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NewWorld Bank Enterprise Survey data show a sharp firm-size divide: small firms are squeezed by finance, while larger firms, despite far better access to credit, are still holding back investment.
The findings draw on the 2025 World Bank Enterprise Survey for Ethiopia, interviews with owners and top managers of 1,011 formal private firms in manufacturing and services. Its standardized methodology, used in more than 180 economies, makes the results comparable with regional and global benchmarks.
Two-thirds of Ethiopia’s formal firms are credit constrained, and the share investing in fixed assets is low — below both the Sub-Saharan Africa (SSA) and global averages, even among the largest firms. Finance binds hardest at the bottom, while something else appears to hold back investment at the top.
A steep financing divide at the bottom
In 2025, 65.8 percent of Ethiopian formal firms are credit constrained — partially or fully — well above the 50 percent SSA benchmark and more than double the 31 percent global average. But this masks the real story: credit constraints fall sharply with firm size.
The divide is stark: 75.9 percent of small firms are credit constrained, versus 55.6 percent of medium-sized and 28.3 percent of large firms — a nearly 48 percentage-point gap.
Unpacking the constraint: rejection and withdrawal
The composite measure of credit constraint draws on four sets of survey questions: whether the firm applied for a loan or line of credit; the outcome if it did; the reason if it did not; and whether it has access to external finance.
Both margins — rejection and withdrawal — follow a steep size gradient. Start with rejection: 21.6 percent of loan applicants were rejected, three times the SSA benchmark of 7.1 percent; rejection falls from 34.6 percent of small applicants to 10.3 percent of medium-sized and just 1.5 percent of large firms — a gap of over 33 percentage points.
Discouragement is even more common: 59.4 percent of firms cite unfavorable conditions — interest rates, collateral, or loan procedures — as their main reason for not seeking credit, versus 41.3 percent across SSA. These deter 66.9 percent of small firms, 56.0 percent of medium-sized, and 13.5 percent of large ones.
What is keeping small firms out
What discourages firms also differs by size. For small firms the dominant deterrent is collateral, cited by 42.8 percent — more than six times the large-firm rate (6.6 percent) — with interest rates reinforcing it (15.2 versus 5.8 percent). Together these account for nearly six in ten small firms that did not apply. Small firms do not lack demand for credit; the terms on offer discourage them.
Large firms tell a different story. Two-thirds report no need for a loan, versus fewer than one in five small firms; those citing conditions point mainly to insufficient loan size and maturity (11.6 percent). This reflects their wider financing channels and a broader investment pullback.
read more: https://blogs.worldbank.org/en/opendata/what-new-enterprise-survey-data-reveal-about-ethiopia-s-firm-siz
