager taking any decision alone. Conversations at the stakeholder workshop affirmed that an overbearing role ‘owner-CEOs’ is a bottleneck for some agri-SMEs, particularly when they have successfully outgrown the micro-size.

5.2.2 Socio-cultural context

 Some entrepreneurs (SME-operators) reported that they can not access credit due to their religion (Islam), which prohibits interest-charges.



In Ethiopia, like all around the world, women-owned businesses have less access to credit than their male counterparts. In the Economist’s Women’s Economic Opportunity index, Ethiopia occupies the 123rd rank out of 128 countries. Most growth-oriented women entrepreneurs fall into a ‘missing middle’ trap, in which they are served neither by commercial banks nor by microfinance situations. (World Bank, 2020)

5.2.3 Perception of financial institutions

 SMEs prefer to obtain their finances from family loans, iquub, or personal savings as an alternative to credit from banks or MFI.

5. Findings I: Barriers to Agricultural Finance for SMEs in Ethiopia (cont.)

5.3 Supply-side barriers

5.3.1 Collateral requirements



By international comparison, Ethiopia has one of the highest collateral requirements in the world – at time over 200% of the loan amount.



The World Bank (2020) reports that its Women Entrepreneurs Development Programme triggered reduction of collateral requirements by some MFIs (!) from 200 to 125%.



So far, practically all collateral is demanded in form of fixed assets (and/ or land titles), which most

SMEs hardly possess. AACCSA (2020) reports that about 60% of small enterprises pledge land/ buildings or personal assets as collateral. Only for larger enterprises are other forms of collateral (equipment, receivable accounts) accepted, complementary not substituting to land / buildings.



Oshora et al (2021) also note that MFIs demand clients save compulsory 15% to 20% of the loan amount over six months. This is effectively another form of collateral and both a huge increase of capital cost and a substantial drain of liquidity for the SME.

5. Findings I: Barriers to Agricultural Finance for SMEs in Ethiopia (cont.)

Credit history

Excessive upfront documentation

Box 6: Loan application processes

SMEs surveyed by AACCSA

(2020:chapter 5) report that the process of applying for a loan is very lengthy.

On the one hand, the procedures are complex and require ‘a pile of paper work’ (p. 241).

On the other hand, the valuation of collateral offered is perceived to be neither consistent nor transparent. Furthermore, in the course of the loan application additional expenses (including stamp duty, city council charges, other service charges) occur that sum up to 8% of the loan amount. In sum, these procedures regularly range from 3 to 12 months; DBEapplicants report up to 18 months.

5. Findings I: Barriers to Agricultural Finance for SMEs in Ethiopia (cont.)

Technical (staff) capacity

(2015) identifies capacity building needs:

Weak management information system (MIS)

of standard software

Skilled manpower, e. g. loan appraisal, market research

In future, IT-skills will be critical for banks to provide secure services and control vulnerability

they computerize their systems, particularly if they engage in e- and m-banking.

5. Findings I: Barriers to Agricultural Finance for SMEs in Ethiopia (cont.)

barriers

5.3.4 Technical (staff) capacity (cont.)



Lack of technical capacity, incl. lack of agricultural knowledge, to carry out

SME loan appraisal is seen as a major reason for banks and SMEs to stick to physically collateralised lending, as it is much simpler to manage and monitor.

 MFIs are exposed to financial and operational risks:

 There has been hardly any attempt by Ethiopian MFIs to identify, measure and manage risks.

 Drought, seasonality of rural activities and local market failures negatively affect the performance of MFIs.

 Insurance and derivative product that helps MFIs and clients to manage production and price risk are virtually absent.

Box 7: Insurance

According to the “Study On Crop and Seed Insurance In Ethiopia” by GIZ (2019) the insurance sector in Ethiopia is relatively young. Insurance can improve farmers’ access to credit and access to inputs. Financial institutions should analyse the benefits of integrating crop insurance with crop loans and other financial products, such as savings. Commercial banks have not played an active role as aggregators yet. The business case for aggregators may include reduction of credit risk exposure, increased loyalty among contracted farmers and pre-financing the premium on behalf of the farmers.

5. Findings I: Barriers to Agricultural Finance for SMEs in Ethiopia (cont.)

Supply-side barriers (cont.)

5.3.4 Technical (staff) capacity (cont.)



So far, Ethiopia’s M/FIs have not introduced credit scoring systems. These are an important building bloc to reduce costs of small-loan-delivery in other markets. In Ethiopia, a World Bank pilot of psychometric credit scoring found that those borrowers who scored higher on the test were seven times more likely to repay their loans than lower scoring customers.



Low computerisation/ digitalisation. Hence the credit cycle is managed through paper-based trial. For example, the World Bank 2020 highlights the lack of robust core banking systems and ITintegration of branches.



Additionally, the banking system lacks interoperability where the same infrastructure can be used to support multiple payment mechanisms. This affects adversely the possibility of achieving economies of scale.



Missing (agricultural) product development skills. Particularly MFIs still largely rely on highly standardised group lending (with cash-collateral, see 6.3.1), though individual lending has emerged.

5. Findings I: Barriers to Agricultural Finance for SMEs in Ethiopia (cont.)

Supply-side barriers

5.3.5 Strategic outlook

 (M)FIs have not developed SME-finance strategies or policies.

 Mismatch of loan products that Ethiopia’s (M)FIs have to offer:

 Lack of inventory financing for traders.

 Lack of export financing for exporters.

 (M)FIs only offer short-term finance, while SMEs are looking for medium and long-term finance.

 Lack of innovation drive. SMEs are interested in other financial services such as attractive deposit products, and reliable payment products.



The liberalisation of the telecommunications sector will likely lead to a surge of new payment and, in perspective, other m-banking services and M/FIs require a clear strategy if they want to remain relevant with the IT-driven change of the financial service market.

5. Findings I: Barriers to Agricultural Finance for SMEs in Ethiopia (cont.)

5.3.5 Interlinkages between barriers

Prohibition of foreign direct investment in the financial sector Policy barrier

This is the major barrier which causes shortage of loanable funds and lack of competition.

Supply side barrier

This dis-incentivises (M)FIs from engaging in new (or adapted) financial products for agricultural SMEs.

Policy barrier

Internet connectivity is poor and ITcompetency costly

Investing in improved ITsystems requires new skills and new management systems (e.g. data security).

Supply side barrier

Without such systems, an expanded range of financial products is very difficult to manage (if at all profitable).

Supply side barrier

‚Traditional‘ collateral is the most convenient security for (M)FIs

SME-operators pledging land or housing, risk losing it in case of market challenges– not so when borrowing from friends and family.

Demand side barrier

No Incentive to acquire skills/ build systems for financial record keeping & biz planning.

Demand side barrier

SMEs manage and document their finances poorly

(M)FIs demand a lot of upfront documentation to be presented at their branches.

Supply side barrier

With demand exceeding loanable funds, (M)FIs pick the loan applicants with convenient appraisal, i.e. high traditional collateral.

6. Country Comparisons on Barriers to Agricultural Finance

6. Country Comparisons on Barriers to Agricultural Finance

6. Country Comparisons on Barriers to Agricultural Finance (cont.)

Getting Credit in Ethiopia and comparator

Getting Electricity in Ethiopia and comparator

Note: The ranking of economies on the ease of getting credit is determined by sorting their score for getting credit. These scores are the sum of the scores for the strength of legal rights index and the depth of credit information index. Source: World Bank: “Economy Profile of Ethiopia. Doing Business 2020 Indicators”)

5 Note: The ranking of economies on the ease of getting electricity is determined by sorting their scores for getting electricity. These scores are the simple average of the scores for all the component indicators except the price of electricity. Source: World Bank: “Economy Profile of Ethiopia. Doing Business 2020 Indicators”

6. Country Comparisons on Barriers to Agricultural Finance (cont.)

6. Country Comparisons on Barriers to Agricultural Finance (cont.)

Lack of business training is a major demand-side barrier to entrepreneurship (cont.)



The entrepreneurship literature from the region regularly indicates lack of business training and access to finance as major challenges for MSMEs (among many factors, e. g. taxation, marketing, and infrastructure).

 Few studies (mostly one-town-studies6) qualify access to finance with regard to requirements set by financial service providers, such as collateral, provision of guarantors, and loan tenure.



It is noteworthy that the lack of business training is biased to enterprises with specific characteristics, such as one-town-studies and female-owned enterprises.



Lack of business training implies gaps in management and entrepreneurship skills.

 These gaps in management and entrepreneurship skills are correlated to access to finance.



Hence, it is reasonable to deduct that these gaps form a demand-side barrier in access to finance.

6 Studies that only collected data in one town, municipalityor city.

6. Country Comparisons on Barriers to Agricultural Finance (cont.)

Lack of business training is a major demand-side barrier to entrepreneurship (cont.)

: Most of these studies are biased towards micro and very small enterprises.

are few studies of small and medium enterprises. Two such studies from India and Mexico

affirm gaps in management behaviours of medium enterprises (e. g. inventory management, enterprise goal setting).

is an extensive literature on the trainability of business management behaviours and practices.

suggests that:

trainings that control for heterogeneity of trainees (entrepreneurs) have a fair chance to impact management behaviour and contribute to positive enterprise performance.

Management training is more likely to be impactful than entrepreneurship training.

several GIZ-programmes in Africa (e. g. Nigeria, Namibia) have developed ‚pitching formats‘ to combine practical short trainings (‚teachable moment‘) with linking SMEs to financial service providers.

7. Findings II: Recommendations to Overcome Barriers

7. Findings II: Recommendations to Overcome Barriers

Overview

The policy recommendation of the empirical studies on M/SMEs are, with the exception of a few, not very strong:

 The explicitly stated policy recommendation for the demand side mentioned most often is the need for HRD/ trainings/ capability-building.



For supply side recommendations the emphasis lies also on capability-building/ skills training/ HR development as well as on strengthening innovation/ product offer.

7. Findings II: Recommendations to Overcome Barriers (cont.)

Incentives

7. Findings II: Recommendations to Overcome Barriers (cont.)

Recommendations by World Bank (2015) – Study with the largest, most representative SMEsample

Framework conditions:

SMEs need to be clearly defined in a policy framework by the GoE as well as at operational level by financial institutions with uniform criteria. => Set up a stakeholders’working group to look into the issue of finding a common definition to be used by all financial institutions to segment the market.

Establishing collateral registry of both movable and immovable assets.

Support the use of market credit information through the refinements to the legal and regulatory framework to improve incentives to share information among lenders.

