Innovative Finance Lab Injects $150,000 into Ethiopian Startups and SMEs

In a significant move to bolster the financial prospects of startups and small and medium-sized enterprises (SMEs) in Ethiopia, the Innovative Finance Lab (IFL), funded by GIZ, has granted a total of $150,000 to 30 enterprises.

The financial injection, equating to $5,000 per recipient, aims to enhance the investment readiness of these businesses by fortifying their institutional capacity.

The grant allocation followed a competitive pitching event involving 43 SMEs and startups, all of whom belonged to the inaugural cohort of the Technical Assistance Facility (TAF) program under the IFL.

Established in 2022 through collaboration between the UNDP and the National Bank of Ethiopia, the IFL endeavors to create a hub for testing and amplifying adaptable and inventive financial instruments tailored to the capital requirements of Ethiopian startups and SMEs.

Shega Dagmawit Shiferaw, Director of the Innovative Financial Lab, revealed that the companies receiving the grants were linked to existing financing opportunities to enhance their institutional capacity until the lab's financial arm becomes operational.

As part of its intervention initiatives, the IFL introduced TAF in early 2023, executed by R&D Group and MDF Global.

TAF functions as a pre-and post-investment program, equipping SMEs and startups for potential investment opportunities.

Following a six-month workshop, these businesses progressed to the next stage of IFL known as the Enterprise Financial Facility (EFF), positioned for potential investment.

While the IFL's advisory board recently approved the design of EFF, the fund is yet to be registered under the newly established Ethiopian Capital Market Authority.

Dagmawit clarified that grants are not the primary funding instrument for IFL.

Instead, the lab aims to provide a sustainable and innovative financing approach for SMEs through the capital market operations of private investing.

Notably, the IFL awaits the operational launch by the Ethiopian Capital Markets Authority to kick-start its funding and investment operations.

In the meantime, the granted funds will assist participating businesses in covering operational costs and mitigating the impact of delays, according to Dagmawit.

The $150,000 grant was made possible through GIZ's Private Sector Development Programme.

Among the selected startups benefiting from this grant are Zay Tech IT Solutions, Mogzit In-Home Care, BeSingularity, Asbeza, Mado Communications, and Omishtu-Joy Agritech.

A 2021 UNDP-commissioned report on inclusive and innovative finance highlighted the stark reality that only 1.9% of small enterprises in Ethiopia have access to loans or lines of credit.

In comparison, the figures rise to 6% for micro-enterprises, 20.5% for medium enterprises, and 35.5% for large enterprises.

Source: Shega