Spicing Up Financial Inclusion

The story of 29-year-old Yemariamwork Alemayehu, a young entrepreneur in Ethiopia’s spice trade, highlights the vast need for simplified access to seed funding for Micro, Small, and Medium Enterprises (MSMEs) and shows its transformative power.

Yemariamwork’s story begins with a start-up loan she was granted in September 2022. The loan of 5,000 Ethiopian Birr enabled her to start her spice trading business from home. However, with four young children to support and a growing business, budgeting was a constant concern. Yet today, she rents premises for her shop and has expanded her business. Her improved cash flow has allowed her to contribute to local job creation by employing six other young people in product preparation, distribution, and sales.

MSMEs are particularly significant across the African continent. They are a crucial part of the economy, making up 90 percent of businesses and providing 60 percent of jobs. However, despite their prominence, MSMEs often struggle to access financial resources, especially credit. It is primarily what holds back their potential for growth and sustainability.

In answer, the Foundation partnered with Kifiya, a company that develops and provides innovative, AI-powered digital financial services infrastructure. This resulted in the launch in November 2019 of the E-Commerce MSME Market Place program. It offers an alternative AI credit scoring and verification platform, Qena. The platform empowers MSMEs and smallholder farmers by giving them access to banks that provide uncollateralized credit. It is revolutionizing access to finance.

Before AI-based digital credit scoring was introduced, it was difficult for MSMEs and  entrepreneurs like Yemariamwork to obtain loans. Lenders usually require borrowers to own assets such as property or a vehicle. These would be the collateral the lender could possess and sell, guaranteeing loan repayment if the borrower defaults. In addition, low-income borrowers are disadvantaged because credit histories are required. Uncollateralized lending bypasses these traditional barriers, effectively levelling the playing field.

The E-Commerce MSME Market Place program has empowered MSMEs for the past five years by enhancing market access, financial options, and digital transaction abilities.

Yemariamwork gained access to the working capital she required when Qena, the program’s digital credit scoring system, connected her to Michu, the digital lending platform of Ethiopia’s Cooperative Bank of Oromia, which funded her loans.

The overall cash injection of 1,418,100 Ethiopian Birr (just over US$11, 300) over two years was reinvested into her business. This enabled Yemariamwork to buy raw materials for spice production and simplified her financial management and business operations. She even improved her credit score because she could make timely repayments.

“I do my part in telling my friends and family to take advantage of this opportunity,” Yemariamwork said when asked how she helps to bring more young women into the program. She also highlighted the need for banks to step up, saying they should promote the product and services more widely among the communities to help women access them. She also suggested that increasing loan sizes and extending repayment periods would make a big difference for women entrepreneurs.

September 17, 2024, marked a significant milestone for Ethiopian innovation when Kifiya took the stage to claim the prestigious Product Innovation of the Year award at the Global SME Finance Forum in São Paulo, Brazil. It celebrated its outstanding contributions to financial inclusion and the growth of SMEs in Africa.

Munir Duri, Founder and CEO of Kifiya, reflected on the achievement: "This award is a testament to our collective vision, commitment, and the extraordinary work we have undertaken with our partners. It recognizes our dedication to empowering African MSMEs and low-to-middle-income individuals through innovative technology. However, we recognize that this achievement implies a much bigger milestone for Ethiopia, placing our nation on the global stage as a beacon of innovation and progress."

Ethiopia Country Director, Samuel Yalew Adela added: “Through such initiatives, the Foundation aims to create an ecosystem where MSMEs can harness the power of digital lending to realize their full potential and ensure sustainable livelihoods for fellow young people. The award and recognition that Kifiya received is a testament to being on the right track, and it’s motivation to do more.”