Pay-as-you-grow: Boosting Ethiopia’s women entrepreneurs with revenue-based financing

From bottle warmers to lunchboxes, Emebet Abit sells what children need to thrive. Recently, her small store in Addis Ababa has been flourishing, too. Emebet credits this success to a $1,700 loan she received from the Cooperative Bank of Oromia (CBO) through a pilot program with the World Bank’s Africa Gender Innovation Lab (GIL). The money has allowed her to purchase additional inventory and expand her business.

The funding Emebet received is not a traditional loan but a form of revenue-based financing. There is no fixed monthly repayment rate, and Emebet did not have to provide collateral. Instead, her monthly payments depend on her revenue, which she logs on Souqpass, the bank’s sales tracking platform for businesses like hers. When the school year starts and her goods fly off the shelf, she pays more. When business slows down during summer break, her payments adjust accordingly. Bethlehem Tamene, another entrepreneur who runs a small cloth garment sewing business, also appreciates this approach, saying, “This loan offers a great deal of flexibility, which is especially helpful for businesses like mine that experience seasonal fluctuations.”

Obtaining a loan is in itself a great opportunity for many women entrepreneurs like Emebet and Bethlehem. According to GIL research, access to capital is a major constraint for female-owned firms across Africa, where the average male-owned firm has six times the capital of women-led ones. Women often own small businesses with limited credit histories, and access to collateral is also a challenge for many. The revenue-based loan, on the other hand, is unsecured – the Souqpass platform allows the bank to track Emebet’s sales data, allowing it to take a more calculated risk on her.

The real innovation, however, lies in the loan’s pay-as-you-grow model. Microfinance studies have shown that rigid repayment structures tend to prevent entrepreneurs from taking risks, and that more flexible lending conditions can help them make longer-term investments. At the same time, GIL research suggests that women entrepreneurs often prefer financing that supports organic growth to high-stakes venture finance. Revenue-based loans strike a balance, providing entrepreneurs with enough flexibility to make growth-oriented investments while offering an implicit insurance mechanism when business is slow. They also align the interests of lender and borrower more closely – the higher the sales in Emebet’s store, the faster her loan gets repaid.

The launch of CBO’s revenue-based finance loan is the result of a collaboration among partners. The team at the Africa GIL provided the initial blueprint for the product, building on a previous World Bank study into revenue-based ‘microequity’ to support the growth of microenterprises in low-income economies. Renew Capital, an investment and advisory firm serving frontier markets, helped adapt the concept to the challenges of the Ethiopian financial sector. But it was CBO’s appetite for serving women entrepreneurs — as well as its market-leading expertise in digital financial innovation — that helped turn this idea into reality.

For now, Emebet and Bethlehem are part of a select cohort of borrowers — two thirds of them women — who received early access to the new product. What is next? A good look at the trial results, perhaps some enhancements and a scale-up to the wider market – and, hopefully, a rigorous evaluation of the new financial service and its potential to help women entrepreneurs achieve their full potential. For Emebet and Bethlehem, at least, the matter is clear: given a choice, they would not hesitate to pick revenue-based financing over a traditional loan again.