PROFILE OF KEY ETHIOPIAN BUSINESSES

Developed based on sample data from WEDP borrowers across 12

MFIs

DAI/WEDP
December, 2015

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Table of Contents
Methodology.................................................................................................................................... 3
Goals and Challenges ................................................................................................................... 3
About the WEDP Program and DAI/PEPE .................................................................................... 4
Advertising, Printing and Secretarial .............................................................................................. 5
Bakeries............................................................................................................................................ 6
Beauty Salons ................................................................................................................................... 7
Boutiques ......................................................................................................................................... 8
Brick Manufacturing........................................................................................................................ 9
Building Materials .......................................................................................................................... 10
Cafes and Restaurants ................................................................................................................... 11
Construction and Machinery Rental .............................................................................................. 12
Baltena/ Food Processing .............................................................................................................. 13
Hotels with bars and Restaurants .................................................................................................. 14
Import/Export ................................................................................................................................ 15
Retail Shops.................................................................................................................................... 16
Stationary Shops ............................................................................................................................ 17
Tailoring and Weaving ................................................................................................................... 18
Wholesalers Grain, Vegetables and Fruits .................................................................................. 19
Wood and Metal Work .................................................................................................................. 20

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Methodology
This report was taken from an analysis 2,275 out of 3,288 women-owned micro and small enterprises
(MSEs) who received loans from the WEDP program from January 2014 to September 2015. Types of
businesses selected were based on count. The reliability of these ratios is based on the number of
records included in the business type. The more records, the higher the quality and lower the standard
deviation. For this reason, we required at least 50 instances of loans made to a particular business type
to include it in the survey. However, due to the focus given to the manufacturing sector, we have
included two additional businesses with a count of less than 50 in the manufacturing sector:
Weaving/Tailoring and Brick Manufacturing.
Normally, a survey of this sort would focus only on good-quality loans. However, the data was collected
at the start of the loan term, it has not been segmented based on loan quality. At the time of this
writing, PAR30 was under two percent. However, it should be noted that most loans go bad toward the
end of the term, and these loans havent had time to encounter any repayment problems.

Goals and Challenges

The report has two goals:
1. First, to start developing MSEs industry benchmarks for the Ethiopian business sectors.
2. Second, to provide loan officers, credit analysts, managers, and credit committees with
insights into key types of small businesses and their financing needs, simplifying loan
analysis. For loan officers to successfully conduct ratio analysis of Ethiopian small
businesses, they must have baselines.

Analyzing this type of data presents several challenges:

Income and expenses are primarily self-reported by borrowers, who understand that
reporting high profits will lead to larger loan sizes. At times, there is also a tendency to
overstate expenses if they think the information might be shared with the tax authority. As a
result, the gross profit margins reported may be overstated or understated. Several
instances of unusually high margins are noted in the report.
The loan terms, regardless of sector, are uniformly around 36 months. This appears to
be due more to MFIs comfort level with the three-year term rather than basing on cash
flow analysis. From the data, we understand that loan terms are fixed by considering the
loan sizes, and with no or little emphasis on the nature of the business, its cash flow
generating capacities, or cash flow patterns. Otherwise, there should be more variation in
terms. Therefore, the loan terms listed should appear more as a warning than as a model for
loan officers to follow.
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About the WEDP Program and DAI/PEPE

DAI Europe, together with consortium partners First Consult, ITAD, Triodos Facet, and Business Creation
and Development (BCaD) Management Consultancy, is delivering the Private Enterprise Program
Ethiopia (PEPE) in Ethiopia on behalf of the UKs Department for International Development (DfID). A
seven year project running from 2013-2020, PEPE aims to create more than 40,000 jobs (of which 75%
will be for women), raise the incomes of more than 40,000 households by 20%, and support saving by
350,000 new customers of micro-finance institutions. The program has three technical components, or
pillars. The Women Entrepreneurship Development Program, or WEDP, supports 12 microfinance
institutions (MFIs) and the Development Bank of Ethiopia (DBE) with technical assistance and $45.9
million in lending capital to facilitate lending to individuals.
The Women Entrepreneurship Development Program (WEDP) is a World Bank-funded project and one
of its sub-components (i.e. the technical assistance to MFIs participating in the line of credit for
individual women entrepreneurs) is funded under the DFID Ethiopia (DFID-E)s Private Enterprise
Program Ethiopia (PEPE). PEPE aims to support private sector development, through (1) improving firms
access to finance (the access to finance pillar), (2) addressing market and government failures in
identified priority sectors (the priority sectors pillar) and (3) supporting women entrepreneurs to
access microfinance products, particularly business loans.
The goal of WEDP is to assist its 12 MFI partners through needs-based technical assistance (TA), to
upscale and be able to provide financial products on a commercially sustainable basis to a client
segment that is above their traditional (e.g. group-based lending) client base. Particularly, WEDP
facilitates the development and refinement of a micro and small-enterprise (MSE) loan product
targeting women through 12 MFIs in six major urban areas across four regions of Mekele in Tigray,
Bahar Dar in Amhara, Hawassa in SNNP and Adama in Oromiya and two chartered cities of Addis Ababa
and Dire Dawa. In addition to the TA, a World Bank financed line of credit is available to the MFIs,
administered through the DBE as part of the larger World Bank WEDP activities. TA to the MFIs is a
mandatory condition of the loan from DBE.

