Improving access to finance for Ethiopian agricultural SMEs

Agriculture is the backbone of Ethiopia's economy, but its development faces several bottlenecks. One of the main concerns is the low investment capacity of both smallholder farmers and small and medium-size enterprises (SMEs) and the limited access to credit in order to purchase goods and pay for services (input and technical training providers), and to process and sell their production (processing, marketing and link with exporting companies).  This is due both to the limited capacities of the agricultural SMEs to develop a credible business model or present solid financial information and to the poor knowledge of the sector among public and private banks in Ethiopia and their weak capacity to develop adapted financial tools. 

Large agricultural companies or exporting companies are the core target of commercial banks, while smallholder farmers can have access to microfinance institutions’ offers. The SMEs’ financing needs  find few appropriate responses among financial institutions:

• adapted financial products and specific credit risk analysis by financial institutions that perceive SMEs as a high-potential, but risky customer segment;
• adapted guarantee or collateral mechanisms for agriculture activities; limited insurance products.