Business Businesses Face 2.6 Trillion Birr Financing Gap, Study Finds
March 14, 2026
Ethiopian micro, small and medium enterprises (MSMEs) are facing a severe shortage of finance and business premises, with a new study estimating the country’s credit gap at 2.6 trillion Birr, experts said during a forum held yesterday in the capital.
The research was presented at a public-private dialogue organized by the Addis Ababa Chamber of Commerce and Sectoral Associations at Capital Hotel and Spa, where policymakers, financial institutions and business leaders gathered to discuss challenges hindering private sector growth in Addis Ababa.
Presenters noted that Ethiopia has more than two million MSMEs, about 85 percent of which are micro-enterprises, yet most operate without access to formal finance. Their findings revealed a sharp disparity between large and small firms: while 35.5 percent of large enterprises obtain bank loans, only 1.9 percent of small businesses have access to formal credit.
The research estimates that the financing gap for formally registered MSMEs stands at one trillion Birr, but rises to 2.6 trillion Birr, when informal businesses are included.
The study also noted changes in lending behavior within the banking sector. Although loans supplied by medium-sized banks have grown significantly in recent years, the industry’s loan-to-deposit ratio declined from 90 percent in 2023 to around 69 percent by late 2025, as banks increasingly shift funds toward government treasury bills rather than lending to businesses.
Another presentation highlighted structural challenges linked to land access and collateral requirements. Ethiopia’s banking system relies heavily on immovable property as collateral, but since land is state-owned, businesses generally hold only lease rights rather than private titles, limiting their ability to secure loans.
The study described this situation as creating “dead capital,” where valuable assets cannot be used to unlock financing. Rising land lease prices and tighter enforcement of zoning regulations have also made it harder for small businesses to find affordable working premises.
A representative from the Addis Ababa Industry Bureau acknowledged that access to finance and land remains a key obstacle for entrepreneurs in the capital.
Business owners attending the forum said the findings reflect the reality they face daily, noting that strict collateral requirements and high land costs continue to limit expansion and investment.
Researchers concluded that Ethiopia needs to modernize its lending framework by expanding systems such as movable collateral registries and data-based credit assessment, allowing businesses to use machinery, inventory, and digital financial records as loan guarantees.
Participants said addressing the twin challenges of finance and land access will be critical if the country hopes to unlock the growth potential of its private sector and accelerate industrial development.