Mar 9 , 2024

Over half a dozen commercial banks are poised to join Telebirr, the mobile money service operated by the state-owned Ethio telecom, leveraging its credit scoring system and extensive user base. Hailed by industry observers as a bold move to revolutionise the financial sector, the initiative promises a shift towards enhancing financial inclusion through an innovative digital marketplace, pending approval from the National Bank of Ethiopia (NBE).

The central bank is finalising the regulatory framework for the ambitious project, aligning it with its three-year strategic plan to expand access to digital financial services. According to a senior NBE official, the initiative aligns with the country's digital strategy objectives, aiming to quadruple the volume of digitally facilitated transactions to 17 trillion Br.

"It furthers our digital strategy objectives," he told Fortune.

A 2022 report by strategic market research firm Euromonitor International discovered a slow adoption of commercial banks in Sub-Saharan Africa to the pressing cash needs of a region with a large informal economy.

The partnership, which onboarded major financial institutions like Awash, Wegagen, Enat, Sinquee, and Ahadu banks, is hoped to broaden service offerings and reach underserved populations. Telebirr, which has quickly emerged as a leader in the digital payment space, offers a promising platform for banks to extend their reach and innovate their service portfolio.

According to Biruk Adane, Telebirr's chief mobile money officer, the partnership aspires to promote financial inclusion by integrating Telebirr's digital infrastructure with the participating banks.

"The marketplace aims for greater interoperability within the financial sector," he said.

This includes Telebirr's pioneering credit scoring and non-collateral registry systems, which have already facilitated over eight billion Birr in credit to nearly 3.1 million subscribers through programs like Telebirr Mela and Telebirr Enderas. Biruk believes these apps allow\ a more inclusive approach to credit assessment, potentially reaching unbanked populations who may not have access to traditional forms of collateral.

Telebirr's approach to credit assessment employs an AI-powered system that analyses user data such as transaction history, saving habits, and airtime purchases. The method offers a more inclusive and accessible means of assessing creditworthiness, potentially opening doors for those traditionally excluded from the banking system due to a lack of conventional collateral. Telebirr's impressive growth, boasting 41 million subscribers and over 1.7 trillion Br transacted this year alone, has significantly expanded Ethio telecom's revenue by 26pc to 44.29 billion Br.

With plans for a 10pc initial public offering (IPO) under the Ethiopian Investment Holding (EIH), the state-owned telecom giant is set to consolidate its market position further.

Banks like Enat, a 16-year-old financial institution keen on micro-lending, are gearing up to table their plans to the central bank. Enat Bank, in particular, has seen a 33.5pc increase in loans and advances over the last financial year, amounting to 14.9 billion Br. The Bank aims to leverage Telebirr's platform to offer credit services to women and small and medium enterprises (SMEs), including one-month salary advances and nearly 50 million Br in non-collateral loans within the year, disclosed Lelise Temesgen, credit management director at the Bank.

"It'll also help us expand our customer base," Lelise told Fortune.

Wegagen Bank also sees the partnership as an opportunity to innovate its digital financial services, expressing interest in utilising Telebirr's credit scoring data to enhance its market presence and deposit mobilisation efforts. According to Solomon Tesfaye, vice president for technology, the potential for floating shares digitally marks a significant departure from traditional market practices.

"We want to begin offering shares digitally," he said.

The financial landscape has long been dominated by traditional commercial banks, which have struggled to extend credit access beyond their less than half-million customer base despite being profitable. The new partnership between Telebirr and commercial banks is viewed by many as a defining moment in addressing these challenges and expanding financial inclusion.

Experts like Endeshaw Tesfaye, a digital finance consultant with the United Nations Capital Development Fund (UNCDF), believe that while Ethiopia has some distance to go in matching the digital finance success stories of neighbours like Kenya, known for its M-Pesa, the partnership between banks and telecom operators is a critical step forward.

"The banks won't meet the market reach and distribution network," he told Fortune.

He stressed the importance of investing in resilient digital infrastructures, expanding access to affordable smartphones, and promoting digital literacy nationwide as essential components in achieving the broader goals of financial inclusion.

PUBLISHED ON Mar 09,2024 [ VOL 24 , NO 1245]

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