Some of the MFI partners have been lending since January 2014.
Note: All monetary values are in ETB.

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Advertising, Printing and Secretarial

An average business in this category has the following
characteristics:

General profile: These firms provide advertising print

Advertising,
Average
Min
Max
services in the form of banners, bill boards, brochures,
Printing &
business cards, etc. Some of the businesses also
Secretarial (59
publish books, magazines, newspaper, and other
Records)
Years Operating
4.62
1
21
forms of print media. Additionally, they may provide
some secretarial assistance (writing letters, film
Loan size
260,467 30,000
800,000
scripts, and some documents (mostly from hard copy
disbursed
to a soft copy) and translating documents to different
languages).
Loan term
33.27
24
36
Nature of business: High initial setup cost since
# Employees
5.4
0
82
significant fixed asset purchases are required. Ongoing
Before loan
cost is mainly cost of supplies, rent, HR cost and
Monthly Sales
204,875
6,000
1,200,000
utilities.
Investment requirements/fixed asset: Computers,
Profit margin
0.47
0.03
0.96
printers of different size, photocopy machines,
laminating machines, binding machine, furniture, etc.
Total Assets
820,668 12,000
7,226,000
Working capital requirement: For paying rent, buying
supplies including papers, banners, stickers, ink and
cartilage, paying staff salary, paying utilities, etc.
Inventory Value
139,125
1,000
1,587,825
Loan size: Expansion normally requires substantial
investment as it goes to fixed asset purchases. It
Debt to Assets
0.32
2.5
0.11
averages around 260,000 for the sample assessed.
Loan term: Averages 34 months, which seems high given the nature of the business, it is characterized by high
sales turnover and hence such long loan period may not be required.
Profitability: This type of business is among the high margin businesses, with average profit margin of 47%. Such
firms are only constrained by initial capital requirements and expansion. Once they stabilize, the profit margin is
quite attractive.
Appraising Advertising, Print & Secretarial business:
o Sales turnover: assess by dividing into different categories: review printing orders as one category, day
to day small secretarial and printing as second category and internet services as third category.
o Consider number of machines, their capacities and number of manpower available to execute orders.
o Check for regularity of maintenance services for the machines as the business highly depends on
functionality of machines.
o Challenges to consider: electricity-do they have backup generators? Connectivity-what options do they
have to ensure connectivity(alternatives), promotional activities and efforts, repeat customer base,
number of walk-ins in a day.
o Location of business: is it close to main market-ex. universities, government offices, center of town or in
residential area? Are there market linkages?

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Bakeries
An average bakery has the following characteristics:

Bakery (55)
Average
Min
Max
General profile: Bakeries are businesses engaged in making
Years
2.96
0.5
7
breads, cookies and cakes, which they produce and sell at
Operating
that same place/shop. The businesses involve mass
Loan size
302,172 50,000 1,801,440
production and supplying to retail shops, restaurants, and or
disbursed
cafes on the one hand and also retailing at the shop itself.
Loan term
33.52
12
48
Investment requirements/fixed asset: Starting up a bakery
requires a high initial investment to acquire the necessary
# Employees
5.19
0
15
machines. These include stoves, mixers, steamers, cutters,
Before loan
furniture, etc.
Monthly
196,341 17,500 1,138,542
Working capital requirement/inventory: An established
Sales
bakery requires working capital to buy raw material/inputs,
Profit
0.29
0.03
0.94
mainly the flour (about 90%). Others include yeast, bread
margin
improvers, sugar, butter, creamers, salt, packaging materials,
Total Assets
703,944 37,480 5,349,000
etc.
Loan term: Bakery is a high turnover business. The products
Inventory
100,109
1,000
950,000
are sold immediately to end users or retailers. There is
Value
limited stocking of inventories of finished products, except
Debt to
0.5
0.33
0.56
for cookies. Hence, if a loan is given for working capital, the
Assets
loan terms should be for a short time, i.e., less than a year.
However, if the purpose of loan is to finance purchase of new
machineries, the term could go higher. However, one should determine the payback period based on the cash
flow analysis of the business.
Loan size: Loan size also depends on the purpose of the loan, i.e. whether it is for investment or working capital.
An average stove costs between 25,000 and 60,000, a mixer up to 90,000, and a steamer up to 25,000. If the
business is expanding, loan requirement could go up to 1.8 Million as seen in the sample, while average stands
at about 300,000.
Staffing: An average bakery employs between 3-5 staff, including one main baker, assistant baker, sales
person/cashier, and perhaps one distributor. Staff levels should grow with the size of the bakery.
Profitability: Profit margins average around 30%, but could go close to 100%. These depend on volume of
operation, location, market linkages and availability of inputs to maximize economics of scale.
Appraising Bakery-critical areas to review: What is important in appraising a bakery is capacity of production
(check capacities of all machineries involved), standing orders from retailers, restaurants or shops, check daily
estimated production against sales records, and availability of enough inputs, etc.

