Entrepreneurship Policies through a Gender Lens

Ethiopia

By Atsede Tesfaye, Addis Ababa University

Background

Ethiopia is a low-income country and the second most populous country in sub-Saharan Africa (SSA), with an estimated population of around 115 million in 2020 (UN, 2019). The country developed and revised its Micro and Small Enterprise (MSE) policy in 2011 in order to support the growth of micro and small businesses (MoUDH, 2012). The policy focuses mainly on sustainable job opportunities for the unemployed, and identifies women entrepreneurs as one of the target groups. Additionally, gender-sensitive policies, such as the revised Family Code 2000, have facilitated access to resources and the removal of restrictions on employment for women. These polices have helped provide opportunities for women to engage in entrepreneurship which was once considered to be solely a man’s domain. However, despite advancements in women’s entrepreneurship, women tend to be less successful than men due to difficulties associated with access to finance, land, education, training and effective business networks (World Bank, 2015).

Policy issue: Microfinance is restrictive; greater access to financial services is needed

Despite the existence of the MSE policy and Family Code, as well as various initiatives aimed at promoting women’s entrepreneurship, access to finance for women entrepreneurs remains a complex issue. Credit guarantee funds established by regional governments have enabled Micro Financial Institutions (MFIs) to provide loans without collateral requirements. In this regard, the MSE policy states that “Micro Financial Institutions (MFIs) shall be the sole providers of saving and credit services to MSEs, as per standard procedures to be established for this purpose, and no other form of credit is to be provided” (MoUDH, 2012). Furthermore, borrowers are required to save at least 20% of the loan, and the loan repayment period cannot exceed 36 months. These restrictive policies create obstacles to acquiring capital for starting and growing businesses. In addition to MFIs, banks provide access to loans but their collateral requirements are a barrier. Data from the 2015 Ethiopia Enterprise Survey indicate that access to finance is one of the top three business environment obstacles for all entrepreneurs in Ethiopia (World Bank, 2016), with only 12.9% of businesses in Ethiopia receiving bank finance in 2016.

While collateral and saving requirements are common challenges for both men and women entrepreneurs, women have less access to financial services when compared to their male counterparts. This includes chequing and saving accounts and formal credits (Central statistics and ICF international, 2017). One of the main barriers for women is restrictive social attitudes related to traditional normative gender roles and power relations (Central Statistical Agency and ICF International, 2017). The traditional view of women is that they are subordinate to their husbands, and that men are the income earners in households. Indeed, due to this cultural view in many cases, properties are registered in the husband’s name, and major decisions, including finance and buying property, are often made by husbands. Regardless of the Family Code (2000), which provided women with collateral to gain access to finance, accessing finance without the support of a husband is difficult.

Traditional culture and religious institutions convey hierarchies of gender and seniority that urge women to be obedient to their husbands (Malara and Boylston, 2016). Moreover, domestic violence is one way of maintaining power in a relationship and retaining control over financial resources (Hailemariam et al., 2019). A systematic review of studies found that about 67% of women in Ethiopia experienced domestic violence by their husband or intimate partner (Semahegn and Mengistie, 2015). Thus, gendered socio-cultural factors limit the financial autonomy of women to fulfil collateral and saving requirements. As a consequence, women-operated MSEs suffer from inadequate capital investment, and operate with no or insufficient access to loans (Wasihun and Paul, 2010). Many women entrepreneurs rely on iqqub (traditional Indigenous informal financial institutions functioning as rotating savings and credit associations) for the start-up and development of their businesses (Solomon, 2010; Anley, 2017).

The MSE strategy policy also states that “priority sectors and enterprise types shall be offered better loan conditions, including lower interest rates and full coverage of loan guarantees” (MoUDH, 2012). Sectors prioritised for government support are manufacturing, construction, and enterprises that produce items for export or to substitute imports. However, only a few women entrepreneurs engage in these men dominated sectors. For example, in the WEDP registration database as of July 2016, about 10% of women were found to be operating their businesses in these sectors (Alibali et al., 2017). Socialisation experiences, education, limited starting capital, and the gendered expectations that society puts on them are just some of the challenges facing women who seek to engage in these sectors. Overall, the restrictive MSE policy and demanding savings requirements tend to limit women entrepreneurs’ ability to access loans in order to start and grow their businesses in their chosen sectors.