Leasing can be an effective mechanism for boosting the Ethiopian economy by providing long-term finance to SMEs.

7. Findings II: Recommendations to Overcome Barriers (cont.)

7.3 Recommendations by World Bank (2015) (cont.)

 The GoE should consider adopting an integrated approach to SME development, which would combine a public support scheme to SME finance with parallel interventions in the areas of financial sector infrastructure as well as in the legal and regulatory framework.

Incentives

 Promote commercial banks’ downscaling intervention: Incentives through combination of dedicated liquidity (through lines of credit, e.g. by DBE) with tailored TA packages to successfully reach the missing middle segment.

Capacity building of commercial banks

 Commercial banks should establish dedicated SME units within their organization, define SMEspecific strategies, offer a range of products beyond lending, utilize low-cost delivery channels, develop and use risk modeling tools and build adequate hardware and software architecture.

 Use best practices of commercial banks that have applied lending practices developed in the microfinance sector, to overcome high transaction costs and high-risk profiles of potential borrowers.

7. Findings II: Recommendations to Overcome Barriers (cont.)

Recommendations by World Bank (2015) (cont.)

Capacity building of the demand side

 Educational campaign promoting the value of credit bureaus among SMEs and financial institutions.

 Help to address some of the intrinsic weaknesses in SMEs that cannot be addressed through financing tools alone - coordinate and tailor BDS interventions with parallel incentives provided to the supply side (i.e. commercial banks) to engage in SME lending.

Box 8: GIZ Digital Entrepreneurship Center

To improve digital skills, the local digital ecosystem and to encourage innovative entrepreneurship among young people, the GIZ, Orange, the Ministry of Innovation and Technology, the Ethiopian Investment Commission and the Industrial Parks Development Corporation opened the Addis Ababa Orange Digital Center in February 2021.7

7 Next billion News: “Giz and Orange Launch an Orange Digital Center in Ethiopia”,26 Feb 2021: https://nextbillion.net/news/giz-and-orange-launch-anorange-digital-center-in-ethiopia-the-3rd-in-the-africa-and-middle-east-region-to-train-young-people-in-digital-technology-and-boost-their-employability/

8. Research Gaps

8. Research Gaps

8.1 Research gaps based on the literature review on barriers and on recommendations



The studies that focus on agricultural SMEs in Ethiopia – which are a relatively small part of the entire literature reviewed – do hardly discuss measures on the demand side; i.e. overcoming skill and systematic capacity weaknesses of the entrepreneurs and the enterprises.



There is a strong sense of equivalence between the recommendations of the study by the World Bank (2015), and the agri-SME-studies. However, the former brings out more pointedly and precisely the merit of an integrated approach – provide liquidity/ funding and TA, parallel to policy reforms and to capacity support to SMEs.



Still, the demand side is certainly given less pronounced and lower priority than the policy and supply side measures. However, in the World Bank-initiated, multi-donor program for female entrepreneurs, a sophisticated capacity building approach is applied.

8. Research Gaps (cont.)

8.1 Research gaps based on the literature review on barriers and on recommendations (cont.)



There is a disconnect between the value chain finance studies and the SME literature, in the sense that the literature on VC finance does not specifically consider agri SMEs. Yet, value chain finance is one of the more obvious and more simple approaches to reach agri SMEs as well as other actors in a given value chain.

Relatedly, this approach would be a good way to identify SMEs (with growth potential) in the first place, and tackle the issue of the high collateral requirements, as the agri produce will be serving as collateral instead.

Finance mechanisms could be either through the buyer or from the bank to the farmer directly with the security of a tri-partite agreement between bank, buyer, and farmer.

 Agricultural insurance has hardly been explored in the literature reviewed, though a few studies note it as an area of need.

8.2 Additional research gaps identified by authors (independent of literature review)

 Apparently, few of the ‚standard agricultural finance products‘ – inventory and trade finance, tri-partite arrangements – have been explored, let alone piloted in Ethiopia.

 Credit scoring is at very early stages, with just one financial institution having piloted such an approach at all. This perceived gap probably also mirrors that we underestimated the low prevalence of computerisation and digitalisation.

8. Research Gaps (cont.)

8.2 Additional research gaps identified by authors (independent of literature review) (cont.)

 The literature, probably influenced by the long-standing policy-priorities, has focused on smallholder farmers and cooperatives and has rather neglected the role of more established agricultural entrepreneurs.

8.3 Methodological research gaps

 There is no (nationally) representative survey of agricultural SMEs, only from the World Bank (2015) which assesses SMEs above 10 employees. None of the other studies uses even truly randomised sampling (especially for M/FIs).

 Moreover, there is no SME-panel to track developments over time.

 We did not find any study (for Ethiopia) with a control group (the evaluation of the training and biometric data evaluations of the WB female entrepreneurship program uses controlled trials).

9. Research Questions

9. Research Questions

Supply Side

What strategies have (M)FIs developed towards SME finance and/ or agricultural finance; what motivated their strategic choices; and if they have not (yet) developed such strategies, why so?

Demand Side

What specific barriers have agricultural SMEs experienced when looking for finance from:

(i) formal (M)FIs

(ii) other semi-formal sources, e. g. investment funds

(iii) informal sources, e. g. friends and family (including own savings).

How can the lessons-learnt (with integrated approaches addressing both supply and demand side) from donor-programs like e. g. WEDP, GIZ's SI (SME-promotion component) and others be transferred to agricultural SMEs?

10. Concluding Remarks

10. Concluding Remarks



Ethiopia has followed a unique approach to economic policy. While successful in some regards, such as improving agricultural productivity, the approach implies a hard constraint on capital and hence credit in the country.



The GoE has taken on this challenge and charted a path of economic policy and financial sector reform. Hence, many recommendations for removing policy-barriers to SME-finance are under way.



Microfinance and financial institutions have so far done little to change their approach to over-collateralised lending. With the focus on smallholder farmers or cooperatives in the agricultural sector, agricultural SMEs lack tailored financial services, e.g. under Ethiopia’s warehouse receipt system, or trade and inventory finance, ideally in a value-chain perspective.



For (M)FIs to take up the mantel and introduce better appraisal and risk management processes, they need capacity building.As a pre-requisite, they need to create a strategy towards agricultural (and/ or) SME-finance.



The existing literature focuses overwhelmingly on the supply side, while the perspectives of SMEs are relatively less prominent.Agricultural SMEs have rarely been studied, let alone systematically. The field study proposed by GIZ may make a dent to that research gap in the literature.

11. Annex

11. Annex

11.1 Bibliography

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Ababulgu: “Analysis of the Economy of Beekeeping and Honey Supply in Horo Guduru Wollega Zone, Oromia, Ethiopia”, 2021.

ADA asbl and First Consult PLC: “Small and Growing Businesses in Ethiopia”, 2017.

Adem & Worku & Beyene: „Constraints and Growth Potentials of Micro and Small Enterprises: Case from Mekelle City“ International Journal of Scientific and Research Publications, Volume 4, Issue 12, 2014.

AEMFI – Amha & Peck: “Agricultural finance potential in Ethiopia”, 2010.

Agrilinks – Baver: “How to Close the Agri-SME Financing Gap: Evidence From East Africa”, 2019.

Ali et al: "The potential of Islamic financial institutions in promoting small and medium enterprises (SMEs) in Ethiopia" Journal of Economics and Political Economy 7.3 (2020): 188-203.

Amentie et al: “Barriers to Growth of Medium and Small Enterprises in Developing Country: Case Study Ethiopia” Journal of Entrepreneurship & Organization Management 5:3, 2016.

Amha et al: “The Impact of FinancialAccess on Firm Growth: evidence from Ethiopian Grain Traders and Millers”. Ethiopian Journal of Economics, Volume 22 Issue 1, p. 139 – 171, 2013.

11. Annex (cont.)

11.1 Bibliography (cont.)

Bekele & Worku: “Factors That Affect The Long-Term Survival Of Micro, Small And Medium Enterprises in Ethiopia” South African Journal of Economics Vol. 76:3, 2008.

Central Statistics Agency of Ethiopia & World Bank: “Ethiopia Socioeconomic Survey (ESS)”, 2019.

Central Statistics Agency of Ethiopia: “Ethiopia Socioeconomic Survey Financial Inclusion.”, 2020.

Chirkos & Yigzaw: “The Role of Microfinance Institutions in the Development of Small and Medium Size Businesses in Ethiopia,A Case Study inAmhara Credit and Saving Institutions” Research Journal of Finance and Accounting, Vol.5, No.13, 2014.

Dalberg: “The Economics of Agri SME Lending in East Africa”, 2018.

Dawit Hussen: “Access of Financial Service: Supply Side Barriers in the Banking Industry of Ethiopia”. European Journal of Business and Management, Vol.7, No.4, 2015.

Debebe: “Value Chain Financing: The Case of Selale area Dairy Value Chain” (Masters Project study). School of Graduate Studies of Unity University, 2010.

Dinku: “Financial Inclusion in Ethiopia: Using Core Set of financial Inclusion Indicators”. Journal of Research and Opinion, Vol 6 No 7 (2019).

Dokle & Farrell: “Mobilizing Agricultural Finance Toward a Common Language Between Lenders and Agri-SMEs in SubSaharanAfrica”, Center for Financial Inclusion (CFI), SCOPEinsight,Alliance for a Green Revolution in Africa (AGRA), 2021.

11. Annex (cont.)

11.1 Bibliography (cont.)

Entrepreneurship Development Centre (EDC)- Ethiopia: “Survey Report Covid19 Impacts on MSMEs in Ethiopia”, 2020.

Elias Eriksson: “Demand of External Finance by Manufacturing SMEs in AddisAbaba, Ethiopia”

Gothenburg School of Business, Economics and Law, 2015.

Esayas Mulatu Morka & Wamatu: “Ethiopian MicrofinanceAssessment Report: A case for entrepreneurship skills development for youth in sheep fattening” Working Paper, ICARDA, 2020.

Farm Mechanization and ConservationAgriculture for Sustainable Intensification (FACASI): “Financial products for farmers and service providers report: Ethiopia”, CIMMYT, 2015.

Fanta: “Banking reform and SME financing in Ethiopia: Evidence from the manufacturing sector”. African Journal of Business Management Vol. 6(19), pp. 6057-6069, 2012.

Fredu Nega Tegebu & Edris Hussein Seid: “Small and medium enterprises access to finance in Ethiopia: Synthesis of demand and supply”, 2016.

Gashayie: “Agricultural Finance Constraints and Innovative Models Experience for Ethiopia: Empirical Evidence from Developing Countries”. Research Journal of Finance and Accounting, Vol.6, No.7, 2015.