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Beauty Salons
An average Beauty Salon has the following
characteristics:

General Profile: Beauty salons are businesses engaged

Beauty Salon
Average
Min
Max
(140)
in providing various hair styling services, manicures and
Years
4.06
0.5
26
pedicures, and rarely also proving other spa services
Operating
including sauna and steam baths and massages.
Investment requirements/fixed assets: Most loans are
Loan size
208,879 25,000
800,000
used to purchase salon equipment, including chairs,
disbursed
hair dryers, various styling equipment, cosmetics, and
Loan term
32.36
6
60
remodeling/expansion of workspace.
Working capital requirement/inventory: Inventory
# Employees
3.55
0
20
typically represents a small portion (less than 10%) of a
Before loan
beauty salons assets. At 13%, the average inventory to
total assets for those beauty salons surveyed appears
Monthly Sales
73,956
3,125 1,200,000
within the appropriate range.
Profitability: Beauty salons are a high-margin business,
Profit margin
0.47
0.03
0.96
likely due to low labor costs and minimal inventory
required. It averaged 47% in the assessed businesses.
Total Assets
291,639 10,000 2,301,400
Loan size: As this is a labor intensive service using
various equipment, there is a low need for working
Inventory
38,556
300
300,000
capital. Hence, the loan is often taken for expansion of
Value
the business by buying additional equipment and
furniture, and renovating the shop. A small percentage may go toward working capital.
Loan term: Loan terms go as high as 60 months in the businesses assessed, which is very long for this type
of business. It is a high-return business with cash flow generating capacity and should be able to repay the
loan in relatively shorter period.
Appraising Beauty Salons - critical areas to review: When judging the level of sales in a beauty parlor, loan
officers should consider the customer traffic witnessed within the store, taking into account seasonality
issues, cleanliness and attractiveness of the shop, current and/or potential competition depending on the
location of the shops and the number of hair cutting/styling chairs for clients, as well as availability of styling
facilities, competence and customer handling skills of the workers. It is also worth noting that loan officers
should try to verify all information obtained by checking against different documentations (e.g. books of
accounts) and conduct their own estimates with objective/reliable evidences. Typically, the purpose of the
loan is to renovate and furnish the salon, purchase equipment, and expand by increasing number of styling
chairs and providing additional spa services. Accordingly, most of the loan is for investment instead of
working capital.

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Boutiques
An average Boutique has the following
characteristics:

Boutique
Min
Max
General Profile: Boutiques are generally defined as stores
(347)
Average
selling clothing and goods for children. Boutiques are high
Years
4.42
0.5
31
turnover businesses, with the bulk of their assets in
Operating
inventory. The most common loan use for boutiques,
therefore, is to increase inventory, though in rare cases
Loan size
199,595 19,000
800,000
loans may be used for renovation and expansion.
disbursed
Investment requirements/fixed asset: A boutique is a
Loan term
32.95
3
60
buying and selling business without adding value. Hence,
investment is limited to renovation of shops and initial
# Employees
1.85
0
31
investment in shelves, displays and other furniture.
Before
loan
Working capital requirement/inventory: Inventory is a key
asset for a boutique and averaged 32% of boutique total
Monthly
208,792
5,750 5,160,000
assets.
Sales
Loan size: Loans are mostly used for increasing stock and
Profit margin
0.33
0.03
0.98
diversifying items offered.
Loan Term: The average loan terms from the data appear
excessive. They should be shorter, as most loans will be
Total Assets
479,397 26,980 5,174,200
used to purchase working capital. Boutiques should turn
over their inventory fairly quickly, and the long terms
Inventory
155,836
1,600 1,000,000
granted by MFIs are likely a product of habit rather than an
Value
analysis of the businesss cash flow. Terms should likely be
in the one to two year range, rather than the three-year
terms habitually provided by Ethiopian MFIs.
Profitability: Boutiques are medium margin businesses, depending on the location and size of the business. It
averaged about 33% for the businesses reviewed.
Appraising boutiques-critical areas to review: When evaluating a boutique, loan officers should inquire about
the mark-up on goods sold. The mark-up must cover the boutiques expenses and, therefore, should be higher
than the profit margin reported. Inventory level, location of business, and level of competition in the area are
important issues to review. Once again, the seasonality of business should be noted and information obtained
should be verified. Loan officers should make sure that borrowers are not projecting an excessive increase in
inventory, a more frequently observed tendency. The location of the stores and variety of items has strong
impact in projecting the cash flow.

