Ethiopia: A Fintech ecosystem in development
Ethiopia is home to more than 112 million people as of 2019, making it the second most populous nation in Africa after Nigeria. In 2020, the country still managed to grow despite the COVID-19 pandemic, however, it only grew by 6.1% in 2020, which was down from 8.4% in 2019 (African Development Bank Group, 2021). Also, despite being one of the fastest growing economies in Africa, Ethiopia still has a high number of poor people (World Bank, 2021).
Ethiopia’s financing requirements are important given its large physical and social infrastructure needs and low tax-to-GDP ratio, which averaged 10% between 2017 and 2020 (African Development Bank Group, 2021). As for SMEs, they are very likely to be turned down for loans and are less likely to have a loan, a line of credit, or an overdraft facility. The financing gap for SMEs in Ethiopia is estimated to be approximately $ 3.9 billion, 2.4 times the current level of lending to SMEs (World Bank, 2021). The Business Survey (2015) also reveals that only 11.3 percent of small businesses in Ethiopia have access to bank loans for working capital, compared with a world average of 26 percent and the average for sub-Saharan Africa of the 22 percent.
Furthermore, women have more disadvantages since they have less access to collateral. Also, Ethiopian SMEs also confront challenges related to access to markets, infrastructure (clusters networks) and skills gap.
Fintech in Ethiopia
In terms of Fintech, Ethiopia made considerable progress in recent years thanks to new regulatory changes made by the Ethiopian government. For example, in June 2020, the Ethiopian Council of Ministers approved Digital Ethiopia 2025, a national digital transformation plan that seeks to adopt cutting-edge technologies to ensure economic growth and social development. Furthermore, in March 2020, the National Bank of Ethiopia issued a new Directive on issuers of payment instruments, allowing local non-bank players, including mobile network operators, to offer mobile money services (Fintech news, 2021) .Additionally, the World Bank is supporting Ethiopia’s digital transformation. The institution is currently working on a new project called Digital Ethiopia Foundations, under which it plans to invest around $ 200 million to support the country’s digital economy. (Ecofinangency, 2021)
While Ethiopia’s Fintech ecosystem is relatively small, the government’s supportive stance towards the digital economy and favorable market conditions, including high mobile phone penetration and a large unbanked population, are causing the Fintech industry to Ethiopia is poised for strong growth (Fintech News, 2021). So far, the payments sector is the largest in Ethiopia.
The lending Fintech sector is still beginning to unfold and develop, however, with the need for financing present and the growth of the Fintech sector in Ethiopia; it is only a matter of time until we see the impact of this sector in the country. Likewise, continuous government support will play an important role in the growing of the sector and recovery of the country’s economy.
