Ethiopia Evaluation 2016

Lending to small and medium enterprises (SMEs) inEthiopia,in new sectors to new clients,while offeringnew lending products,is perceived by banks to be riskierthan lending to large enterprises and known borrowers,using traditional forms offinance.At the same time,microfinance institutions (MFIs) have done an adequatejob ofreaching micro- and small enterprises,creating asituation commonly described as ‘the missing middle’.Asymmetric information,inadequate expertise and alack ofincentives to expand balance sheets due to thecurrent market environment together mean that banksoverwhelmingly base their lending decisions oncollateral coverage and target sectors with lowerperceived risk.The collateral rate (compared to the loansize) required by banks in Ethiopia is much higher thanthat required in many ofthe countries in Africa,Asiaand Latin America.These features have discouragedSME owners from pursuing bank loans,especially sincethe preferred form ofcollateral for first-time borrowersis a primaryfamilyresidence.

Monday, June 13, 2016 - 3:00pm