Gebreeyesus et al: “Main Features of Micro and Small Manufacturing Enterprises in Ethiopia”, Ethiopian Development Research Institute, 2018.

11. Annex (cont.)

11.1 Bibliography (cont.)

Gelaye: “Factors That Affect Financial Performance of Micro and Small Business Enterprises in Dambi

Dollo Town, Oromia, Ethiopia” Research Journal of Finance and Accounting, Vol.11, No.1, 2020.

GIZ: “Financing Agricultural Value Chains in Africa - Focus on Coffee and Sesame in Ethiopia”, 2011.

Gurmessa & Ndinda: “Smallholders’Access to and Demand for Credit and Influencing Factors: Policy and Research Implications for Ethiopia”. Journal of Business & Economic Policy Vol. 4, No. 3, 2017.

Hadis & Ali: “Micro and Small Enterprises in Ethiopia; Linkages and Implications: Evidence from Kombolcha Town”, International Journal of Political Science and Development, Vol. 6(1), pp. 16-26, 2018.

Husen & Wodajo & Tasenţe: “The Role of Microfinance in Funding Small & Medium Enterprises: Harekello Town of Goro Dolla District in Focus, Ethiopia”. Technicum Social Sciences Journal, Vol. 17, 355-385, 2021.

IFC: “MSME Finance Gap. Assessment of the Shortfalls and Opportunities in Financing Micro, Small and Medium Enterprises in Emerging Markets.”, 2017.

IFC: “InnovativeAgricultural SME Finance Models”, 2012.

Jagiso et al: “Honey Value ChainAnalysis and Producers Financing in Damot Gale District”, Southern

Ethiopia, Food Science and Quality Management, Vol.78, 2018.

11. Annex (cont.)

11.1 Bibliography (cont.)

Kersten et al: “Small Firms, large Impact? A systematic review of the SME Finance Literature” World Development Vol. 97, pp. 330–348, 2017.

Kipnis: “Financing Women-owned SMEs- A case study in Ethiopia” USAID, 2013.

Kistana, Aregawi & Abraha: “Assessment of ‘Why Private Commercial Banks in Ethiopia Neglected the Agriculture?’Evidence from 10 Selected Private Banks”. Journal of Economics and Sustainable Development, Vol.5, No.13, 2014.

Kumari, Dibar: “The Role of Financial Institutions in the Growth of Small and Medium Enterprises in Dilla Town, Ethiopia”. Pen Acclaims, Volume 1, April 2018.

Manaye, Tigro: “Challenges for Small and Micro Enterprises in Accessing Finance (Case of Wolaita Soddo Town)”. Global Journal of Management and Business Research: C Finance, Volume 17, Issue 7, 2017.

Mano & Iddrisu & Yoshino: “How Can Micro and Small Enterprises in Sub-SaharanAfrica Become More Productive” World Development Vol. 40, No. 3, pp. 458–468, 2012.

Mashenene and Rumanyika: „Business Constraints and Potential Growth of Small and Medium Enterprises in Tanzania:A Review“ European Journal of Business and Management, Vol.6, No.32, 2014.

11. Annex (cont.)

11.1 Bibliography (cont.)

Mektel & Mohammed: “Determinants of farmers’ adoption decision of improved crop varieties in Ethiopia:

Systematic review”. African Journal of Agricultural Research, Vol. 17(7), pp. 953-960, 2021.

Mookerjee: “Study on Crop and Seed Insurance in Ethiopia”, GIZ, 2019.

Mwonge & Naho: “Determinants of credit demand by smallholder farmers in Morogoro, Tanzania”,African

Journal of Agricultural, Vol. 17(8), pp. 1068-1080, 2021.

Negasa et al: “Analysis Of Coffee Value Chain Finance In Bodji Dirmeji District Of West Wollega, Ethiopia”.

Ethiopian Journal of Environmental Studies & Management 12(1): 32 – 42, 2019.

Nkwabi and Mboya: „A Review of FactorsAffecting the Growth of Small and Medium Enterprises (SMEs) in

Tanzania“ European Journal of Business and Management, Vol.11, No.33, 2019.

OECD: “Making Blended Finance Work for Agri-SMEs: Lessons learned from selected case studies”, 2021.

Oshora et al: “Determinants of Financial Inclusion in Small and Medium Enterprises: Evidence from Ethiopia”.

Journal of Risk and Financial Management, 2021.

Pinto: „ Part 1: Assessment Of Ethiopian MSME Policies and Institutions“ GIZ, 2019.

Salman Alibhai et al: “Disruptive Finance: Using Psychometrics to Overcome Collateral Constraints in Ethiopia”. In: World Bank: “Designing a Credit Facility for Women Entrepreneurs. Lessons from the Ethiopia Women Entrepreneurship Development Project (WEDP)”, 2020.

11. Annex (cont.)

11.1 Bibliography (cont.)

Seife Ayele: “Policy incentives and agribusiness investment in Ethiopia: benefit or deadweight?”APRA

Brief, Issue No. 20, 2019.

Tarfasa et al: “Determinants of growth of micro and small enterprises (MSEs): Empirical evidence from

Ethiopia” Swiss Programme for Research on Global Issues for Development, 2016.

Tefera & Gebremichae & Abera: „Growth Determinants of Micro and Small Enterprises Evidence from

Northern Ethiopia“ Journal of Economics and Sustainable Development, Vol.4, No.9, 2013.

Tekeste Berhanu Lakew & HosseinAzadi, 2020. "Financial Inclusion in Ethiopia: Is It on the Right Track?"

International Journal of Financial Studies, MDPI, Open Access Journal, vol. 8(2), p. 1-13, 2020.

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Journal of International Development, 2020.

Worku & Abebe: “Review on Production and Marketing of Wheat in Ethiopia”, International Journal of Agricultural Economics, 5(4): 133-14, 2020.

World Bank: “Better Loans or Better Borrowers? Impact of Meso-Credit on Female-Owned Enterprises in

Ethiopia” World Bank Policy Research Working Paper 8511, 2020. In: World Bank: “Designing a Credit

Facility for Women Entrepreneurs. Lessons from the Ethiopia Women Entrepreneurship Development Project (WEDP)”, 2020.

11. Annex (cont.)

11.1 Bibliography (cont.)

World Bank: “Ethiopia Economic Update Ensuring resilient recovery from COVID-19”, 2021.

World Bank: “Global Findex”, 2014.

World Bank: “SME Finance in Ethiopia:Addressing The Missing Middle Challenge”, 2015.

11. Annex (cont.)

11.2 A snapshot of COVID19-effects in Ethiopia

While external demand remains depressed due to COVID-19, it is showing some signs of recovery.

 Merchandise exports excluding gold declined by 4.1% during July-December 2020 (year-on-year), but most items (except garments) showed signs of recovery in the second quarter of the fiscal year.

 Remittances, which dropped by 10% in FY20, rebounded during the first half of FY21 (19.1%).

 Meanwhile, net foreign direct investment remains sluggish, dropping by 1.7% during the same period.

Direct support to firms in Ethiopia has been mainly instrumented through temporary tax deferrals and measures to support exporters. Overall, adopted measures are likely to have benefited formal firms almost exclusively. Going forward, support shall focus on the provision of credit to small and medium enterprises (SMEs). The measures announced by the Jobs Creation Commission in December 2020 are a good step in that direction.

11. Annex (cont.)

A snapshot of COVID19-effects in Ethiopia (cont.)

The World Bank advises Ethiopian authorities to:

 Take full advantage of the ambitious telecom sector by implementing the new proclamation on etransactions and to strengthen the regulatory framework to facilitate digital financial services.

 Revisit existing investment incentives, among others emphasizing machinery acquisition and worker training.

Source: 8th Ethiopia Economic Update of the World Bank Group.

11. Annex (cont.)

11.3 Relaxing regulations that constrain (micro) financial institutions

Ethiopia has made substantial progress to provide a modern enabling regulatory framework for (micro)financial institutions (M/FIs) in the country.

Remarkably, the National Bank of Ethiopia directive number FIS/01/2012 on regulation of mobile and agent banking services is a very positive step to stimulating the use of technology and innovative financial service delivery channels such as mobile devices and agents that will have significant contribution in deepening financial service accessibility to a wider section of population at an affordable price.

At the same time, risk-based regulation principles were introduced and are applied, hence the overall stability of the financial sector looks fairly strong.

The ‘27%-rule‘ required financial institutions to hold 27% of new loan disbursements in low-yield NBE bills. It was abolished in 2019, an important step towards improving the liquidity of private banks and lending to the private sector. The increase in loanable funds is estimated at around EUR 500 million or 11% of outstanding loans in FY 2020. The purchase of government bonds at market-based rates also allows financial institutions to diversify their portfolios and access liquidity.

The limits for individuals and groups to borrow a maximum of 1 and 4% respectively of the loan portfolio of an MFI was temporarily suspended to manage the fall-out from the COVID19-pandemic. The same NBE-circular (No MFISD 2020) encourages MFIs to renegotiate, restructure, or reschedule loans of customers that have been severely hit by the pandemic.

In cooperation with:

11.4 Collection of Studies‘ Policy Recommendations1

Study Study's objective Country MSME Sector Policy recommendations

ADA asbl and First Consult PLC: “Small and Growing Businesses in Ethiopia”, 2017.

Main factors that currently affect the growth of businesses which started out as micro and eventually grew into small and medium sized entities.

Ethiopia SME non agri Access to connectivity technologies for transaction and cash management services is a matter of survival for contemporary SMEs.

Despite the lack of modern MIS solutions currently in use by MFIs, they are probably better positioned to scale up their services to small and medium sized clients than banks are to scale down to clients that they hardly know and pay little attention to. Consider micro enterprises as part of a value chain (i.e. comprised of micro, small and medium enterprises) and establish value chain financing

Extending lines of credit to small or medium enterprises large enough for them to accommodate micro enterprises within their value chains.

One Stop Shops (OSS) (usiness development services (BD) in all primary level administrative districts (“Kebele” level), business support services became available to virtually everyone without charge.

Develop private BDS

Testing a public-private partnership (PPP) based on responding to the exact BDS needs of SMEs may pave the way towards a more vibrant, organised, vetted, and quality driven BDS private sector.

AEMFI - Wolday Amha, David

Peck: Agricultural finance potential in Ethiopia, 2010.

Assessing the importance of agricultural finance as a key enabler for agricultural growth in Ethiopia.

Ethiopia n/a agri

Improving incentives and regulatory environment to increase financial services in the rural sector, e.g., by putting in place a dedicated framework for the regulation of SACCOs.

