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.
This 5-years project is structured into 3 components:
- Business development skills strengthening for agri-SMEs through Agrihub, a platform comprising of three tiers of business development services to SMEs adapted to their scale, maturity and needs (Center of Excellence, Capacity Booster, and Accelerator);
- Support to access to finance for agri-SMEs through the capacity strengthening of financial institutions (banks and big-sized MFIs) in developing financial services adapted to agri-SMEs, incentive mechanisms including credit guarantees, and link SMEs and financial institutions;
- Development of a sustainable economic model for Agrihub to ensure the sustainability of 3.the impacts and further outreach post project, through the documentation of efficient methodologies and tools and the strengthening of a network of partners and service providers.
By improving capacity building and access to finance for agri-SMEs, the project aims at:
- increasing the capacity to develop of agricultural SMEs, enabling them to diversify their economic model and reduce their vulnerability;
- developing activities that create sustainable employment, particularly in rural areas;
- improving farmers' access to services and markets that result necessary for their development;
- supporting financial institutions in the development of dedicated strategies to finance agricultural SMEs;
- developing a public-private partnership between the Agricultural Transformation Agency (ATA) on the one hand and the financial and business sector on the other.
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