Over the past decade, Ethiopia has achieved high economic growth, averaging 10.7% per year, establishing the country among the fastest growing economies both in Africa and the developing world. However, Ethiopia is falling behind its peers in the area of credit to the private sector. At the same time, opportunities for women entrepreneurs in Ethiopia lag far behind those of men. In The Economist’s Women’s Economic Opportunity index, Ethiopia occupies the 107th rank out of 112 countries. Most growth-oriented women entrepreneurs fall into a ‘missing middle’ trap, in which they are served neither by commercial banks nor by microfinance institutions. High minimum loan sizes and excessive collateral requirements restrict women’s access to loans from commercial banks. Microfinance Institutions (MFIs) primarily cater to micro-firms with group lending schemes that provide very small loans. Growth-oriented women-owned enterprises are therefore starved of the investment they need to thrive.
The Women Entrepreneurship Development Project (WEDP) is an IDA investment lending operation designed to address the key constraints for growth-oriented women entrepreneurs in Ethiopia.
WEDP’s objective is to increase earnings and employment for women-owned enterprises in Ethiopia. It created the first ever women-entrepreneur focused line of credit in Ethiopia in 2013, and the demand has been staggering. The WEDP line of credit is disbursing roughly $2 million in loans to growth-oriented women entrepreneurs every month, far exceeding initial targets. In tandem, several hundred women participate in the project’s cutting-edge entrepreneurship training program each month, which draws lesson from modern cognitive psychology and equips participants not only with business skills in the traditional sense, but also with the ability to ‘think like an entrepreneur.’
- As of end-2015 (after two years of project’s implementation) more than 3,000 women entrepreneurs took loans (64% of WEDP borrowers had never taken a loan before) and over 4,500 participated in business training.
- Participating female enterprises grew profits by 24% and employment by 17%, and repayment of loans stands at 99.4%.
- Data from loan applications indicate that enterprises will create 6000 new jobs by 2017, the majority of which will be for women.
- For repeat borrowers, loan sizes have increased on average by 870%.
- The WEDP MFIs improved ability to appraise, resulted in their capacity to reduce the collateral requirements from an average of 200% of the value of the loan to 125%. At the same time, WEDP microfinance institutions are adopting and diffusing new techniques to reach and serve women entrepreneurs better. They are developing new loan products and recognizing new forms of collateral such as vehicles, personal guarantees, and even business inventory, to secure loans. This is all the more relevant in a country where there is no existing collateral registry.
- Through partnership between the World Bank Group’s (WBG’s) Finance & Markets Global Practice and the Gender Innovation Lab, WEDP is introducing innovative credit technologies to lenders, such as psychometric tests which can predict the ability of a borrower to repay a loan and reduce the need for collateral. This technology allows entrepreneurs who do not have collateral to take an interactive test on a tablet computer which predicts their likelihood to repay. If they score highly, they can borrow without traditional collateral. The test is being piloted under WEDP and subjected to a rigorous impact evaluation. Other banks are asking for the technology already, and scaling-up this technology could have a sea-level change on access to credit in Ethiopia
Bank Group Contribution
WEDP is an IDA $50 million investment lending operation, with an additional $13 million of external funding provided by UK ($3 Million external grant funding) and Canada ($10 Million grant via Trust Fund). The project has been disbursing almost its entire IDA allocation by mid-term and has now secured an additional EUR 15 mill from Italy and Japan has committed $50 million.
The World Bank team has been able to establish a strong partnership with donors such as the Department for International Development (DFID) and the Canadian International Development Agency (CIDA). Italy and Japan are also about to join the partnership. A WEDP Implementation Committee (WIC) was created to improve collaboration. The WIC is composed of one representative for each of WEDP’s eight implementers (i.e. World Bank, two implementing agencies, donors and consulting firms). The WIC meets monthly to discuss and take decisions on implementation related issues and it represents a very important platform for effective collaboration.
WEDP is building the basis for establishing a sustainable women entrepreneurs’ financing mechanism and for building the capacity of financial intermediaries and providers of business development services to serve that specific market segment. Although not completed yet, the project has already been effective in paving the way for a larger effort from the Government of Ethiopia in supporting the Small and Medium Enterprises (SME) finance agenda and in demonstrating the existence of a viable model of liquidity + TA that is now been replicated on a much larger scale for the whole SME sector.
Serkalem Belay owns an industrial machinery workshop. In Serkalem’s workshop, old vehicle parts are refurbished for re-sale.
Serkalem applied for a WEDP loan for 700,000 Birr from Wasasa, one of the WEDP microfinance institutions (MFIs). Serkalem had applied for business loans in the past, but had never been able to obtain a loan size that met the needs of her growing business.
Serkalem used the loan from Wasasa to purchase additional workshop materials and to hire new employees. In the three months, Serkalem’s workshop has grown from six to twelve full-time employees, and her monthly profits have increased by 50%.