A local telecom products and services distributor has jumped into the financial industry by establishing the 39th microfinance institution in the nation, which is expected to start operations this month.
The National Bank of Ethiopia (NBE) granted the operational license to the Grand Micro Finance Institute three months ago. Initiated by Hidasie Telecom, the establishment process of the firm has been three years in the making.
The company started selling shares two years ago and has mobilised 12 million Br in paid-up capital, which is more than the 10 million Br minimum required by the central bank to establish a microfinance institution.
Currently, the Grand Micro Finance Institute has 367 shareholders, and Hidasie, which was established with an initial capital of 200,000 Br and 2,508 shareholders, holds 90pc of the shares. The minimum amount of shares a shareholder could buy was 50 shares with a par value of 100 Br.
Hidase, which is involved in the distribution of mobile prepaid cards, SIM cards, bill collection, sales of mobile phones and accessories and vehicle maintenance, currently has 4,500 employees and declared 497 million Br in revenues and 52 million Br in net profits last year.
The microfinance institution was established to provide financial support for companies, especially to those that supply solar products to farmers, according to Tekolla Demssie, board chairperson of the company.
The formation process took more time than expected due to the departure of the employees who crafted the business plan and the negotiations with the central bank to finalise it, according to Tekolla.
When it commences operations, the company will join the 38 microfinance institutions already operating in the country. In the last fiscal year, these companies' total capital and assets increased by 20.3pc and 24.1pc and reached 16.6 billion Br and 83.5 billion Br, respectively.
Compared to the preceding year, their deposits surged by 26.1pc and reached 41.9 billion Br, while their outstanding credit went up by 30.5pc to 58.7 billion Br.
The five largest microfinance institutions in the country - Amhara, Dedebit, Oromia, Omo and Addis Credit & Savings - accounted for 83.4pc of the total capital and 91.4pc of the savings. For the past two years they have also accounted for 87.7pc of the credit and 88.1pc of the total assets of microfinance institutions.
Habib Mohammed, an expert in the financial sector, applauds the formation of the new institution.
"The institution will be profitable," said Habib. "But might be challenged in giving loans since it has limited resources."
He recommends the board of directors avail more shares to boost its capital, allowing them to award sufficient loans.
The founders of the Grand Micro Finance Institute have a plan to sell additional shares soon to raise capital, according to Tekolla.
Currently, Hidasie is training its seven employees, who will be operating the financial institute.
"One of our main challenges is the continuous increase in salaries in the financial industry,” Tekolla said.
To address this problem, Habib recommends that the management of the company constantly train fresh graduates to minimise their salary expenses.
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