Strengthening rural financial institutions by using them as a channel for government cash flows, e.g. providing input credit (primarily for fertilizer) through SACCOs or MFIs; skill-building programs.

Accelerating the introduction of new product offerings, e.g. increase the offering of insurance products; scaling up the current warehouse-receipt system; buildup of IT infrastructure and mobile banking technologies.

Improving the overall "fitness" of the financial sector, e.g. capability building program for financial institutions and customers, Increasing "system readiness" for possible further liberalization of the financial sector.

Agrilinks - Baver: “How to Close the Agri SME Financing Gap: Evidence From East Africa”, 2019.

How best to close the financing gap for agri SMEs?

East Africa

SME agri

Need for innovation is in risk management, cash incentive payments, first-loss credit guarantee schemes, technical assistance to lenders to improve their agricultural knowledge and risk management practices, TA to borrowers, patient and low cost capital for FIs to scale-up agri-lending.

1 Only including studies that considered M/SMEs.

Study Study's objective Country MSME Sector Policy recommendations

Ali et al: "The potential of Islamic financial institutions in promoting small and medium enterprises (SMEs) in Ethiopia." Journal of Economics and Political Economy 7.3 (2020): 188 203.

Amha et al: “The Impact of Financial Access on Firm Growth: evidence from Ethiopian Grain Traders and Millers”. Ethiopian Journal of Economics, Volume 22 Issue 1, p. 139 171, 2013.

Assess the potential of Islamic financial institutions in promoting SMEs to get access to alternative financial services in Ethiopia.

Assessed access to and the impact of different sources of finance on growth of traders and millers in Ethiopia.

Ethiopia SME n/a

The provision of Islamic financial services to SMEs is significantly affected by the regulatory, legal, administrative, human resource, infrastructural factors. The government and other financial sector stakeholders should ease these impediments to smooth the level playing field for SMEs.

Market and industry related issues such as the creditworthiness and guarantee and capacity building measures boosting the skills of SMEs’ owners/managers.

Ethiopia SME agri

Government support in the form of credit guarantee.

Establishing a stock market to increase credit availability for SMEs. Commercial laws protecting property rights and enforcement (collateral, bankruptcy system).

Inventory credit important instrument in financing commercial stocks; Leasing. Finance providers should invest in capacity building to improve their services. Value chain financing approach needs to be adopted.

Regulated informal finance can compensate for the limitations of the formal sector in serving SMEs.

Bekele & Worku: “Factors That Affect The Long-Term Survival Of Micro, Small And Medium Enterprises in Ethiopia” South African Journal of Economics Vol. 76:3, 2008.

To investigate factors responsible for failure in small businesses and enterprises in Ethiopia (19 socio-economic variables that affect the long term survival of businesses).

Ethiopia MSME n/a

Integrate iqqub schemes with formal financial institutions in order to increase the capacity of iqqub associations (*rotation savings and credit association) so that a large number of needy members can be assisted efficiently.

Chirkos, Asmamaw Yigzaw: “The Role of Microfinance Institutions in the Development of Small and Medium Size Businesses in Ethiopia, A Case Study in Amhara Credit and Saving Institutions” Research Journal of Finance and Accounting, Vol.5, No.13, 2014.

Dalberg: “The Economics of Agri SME Lending in East Africa”, 2018.

Underlying issues rural small firms are facing in their development, when acquiring financing from ACSI (major microfinance institution in Ethiopia).

Ethiopia SME agri & non-agri

ACSI membership fee for new applicants should be reduced, mode of repayment should be revised so that the poorest can borrow without collateral. Group-based lending should be encouraged.

Lending economics for serving agriculture SMEs. East Africa (Kenya, Tanzania , Uganda, Zambia, Rwanda)

SME agri Risk sharing mechanisms that provide a first loss cover rather than a partial pro rata share.

Borrower capacity building to increase the pipeline of bankable deals, reducing the perception of risk.

Low-cost capital, either as concessional debt to reduce the cost of funds (a major issue for local NBFIs) or as innovation grants to help sub scale lenders with potentially catalytic business models overcome the challenges of high operating costs. Lender capacity building and senior management engagement to help banks in particular tailor products to the agri-SME market.

Capacity building focusing on exploring local shared service provision to reduce high

Study Study's objective Country MSME Sector Policy recommendations

costs associated with origination, due diligence, monitoring loans and assessing collateral, and managing impaired loans.

Debebe: “Value Chain Financing: The Case of Selale area Dairy Value Chain” (Masters Project study). School of Graduate Studies of Unity University, 2010

Address constraints, challenges and good practices of delivering financial services to rural producers and agribusinesses and thus suggest innovative ways of value chain financing.

Ethiopia n/a agri

Commercial banks should get involved in financing Selale diary union.

For flexibility and ease of reaching the farmers, the author suggests that cooperatives, the union, Microfinances and commercial bank should be jointly involved.

Abolishing the credit ceiling.

Improving the single borrower limit.

Coops and the unions should build their fixed asset base to enhance their collateral capability.

Coops and the Union have to demonstrate their sustainable institutionalized business management to a level where financiers could depend on working with them and entering into a long term commitment.

It is recommended to address other challenges of the value chain, especially the marketing components through coordinated efforts by various stake holders. Demand development, quality improvement, enforcement of standards, a national body specifically concerned for dairy, like the Kenyan and Indian dairy board are recommended course of actions. Recent effort in advertising and introduction of nutritional value of milk need to be strengthened at least to reach the level where Ethiopia’s neighbors are achieved in terms of milk consumption per capita.

Dokle & Farrell: “Mobilizing Agricultural Finance Toward a Common Language Between Lenders and Agri-SMEs in SubSaharan Africa”, Center for Financial Inclusion (CFI), SCOPEinsight, Alliance for a Green Revolution in Africa (AGRA), 2021.

Improving the information flow between lenders and agri SMEs can help address this finance gap. Currently, lenders do not have clear and standard lending requirements and, in turn, agri SMEs are not always clear on what factors can make them creditworthy. Financial Inclusion (CFI) and SCOPEinsight, in partnership with the Alliance for a Green Revolution in Africa (AGRA), worked to create a standardized set of bankability metrics.

SSA (Kenya, Rwanda, Uganda, Ethiopia, Ghana, Ivory Coast, Tanzania )

SME agri

Bankability metrics can be used by lenders, donors, TA and BDS providers, and agriSMEs. It will take concerted action by lenders, service providers, and donors to validate, test, and adopt the bankability metrics. Bankability metrics can be an important enabler of access to finance for agri-SMEs.

Study Study's objective Country MSME Sector Policy recommendations

Elias Eriksson: ”Demand of External Finance by Manufacturing SMEs in Addis Ababa, Ethiopia”. Gothenburg School of Business, Economics and Law, 2015.

Entrepreneurship Development Centre (EDC)- Ethiopia: “Survey Report Covid19 Impacts on MSMEs in Ethiopia”, 2020.

Esayas Mulatu Morka, Jane Wamatu: “Ethiopian Microfinance Assessment Report: A case for entrepreneurship skills development for youth in sheep fattening”. Working Paper, ICARDA, 2020.

Examines how SMEs finance themselves and what drives their demand for external finance.

Ethiopia SME non agri Increase competition in the banking sector (decrease collateral).

Improving the public contract enforcement capability (reduces the perceived risk with SME lending).

Easing the control and improve flows of foreign currency to meet the working capital demand by importing enterprises.

Credit expansion programs for SMEs should not only focus on expanding supply but also to lower the perceived barriers to the formal bank system.

Assesses the impact of Covid-19 on MSMEs in Ethiopia.

Assess the status and performance of the MFIs.

Ethiopia MSME agri & non-agri

Rescheduling and postponing loan repayments, stabilizing the price and supply of inputs and raw materials, providing additional credit facilities and access to capital, wage subsidies, and assistance to enable MSMEs to speedily digitize their sales and marketing operations are among the urgent recommendations.

Ethiopia SME & smallhold er farmers

agri & non agri

As providing loans through SACCOs is cheaper and less risky, project should consider facilitating credit through strong SACCOs.

Enable MFIs to scale up youth saving/loan products.

Business development training to youth borrowers so lenders’ risks are reduced.

Inclusion of MFIs will provide the microfinance industry with a valuable resource for smallholder farmers and youth product development, as well as stakeholder engagement.

The regional governments in collaboration with development partners should build capacity for smallholder farmers and youths to use credit efficiently and enforce laws for defaulter.

Fanta: “Banking reform and SME financing in Ethiopia: Evidence from the manufacturing sector”.

African Journal of Business Management Vol. 6(19), pp. 6057 6069, 2012.

This study investigates the effect of banking reform on SMEs access to bank credit during post liberalization period 1994 to 2007. Bank concentration, competition, efficiency, and liquidity have been assessed.

Ethiopia SME non agri Enhance competition in the banking sector but without compromising safety and stability of the financial system.

Establishment of credit bureaus that maintain borrower information.

State needs to launch credit guarantee programs that can run without subsidy targeting SMEs in selected industries because efficiently managed guarantee schemes can robustly enhance credit access with little distortion to the market.

Farm Mechanization and Conservation Agriculture for Sustainable Intensification (FACASI): “Financial products for farmers and service providers report: Ethiopia”, CIMMYT, 2015.

Find innovative models for MFIs to finance farmers and agricultural SMEs with the goal of finding ways to deal with credit risks, given the lack of financial information, track record, or acceptable collateral.

Ethiopia MSME agri

Improving incentives and regulation for FIs to serve the agricultural sector, e.g. tax reduction for banks active in rural areas, or co-investments such as a government contribution.

Guarantee schemes or guarantee on rural deposits to increase savings.

Regulatory framework for financial cooperatives.

Countrywide deposit insurance system.

Increasing the participation of FIs in rural sectors by starting to use them as a channel for government cash flows (e.g. providing input credit).

Accelerating the introduction of new product offerings.

Increase offering of insurance products, e.g. index based weather insurance.

agricultural finance

Ethiopia

Study Study's objective Country MSME Sector Policy recommendations

Increase financial literacy and awareness of insurance products. Treat and regulate leasing companies as FIs.

Fostering the build up of IT infrastructure and mobile banking technologies (attract investors to set up the right system and infrastructure)

Improving the overall "fitness" of the financial sector. Capability building program for FIs and customers.

Increasing "systemic readiness" for possible further liberalization of the financial sector. Slowly opening up the banking sector to foreign institutions/ investors.

