What new Enterprise Survey data reveal about Ethiopia's firm-size divide

New World 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. 

Figure 1. Percent of firms credit constrained — by firm size

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.

Figure 2. Percent of firms whose recent loan application was rejected — by firm size

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.

Figure 3. Percent of firms citing unfavorable terms as reason for not applying — by firm size

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.

Figure 4. Main reason for not applying for loan, by firm size 

None of this is unique to Ethiopia — around the world, small firms are more credit-constrained than large ones. What stands out is how steep Ethiopia’s divide is, with rejection and discouragement rates near the top of the regional range. Credit is not a problem shared evenly across the private sector; it is concentrated at the bottom, and it is severe.

Better access, weaker investment at the top

Better access to finance among larger firms has not translated into stronger investment. Only 22.8 percent of Ethiopian firms bought fixed assets in the last fiscal year — far below the SSA benchmark of 34.8 percent and the global benchmark of 38.7 percent.

The size pattern is revealing. Fixed-asset investment rises only modestly with size — 22.3 percent of small firms, 21.9 percent of medium-sized, and 29.3 percent of large firms — an unusually flat gradient. The firms with the best access to finance are not investing as expected.

Figure 5. Percent of firms buying fixed assets in the last fiscal year, by firm size

Credit constraints fall steeply as firms get bigger, yet investment barely rises. If finance were the only thing holding firms back, Ethiopia’s largest firms should be investing far more than its smallest. They are not.

Part of the explanation may lie outside finance. Asked to name their biggest obstacle from the list of fifteen business environment constraints, Ethiopian firms most often choose political instability — 33 percent, versus about 7 percent across SSA — rising with size, from 32 percent of small firms to 49 percent of large ones. The concern is also associated with investment: among large firms that call political instability their top obstacle, just 16.1 percent buy fixed assets, compared with 41.0 percent of those that do not. For firms able to invest, uncertainty, rather than finance, may be a more binding constraint. This is indicative rather than conclusive: low investment could reflect a range of factors that the survey data alone cannot disentangle.

Conclusion

The 2025 Ethiopia Enterprise Survey shows that the way finance constrains Ethiopia's formal private sector depends on firm size.

Smaller firms face the sharpest financing challenge: three in four are credit constrained, nearly three times the large-firm rate. Access to finance remains their binding constraint.

Large firms face a different problem. They are far less credit constrained, yet the share investing remains below regional and global averages — and they are the most likely to name political instability as their biggest obstacle.  Easing financing terms would do the most for small firms, while for large firms better credit access is necessary but not sufficient — confidence and predictability appear to matter as well. Want to explore the data yourself? The full dataset is freely available on the World Bank Enterprise Surveys portal.