Ethiopian Startups, SMEs Receive $150,000 in Grants Preparing Them for Investment Readiness

The Innovative Finance Lab (IFL), funded by GIZ, has awarded $150,000 in grants to 30 startups and small and medium-sized enterprises (SMEs). Each grantee received $5,000 to boost their investment readiness by strengthening their institutional capacity.

The grant was awarded following a pitch competition for 43 SMEs and startups who were part of the first alumni of the Technical Assistance Facility (TAF) programme run by the IFL.

Launched in 2022 by UNDP and the National Bank of Ethiopia, the IFL aims to establish a hub for piloting and scaling up flexible and innovative financial instruments that cater to the capital needs of Ethiopia’s startups and SMEs.

Speaking to Shega Dagmawit Shiferaw, Director of the Innovative Financial Lab, highlighted that the companies were connected to existing financing opportunities to provide them with institutional capacity until IFL’s financing arm is up and running.  

As part of its intervention programmes, IFL initiated TAF in early 2023, implemented by R&D Group and MDF Global. The TAF serves as a pre-and post-investment programme, preparing SMEs and startups for investment.

After a six-month workshop, the businesses progressed to the Enterprise Financial Facility (EFF), the next phase of IFL, for potential investment. The IFL’s advisory board has recently approved the design of EFF, but the fund has not yet been registered under the newly established Ethiopian Capital Market Authority.

“Grants are not the major funding instrument for IFL,” Dagmawit clarified. “Instead, the lab intends to provide a sustainable and innovative means of financing to the SMEs through the capital market operation of private investing,” Dagmawit stated.

Dagmawit added that the IFL is awaiting the Ethiopian Capital Markets Authority to kick-start operations for the launch of its funding and investment. “Meanwhile, the grant will assist participating businesses in covering operational costs and mitigating the impact of delays,” she added.

The $150,000 grant came from GIZ’s Private Sector Development Programme. Selected startups benefiting from this grant include Zay Tech IT Solutions, Mogzit In-Home Care, BeSingularity, Asbeza, Mado Communications, and Omishtu-Joy Agritech.

According to a 2021 UNDP-commissioned report on inclusive and innovative finance, only 1.9% of small enterprises in Ethiopia have access to loans or lines of credit, while the figure rises to 6% for micro-enterprises, 20.5% for medium enterprises, and 35.5% for large enterprises.