Fredu Nega Tegebu, Edris Hussein Seid: “Small and medium enterprises access to finance in Ethiopia: Synthesis of demand and supply”, 2016.

Demand and supply issues relating to SMEs access to finance in Ethiopia.

Ethiopia SME agri & non-agri

Firms potential growth could be high that they could be too big for MFIs. At the same time, they may not be established enough for banks. It is this segment that seems to be especially affected by shallow financial markets. Entrepreneurs that are of transformational type may not fit well to MFIs financing portfolios. Stronger focus on transformational enterprises is therefore needed.

Gelaye: “Factors That Affect Financial Performance of Micro and Small Business Enterprises in Dambi Dollo Town, Oromia, Ethiopia”. Research Journal of Finance and Accounting, Vol.11, No.1, 2020.

Determine the factors that affect financial performance of micro and small business enterprises in Dembi dollo town administration.

Ethiopia SME & Micro agri & non agri

Solve problems related with supply, accessibility and shortage of infrastructures (electricity, water, quality road and working place) by: repairing the existing broken systems; promoting sustainable systems for new infrastructural development; limiting the governments control of infrastructure system; encouraging unsubsidized private investment, competition and innovation. Offer human resources training and development to staff members; assist small enterprise owners by providing different business training facilities and sharing experiences.

Government should give attention related to bureaucracy in company registration, getting a license and uncertainty, inconsistency and instability in tax policy and high tax rate in the town.

GIZ: “Financing Agricultural Value Chains in Africa - Focus on Coffee and Sesame in Ethiopia”, 2011.

The aim is to examine access to finance for agriculture, with a view to identifying strategies and tactics which will improve that access for commercially oriented agriculture. This study reviews the agricultural finance environment in Ethiopia, with particular reference to the coffee and sesame value chains.

Ethiopia SME agri

To continue the policy dialogue with the government about the benefits of liberalising the financial sector.

To work closely with the NBE to continue its financial sector reform programme, to improve its institutional capacity, and to adopt new approaches to both monetary policy and financial sector regulation and supervision.

Focus development finance on equity investments, at least for the time being, and to support foreign and domestic capital with co financing arrangements. Work with agribusiness to establish or deepen out- grower schemes and contract farming, and facilitate access to supplier finance in due course.

Strengthen the business and financial skills of high potential producers and processors through a pro gramme of Enterprise Development Services (EDS).

Work with the Ethiopian Commodity Exchange (ECX) to build on its operations and support the use of commodities as security for short term finance. Develop the commercial banking sector, and particularly the Commercial Bank of Ethiopia.

Study Study's objective Country MSME Sector Policy recommendations

Hadis & Ali: “Micro and Small Enterprises in Ethiopia; Linkages and Implications: Evidence from Kombolcha Town”, International Journal of Political Science and Development, Vol. 6(1), pp. 16 26, 2018.

Examine the status of formal institutional linkages (access to the market, financial support, infrastructures and educational institutions) and its implications on MSEs performance in Ethiopia, particularly in Kombolcha town.

Ethiopia MSE agri & non agri

National policy and strategies should be revised pertaining the linkages towards financial and educational institutions with MSEs.

Technical, Vocational Education, and Training institution curriculums and syllabus has to be compatible to mitigate the existing challenges that MSEs are facing.

Husen & Wodajo & Tasenţe: “The Role of Microfinance in Funding

Small & Medium Enterprises: Harekello Town of Goro Dolla District in Focus, Ethiopia”. Technicum Social Sciences Journal, Vol. 17, 355-385. 2021.

Role of the Microfinance on funding of SMEs in Gorodola Harakallo town. exploring the role of microfinance institutions and the extent to which the small business have benefited from the credits scheme of microfinance institution.

Ethiopia SME non agri Banks: expand the payment period of loan asset; follow up programmed to make sure clients have put the loan in the stated purpose.

Microfinance institutions: should try to find long term capital from pension and insurance company; ensure that the lending procedure is clear and precise and timely to encourage SMEs to take up the loans. Flexible repayment periods should be facilitated by management of lending institutions.

The owners and management of SMEs: monitor their credit usage to avoid misappropriation; in the event of misappropriation they should replace the amount used for other purposes on time.

Jagiso et al: “Honey Value Chain Analysis and Producers Financing in Damot Gale District”, Southern Ethiopia, Food Science and Quality Management, Vol.78, 2018.

Identifying different major actors and their respective functions who are engaged in honey value chain. It also identified the sources of finances for bee keepers, and their opportunities and challenges.

Ethiopia MSME agri

They suggest introduction of strong value chain financing system to higher the benefit of actors and develop a sense of partnership among them.

Dissemination of knowledge and technologies should be enhanced through trainings to fill the gap of skill in making locally made transitional hive, chefeka, and using of modern hives and filtering machines could improve both the quality and quantity of the product.

There is an opportunity to export the product as there are different requests to supply the product in international markets, but lack of subsequent supply of honey detained it. Therefore, concerning bodies should have to take in to consideration on successive production and supply of the product throughout the year.

Kersten et al: “Small Firms, large Impact? A systematic review of the SME Finance Literature” World Development Vol. 97, pp. 330 348, 2017.

Review evaluations of finance programs for SMEs.

Worldwid e SME n/a

SME finance programs should target SMEs that are credit constrained (e.g., small and new R&D intensive firms for matching grants, and privately owned firms for export credit). The Firm should be sufficiently large and experienced to use the finance effective SME finance programs should also target the right type of financing for the right purpose.

The results suggest that the amount of financing should be sufficiently high in order to have positive effects. Long term loans might be more suitable for most purposes, while export promotion also seems to be possible through short-term loans.

agricultural finance

Ethiopia

Study Study's objective Country MSME Sector Policy recommendations

Kipnis: “Financing Women owned SMEs A case study in Ethiopia” USAID, 2013.

Motivation, impact, and lessons learned of utilizing a DCA risk sharing agreement, coupled with technical assistance, that specifically targets women owned SMEs.

Ethiopia SME n/a

Develop an outreach strategy to women owned SMEs as part of program design. targeted linkages to women’s associations, local governments, local business development services, and other donor funded programs focused on gender were more fruitful.

Provide TA to financial institutions on SME Lending mechanisms and lending to women. Consider a 60 70 percent risk sharing agreement with partner banks within strict regulatory climates like Ethiopia. All stakeholders expressed the concern that many women are still ineligible for credit financing because they can’t produce the residual collateral requirement after the DCA guarantee.

A country must have a supportive legal and regulatory environment that enables entrepreneurship in order for programs strengthening women owned SMEs to be successful. Challenges such as limited or no access to property rights, limited access to education, and lack of awareness of legal rights influence the degree to which a women owned SME can grow.

Kistana, Aregawi & Abraha: “Assessment of ‘Why Private Commercial Banks in Ethiopia Neglected the Agriculture?’

Evidence from 10 Selected Private Banks”. Journal of Economics and Sustainable Development, Vol.5, No.13, 2014.

The study used ten selected private banks to investigate the reasons why private banks in Ethiopia neglected agriculture.

Ethiopia n/a agri

For private banks: employing agricultural risk analyst, developing cooperation with national and international agricultural development supportive agencies

For the government: Encourage insurance companies to extend their insurance product or service to agriculture. National Bank of Ethiopia to put a minimum percent of loan to agriculture in its directives.

Kumari, Dibar: “The Role of Financial Institutions in the Growth of Small and Medium Enterprises in Dilla Town, Ethiopia”. Pen Acclaims, Volume 1, April 2018.

Analyze the role of financial institutions/ banks and micro finance institutions on the growth of SMEs in Ethiopia; examine the performance of financial institutions with regard to the growth of SMEs. Identify the major constraints of growth of SMEs.

Ethiopia SME agri & non agri

Further support from financial institutions is critical for SMEs found in Dilla town, so that they can grow and expand.

agricultural finance

Study Study's objective Country MSME Sector Policy recommendations

Manaye, Tigro: “Challenges for Small and Micro Enterprises in Accessing Finance (Case of Wolaita Soddo Town)”. Global Journal of Management and Business Research: C Finance, Volume 17, Issue 7, 2017

Mano & Iddrisu & Yoshino: “How Can Micro and Small Enterprises in Sub Saharan Africa Become More Productive” World Development Vol. 40, No. 3, pp. 458 468, 2012.

Identify the challenges that small businesses in Wolaita soddo town face in accessing finance.

Ethiopia MSME agri & non agri

Products for MSEs where collateral requirements are lenient. Credit giving institutions come up with programs of educating the MSEs on how they can go about obtaining credit facilities.

Management of institutions should put in place proper accounting practices and adequate. Internal control systems, which will counter problems of information asymmetry that make MSEs risky for credit giving institutions.

Examines whether the entrepreneurs are willing to learn about management and to what extent the training improves the performance of their businesses.

Ghana MSME non agri Provide advanced training to improve management techniques.

OECD: “Making Blended Finance

Work for Agri-SMEs: Lessons learned from selected case studies”, 2021.

Many agri food SMEs do not have sufficient access to finance to fulfil their potential. This highlights the role of blended finance and provides insights into how development co operation actors can utilise blended finance.

Ghana, Kenya, Tanzania , Bhutan, Brazil, Paraguay , India, Mexico, Philippin es

SME agri Blended finance programmes should be designed with room to experiment, innovate and adjust. Close consultation with target groups enable insights into both supply and demand challenges associated with commercial finance.

Blended finance works for agri-SMEs. Donor governments have the financial instruments to mobilise private finance for agri SMEs at hand, via their aid agencies, or development finance institutions or multilateral development banks (MDBs).

Oshora et al: “Determinants of Financial Inclusion in Small and Medium Enterprises: Evidence from Ethiopia”. Journal of Risk and Financial Management, 2021.

Investigate the determinant factors that affect the financial inclusion of smallmedium enterprises in Ethiopia.

Ethiopia SME n/a Build an efficient, strong, and well functioning financial market system that provides affordable and sustainable financial service to SME.

Stakeholders need to pay attention to support the development of microfinance institutions (the main external source of finance for SMEs) and mobilize the consumer’s use of mobile banking to promote financial inclusion.

Seife Ayele: “Policy incentives and agribusiness investment in Ethiopia: benefit or deadweight?”

APRA Brief, Issue No. 20, 2019.

Assesses the effectiveness of policies promoting business investment in agriculture.

Ethiopia n/a agri

Ensure that tax privileges are not abused. Ineffective incentive instruments should be revised and unavoidable taxes should be used to develop infrastructure that enhances investment and development of the agriculture sector.

Government to revise guidelines on the size and price of land transferred through lease.

