UNDP and UNCDF have partnered with the government's lead innovation ecosystem actor, the Ministry of Innovation and Technology (MInT), to implement a KOICA funded "Innovation for Development Project." The programme's overall objective is to strengthen the innovation and entrepreneurship ecosystem in Ethiopia to enhance economic growth and productivity and contribute to job creation, focusing in particular on women and youth. 

The project pursues the objective of the United Nations Development Assistance Framework (UNDAF 2016–2020) in Ethiopia, which is prepared in alignment with the Second Growth and Transformation Plan (GTP II) and seeks to target support to economic sectors deemed vital. For this reason, activities under this project focus on two key outputs, notably, the strengthening of the innovation ecosystem for Micro-small-and medium-sized enterprises (MSMEs) and start-ups, and the development of sustainable financial mechanisms to facilitate innovation by ICT-based MSMEs and start-ups.

To deliver on the project intervention of making innovative financial mechanisms available to ICT-based MSMEs and start-ups, UNCDF, as part of its mandate to support 'last mile' customer segments, is providing capacity-building support for financial service providers. It will enable them to develop innovative and tailored financial products and risk management tools that respond to the needs of ICT-based MSMEs and start-ups. 

Therefore, UNCDF organized a five-day training workshop for forty loan officers and credit managers from nineteen financial institutions. The training workshop had six specific objectives:  

1. Support financial institutions to better understand the nature and financing needs of ICT-based MSMEs and start-ups. 
2. Support financial institutions to develop new (or modify) financial products to cater to ICT-based MSMEs and start-ups' financing needs.
3. Build capacities of financial institutions in loan appraisal and due diligence.
4. Familiarize the financial institutions with new or modified financial products and appraisal tools. 
5. Support financial institutions to utilize the CRGF and provide finance to ICT- based MSMEs and start-ups. 

 
Speaking on the importance of understanding the expected risks and returns linked to ICT-based MSMEs and start-up financing, Seifu Teshome, UNCDF's lead on the project, said that

“In spite of the huge importance of MSMEs to the national economy with regard to innovation, job creation and alleviation of poverty, the sector is facing challenges in accessing finance due to perceived risks of defaulting and lack of appropriate and innovative financial products in the market.”

UNDP’s Wudasse Berhanu, Technical Expert, said that “Access to finance is key not only for the growth of SMEs and start-ups but it is also to allow them to innovate. It is important that we design access to finance tools that will allow SMEs and start-ups to innovate so they can grow their productivity and create jobs. The training does exactly this by showing FSI’s how to design financial tools based on the needs of ICT based startups and SMEs and plot those tools to address the gap that currently exists in financing Startups and SMEs.”

Tigist Desta, a participant from the Development Bank of Ethiopia, speaking after the training programme, mentioned that “The lack of financing avenues and products for MSMEs and start-ups is a challenge that needs to be addressed. Therefore, this training was crucial in helping us design the right products and processes to make finance accessible to them. The highlight of the training for me is the need to conduct in-depth market research because without understanding their needs, we cannot develop the right product for them." 

To ensure the relevance and sustainability of the innovative financial products developed under this project, UNCDF will also support capacity building for the ICT-based MSMEs and start-ups. Sensitization for the MSMEs and start-ups will include education and awareness creation on the availability of innovative lending products, assisting them in applying for loans, and using digital payment systems. Women will constitute 60 percent of the beneficiaries of this activity.

Ethiopia has recorded an annual growth of 10 percent in the last ten years, making it one of the world's fastest-growing economies. Small and medium enterprises are considered the engine to sustain this growth momentum. Thus, the partnership between UNCDF, UNDP, and MInT is crucial to building an enabling innovation ecosystem that allows these small businesses to thrive through training, skill development, and innovative financial mechanisms.