The National Bank of Ethiopia, together with the International Financial Corporation (IFC), Financial Sector Deepening-Ethiopia (FSD-Ethiopia), Kifiya Financial Technology, and the Mastercard Foundation participated in a second knowledge series entitled “Data-Driven MSME Digital Lending for an Inclusive Economy.”
The knowledge series aims to:
- Bridge the knowledge gap in uncollateralized digital lending and credit scoring.
- Show how uncollateralized digital lending addresses the access to finance challenges faced by Micro, Small, and Medium Enterprises (MSMEs) in Ethiopia.
- Bring stakeholders together to drive disruption in leveraging digital financial services for MSMEs’ digital lending.
- Share insights and experiences on the role of digital lending and job creation.
The first knowledge series, held in February 2022, focused on a collateral-free digital lending platform for MSMEs following the Cooperative Bank of Oromia’s launch of Michu, a credit score-based digital lending platform for MSMEs. By bringing together leading industry experts, researchers, senior bank officials, entrepreneurs, regulators, policymakers, government, and other key stakeholders, the first knowledge series served as a platform to discuss and pave the way to accelerate digital lending solutions and enhance access to finance for MSMEs in Ethiopia. More information.
MSMEs are the strongest economic development, innovation, and employment drivers. However, access to finance is frequently identified as a critical barrier to their growth.
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 $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.
Stakeholders discussed Data-Driven Digital Lending for Ethiopia’s MSMEs
It is critical that conversations need to continue to create opportunities for MSMEs in emerging markets to advance economic development and reduce poverty.
The knowledge series, therefore, provides an opportunity for policymakers, financial institutions, ecosystem leaders, development partners, NGOs, and associations promoting financial inclusion and digital financial access to avail credit to underserved and unserved segments in Ethiopia.
In his welcoming speech at the second knowledge series, Samuel Yalew Adela, Country Director for Ethiopia at the Mastercard Foundation, said, “The Mastercard Foundation is committed to unlocking affordable access to financial services for enterprises with a view of enabling job creation at scale. In alignment with country priorities, we are working with the private sector, mandated institutions, civil society organizations, and young people to support solutions that create an environment where a pipeline of investable young people-led enterprises can be created. We believe financial products and services must address the needs of micro, small, and medium-sized enterprises and serve the purpose they want the capital for. Use of technology, innovative processes and products are key to democratizing financial services.”
“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. In this knowledge series, we have collaborated with many stakeholders to bring together learnings from different perspectives in the private and public sectors and 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 underbanked,” said Munir Mohammed Duri, Founder and CEO of Kifiya Financial Technologies.
The IFC shared lessons learned and benchmarking experiences from similar markets in Africa, where digital technology has given many MSMEs and smallholder farmers access to financial services. They looked at what made these markets successful and pointed out what Ethiopia could learn within the context of current developments.
The Cooperative Bank of Oromia and Telebirr also shared insights, success, and challenges, including understanding the impact of their respective digital lending platforms.
The fireside chat with Mr. Hartnel K. M. Ndungi, the Chief Data Officer at Absa Bank Kenya, provided additional opportunities to share experiences and present case studies of expanding financial services to MSMEs and farmers.
Participants also highlighted the potential of the digital financial inclusion of MSMEs, underscoring their commitment to expanding products and services to include these essential engines of the economy.