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Brick Manufacturing
An average Brick Manufacturing Business has the
following characteristics:

General description: These are businesses engaged in

Brick
Average
Min
Max
Manufacturing
manufacturing bricks. It is a labor intensive business using
(37)
simple machines. These firms normally make bricks for
Years
3.91
1.00
10.00
building houses and stoves-charcoal/electric. The main
Operating
inputs are sand/clay, gravels, and cement.
Investment requirements: Start-up requires machines for
Loan size
277,083
60,000 800,000
making bricks, stoves, and acquisition of a working place.
disbursed
In most cases, the working places are rented, and the
owners may be required to pay an advance of three to six
Loan term
33.33
24
48
months rent.
Working capital requirement: After initial investment in
machines, the working capital required is typically for
# Employees
8.12
0
30.00
purchase of the major inputs (sand, gravels, cement, clay,
Before loan
etc.) and for paying utilities, rent and staff salaries.
Loan term: In the sample taken, the average loan term
Monthly Sales
175,240
16,600
900,000
averaged 33 months. However, since in the WEDP
program, startups are not financed, most of the loans
went to working capital and expansion by buying
Profit margin
0.29
0.07
0.57
additional machines. In this respect, the average of 33
months is at the high end and should be shorter to match
Total Assets
757,700
95,354 7,620,000
the cash flows.
Loan size: An average brick-making business requires a
loan of up to 800,000 ETB, depending on the purpose. If
Inventory
99,324
5,000
539,000
the MFI finances a startup brick-making business, the
Value
financing need may be double or triple of the currently
reported maximum loan size.
Profitability: Average profit margin for a brick-making business ranges from 29 to 50%. This is highly affected by
price volatility for the raw materials as well as for the final product.
Appraising brick making business-critical areas to review: The sales and cash flow generating capacity of the
business is determined by the number and capacity of the machines they own. Loan officers should attempt to
understand the daily production capacity of each machine and to determine the maximum production capacity,
given no supply/utility constraints. As this is a manufacturing business, assess if there are any supply agreements
with wholesalers. It is worth assessing the supply of inputs, as this depends on regularly of inputs. Therefore,
stability /reliability of supply is a critical issue to assess.

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Building Materials
An average building materials shop has the
following characteristics:

Building
Materials
Shop (97)
Years
Operating

Average

Min

Max

General description: These are retail shops

specializing in selling construction materials (cement,
3.84
0
20
pipes, iron bars, etc.) including finishing materials like
tiles, paints, bath tabs, washbasins, etc.
Investment requirements: For this type of business,
Loan size
319,247
50,000
920,000
fixed investment is relatively minimal as it involves
disbursed
buying the materials and selling them with no value
adding process.
Loan term
34.67
18
60
Working capital requirement: Inventory may
account for a significant portion of the asset, as this
is a retail type of business. Hence, financing is
# Employees
3.34
0
15
normally required to increase inventory level and
Before loan
generate more sales.
Monthly Sales
439,679 1,923,000
Loan term: Despite the nature of the business with
its high sales turnover, the loan term is normally
expected to be lower than the average calculated
Profit margin
0.28
0.09
0.87
from the sample, which is 35 months.
Loan size: Loan size is relatively bigger as the costs of
the materials are normally higher. The average loan
Total Assets
877,810
40,500
8,540,000
size ranges from 50,000 to 900,000 ETB, averaging
about 300,000 ETB.
Profitability: Profit margin ranges from 9 to 87%,
Inventory
278,107
5,000
2,000,000
depending on the items sold. This type of business is
Value
highly affected by location, also determining the
margin.
Appraising building material shop-critical areas to review: In appraisal of this business, appropriateness of
location, ice, whether or not there is construction occurring near the shop or whether or not it is in a known
place for the purchase of such materials.

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Cafes and Restaurants

An average cafe and restaurant has the following
characteristics:

