Digital lending schemes boom in Ethiopia, quadruple in magnitude

Digital lending takes a foothold in the loaning business as expansion quadruples in the first nine months of the 2022/23 financial year, in contrast to a year back.
In a second knowledge series titled: ‘Data-Driven MSME Digital Lending for an Inclusive Economy’ that involved financial powerhouses, National Bank of Ethiopia (NBE), International Financial Corporation, FSD-Ethiopia, Kifiya Financial Technology, and the Mastercard Foundation, a series of sessions were held to address the lesson learnt and steps forward to solve the challenges in financing space of micro, small, and medium enterprises (MSMEs) in Ethiopia.
During the knowledge series that was held at Hyatt Regency Hotel on Wednesday May 3, Solomon Desta, Vice Governor of NBE, said that access to credit has highly been concentrated to very few borrowers, “Less than one percent borrowers have taken 45 percent private sector credits.”
He said that Addis Ababa alone took 80 percent of the banking sector loans and more than 99 percent of bank credits and more than 95 percent of credit account.
In Ethiopia there are over 70 million saving accounts, while the credit account is less than one percent compared in the banking sector. However, the number has shown significant increments owing to some of micro-finance institutions transitioning as banks in the past months.
Solomon told media that NBE is facilitating a regulatory sandbox that shall include new schemes for the implantation, “We are now preparing the framework.”
According to the Vice Governor, the central bank is working round the clock to change the credit scheme trajectory of MSMEs in the country.
“The NBE is working to change this situation and increase access to finance particularly to MSMEs. Digital lending and financial inclusion are a top priority for the government and NBE in the space of digital finance,” he said at the session, adding that, “NBE also recognizes the importance of further improving policy and regulatory environment for digital scheme and access to credit for MSMEs for shares to expand and provide innovative credit services. In this regard a regulatory framework that supports financial institutions to provide digital lending in partnership with mobile money service providers has been implemented.”
Solomon indicated that in the first nine months of the financial year, a total credit of more than 3.6 billion birr has been provided digitally through a couple of banks in partnership with mobile money service provider, telebirr.
The figures have been noted to shoot four-folds when compared to the same period of last year.
Those involved aggressively on the digital lending are the state owned Commercial Bank of Ethiopia and Cooperative Bank of Oromia, which launched a scheme called ‘Michu’, a credit score-based digital lending platform for MSMEs, are the main players in collaboration with the mobile money scheme of the state owned Telecom Company, Ethio Telecom’s telebirr.
The knowledge series aims to bridge the knowledge gap in uncollateralized digital lending and credit scoring and shows how uncollateralized digital lending addresses the access to finance challenges faced by MSMEs in Ethiopia.
MSMEs are the strongest economic development, innovation, and employment drivers. However, access to finance is frequently identified as a critical barrier to their growth.
“I am a firm believer that collaborative learning and knowledge sharing among the financial and digital ecosystem is lacking in Ethiopia. In today’s world, knowledge is no longer confined to a select few. It is to be available to anyone who seeks it. This democratization of knowledge is meant to level the playing field for stakeholders as well as enhance the entire sector in order to provide the best viable solutions to consumers,” Munir Mohammed Duri, Founder and CEO of Kifiya Financial Technologies explains, adding, “In this knowledge series, we have collaborated with many stakeholders to bring together records of learning from different perspectives in the private, and public sectors as well as across various markets in Africa. Focused on utilization of data-driven digital lending, these learnings will inform provisions of data-driven digital credit to the under-banked.”
An IFC study, with insights from several other market studies, suggested that the working capital finance gap for MSMEs in Ethiopia was estimated to be USD 4.9 billion in 2019, with SMEs accounting for 91 percent of the figure. This much larger finance gap for small to medium enterprises is due to a need for capital investment, machinery requirements, a general backlog of foreign currency, and much larger working capital requirements, all of which contribute to the exponential increase in the finance gap.