Lecturing accounting and finance for several years at one of the country’s main sources of banking professionals, Addis Ababa University’s School of Commerce, Dakito Alemu (PhD) never had the chance to show his students an example of what credit card service is like.
As banks were providing their clients with only the debt cards, he was not able to go beyond textbook definitions on the topic of credit card services. This seems to be changing now, one of the first generation banks, Awash Bank, began to give its clients what they never had before, Awash Credit Card.
“We never had a single bank in Ethiopia we could mention of while teaching how credit card is the core a bank business and how important such service provision is for a country’s economy,” Dakito said. “This is one the main financial services that changed the world.”
Over 27 years since its foundation, the leading private bank, Awash, becomes the first ever among the 30 banks currently in operation to issue credit cards. The bank prepared two types of credit services for clients desiring to acquire the card.
Awash Bank stands tall among the private banks in most ways. Total deposit of the bank is now 152 billion Birr and loan disbursed to different services reached 129 billion Birr. With the current total asset reaching 183 billion Birr and paid up capital 12 billion Birr, the bank had announced its plan of increase the capital to 55 billion Birr in four years to come.
One of the credit services with the cards, dubbed Awash Credit Cards, will enable the bank’s clients to access credit with limits and due dates for total repayment, while the other one will enable the cardholders’ access a revolving credit on which they can repay a portion of what they borrow monthly while still borrowing.
Managements of the bank attribute the initiative to the recent move by Ethiopian government in issuing national identifications to individuals. Speaking to media on the launching of the service last Tuesday, chief executive officer (CEO) of Awash, Tsehay Shiferaw said that unavailability of national identifications and social security numbers is the main reason behind the delay in the industry.
“But now that provision of the national identifications is in place to citizens, we will vastly embark on it,” he said. “The rest of the world is living off credit card as it is a widely used form of financial service.
With Awash providing a single credit card that can be used for purchase or cash withdrawal, even though it is a trend among some countries that clients can get either purchase restricted or cash withdrawal cards separately.
With the cards, clients will be able to make payments for goods or services at the Point of Sale (POS) machines. Moreover, they can also withdraw cash from the 775 branches of Awash and all Automated Teller Machines (ATMs), according to Kefyalew Shiferaw, deputy chief digital banking operations officer of Awash.
“Whether with collateral or not, everyone with constant income is eligible to take the cards. Loan repayment depends on how the bank and client agree with the monthly minimum dues,” Kefyalew said.
The trend in providing micro credit services, mainly through the digital means, is growing in recent times. Ethio telecom’s Telebirr was seen as the game changer when the company announced three products of digital finance in partnership with Dashen Bank.
Beginning from the announcement early August until first report was released by the end of September this year, one of the products dedicated for micro credit service to the subscribers, Telebirr Mela, had given away 164.3 million Birr in credit to 133,101 clients.
The two months performance reports of Telebirr had shown how micro credit services are desperately needed. Through the other product on which subscribers could make small deposits in their accounts with interest fees, Telebirr Sanduk, 71,442 clients had saved 205.8 million Birr. Through the product dedicated for an overdraft service, Telebirr EndeKise, 24.1 million Birr had been disbursed.
Dakito of the School of Commerce applauds the introduction of digital financial services and calls for more accessibility of credit to the public, as he believes that the financial sector is still struggling to meet the demands of general public. But how big will the coverage will go in the future is yet to see, he said.
What the banks give as excuse for late beginning of credit card provision is the unavailability of digital identifications, but Dakito doesn’t but the claim. Almost all of the none-performing loans banks are reporting weren’t caused because the borrowers didn’t have national identifications, he argues.
“Banks aren’t reporting defaults in credit because they don’t know their customers. It is mostly due to losses by the businesses and information procedures through boards and managements,” he said.
Latest report by the National Bank of Ethiopia (NBE) shows that the 30 banks, two of which are state owned, have total outstanding credit of 1.6 trillion Birr, a 24 percent jump from the preceding year. The 43 microfinance institutions have about 36.9 billion Birr outstanding credits.
During the last financial report NBE released, fourth quarter of last fiscal year, about 172.1 billion Birr was disbursed as fresh loans, which is 62.6 percent increase from the preceding year of same quarterly period.
Allocation of these new loans shows how the micro lending service is lagging behind from banks. The sector of international trade takes the largest share with 37.8 percent, while domestic trade follows with 14.6 percent, housing & construction and industry with above 9 percent each, and agriculture 6.3 percent.
With the plan of registering over 70 million people in five years to come, the National ID Program Office under the Office of Prime Minister already embarked on the registration at Millenium Hall in Addis Ababa. Registering over a million citizens so far being led by Yodahe Zemichael, the project office has been onboarding the banks to the project.
When introducing new products entailing high risks, especially the technology based ones, the banks present their proposal thoroughly including potential risks and the risk management control functions to mitigate them for NBE, according to Frezer Ayalew, banking supervision director at NBE.
The NBE then provides approval to the new products.
“Innovative and new technology based products with risks different from the regular products should be presented to the NBE and get approval. Awash’s credit card has underwent through the same procedure,” Frezer told The Reporter.
For him, the initiative is very much appreciated for the reason that it assures financial inclusion and accessibility, affirming banks can request product approval from NBE and provide it to their clients. “Credit doesn’t have to be collateral based only, as they can be applicable through alternatives such as credit scoring and rating of repayment capacity,” he said.