General Profile: These are businesses involved in Caf &

Average
Min
Max
providing hot and cold beverages and food services. The Restaurants
(263)
businesses are at different stages in terms of size.
4.71
0.5
40
Investment requirements/ fixed asset: Fixed investments Years
Operating
for cafs and restaurants go to the purchase of furniture
Loan size
237,201 10,000 1,800,000
(chairs and tables) and kitchen equipment. Fixed assets
disbursed
will typically represent 80-90% of a restaurants assets.
Loan term
34.13
12
44
When evaluating the appropriate level of fixed assets, loan
officers should consider these factors:
# Employees
6.18
0
43
1. Does the restaurant rent or own its premises? Renters
Before
loan
will have a lower fixed asset base and higher
operating costs.
Monthly Sales
180,987
4,000 4,131,400
2. Who are the restaurants clients? Restaurants catering
to higher-income clients will need more expensive
Profit margin
0.35
0.03
0.96
furnishings and fixtures to create an atmosphere
appropriate to these diners.
Total Assets
488,109
5,110 6,502,000
3. How complicated is the menu? The more complicated
the menu, the more sophisticated (and expensive) the
Inventory
61,397
962
742,693
kitchen required.
Value
Working capital requirement: Most financing needs for
cafs and restaurants go to working capital. These include purchase of supplies, including teff, wheat, fruits and
vegetables, spices, coffee, tea, sugar and other supplies required to make different variety of food and drinks.
Beverages also should be added to the list of inventory items for cafs and restaurants. Restaurant inventories in
comparable nations run between 10-15%, and the WEDP restaurants in our sample averaged 12%.
Loan size: Most of the loans given to cafs and restaurants are used for working capital purposes, as most
restaurants financed were those in operation for a while (averaging 5 years). Accordingly, loan disbursements
averaged between 10,000 to 1.8 million, with an average of 237,000. If the MFI finances a startup business, the
financing needs could be higher as these businesses are characterized by high initial investments.
Loan term: Average loan terms range from 12 to 44 months, with an average of 34 months in the sample taken.
However, this seems too long given the fact that most of it went to financing of working capital needs. Since this
is a high turnover business, the loan term needs to be shorter, ideally averaging 12 months or less.
Profitability: Cafs and restaurants are a high margin business. Accordingly, the profit margin could go over
100% at times, but averaged 35% in the sample taken. Profitability depends on the space available and variety of
items in the menu.
Appraising caf and restaurant-critical areas to review: Cafs and restaurants are affected by the location of
business, size of space and number of tables/chairs, variety of menu, and the attractiveness of the place. Loan
officers can estimate the numbers of users in a day based on the chairs and tables available. Be sure to check
occupancy at different times of day. One simple way for loan officers to compare cafs or restaurants and to
develop cash flow projections is by the number of tables. However, loan officers should keep in mind that
location, menus offered, food quality and the restaurants atmosphere can all affect pricing levels and cost
structures.

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Construction and Machinery Rental

An average construction and machinery rental has the
following characteristics:

General description: These are businesses engaged in

Construction
Average
Min
Max
Machinery
rental of construction machinery like excavators, loaders,
Sale/Rental
dump truck, bulldozers, road rollers, mixers, etc.
(51)
Investment requirements: Costs of the machinery are
3.5
1
10
relatively high, estimated in millions of Birr. Hence, startup Years
Operating
is costly.
Working capital requirement: Working capital loans are
Loan size
350,588 50,000
800,000
required to cover the high running costs, including fuels,
disbursed
maintenance, salaries and commission and other costs to
operate the machines. Most of the financing needs from
Loan term
33.25
24
36
the MFIs will cover working capital requirements.
Loan term: The average term ranges from 24 to 36
# Employees
6.43
0
32
months, averaging 33 months. This seems high for a
Before loan
working capital loan, and it should be lower to match with
the cash flows.
Monthly Sales
483,425 20,000 1,607,000
Loan size: Loan size is not high, as it is given for working
capital and not for purchase of the machineries. If the loan
Profit margin
0.40
0.07
0.93
is required for the purchase of machines, it would require
relatively bigger size loan.
Total Assets
2,589,471 75,200 8,776,430
Profitability: Profitability depends on the demand for the
services. The machinery generates higher cash flow in the
short term, but at times they may not get to market.
Inventory
370,687
7,800 2,250,000
Appraising construction materials renting businessesValue
critical areas to review: The cash flow generating capacity
depends on the number of machines, the running cost for
Debt to
0.14
0.66
0.09
Assets
each machine, the hourly rental rate and the demand. In
most cases, the demand for such machinery is high due to
the booming construction in the country. However, there are slack seasons like the rainy season, which needs to
be considered. Market linkages (working with different agents) are also a factor to consider. There is high
chance of getting the market if the borrower works with many agents/ broker than by themselves.

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Baltena/Food Processing
An average Baltena has the following characteristics:

Food
Average
Min
Max
General Profile: Baltena (food processing) involves making
Processing
different varieties of spices. Though it is described as a
(114)
manufacturing business, the actual processing takes little
Years
4.48
0.08
35
time. Hence, it is considered a business with high turnover
Operating
and labor intensive. This category also includes small-scale
manufacturers producing injera, primarily for wholesale.
Loan size
245,544 40,000 2,000,000
disbursed
Investment requirements: This is a labor-intensive business
with little investment requirement.
Loan term
33.34
12
60
Working capital requirement: Capital is required for the
purchase of the raw material/inputs. Most of the assets are
# Employees
4.64
0
40
Before loan
in a form of inventory inputs as well as finished products.
Loan size: The loans are normally used for buying raw
Monthly Sales 261,696
8,000 1,999,800
materials/ingredients, i.e. for inventory, hence this type of
firm doesnt require huge investment. It is normally a
Profit margin
0.29
0.05
0.80
handmade/labor intensive process. There are large-scale
producers requiring higher loans. Such producers normally
Total Assets
506,091 17,900 4,800,000
also own different machineries like grindings mills.
Loan Terms: One might assume that for a manufacturing
Inventory
122,887
8,000 1,235,000
firm investing in fixed assets, an average loan term over
Value
three years is reasonable. However, within the Ethiopian
firms surveyed, many food processing firms were seeking Debt to
0.49
2.23
0.42
loans for inventory. Inventory is processed and then sold, Assets
presumably within at least a one-year period (hopefully
sooner). Loan terms should be careful to provide appropriate loan terms based on the use of the loan as well as
the business needs.
Profitability: Food processing is a fast-moving business, more similar to trade as the processing is done over
short periods and the items sell quickly. Profit margin can go up to 80%, but highly affected by seasonality.
Appraising food processing businesses-critical areas to review: Emphasis should be given to availability of
market linkages due to the nature of the business, daily manufacturing capacities and quality of the products.
Borrowers need to have regular customers that receive the items in bulk and as a standing order. Seasonality,
and variety of spices produced should also be considered.

