European Commission joins World Bank in supporting Djibouti’s MSMEs

  • The 3.9 million Euro donation will go towards the World Bank’s MSME Business Development Project in Djibouti, which provides MSMEs business support
  • It is believed that barely 5% of the Djibouti’s formal firms receive bank financing
  • Financial institutions, public institutions, and MSMEs-supporting programmes are among the intermediate beneficiaries

The World Bank and the European Union Delegation in Djibouti signed an Administration Agreement on behalf of the European Union to help Djibouti’s Micro, Small, and Medium-Sized Enterprises grow (MSMEs).

The 3.9 million Euro donation will go toward the World Bank’s MSME Business Development Project in Djibouti, which provides MSMEs with services such as digitisation, improved accounting procedures, credit applications, business planning, and legal and marketing strategies.

It will also help create a virtual “one-stop-shop” where MSMEs can apply for permits and other services all in one spot. The European money will be channelled through the MENA Regional Umbrella Multi-donor Trust Fund Program of the World Bank.

“The project will stimulate the growth of MSMEs in Djibouti by boosting technology and business development adoption. This additional infusion of money will also help to strengthen the capacity of Djibouti’s MSME sector, which is a key driver of income and jobs,” says Marina Wes, Country Director for Djibouti, Egypt, and Yemen.

“The initiative will boost Djiboutian private sector diversification by stimulating entrepreneurship in new areas outside of transportation and port activities, improving turnover for enterprises, and thereby promoting job creation,” said Simona Schlede, Head of Cooperation, EU Delegation in Djibouti.

Project beneficiaries 

The project targets new or existing MSMEs in need of business development services and those that need extra assistance from the World Bank’s Djibouti Support for Youth and Women Youth Entrepreneurship Project and aspiring entrepreneurs. Financial institutions, public institutions, and MSMEs-supporting programmes are among the intermediate beneficiaries.

The project is consistent With the 2022–2026 Country Partnership Framework for Djibouti from the World Bank Group, whose objective is to assist Djibouti in reducing poverty by promoting inclusive private-sector-led growth, job creation and human capital; and strengthening the state’s role and capacity. The project, which will last four years, will also complement European Union aims in Djibouti.

A farmer in Djibouti [Photo/worldbank]
Djibouti’s micro, small, and medium-sized enterprises (MSMEs) have restricted access to bank finance. It is believed that barely 5 percent of the country’s formal firms receive bank financing.

Although Djibouti’s banks are generally liquid, they are frequently unwilling to lend to MSMEs for various reasons, including inadequate collateral and a low appetite for risk.

The Ministry of Economy, Finance, and Planning, as well as the Central Bank of Djibouti, recognise the importance of MSMEs in job creation and economic growth. In 2014, they sought technical assistance from the World Bank and the FIRST (Financial Sector Reform and Strengthening) Initiative to design a Partial Credit Guarantee (PCG) fund.

A PCG fund offers third-party credit risk reduction to lenders, with the goal of expanding MSMEs’ access to credit. In case of a loan default, the fund mitigates risk by taking a percentage of the lender’s losses on MSMEs loans.

“Through this scheme, promising young heads of innovative projects can approach local bank officials as well as microfinance institutions to apply for the funding that their projects require,” explains Malik Garad, former Deputy Governor and Head of Banking Supervision at the Central Bank of Djibouti.

Read: MSMEs playing a crucial role in East Africa’s economic development

Maingi Gichuku is passionate about helping African businesses grow by offering technology solutions. With a BSC in Zoology and biochemistry, Gichuku yearns for an Africa that can find solutions to its challenges. My drive is to see an economically dynamic Africa and embrace its populations by creating opportunities cutting across the social and economic strata.

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