The Association of Ethiopian Microfinance Institutions (AEMFI) has urged the National Bank of Ethiopia to open a special refinancing window for the microfinance sector, warning that liquidity pressures are threatening the industry’s ability to serve low-income borrowers, small businesses and rural communities.
AEMFI said recent credit-growth limits imposed on commercial banks to contain inflation have had an unintended spillover effect on microfinance institutions, which rely heavily on wholesale funding from banks to finance lending to their clients.
According to the association, the restrictions have sharply reduced the flow of funds to microfinance institutions at a time when demand for credit remains strong. AEMFI Director Teshome Kebede told Capital that the issue goes beyond institutional profitability and has become a test of Ethiopia’s broader financial inclusion framework.
“The issue is not just about maintaining institutional profit; it is about saving the country’s Financial Inclusion Architecture from collapse,” he said.
AEMFI argued that microfinance institutions should not be treated under the same funding assumptions as commercial banks because their business model is different. Unlike large banks, MFIs often depend on bank credit lines and wholesale borrowing to extend loans to farmers, micro and small enterprises and households with limited access to formal finance.
To ease the strain, the association is calling for a direct and dedicated funding line for MFIs, separate from commercial bank lending channels. It also wants support mechanisms designed specifically for the sector during periods of financial stress, along with proportionate regulation that reflects the size and role of microfinance institutions in the economy.
In its view, the sector serves a distinct market segment and should be protected from policies that could unintentionally weaken its social mission. “This argument is not about protecting institutions from competition, but about ensuring that competition does not sacrifice social reach,” the association said.
The entry of foreign banks into Ethiopia and their growing focus on lower-income market segments has also raised concern within the sector. AEMFI warned that without appropriate safeguards, stronger commercial players could pull microfinance institutions away from their original mandate, a risk it described as mission drift.
The association said competition should be encouraged, but not at the expense of inclusion. It has therefore renewed its call for microfinance to be recognized as a priority sector within the financial system, a step it believes could help create a stronger legal and policy framework for channeling resources to the industry.
A separate pressure point is the National Bank’s directive requiring all microfinance institutions to raise paid-up capital to 75 million birr by January 2028. While the rule poses a major challenge for smaller institutions, AEMFI said it is also pushing the sector toward modernization and consolidation.
The association said it is helping smaller MFIs develop capital-raising plans so they can build stronger balance sheets over time and remain competitive in a changing financial landscape.
Teshome said the sector is likely to look very different within the next five years, with larger, well-capitalized institutions reaching millions of customers through mobile platforms, alongside specialized MFIs serving rural and pastoral communities with tailored financial products.