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Hotels with Bars and Restaurants

An average hotel with a bar and restaurant has the
following characteristics:

Hotels with
Average
Min
Max
Restaurants
General Profile: The hotel business has higher initial costs
(281)
and relatively low running costs once functional. The main
Years
4.77
0.5
35.00
purpose of loans to established hotels is for expansion, i.e.,
Operating
construction of additional rooms and renovation-hence
capital intensive. A relatively smaller portion of loans is
Loan size
254,031 15,000
2,400,000
disbursed
used for working capital.
Investment requirements /Fixed Assets: Fixed assets
Loan term
34.39
12
60
account for a high percentage of total assets, mainly
acquired during start-up. When evaluating the value of the
# Employees
5.48
0
50.00
fixed assets, loan officers should consider their age and
Before loan
condition.
Working capital requirement: /inventory: Hotels typically
Monthly Sales 166,777 6,520
1,286,808
have less than five percent of their assets in inventory, with
a slightly higher percentage for hotels with restaurants. In
Profit margin
0.37
0.04
0.98
the sample assessed, the average was about 14%. The low
percentage is because the total asset is relatively bigger as
it often includes buildings.
Total Assets
637,513 1,200
11,372,200
Loan size: The loan size could be relatively bigger
depending on the purpose of loan. If the loan goes toward
Inventory
85,868
578
1,699,880
renovation, a higher loan size may be required. But in most
Value
cases, the loan goes to working capital, going as low as
15,000 ETB.
Loan term: The loan term also depends on the purpose of loan. Working capital loans can be repaid over a
shorter time period. For the businesses reviewed, it ranged from 12 to 60 months, with an average of 35
months. Since most loans are for working capital, the average loan tem should be shorter.
Profitability: Small business-sized hotels are typically high-margin businesses, largely because the majority of
costs in the hotel business are up front, during the construction and start-up phases. The average profit margin
in the sample assessed is about 37% but could go as high as 98%, depending on the quality and location of the
hotel. Additional services in bar and restaurant contributes to the high margin.
Appraising hotel businesses-critical areas to review: Loan officers assessing hotels should note that once past
the start-up phase, the largest cost should be labor and supplies, and this should be relatively low in Ethiopia,
resulting in high profit margins. Accordingly, most of the loan goes to working capital if it is a mature hotel; while
the loan goes to investment if it is in start-up phase (or if there is a planned renovation). While estimating cash
flow, room prices and average occupancy should be assessed. There may be some seasonality in the hotel
business which needs to be considered as well. Seasonality issues should also be considered while fixing
repayment schedules. Hence, instead of setting a standard loan term, the maturity level of the hotel and the
intended purpose should be analyzed in setting appropriate terms that match the cash flows.

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Import/Export
An average import/export business has the following
characteristics:

General description: These businesses engage in

Import &
Average
Min
Max
importing various processed materials including clothing,
Export
merchandise, and various equipment. The size of the
Business
businesses vary, mainly depending on the amount of
(60)
working capital they have and the business license they
Years
4.44
0.5
33
Operating
hold, which might restrict the type of material to be
imported.
Loan size
386,917 100,000
1,075,000
Working capital requirement: This is a capital intensive
disbursed
business. The more working capital they have, the bigger
the business can grow. Accordingly, financing needs are
Loan term
32.55
24
36
more for working capital.
Loan term: The loan term shouldnt be too long due to
# Employees
4.56
0
35
the high turnover of the business. The average of 33
Before
loan
months seems to be high, and MFIs should consider
reducing it.
Monthly
1,421,644
30,000 18,836,250
Loan size: Loan size depends on the nature of the items
Sales
the business license allows them to import. A business
importing clothes needs lower capital than the one
Profit
0.26
0.06
0.74
margin
importing heavy machines. In the assed businesses, it
averages about 386,000.
Total Assets
1,876,801 126,000 23,870,000
Profitability: The profit margin ranges from 6 to 74% in
the sample, averaging 26%. This is affected by the volume
Inventory
523,619
3,000
2,200,000
of import.
Value
Appraising import and export businesses-critical areas to
review: The variety of materials covered, demand for the materials, volume of imports, availability/access to
foreign exchange and relationship with banks, sales arrangements (diversification of recipients and standing
agreements) are critical factors to consider. Lead time to import materials (including customs clearance time) is
also another critical area to assess.

