Central Bank Sets up Innovative Finance Lab for MSMEs

ADDIS ABABA – Ethiopia has set up an Innovative Finance Lab to support its rapidly growing Micro, small, and medium enterprises (MSMEs).

The Lab will help MSMEs to test, innovate and grow a new set of services, products, and instruments in their bid to get financial access.

The National Bank of Ethiopia (NBE), in partnership with the UN Development Program (UNDP), launched the financial lab on Tuesday.

Ethiopia has an estimated 2 million Micro, small, and medium enterprises. However, a 2021 UNDP report claims only  1 .9% of small enterprises access loans or line of credit.

The figure rises to 6% for micro-enterprises, 20.5% for medium enterprises, and 35.5% for large enterprises.

Officials said the newly set up Innovative Finance Lab (IFL), hosted by the NBE, aims to address the financing challenges of MSMEs and start-ups.

The lab plans to do this by mobilizing the supply of capital, building demand for capital, and bridging the gap for growth-oriented and jobs-rich MSMEs.

The IFL will also pilot an Enterprise Financing Facility to address the supply constraints, mobilizing capital and investing in MSMEs through loans with favorable terms, providing loan guarantee schemes.

This will lower barriers for borrowers, and de-risks lending through recoverable grants, said the UNDP.

The medium-term forecast is for the fund to handle up to 100 million US Dollars.

Equally, the UNDP said a Technical Assistance Facility will be set up to complement the work of the Enterprise Financial Facility.

It will help to ensure the creditworthiness of enterprises through the provision of pre-and post-investment support such as capacity building and business development, according to the UNDP.

The lab will also strengthen research, advocacy, and data management of market-oriented financing solutions for MSMEs.

It will use that knowledge to advocate for policy and regulatory reforms to develop capital markets and digital financial services in the country.