Improve information on agribusiness investment opportunities. Government and donors to facilitate more inclusion of smallholders in the emerging

Study Study's objective Country MSME Sector Policy recommendations

agribusiness sub sector.

Encourage agribusinesses emerging from within the smallholder sector.

Tarfasa et al: “Determinants of growth of micro and small enterprises (MSEs): Empirical evidence from Ethiopia” Swiss Programme for Research on Global Issues for Development, 2016.

Identify the determinants of growth and of investment in innovation in MSEs using a survey of 300 firm level data from Addis Ababa.

Ethiopia MSE agri & non agri

Developing continuous capacity building program to enhance the capability (human capital) of MSES.

Improve access to finance, especially small enterprises, requires establishing a special window at commercial banks or improving the capacity of MFIs to enable them avail adequate loan to small enterprises.

Improve key infrastructure such as power supply and distribution and access to water. Enhance the integration and linkage of micro and small enterprises with medium and large enterprises through training, experience sharing and access to improved technologies (Networking and sub contracting develop technology capability).

Tefera & Gebremichae & Abera: „Growth Determinants of Micro and Small Enterprises Evidence from Northern Ethiopia“ Journal of Economics and Sustainable Development, Vol.4, No.9, 2013.

World Bank: “Better Loans or Better Borrowers? Impact of Meso Credit on Female Owned Enterprises in Ethiopia”. World Bank Policy Research Working Paper 8511, 2020. In: World Bank: “Designing a Credit Facility for Women Entrepreneurs. Lessons from the Ethiopia Women Entrepreneurship Development Project (WEDP)”, 2020.

To investigate the growth determinants of MSEs in Tigray regional state.

Investigates the impact of credit to female entrepreneurs, by examining larger loans, provided to growthoriented women entrepreneurs, falling in the “missing middle” or “meso finance” segment of the financial market because their credit needs are too large for microfinance, but not large enough for commercial banks.

Ethiopia MSE agri & non agri

Make the formal financial institutions affirmative to support MSEs and an integrated BDS provision that make the MSEs to be engaged in manufacturing. SMEs recognised for reducing unemplyement thus awareness should be created. Governments and NGOs should work hand in hand to formulate policies, design appropriate intervention strategies and practical steps to boost SMEs.

Ethiopia MSME agri, non agri

Re thinking loan products to target underserved market segments, with larger and better-fit credit.

World Bank: “SME Finance in Ethiopia: Addressing The Missing Middle Challenge”, 2015.

Addressing the questions whether MSEs are the main net job creators in Ethiopia and whether they are able to access adequate financial services.

Cross regional SME & Micro agri & non-agri

Help commercial banks to down scale, insolvency and creditor/debtor regime, commonly agreed and harmonized definition of what constitutes an SME, innovation in financial products and lending technologies by providing incentives to commercial banks through tailored technical assistance, business development skills for SMEs, improve collateral regime based on an accurate diagnostic of the Insolvency and Creditor/Debtor regimes, development of market credit information for SMEs, develop institutional framework for alternative sources of funding (e.g. leasing, factoring, joint venture capital).

11.5 Collection of Studies‘ Methodologies

Ababulgu: “Analysis of the Economy of Beekeeping and Honey Supply in Horo Guduru Wollega Zone, Oromia, Ethiopia” 2021.

Analyzing the determinants of honey supply in Horo Guduru wollega zone of Oromia Region, Ethiopia. It also involved analyzing the economy of beekeeping, honey marketing and income generating activities.

Ethiopia Horo Guduru wollega zone n/a agri Mixed Primary n/a Probability sampling Interview (semi structured questionnaires) and group discussions

ADA asbl and First Consult PLC: “Small and Growing Businesses in Ethiopia”, 2017.

Main factors that currently affect the growth of businesses which started out as micro and eventually grew into small and medium sized entities.

Ethiopia n/a SME non-agri Quantivative Primary n/a Non-probability sampling Survey (semistructured) 45 SMEs (urban) (from portfolio of 3 MFIs) (in trade, service, manufacturing, construction)

Descriptive statistics

2

Adem & Worku & Beyene: „Constraints and Growth Potentials of Micro and Small Enterprises: Case from Mekelle City“ International Journal of Scientific and Research Publications, Volume 4, Issue 12, 2014.

Idenify the constraints of micro and small scale enterprises and to assess the growth potentials.

Ethiopia Mekelle City MSME n/a mixed Primary and secondary

n/a Two stage random sampling (sub cities, MSMEs)

Survey 85 MSMEs Inferential statistics

Only including empirical studies.

Study Study's objective Country Region MSME Sector Qualitative/ quantitative approach

Primary or secondar y data

Years Sampling design Data collection methods Target group & sample size Data analysis methods

121 honey producers Inferential statistics

AEMFI Wolday Amha, David

Peck: Agricultural finance potential in Ethiopia, 2010.

Assessing the importance of agricultural finance as a key enabler for agricultural growth in Ethiopia.

Ethiopia n/a n/a agri Qualitative Primary and secondary

2010 Non probability sampling In depth key informant interviews, participatory rapid assessment, multi stakeholder convenings

Interviews: 100 stakeholders, including MoARD, BoARD, woreda and kebele level government staff, development partners, research institutes, traders, cooperatives, unions, farmers, processors, investors, and others participated in interviews.

Rapid assessment: farmers’ groups, community leaders, and local traders.

Multi-stakeholder convenings: government officials, private sector representatives, research organizations.

Validation: by three separate expert panels.

Qualitative analysis

Agrilinks - Jesse Baver: “How to Close the Agri SME Financing Gap: Evidence From East Africa”, 2019.

How best to close the financing gap for agri SMEs?

East Africa n/a SME agri Mixed Primary and secondary

n/a Non-probability sampling Datasets, In depth interviews

Datasets: from 28 lenders (incl.11 social lenders with global portfolios, 17 domestic lenders from EA), 20 on lender's agri-SME loan portfolio; In-depth interviews: 8 lenders

Descriptive statistics, Qualitative analysis

Ali, Abdu Seid, Ibrahim BUSHERA, And Abdurahman Jemal YESUF. "The potential of Islamic financial institutions in promoting small and medium enterprises (SMEs) in Ethiopia." Journal of Economics and Political

Assess the potential of Islamic financial institutions in promoting SMEs to get access to alternative financial services in Ethiopia.

Ethiopia n/a SME n/a n/a Secondary n/a n/a Literature review SMEs all sectors n/a

Study Study's objective Country Region MSME Sector Qualitative/ quantitative approach

Primary or secondar y data

Years Sampling design Data collection methods Target group & sample size Data analysis methods

Economy 7.3 (2020): 188

203.

Amentie et al: “Barriers to Growth of Medium and Small Enterprises in Developing Country: Case Study Ethiopia” Journal of Entrepreneurship & Organization Management 5:3, 2016.

Determine the barriers to growth of small and medium enterprises in Ethiopia.

Ethiopia Mojo, Sebata, Gelan, Adama, DireDawa

SME n/a Quantivative Primary and secondary

n/a Non probability sampling (combination of nonprobability (convenience) and probability (stratified) sampling)

Questionnaire 386 enteprises Descriptive statistics

Amha et al: “The Impact of Financial Access on Firm Growth: evidence from Ethiopian Grain Traders and Millers”. Ethiopian Journal of Economics, Volume 22 Issue 1, p. 139 171, 2013.

Assessed access to and the impact of different sources of finance on growth of traders and millers in Ethiopia.

Ethiopia Addis Ababa, nearby towns

SME agri Mixed Primary and secondary

2011 n/a Questionnaires, rapid assessment, discussions

Quantitative: 200 grain traders, 330 processors Qualitative: senior staff of commercial banks, microfinance practitioners, staff of Federal Cooperative Agency, regional cooperative promotion bureau

Inferential statistics, Qualitative analysis

Bekele & Worku: “Factors

That Affect The Long Term Survival Of Micro, Small And Medium Enterprises in Ethiopia” South African Journal of Economics Vol. 76:3, 2008.

Chirkos, Asmamaw Yigzaw: “The Role of Microfinance Institutions in the Development of Small and Medium Size Businesses in Ethiopia, A Case Study in Amhara Credit and Saving Institutions” Research Journal of Finance and Accounting, Vol.5, No.13, 2014.

To investigate factors responsible for failure in small businesses and enterprises in Ethiopia (19 socio economic variables that affect the long term survival of businesses).

Ethiopia Addis Ababa, Awassa, Bahir Dar, Nazareth and Mekele

MSME n/a n/a Primary 19962001 Non-probability sampling n/a 500 small businesses and enterprises Inferential statistics

Underlying issues rural small firms are facing in their development, when acquiring financing from ACSI (major microfinance institution in Ethiopia).

Ethiopia Bahir Dar, Gondar, Estie

SME agri & non agri Mixed Primary and secondary

n/a Non-probability sampling Case studies, questionnaires, interviews

26 Members (clients) of ACSI (SMEs) (farming, trading, artisan, other) 10 credit unions

Qualitative analysis, descriptive analysis

agricultural finance in Ethiopia

Study Study's objective Country Region MSME Sector Qualitative/ quantitative approach

Primary or secondar y data

Years Sampling design Data collection methods Target group & sample size Data analysis methods

Dalberg: “The Economics of Agri SME Lending in East Africa”, 2018.

Lending economics for serving agriculture SMEs. East Africa (Kenya, Tanzania, Uganda, Zambia, Rwanda)

n/a SME agri Mixed Primary and secondary

2013 2017 Non probability sampling Datasets, bilateral conversations, interviews

Loan datasets (1,476 in scope loans) from 9 local lenders, 11 social lenders

Descriptive statistics, Qualitative analysis

Dawit Mohammed Hussen: “Access of Financial Service: Supply Side Barriers in the Banking Industry of Ethiopia”. European Journal of Business and Management, Vol.7, No.4, 2015.

Debebe: “Value Chain Financing: The Case of Selale area Dairy Value Chain” (Masters Project study).

School of Graduate Studies of Unity University, 2010

Reviews the financial access to the broad population in Ethiopia and analyses the main barriers of providing financial service particularly the banking products to the broad adult population.

Ethiopia n/a Individu al level n/a n/a Secondary n/a n/a Literature review n/a n/a

Address constraints, challenges and good practices of delivering financial services to rural producers and agribusinesses and thus suggest innovative ways of value chain financing.

