Ethiopia: SME Finance Project

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The development objective of the Small and Medium Enterprise (SMEs) Finance Project for Ethiopia is to increase access to finance for eligible small and medium enterprises in the recipient’s territory. The project comprises of four components. The first component, financial services to SMEs is to establish a credit facility providing access to finance for (a) working capital and leasing finance for participating financial institutions (PFIs) which in turn lend to eligible SMEs and (b) leasing finance for eligible SMEs. Development Bank of Ethiopia (DBE) will provide both direct financing to SMEs and wholesale finance to other financial intermediaries for on-lending to SMEs. A Technical Assistance (TA) facility will be established to complement and reinforce project implementation. In order to have access to the credit facility, PFIs will be required to enter into Technical Cooperation Agreements (TCA) with the Project Management Team (PMT) in DBE and with Private Enterprise Project for Ethiopia (PEPE). The second component is to improve the enabling environment for facilitating SME finance in Ethiopia. The project will support the hardware and associated software requirements, licenses, capacity building and training for a centralized electronic collateral registry. The main purpose of the diagnostic review on insolvency and credit or debtor regime is to analyze and identify the areas for improvement in the country’s insolvency and credit or debtor systems. The third component, Business Development Services to SMEs is to support SMEs through the provision of tailored Business Development Services (BDS) to address constraints on the demand side. BDS support to SMEs can address the lack of capacity to develop bankable business plans, the poor quality of financial statements and records, the inability to manage risk, the lack of knowledge of business development and management, the lack of adequate collateral, etc. In addition to the standard BDS, the project will also aim at providing highly specialized services to growth-oriented SMEs capable of becoming suppliers for global value chains. The fourth component, project management, communication and impact evaluation is to support overall coordination of project activities, and to rigorously measure the impact of the project on the growth of participating SMEs. The two main implementers of the project will be the Development Bank of Ethiopia (DBE) and the Ministry of Industry (MoI). The impact evaluation will focus on innovation and measurement with the beneficiaries of loans and BDS. The impact evaluation will also aim to capture heterogeneous impacts across various groups of participants, especially between female and male entrepreneurs, examining differential impacts of access to loans, leases, and business development services for the growth of male and female-owned enterprises. The impact evaluation will involve a long-term research partnership with the Ethiopian Development Research Institute (EDRI).