Ethiopia has secured a €110 million ($130 million) loan from the European Investment Bank to expand access to finance for rural enterprises, as the government seeks to stabilise incomes, strengthen food systems and deepen financial inclusion in a country where agriculture underpins livelihoods and public finances. The agreement, signed in Addis Ababa on February 4 and announced by the Ethiopian Ministry of Finance, will fund a nationwide Rural Finance and Development Project aimed at micro and small enterprises operating across Ethiopia’s regions.
The financing will be channelled through the Development Bank of Ethiopia to rural financial institutions, including microfinance providers and cooperatives, which form the backbone of credit delivery outside major cities. The objective is to widen access to working capital and investment finance for smallholder-linked businesses, agribusinesses and rural service providers, where credit constraints remain a binding obstacle to productivity and job creation.
The project is being co-financed by multilateral and bilateral partners. The International Fund for Agricultural Development is providing a $35.1 million grant and a $4.8 million loan, while the European Union is contributing a $10 million technical assistance grant alongside a further $9.6 million grant to be implemented through IFAD. Together, the package combines long-term concessional finance with institutional support intended to strengthen rural lenders’ capacity, risk management and product design.
For Ethiopia, where agriculture accounts for a large share of employment and export earnings, the financing addresses a structural weakness in the rural economy rather than a short-term funding gap. According to the World Bank, nearly 80% of Ethiopians live in rural areas, and most depend directly or indirectly on smallholder agriculture. Climate variability, conflict-related disruptions and rising input costs have exposed the fragility of rural incomes, with spillover effects on food prices, fiscal stability and poverty reduction efforts.
Limited access to formal finance has compounded these pressures. Microfinance institutions and cooperatives serve millions of rural clients, but many face capital constraints, shallow balance sheets and limited tools to manage climate and market risks. By on-lending through these intermediaries, the EIB-backed programme is intended to reach borrowers that commercial banks typically consider too small or too risky, while avoiding the fiscal burden of direct state lending.
The financing also aligns with Ethiopia’s broader push to reform rural financial markets. In June 2025, the government announced the establishment of a Rural Finance Services Unit, designed to tackle structural barriers to rural credit and agricultural insurance, including weak collateral frameworks, high transaction costs and limited data on farm-level risks. That initiative, supported by international partners, signalled a shift from ad hoc interventions toward systemic reform of how rural finance is regulated and delivered.
From a development perspective, the significance of the deal lies less in its headline size than in its potential to crowd in private activity and stabilise rural economies under stress. Improved access to finance can support investment in irrigation, storage, processing and climate-resilient inputs, reducing post-harvest losses and smoothing incomes.
Over time, this can ease pressure on public budgets by lowering the need for emergency food assistance and disaster spending, while supporting export-oriented value chains that generate foreign exchange.
The project also reflects a wider recalibration in development finance towards adaptation and resilience rather than narrow productivity gains. Grants for technical assistance are expected to help rural lenders integrate climate risk into credit assessment and develop products suited to drought-prone and flood-affected areas.
If effectively implemented, this could strengthen financial institutions that are critical to rural communities but often overlooked in national financial sector reforms.
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