Ethiopia Selale n/a agri Mixed Primary and secondary

n/a Non probability sampling Interview 133 individuals: 5 Dairy Cooperatives in Selale area, 5 focus groups (10 farmers in each focus), 57 households, 16 Supermarkets, 7 kiosks, 22 cafés, 4 processors, 2 private collectors, 1 union, 2 MFIs, 3 commercial banks, 3 NGOs and 6 government offices

Dokle and Farrell: “Mobilizing Agricultural Finance Toward a Common Language Between Lenders and Agri SMEs in Sub Saharan Africa”, Center for Financial Inclusion (CFI), SCOPEinsight, Alliance for a Green Revolution in Africa (AGRA), 2021.

Improving the information flow between lenders and agri SMEs can help address this finance gap. Currently, lenders do not have clear and standard lending requirements and, in turn, agri SMEs are not always clear on what factors can make them creditworthy. Financial Inclusion (CFI) and SCOPEinsight, in partnership with the Alliance for a Green Revolution in Africa (AGRA), worked to create a standardized set of bankability metrics.

SSA (Kenya, Rwanda, Uganda, Ethiopia, Ghana, Ivory Coast, Tanzania)

n/a SME agri Mixed Secondary 2019 n/a Interviews, datasets Secondary data: 100 agri SMEs (data from 7 CSAF (Council on Smallholder Agricultural Finance’s) members), 2,336 agri SMEs (data from SCOPEinsight) Primary data: 72 industry actors (Funder, Formal Financial Institution, Value Chain Organization, Professional Service Provider)

Descriptive statistics

Qualitative analysis

to agricultural finance in Ethiopia

Study Study's objective Country Region MSME Sector Qualitative/ quantitative approach

Primary or secondar y data

Years Sampling design Data collection methods Target group & sample size Data analysis methods

Elias Eriksson: ”Demand of External Finance by Manufacturing SMEs in Addis Ababa, Ethiopia”. Gothenburg

School of Business, Economics and Law, 2015.

Entrepreneurship Development Centre (EDC) Ethiopia: “Survey Report Covid19 Impacts on MSMEs in Ethiopia”, 2020.

Examines how SMEs finance themselves and what drives their demand for external finance.

Ethiopia n/a SME non agri Mixed Primary and secondary

2012 2013 Non probability sampling Secondary: Panel dataset of Ethiopian

Primary: qualitative interviews

Assesses the impact of Covid 19 on MSMEs in Ethiopia.

Ethiopia Oromia, SNNPR, Tigray, Addis Ababa

MSME agri & non agri

Esayas Mulatu Morka,Jane

Wamatu: “Ethiopian Microfinance Assessment

Report: A case for entrepreneurship skills development for youth in sheep fattening”. Working Paper, ICARDA, 2020.

Assess the status and performance of the MFIs.

Ethiopia Tigray, Amhara, Benishangul Gumaz, Gambela, Addis Ababa, SNNP, Oromia, Harari, Dire D, Somali

SME & smallhol der farmers

agri & non-agri

Secondary: manufacturing firms

Primary: 20 SME manager (textile, agro processing, metal, mineral products, plastics, chemicals)

Quantivative Primary 2020 Non probability sampling Survey 362 micro and small enterprise (service (33%), manufacturing (30%), urban agriculture (11%), construction (8%), trade (19%))

Mixed Primary and secondary

n/a Non probability sampling Key informant interviews 34 MFI chief executive officers, managers, experts, and development practitioner

Descriptive and inferential statistic

Fanta: “Banking reform and SME financing in Ethiopia: Evidence from the manufacturing sector”. African

Journal of Business Management Vol. 6(19), pp. 6057 6069, 2012.

Farm Mechanization and Conservation Agriculture for Sustainable Intensification (FACASI): “Financial products for farmers and service providers report: Ethiopia”, CIMMYT, 2015.

This study investigates the effect of banking reform on SMEs access to bank credit during post liberalization period 1994 to 2007. Bank concentration, competition, efficiency, and liquidity have been assessed.

Find innovative models for MFIs to finance farmers and agricultural SMEs with the goal of finding ways to deal with credit risks, given the lack of financial information, track record, or acceptable collateral.

Ethiopia Addis Ababa SME non agri Quantivative Primary and secondary

n/a Probability sampling Primary data: Interviews

Secondary data: datasets

Primary data: 102 manufacturing SMEs Secondary data: key financial figures from 2 state owned banks, 6 private commercial banks

Descriptive statistics

Ethiopia n/a MSME agri

Mixed Primary and secondary

n/a Non probability sampling

Key informant interviews

Descriptive statistics, Qualitative analysis

Senior staff of the Association of Ethiopian Microfinance institute, microfinance practitioners, leaders of multipurpose and financial cooperatives, other relevant institutions.

Descriptive statistics

Narrative analysis

agricultural finance

Ethiopia

Study Study's objective Country Region MSME Sector Qualitative/ quantitative approach

Primary or secondar y data

Years Sampling design Data collection methods Target group & sample size Data analysis methods

Fredu Nega Tegebu, Edris

Hussein Seid: “Small and medium enterprises access to finance in Ethiopia: Synthesis of demand and supply”, 2016.

Demand and supply issues relating to SMEs access to finance in Ethiopia.

Ethiopia Addis Ababa, Dire Dawa, Hawassa, Adama, Kombolcha, Dessie, Mekelle

SME agri & non agri

Quantivative Primary n/a Supply side: Non probability sampling

Demand side: probability sampling (stratified sampling)

Questionnaire 8 banks, 3 MFIs 519 SMEs

(manufacturing, construction, trade, service, urban agriculture)

Descriptive and inferential statistic

Gebreeyesus et al: “Main Features of Micro and Small Manufacturing Enterprises in Ethiopia”, Ethiopian Development Research Institute, 2018.

State of the micro and small manufacturing enterprises in urban Ethiopia. Different aspects of the MSE development including on characteristics of enterprises and entrepreneurs; job creation, sales, marketing, investment, financing, competition and innovation activities or performances of MSES.

Ethiopia Addis Ababa, Adama, Jimma, Dire Dawa, Jigjiga, Mekelle, Bahir Dar, Gondar, Dessie, Hawassa

SME non agri Quantiative Primary 2017 Probability sampling Survey 8,174 micro and small manufacturing enterprises in 10 largest cities.

Descriptive statistics

Gelaye: “Factors That Affect Financial Performance of Micro and Small Business Enterprises in Dambi Dollo Town, Oromia, Ethiopia”. Research Journal of Finance and Accounting, Vol.11, No.1, 2020.

Gurmessa, Ndinda: “Smallholders’ Access to and Demand for Credit and Influencing Factors: Policy and Research Implications for Ethiopia”. Journal of Business & Economic Policy Vol. 4, No. 3, 2017.

Determine the factors that affect financial performance of micro and small business enterprises in Dembi dollo town administration.

Ethiopia Dembi dollo town

SME & Micro agri & non agri

Mixed Primary and secondary

Stratified random sampling Questionnaires 358 micro and small business enterprises

Sectors: manufacturing, construction, service, urban agriculture, merchandising

Inferential statistics (multiple regression)

Access and demand for credit and its determinants among farmers’ co operatives.

Ethiopia Oromia, Southern Nations Nationalities and People's Region (SNNPR)

Farmer coopera tives

agri Mixed Primary

2013 Non probability sampling Questionnaires, focus group discussions and key informant interviews

Quanitative: 100 coffee farmer cooperatives

Qualitative: other key actors in coffee sector

Descriptive statistics, Qualitative analysis

agricultural finance

Study Study's objective Country Region MSME Sector Qualitative/ quantitative approach

Primary or secondar y data

Years Sampling design Data collection methods Target group & sample size Data analysis methods

Hadis & Ali: “Micro and Small Enterprises in Ethiopia; Linkages and Implications: Evidence from Kombolcha Town”, International Journal of Political Science and Development, Vol. 6(1), pp. 16 26, 2018.

Examine the status of formal institutional linkages (access to the market, financial support, infrastructures and educational institutions) and its implications on MSEs performance in Ethiopia, particularly in Kombolcha town.

Ethiopia Kombolcha town MSE agri & non agri mixed Primary and secondary

2010 2016 n/a Interviews (semi structured questionnaire), datasets

Primary data: 206 enterprise owners and MSEs officers (manufacturing, service sector, urban agriculture) Secondary: data from the central statistical agency, federal SMEs development agency, city administrative enterprise development offices.

Descriptive statistics

Husen & Wodajo & Tasenţe: “The Role of Microfinance in Funding Small & Medium Enterprises: Harekello Town of Goro Dolla District in Focus, Ethiopia”. Technicum Social Sciences Journal, Vol. 17, 355 385. 2021.

Jagiso et al: “Honey Value Chain Analysis and Producers Financing in Damot Gale District”, Southern Ethiopia, Food Science and Quality Management, Vol.78, 2018.

Kersten et al: “Small Firms, large Impact? A systematic review of the SME Finance Literature” World Development Vol. 97, pp. 330 348, 2017.

Kipnis: “Financing Women owned SMEs A case study in Ethiopia” USAID, 2013.

Role of the Microfinance on funding of SMEs in Gorodola Harakallo town. exploring the role of microfinance institutions and the extent to which the small business have benefited from the credits scheme of microfinance institution.

Ethiopia Gorodola Harakallo town

SME non agri Mixed Primary and secondary

n/a Non probability sampling (cluster sampling)

Questionnaires, interviews 50 business owners located in center of Gorodola Woreda (metal work, shopping, wood working and tailor)

Descriptive statistics

Identifying different major actors and their respective functions who are engaged in honey value chain. It also identified the sources of finances for bee keepers, and their opportunities and challenges.

Review evaluations of finance programs for SMEs.

Ethiopia Damot Gale District MSME agri Mixed Primary n/a Probability sampling (two stage sampling: 1. bee keeping Kebeles , 2. households)

Survey 120 households (producers, collectors, wholesalers, retailers, cooperatives, processors and consumers)

Descriptive statistics

Motivation, impact, and lessons learned of utilizing a DCA risk sharing agreement, coupled with technical assistance, that specifically targets women owned SMEs.

Worldwide n/a SME n/a Qualitative Secondary n/a Multivariate meta analysis n/a SME Qualiative analysis

Ethiopia n/a SME n/a Mixed Primary and secondary

2013 Non probability sampling Interviews Interviews with banks credit officers Descriptive statistics

Study Study's objective Country Region MSME Sector Qualitative/ quantitative approach

Primary or secondar y data

Years Sampling design Data collection methods Target group & sample size Data analysis methods

Kistana, Aregawi & Abraha: “Assessment of ‘Why Private Commercial Banks in Ethiopia Neglected the Agriculture?’

Evidence from 10 Selected Private Banks”. Journal of Economics and Sustainable Development, Vol.5, No.13, 2014.