Conclusions and recommendations

Despite the above challenges, reports show that the highest rate of total early-stage entrepreneurial activity1 (TEA) for women is found in SSA at 21.8% compared to 17.3% in Latin America and 6% in Europe (GEM, 2019). Women entrepreneurs in Ethiopia have been able to grow their micro enterprises into small enterprises in the formal sector (Solomon, 2010). Ethiopia is among one of the five economies in SSA where the proportion of people running established businesses is equal for both men and women. Compared to countries in the region where there are fewer women than men at this business stage, such as in Botswana and Malawi (Kelley et al., 2013). This may be due to entrepreneurs’ abilities and willingness, as well as enablers in the environment (Kelly et al., 2013). Two financial initiatives specifically targeted at women entrepreneurs were recently introduced. The Women Entrepreneurship Development Project (WEDP) is backed by the World Bank’s fund and was launched in 2012 for the poorest countries. It provides a special line of credit for selected urban women entrepreneurs forming and developing a venture in the formal small and medium enterprise sector. The Enat Bank is a bank established by women investors in Ethiopia and was launched in 2013. The bank offers access to credit for women who do not have the financial capacity and assets to submit collaterals. Other than these initiatives, the organisation for Women in Self Employment (WISE) provides saving and credit services to economically disadvantaged women and girls who aspire to improve their livelihood by becoming self-employed. However, these initiatives target only a few women entrepreneurs specifically in selected urban areas. Based on the Ethiopian experience, the following recommendations are offered to policy makers seeking to improve access to finance for women entrepreneurs.

Recommendations for Ethiopia

• Microfinance policies need to make loans available to a large number of women entrepreneurs who have no savings or access to collateral. Access to finance for credit-worthy entrepreneurs could be based on the implementation of psychometric credit assessment tools and a viable business plan.

• Governments should encourage all banks to earmark a certain percentage of their investment for women-owned enterprises through making tax incentives available for this purpose.

• Non-governmental organisations, such as women entrepreneur associations and networks, should be utilised to provide credit schemes to women entrepreneurs.

References

Alibhai, S., N. Buehren, S. Papineni and R. S. Pierotti (2017), “Crossovers: female entrepreneurs who enter male sectors – evidence from Ethiopia”, Policy Research Working Paper No. 8065, The World Bank Group, Washington, DC.

Anely, Y. S. (2017), “Contextualizing entrepreneurial networks in Ethiopia: the case of the Ekubs of the Gurage ethnic group”, in M. R. Pasillas, B. Ethel and M. Markowska, M. (eds.), Contextualizing Entrepreneurship in Emerging Economies and Developing Countries, Edward Elgar Publishing, Cheltenham.

Central Statistical Agency and ICF International (2017), “2016 Ethiopia Demographic and Health Survey Key findings”, Addis Ababa, Ethiopia, and Calverton, Maryland.

Hailemariam, A.T., B. Kroon, M. Van Engen and M.Veldhoven (2019), “Dreams and reality: Autonomy support for women entrepreneurs in Ethiopia”, Equality, Diversity and Inclusion: An International Journal, Vol. 38, No. 7, pp. 727-742.

Kelley, D et al., (2013), Global Entrepreneurship Monitor 2012 women’s report, www.babson.edu/Academics/centres/blank-center/global-resarch/gem/pages/reports.aspx.

Malara, D. M. and T. Boylston (2016), “Vertical love: forms of submission and top-down power in Orthodox Ethiopia”, Social Analysis, Vol. 60, No.4, pp. 40-57.

MoUDH (2012), “Micro and Small Enterprise Development Policy & Strategy”, Government of the Federal Democratic Republic of Ethiopia, Ministry of Urban Development & Housing, Addis Ababa.

Semahegn, A. and B. Mengistie (2015), “Domestic violence against women and associated factors in Ethiopia: systematic review”, Reproductive Health, Vol. 12, No. 8.

Solomon, D. (2010), “Desk review of studies conducted on women entrepreneurs of Ethiopia”, Private Sector Development Hub/Addis Ababa Chamber of Commerce and Sectoral Associations.

United Nations, Department of Economic and Social Affairs, Population Division (2019), World Population Prospects 2019, Online Edition, Rev. 1.

Wasihun, R. and I. Paul (2010), “Growth determinants of women operated micro and small enterprises in Addis Ababa”, Journal of Sustainable Development in Africa, Vol. 12, No. 6, pp. 233-246.

World Bank (2016), World Bank Groups Enterprise Surveys, http://www.enterprisesurveys.org/data/exploreeconomies/2015/ethiopia.

World Bank (2015), SME Finance in Ethiopia: Addressing the Missing Middle Challenge, The World Bank Group, Washington, DC.