Washington — The World Bank Board of Executive Directors today approved a US$200 million International Development Association (IDA)* credit to support the growth and development of Small and Medium Enterprises (SMEs) in Ethiopia.
The Government of Ethiopia five-year development plan emphasizes the key role of SMEs for the local economy and identifies support to SMEs as a key industrial policy direction for creating employment opportunities. A recent World Bank study on SMEs finance in Ethiopia finds that financing constraints of Ethiopian SMEs are one of the key obstacles to job creation and growth. Both demand-side and supply-side surveys clearly indicate the existence of a missing middle phenomenon whereby small enterprises are more credit constrained than either micro or medium/large enterprises.
"This project will address the missing middle challenge by providing financial and technical resources to SMEs and financial intermediaries in Ethiopia" said Francesco Strobbe, World Bank Task Team Leader of the Project. "It is the result of an inclusive and participatory approach adopted during the preparation phase by working closely with all the key stakeholders in the public and private sector. The project complements ongoing World Bank interventions in the area of financial inclusion, women entrepreneurship and industrial zones' support. By adopting a holistic approach to SMEs finance, this project will help to address one of the major obstacles for job creation and growth."
The Small and Medium Enterprises Finance project comprises four components:
The Financial Services to SMEs (US$193 Million) component will provide participating financial intermediaries with a line of credit to support leasing and working capital for eligible SMEs.
Enabling Environment for SMEs Finance (US$0.8 Million) aims to improve the enabling environment for facilitating SME finance in Ethiopia.
Business Development Services to SMEs (US$2.5 Million) will focus on making SMEs bankable through the provision of tailored Business Development Services (BDS).
Project Management, Communication and Impact Evaluation (US$3.7 Million) will support overall coordination of project activities and to rigorously measure the impact of the project on the growth of participating SMEs.
* The World Bank's International Development Association (IDA), established in 1960, helps the world's poorest countries by providing grants and low to zero-interest loans for projects and programs that boost economic growth, reduce poverty, and improve poor people's lives. IDA is one of the largest sources of assistance for the world's 77 poorest countries, 39 of which are in Africa. Resources from IDA bring positive change to the 1.3 billion people who live in IDA countries. Since 1960, IDA has supported development work in 112 countries. Annual commitments have averaged about $19 billion over the last three years, with about 50 percent going to Africa.