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Retail Shops
An average retail shop has the following
characteristics:

Retail Shop
Average
Min
Max
General Profile: Retail shops are one of the most common
(535)
activities Ethiopian women are engaged in. It involves
Years
3.93
0.5
26
buying and selling various commodities/merchandise. It is
Operating
a fast moving business with high sales turnover and low
investment cost.
Loan size
167,714 10,000
745,000
Investment requirement: Investment in retail shops
disbursed
involves acquiring the shop and furnishing it with shelves
and displays. These are normally a one-time investment,
Loan term
33.2
12
60
with less frequent expansion and renovation. Hence, in
most cases, and for mature businesses, a loan is required
to increase stock levels.
# Employees
1.7
0
18
Working capital requirement: Inventory is the major asset
Before loan
for a retail shop. Typically, cash and inventory will account
Monthly Sales
146,530
2,352 3,749,185
for 40-50% of total assets. At times, Inventory levels could
account for up to 80% of total assets.
Loan size: Loans normally go toward buying
Profit margin
0.30
0.01
0.99
merchandise/inventory, though rarely they might be used
for the purchase of fixed assets. The average loan size is
Total Assets
382,983
8,000 5,384,000
about 167,000 ETB.
Loan term: The loan terms here again appear excessive. A
Inventory
119,215
1,700 4,418,000
strong retail shop should be able to turn over its inventory
Value
well in advance of 33 months. MFIs may wish to consider
shorter loan terms, based on the borrowers capacity to
repay.
Profitability: Margins in retail shops will vary widely based on the type of goods sold.
Appraising retail shops-critical areas to review: When loan officers review the sales of a retail shop, they should
closely examine the location. A shop in a high-traffic area has a strong sales advantage over a shop hidden in a
dark alley. Moreover, inventory levels and competition in the area should also be considered in estimating sales
and expenses. Variety of items offered also need to be considered.

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Stationary Shops
An average stationary shop has the following
characteristics:

Stationary
Average
Min
Max
General description: These are businesses engaged in
(68)
the sale of stationery items including notebooks, pens,
Years
3.8
0.5
11
pencils, papers, markers, staples, punchers, folders,
Operating
clips, sticker, etc. They can range from small to medium
size shops, which also can accommodate bulk
Loan size
236,353
21,000
1,000,000
purchases.
disbursed
Investment requirements: The business doesnt require
Loan term
31.55
12
60
fixed investment as such. It is the buying and selling of
stationery items. Fixed investments may only include
shelves and renovating shops, if owned.
# Employees
2.14
0
8
Working capital requirement: Most of the assets are in
Before loan
the form of inventory. Hence, financing is mostly
required to increase stock levels and increase the
Monthly
247,134
5,000
2,170,000
variety of items offered.
Sales
Loan term: The loan tem should be relatively shorter,
as this is a high-turnover business. The average term is
Profit
0.31
0.04
0.75
32 months for the businesses reviewed, which seems
margin
high for this type of businesses. MFIs need to consider
shortening the loan term to match with the cash flow
Total Assets
477,807
10,300
2,880,000
pattern of the business.
Loan size: Loan sizes range from 20,000 to 1 million ETB
Inventory
160,794
2,000
900,000
in the sample reviewed. The loan size can be bigger
Value
depending on the space available and demand in the
area, and if the business offers wholesaling service.
Profitability: This an average margin business with profit margins averaging at 31%.
Appraising Stationary shops-critical areas to review: Inventory management /control, location of shop (near
school, universities), variety of items supplied, and turnover of major items (check for purchase dates and check
against stock levels).

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Tailoring and Weaving

An average tailoring and weaving shop has
the following characteristics:

