Ethiopian bankers advised to start uncollateralized lending

Data expert with hands in digital financial sector for over a decade in East Africa, Hartnell Ndungi, advised bankers in Ethiopia to serve the huge Micro, Small and Medium Enterprises (MSMEs) in Ethiopia by starting small and slowly uncollateralized digital lending in partnership with IT companies.

In Kenya there is no single bank that doesn’t provide digital lending without collateral at the moment, according to Hartnell Ndungi who spoke to NewBusinessEthiopia.com. Over 30 private banks in the country are now providing the services to micro small and medium enterprises (MSMEs), according to Hartnell Ndungi who also presented his paper this morning in Addis Ababa at a knowledge sharing session organized by Kifiya Financial Services Technologies in association with the International Financial Corporation (IFC), and Mastercard Foundation.



He stated that Kenya’s experience in uncollateralized digital lending, which launched M-PESA in 2007 by Safaricom and other banks in Kenya, are good starting points to learn lessons for Ethiopian banks to enter into the untapped uncollateralized digital lending to MSMEs.

Explaining the experience of Michu, a representative from Oromia Cooperative Bank stated that the Bank has starting small and currently the data CBO is good enough to mitigate risk and provide loan to MSMEs. It is stated that at the pilot level, using Michu, CBO has allocated 100 million Birr for loan to the MSMEs mainly focusing on the existing customers of CBO.

Meanwhile after the pilot period, CBO considers credit history of MSMEs who use other banks to provide them uncollateralized digital lending service.

“If we have an access to lend money in the morning and return back in the evening just like the Kenyan businesses, it will be wonderful,” said Tomas who indicated that his company is engaged in producing leather products.



The CEO of Kifiya Financial Technologies PLC, Munir Duri stated that there is huge potential for Ethiopia to increase lending to MSMEs using artificial intelligence based uncollateralized digital lending. Indicating that there are only 260,000 borrowers in Ethiopia of which most of the companies lending from several banks in the country, Munir stressed the need to reach the uncovered MSMEs in the country.

According to the presentation by Mastercard Foundation representative, there are a total of 850,000 MSMEs in Ethiopia, which created total 4.5 million jobs. It is indicated that one of the major reasons why Mastercard Foundation is promoting financial inclusion in Ethiopia is to help these enterprises get access to finance. Reports show that 69 percent adults in Ethiopia do not have formal financial services.

The representative from the financial sector regulatory institution of Ethiopia, National Bank of Ethiopia (NBE) indicated that the country embraces uncollateralized digital lending and the regulations are on place.



The challenge at the moment is the requirement of having a tax identification Number (TIN), which most of micro enterprises such as individuals engaged in businesses like shoe shining, selling different items on the streets, according to the representative of CBO, who indicated that discussions are on the way with the regulatory – NBE.

An expert from IFC indicated that uncollateralized digital lending has been a multi billion dollars industry across the globe. She indicated that launched in 2010 by China’s ecommerce platform Alibaba, uncategorized digital lending has provided a total of $13.4 billion to about 3 million MSMEs.