The effects of lease financing on small and medium-sized enterprises and inclusion in Ethiopia
Although small and medium-sized enterprises (SMEs) can be significant contributors to economic growth, their innovation potential is often constrained by economic conditions. Lack of adequate financing is one of those challenges, especially for enterprises in regions where access to capital is difficult to obtain and costly to borrow. This capital constraint, coupled with limited collateral to secure loans, prevents SMEs from investing in new technology and capital equipment. When enterprises do manage to obtain financing, it often comes at a high cost. To overcome this constraint, governments and development agencies have supported lease financing schemes. Lease financing is an asset-based lending scheme where the leased equipment constitutes the sole collateral for the financing. This feature makes it an attractive option for SMEs wanting to invest in their innovation capabilities. Despite increasing popularity of leasing in resource-constrained environments, there is insufficient evidence on the impact of lease financing on firm performance and the heterogeneous effects across gender, geography and sector. This study investigates these effects based on the experience of a national program managed by the Development Bank of Ethiopia. The findings will be used to inform future directions of this scheme to promote inclusive innovation in the SME sector.