Determinants of Access to Private Project Debt Financing In Ethiopia: The Case Study of South-Western Part of Ethiopia

Abstract

A well-functioning private sector plays an important role for the growth and development of a nation. The GTP of FDRE amplifies the role of private sector involvement in the growth and development of a country. Successful implementation of any project in general and private projects in particular require huge amount of finance which cannot be borne by the project promoter alone. The accessibility of project financing is the major concern for project promoter in developing nations like Ethiopia. Despite significant role of private sector in the country’s economy, private projects are challenged by lack of/ limited access to project debt financing. The aim of this study, therefore, to identify determinants of access to private project debt financing in Ethiopia. These includes investigation of variables such firm specific factors and industry specific factors explaining access to private project debt financing. Regression based on bivariate probit model with sample selection using maximum-likelihood estimations has been performed on the dataset. Descriptive methods shaded additional light on the available survey. The study uncovered that business experience, manager’s competency, collateral size, past credit exposure, loan term structure, structure of financial sectors, location of business, ownership status, interest rate and financial regulation significantly explains or determine access to private project debt financing. The findings of this study and studies like this could have impact further than the academic world. Policy makers and project stakeholders benefit from such information when they devise strategies to move towards a fairer and more inclusive credit sector.