Ethiopia: SMEs Facing Sever Credit Constraints

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Feb 2015
Ethiopia, February, 19 2015 - Small and Medium Enterprises (SMEs) in Ethiopia have faced severe credit service constraints owing to absence of financial institutions catering them, the World Bank said on Thursday. A study by the bank released on Thursday has revealed that young and smaller firms across the country are much more likely to be rejected from line of credit and discouraged from applying for loans due to high collateral requirements.

Almost 70 percent of SMEs are either fully or partially credit constrained, meaning they don’t have access to external forms of finance, said Francesco Strobbe, World Bank’ Senior Economist at the launching session of the Study in Addis Ababa.

Small and Medium enterprises are being underserved compared to micro and large firms as Micro Finance Institutions primarily cater micro firms and larger banks are discouraged to serve SMEs primarily due to perceptions of lower returns and higher risk, Strobe added.

The government of Ethiopia has managed to create about six million job opportunities through Micro and Small enterprises over the last four years.

At the beginning, our intention was to create as much jobs as possible; the challenge came as thousands of micro enterprises have been graduated to small and medium enterprises, said Desalegn Ambaw, Ethiopia’s State Minister of Urban Development, Housing and Construction.

The study proposed a set of interventions including Micro Finance Institutions and that large banks need to down or upscale their credit service to financially support SMEs which were reportedly poorer performance and productivity.



Source : Star Africa
 

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