General description: These are businesses engaged in

Average
Min
Max
making traditional cloths, as well as making ready-made
Years
4.24
0.5
17.00
clothes for women and men. Raw materials include
Operating
cotton and sewing threads.
Investment requirements: Initial investment for this
Loan size
303,397 35,500 1,000,000
business includes various weaving equipment, sewing
disbursed
machines, iron for stretching cloths, etc. Part of the loan
taken could go for the purchase of more equipment and
Loan term
35.21
24
60
expansion of the business.
Working capital requirement: The business involves the
# Employees
5.34
1
33.00
purchase of raw materials and processing and selling
Before loan
final products. Hence, they need funds for the purchase
Monthly Sales
221,054
9,600
824,500
of raw materials in bulk and to increase inventory of final
products for sale. Inventory is both in raw material and
the final product. Inventory accounts for about 27% as
Profit margin
0.30
0.02
0.71
seen from the sample businesses.
Loan term: As loans are taken for both investment and
working capital, the loan term could be an average of 24
Total Assets
638,742 41,270 2,985,000
months. For the sample businesses, it ranges from 24 to
60, which is on the higher end.
Inventory
173,405
2,000
900,000
Value
Loan size: Weaving/tailoring businesses range from
small to medium, with relatively medium financing
needs. Expanding businesses may need higher loan sizes to increase the number and improve the quality of
machines used, compared to mature businesses, which may only require loans for working capital. In the latter
case, the loan amounts would be lower.
Profitability: These businesses have average profitability of about 30%. It could go to as high as 71% depending
on the target market. Some businesses target people in medium and high class, including tourists, in which case
they earn higher margins.
Appraising Weaving/ tailoring businesses-critical areas to review: As these are mainly engaged in making
traditional clothes, the business is highly affected by seasonality. The peak seasons are around national holidays
and the slack season is during the rainy season. Design makes a big difference in the current market. Those
businesses focused on making new designs, especially appealing to the young generation, may attract more
customers compared to those sticking to the common traditional designs.

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Wholesalers Grain, Vegetables

and Fruits
An average fruit, grain and vegetable wholesaler
has the following characteristics:

Wholesaler Average
Min
Max
General description: These are businesses engaged in
Grain/Veg/
the sale of vegetables and fruits, and those in the sale
Fruit (71)
of various grains also providing grindings services,
Years
4.53
0.5
20
especially for teff.
Operating
Investment requirements: These require relatively
larger investment to buy the grinding mill/ machines.
Loan size
235,521
35,000
1,396,000
Grinding mills cost between 50,000 and 80,000. For
disbursed
those selling fruits and vegetables, their initial
investment is low.
Loan term
33.23
12
48
Working capital requirement: All businesses in this
category require relatively larger working capital to
buy items in bulk and obtain price advantages.
# Employees
2.52
0
10
Before loan
Loan term: The loan term should be low for mature
business demanding working capital loans. But it
Monthly
307,208
7,500
3,456,000
averaged 33 months for the sample businesses
Sales
reviewed, which is on the high end.
Loan size: The loan size depends on the purpose of
Profit
0.25
0.04
0.92
loan. In most cases, loans go to working capital to buy
margin
commodities in bulk and sell to retailers. In such
Total Assets
538,772
13,750
3,000,000
cases, they may require higher loan sizes. The
average loan was 235,000 for the assessed
Inventory
114,803
1,500
439,500
businesses.
Value
Profitability: The average profit margin was 25% for
the sample reviewed. The margin is affected by
seasonality and price of grains and vegetables which are volatile in the market.
Appraising wholesale businesses-critical areas to review: A wholesaler needs to have regular customers
(retailers), and this is a key area to be assessed during appraisal. Regularity and stability of supply is another
critical area to review. Since most of the loan request goes to inventory financing, ensure that increases in
inventory are within the limit of the business, given its current status, and they will be able to accommodate.
These include space, the inventory control system in place and the demand. Increases in inventory by more than
two times will have more risk as the capacity (management capacity plus demand) to cope with the increased
inventory is not tested.

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Wood and Metal Work

An average wood and metal work shop has the following
characteristics:

General description: These are business involved in

Wood and
Average
Min
Max
Metal Work (62)
producing furniture from wood and metal. Most have
a large manufacturing area to produce household and
Years Operating
4.44
0.5
22
office materials. The finished products often include
Loan size
269,323 30,000
1,200,000
beds (metal and wood), office tables and chairs
disbursed
(wood), doors (metal and wood), and the like.
Investment requirements: Metal and wood works
require high initial investments to buy the necessary
Loan term
34.58
24
60
machinery. On-going investments are minimal unless
they want to change the machines.
# Employees
6.64
0
25
Working capital requirement: The working capital is
Before loan
also relatively larger for this type of business, even
Monthly Sales
275,805
2,000
2,030,000
though it varies with the size of the business. The raw
material, i.e., different metal and wood, are normally
Profit margin
0.29
0.05
0.64
purchased in bulk and costs are high.
Loan term: Businesses buying machinery require
longer terms than those using the loan for working
Total Assets
708,740 10,000
3,636,000
capital purchases. For the businesses surveyed, the
loan term ranged from 24 to 60 months depending on
Inventory Value
196,305
2,500
1,625,000
the purpose of loan determined by maturity of the
businesses.
Loan size: Loan sizes ranged from 269,000 to 1.2
Debt to Assets
0.63
0
3.00
million for the assessed businesses. The loan size is
affected by the size of the business and the purpose of
loan.
Profitability: The profit margin depends on the quality of the products and material used. On average it was
about 29% for the sample assessed. Design and location of workshop determines cost structure of the
businesses and hence the profit margins.
Appraising Metal and wood work-critical areas to review: The number and capacity of machines required for
each stage of the production cycle should be reviewed. Staffing levels, quality of products and availability of
inputs are among factors to be assessed.

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