Kumari, Dibar: “The Role of Financial Institutions in the

Growth of Small and Medium Enterprises in Dilla Town, Ethiopia”. Pen Acclaims, Volume 1, April 2018.

Manaye, Tigro: “Challenges for Small and Micro Enterprises in Accessing Finance (Case of Wolaita Soddo Town)”. Global Journal of Management and Business Research: C Finance, Volume 17, Issue 7, 2017

Mano & Iddrisu & Yoshino:

“How Can Micro and Small Enterprises in Sub Saharan Africa Become More Productive” World Development Vol. 40, No. 3, pp. 458 468, 2012.

Mektel & Mohammed: “Determinants of farmers’ adoption decision of improved crop varieties in Ethiopia: Systematic review”. African Journal of Agricultural Research, Vol. 17(7), pp. 953 960, 2021

The study used ten selected private banks to investigate the reasons why private banks in Ethiopia neglected agriculture.

Ethiopia n/a n/a agri Mixed Primary and secondary

2009 2012 Non probability sampling Questionnaires, semi structured interview

Loan officers and Credit managers of 10 private commercial banks

Inferential statistics

Analyze the role of financial institutions/ banks and micro finance institutions on the growth of SMEs in Ethiopia; examine the performance of financial institutions with regard to the growth of SMEs. Identify the major constraints of growth of SMEs.

Identify the challenges that small businesses in Wolaita soddo town face in accessing finance.

Ethiopia Dilla Town SME agri & non agri

Quantivative Primary and secondary

n/a Non probability sampling Questionnaires 50 SMEs (registered with the trade and industry burea) (all sectors)

Descriptive statistics

Examines whether the entrepreneurs are willing to learn about management and to what extent the training improves the performance of their businesses.

Ethiopia Wolaita Sodo Town MSME agri & non agri

Quantivative Primary and secondary

2017 Probability sampling (stratified random sampling technique)

Questionnaires 282 MSMEs operator/owner (thereof 22 in Urban Agriculture)

Inferentionl statistics

To summarize and synthesize the most common factors from 21 studies that determine the farmers’ adoption decision of improved crop varieties in a regular pattern in Ethiopia.

Ghana Kumasi MSME non agri Quantivative Primary 2005, 2008 Probability sampling Questionnaires 139 entrepreneurs (metalwork) treatment group: 47 entrepreneurs control group: 66 entrepreneurs

Inferential statistics

Ethiopia n/a Farmer agri Qualitative Secondary n/a n/a Literature review of 21 studies Farmer Qualitative anaylsis

to agricultural finance in Ethiopia

Study Study's objective Country Region MSME Sector Qualitative/ quantitative approach

Primary or secondar y data

Years Sampling design Data collection methods Target group & sample size Data analysis methods

Mwonge & Naho: “Determinants of credit demand by smallholder farmers in Morogoro, Tanzania”, African Journal of Agricultural, Vol. 17(8), pp. 1068 1080, 2021.

Negasa et al: “Analysis Of Coffee Value Chain Finance

In Bodji Dirmeji District Of West Wollega, Ethiopia”.

Ethiopian Journal of Environmental Studies & Management 12(1): 32 42, 2019.

To assess the determinants of credit demand by smallholder farmers.

Tanzania Morogoro Municipality Farmer agri Quantivative Primary n/a Probability sampling (two stage random sampling: 1.wards, 2. household)

Survey 300 smallholder farmers Inferential statistics

OECD: “Making Blended Finance Work for Agri SMEs:

Lessons learned from selected case studies”, 2021.

Since access to institutional finance is very limited, the majority of the coffee farmers are forced to search financial services through informal channels. Analyzing coffee value chain finance in Bodji Dirmeji District, Ethiopia with specific objectives of mapping out the coffee value chain finance and Sources of Credit for Coffee Value Chain.

Many agri food SMEs do not have sufficient access to finance to fulfil their potential. This highlights the role of blended finance and provides insights into how development co operation actors can utilise blended finance.

Ethiopia Bodji Dirmeji District (3 kebeles)

Househ old level agri Quantivative Primary and secondary

n/a Probability sampling (two stage sampling method)

Questionnaires 168 coffee farmers (producers, local collectors/assemblers suppliers, processors, service providers, exporters, wholesalers and retailers)

Descriptive statistics

Oshora et al: “Determinants of Financial Inclusion in Small and Medium Enterprises: Evidence from Ethiopia”.

Journal of Risk and Financial Management, 2021.

Salman Alibhai et al: “Disruptive Finance: Using Psychometrics to Overcome Collateral Constraints in Ethiopia”. In: World Bank: “Designing a Credit Facility for Women Entrepreneurs. Lessons from the Ethiopia Women Entrepreneurship Development Project (WEDP)”, 2020.

Investigate the determinant factors that affect the financial inclusion of small medium enterprises in Ethiopia.

Ghana, Kenya, Tanzania, Bhutan, Brazil, Paraguay, India, Mexico, Philippines

n/a SME agri Qualitative Secondary n/a Non probability sampling 9 case studies agri SMEs Qualitative analysis

Ethiopia Addis Ababa SME n/a Mixed Primary and secondary

2020 Probability sampling (two stage stratified sampling)

Questionnaire, ex planatory research design

319 SMEs (all sectors), banks, MFIs Inferentionl statistics (multiple linear regression model)

Women owned businesses have less access to credit than their male counterparts. This unequal access is largely driven by inequalities in ownership of fixed assets such as houses and land, which can serve as collateral to secure loans. Suggestion of a universal credit score that was calculated using psychometric and behavioral data.

Ethiopia n/a MSME n/a Quantitative Primary 2015 Non probability sampling Pilot the psychometric testing

2,496 clients of MFI Amhara Credit and Savings Institution (ACSI)

descriptive

agricultural finance

Ethiopia

Study Study's objective Country Region MSME Sector Qualitative/ quantitative approach

Primary or secondar y data

Years Sampling design Data collection methods Target group & sample size Data analysis methods

Seife Ayele: “Policy incentives and agribusiness investment in Ethiopia: benefit or deadweight?” APRA Brief, Issue No. 20, 2019.

Tarfasa et al: “Determinants of growth of micro and small enterprises (MSEs): Empirical evidence from Ethiopia” Swiss Programme for Research on Global Issues for Development, 2016.

Assesses the effectiveness of policies promoting business investment in agriculture.

Identify the determinants of growth and of investment in innovation in MSEs using a survey of 300 firm level data from Addis Ababa.

Ethiopia n/a n/a agri Qualitative Primary and secondary

Ethiopia Addis Ababa MSE agri & non agri

n/a Non probability sampling Case studies, in depth interviews 5 case studies of agribusinesses 10 key informant interviews with business leaders

Quantitative Primary 2015 Probability sampling (two stage selection, just first stage randomly selected)

1. stage: Sub cities: Yeka, Akaki 2. stage: Woredas

structured questionnaire 300 MSEs (manufacturing, construction, service, trade, urban agriculture)

Qualitative analysis

Tefera & Gebremichae & Abera: „Growth Determinants of Micro and Small Enterprises Evidence from Northern Ethiopia“ Journal of Economics and Sustainable Development, Vol.4, No.9, 2013.

Tekeste Berhanu Lakew & Hossein Azadi, 2020. "Financial Inclusion in Ethiopia: Is It on the Right Track?" International Journal of Financial Studies, MDPI, Open Access Journal, vol. 8(2), pages 1 13, 2020.

Till: “A green revolution in sub Saharan Africa? The transformation of Ethiopia's agricultural sector”. Journal of International Development, 2020

World Bank: “Better Loans or Better Borrowers? Impact of Meso Credit on Female Owned Enterprises in

To investigate the growth determinants of MSEs in Tigray regional state.

Ethiopia Mekelle City MSE agri & non agri

Quantivative Primary 2012 Probability sampling Semi structured questionnaire, personal interviews

178 MSEs (Service, Manufacturing, Trade, Construction, Tourism, Urban Agriculture)

Inferential statistics

Measure the success or failure of Ethiopia’s financial inclusion.

Inferential statistics

Explores the presence of a national level green revolution in Ethiopia and the role of agricultural public spending within it.

Ethiopia n/a Individu al level n/a Qualitative Secondary n/a n/a Literature review n/a n/a

Investigates the impact of credit to female entrepreneurs, by examining larger loans, provided to growth oriented women entrepreneurs, falling

Ethiopia All rural areas Farmer agri

Quantivative Secondary 1995

2018 Probability sampling Datasets: interviews, records, measures

ca. 90,000 Farmer Descriptive statistics

Ethiopia 6 cities MSME agri, non agri

Quantivative Secondary 2014 follow up

survey:

Probability sampling (Propensity score matching)

Women Entrepreneurship Development Project (WEDP)

2,369 female entrepreneurs follow up survey: 2,139 firms

Inferentionl statistics

agricultural finance

Study Study's objective Country Region MSME Sector Qualitative/ quantitative approach

Primary or secondar y data

Years Sampling design Data collection methods Target group & sample size Data analysis methods

Ethiopia”. World Bank Policy Research Working Paper

8511, 2020. In: World Bank: “Designing a Credit Facility for Women Entrepreneurs. Lessons from the Ethiopia Women Entrepreneurship Development Project (WEDP)”, 2020.

World Bank: “SME Finance in Ethiopia: Addressing The Missing Middle Challenge”, 2015.

in the “missing middle” or “meso finance” segment of the financial market because their credit needs are too large for microfinance, but not large enough for commercial banks.

Addressing the questions whether MSEs are the main net job creators in Ethiopia and whether they are able to access adequate financial services.

Cross regional n/a SME & Micro agri & non agri

2016/20 17 registration database sample of firms (all sectors)

Quantivative Demand side: secondary data Supply side: Primary data

Deman d side: 2000 2012 Supply side: n/a

Demand side: Probability sampling Supply side: Non probability sampling

Demand side: 1. The Ethiopia Survey of Large and Medium Scale Manufacturing Industries

(LMMIS): an unbalanced panel composed 2. The World Bank’s Enterprise Survey Supply side: structured face to face interviews

Demand side: SMEs

1. 6,000 firms (with at least 10 employees) 2. 794 firms (services sector, microenterprises)

Supply side: 13 financial institutions (7 banks, 6 microfinance institutions)

Descriptive statistics

Barriers

agricultural finance in Ethiopia

Study Study's objective Country Region MSME Sector Qualitative/ quantitative approach

Primary or secondar y data

Years Sampling design Data collection methods Target group & sample size Data analysis methods