The end of last week was a momentous period for digital financial services in Ethiopia. On Friday, Tele birr of ethio telecom launched three services. Over the weekend, the draft proclamation for a national payment system was approved.
The decade-old National Payment System Proclamation saw a major amendment to accommodate foreign brands and investors in the industry. Once coming to effect, as many anticipate, M-Pesa of Safaricom will be the first in line to request and receive the permit.
The Council of Ministers approved this significant step toward liberalizing digital financial services and forwarded it to the House of Peoples’ Representatives (HPR) for legislation.
According to the Council, increasing involvement in the provision of payment services is necessary to ensure the effectiveness of the payment system, foster fierce competition, and draw global reforms.
The National Bank of Ethiopia (NBE) has given permission to the state-owned telecom company to use its mobile money platform to offer three new services in collaboration with Dashen Bank, a first generation financial institution armed with a paid-up capital of over five billion birr. The services are micro-loan, overdraft and micro-saving, dubbed Mela, Endekise, and Sanduk, respectively.
Individuals and small enterprises can access loan services on a daily, weekly, and monthly basis through the micro-loan (Mela) service, without the need for collateral, for a minimum one percent facilitation charge. Individuals will only be able to borrow up to 10,000 birr, but enterprises would have access to up to 100,000 birr.
When a client’s account balance is insufficient to cover a payment, Tele birr offers money through its overdraft (Endekise) service. With an interest, the saving (Sanduk) service enables users to save any penny.
The key benchmarks used to determine the trustworthiness of customers using the credit service are transaction history and telecom usage.
In his statement regarding ethio telecom’s Tele birr during the new products inauguration event at Skylight Hotel last week, governor of NBE, Yinager Dessie (PhD) looked ecstatic.
He appeared to be satisfied with issuing operating licenses to the digital financial platforms in his capacity as the head of the nation’s financial regulator.
The commencement of Tele birr last year May had drastically lifted high the efforts made in the last two years. It managed to register 23 million accounts throughout a year alone, over double the total number of mobile money clients in Ethiopia.
If Tele birr keeps up the pace, Yinager noted how much use it would be to the general population. With 43 million mobile money users, Ethiopia is already among the top African nations with the highest number of subscribers, thus it has made a sizable contribution, according to him.
It remains unclear how many are active users though.
The inauguration ceremony signaled more than just the start of Tele birr’s services for Yinager. He added that it is also a special event since it signifies Ethiopia’s upgrading of digital payment systems.
“It is with great satisfaction and delight that we inaugurate the new services to ensure financial accessibility to the largest community,” said Firehiwot Tamiru, chief executive officer (CEO) of ethio telecom at the inauguration.
With 65 million SIM cards that it alone administers in the country, with over a third being registered on Tele birr, financial service is in fact becoming more accessible to the general population.
Ironically, rather than posing a threat or gaining market dominance, the milestone that ethio telecom is achieving with its platform benefits other platforms as well. At least that is how executives at the recently established payment instrument issuer, Kacha Digital Financial Service S.C, see it.
Yigermal Meshesha, marketing and business development manager at Kacha, sees Tele birr’s market reach as more of an opportunity than a threat, as does the vast experience that foreign mobile money companies like Safaricom’s M-Pesa will offer to Ethiopia.
“These platforms are more like enablers. They would offer SIM cards via their telecom companies and use their extensive network to create awareness about mobile money,” said Yigermal.
Any new platform will face a challenging task in trying to connect with the dispersed population and work on programs to raise awareness. No matter how big it is, Yigermal adds that a company working alone would find it challenging to get the general public to adopt new technologies.
“Eventually, we won’t need to worry about raising awareness because of that. In the marketplace, there will be an informed society. Also, we have different target groups,” he added.
Kacha acquired its license last month. It had the minimum 50 million birr in paid-up capital and collected 200 million birr as subscribed capital from 13 Ethiopian shareholders. It became the first private company, but follows ethio telecom as the second one in Ethiopia. For Tele birr, the state-owned telecom obtained the country’s first ever license last year.
Kacha is currently in a one-month preparatory phase and will run a two-month trial program before starting its commercial operation in a few months. Once operational, the fintech company will offer both the microfinance services Tele birr has just started and mobile payment services.
According to Yigermal, the company also has plans to launch Sharia-compliant digital financial services soon. “We developed the platform in-house. We will find it simple to localize the system and make improvements,” he said.
It has been a decade since the digital payment system via mobile was introduced through various payment service providers in Ethiopia. Amole, a payment method created by Moneta Technologies S.C., was one of them.
Amole has been a major player in the mobile payment industry since it was launched in 2018 in collaboration with Dashen Bank. Recently, Moneta teamed up with Oromia Bank as its technology partner.
Samson Getu, chief technology officer at Moneta, claims that the opportunities in the field of digital financial services have not yet been adequately explored. With over 110 million individuals in the country, he thinks that payment service enablers like his are still very few.
“There is still an ample chance,” he said. Currently, Amole is used by 8,000 merchants and roughly three million users.
As a fintech expert himself, Samson sees positive impacts as digital financial services are expanding. “Banks can’t keep opening up branches at a loss. It isn’t easy to reach all the population like that,” he said.
Even if the sector offers great prospects, Samson couldn’t hide his frustration at the entry of well-resourced foreign firms to compete for market share.
He worries about being overshadowed. Furthermore, he appears to be worried about Tele birr’s dominance in payment systems, which has taken over many bill payments to government agencies. He recognizes the telcom’s advantage as being the ease of access provided by their big customer base.
Officials are seeing the bigger picture, the public accessing finance easily.
Yinager hailed Tele birr for its contribution in accelerating payment for government services. “I trust we will see ethio telecom being the national operator working in East Africa, and later at the whole continent in a few years.”