According to the SME Finance Forum, the financing gap for MSMEs in Ethiopia and Sub-Saharan Africa is estimated to be US$4.3 billion and US$331 billion, respectively. MSMEs are major job creators in Africa, contributing to 80 percent of employment, according to McKinsey & Company. It is therefore critical to address the access to finance constraints as an underlying requirement on the pathway for creating and sustaining jobs on the continent.
Using alternative data-driven Artificial Intelligence (AI) credit scoring, which tailors relevant products to MSMEs and reduces the costs of finance and management of small-value loans for the banks, the Mastercard Foundation and Kifiya have set aside $100 million to enable access to device financing and uncollateralized financial credit products to Ethiopian women entrepreneurs.
The program, dubbed the Sustainable Access to Finance to Enable Entrepreneurship (SAFEE) aims to unlock US$300 million from six banks and enable more than 477,800 micro, small, and medium enterprises (MSMEs) to access uncollateralized digital credit products and will enable 425,000 young women access mobile device financing.
The credit is in the form of nano, micro, and small working capital, inventory credit, invoice financing, equipment financing, and buy-now-pay-later products for MSMEs in urban, peri-urban, and rural areas of Ethiopia.
“Through collaborative efforts and innovative and tailored programs like SAFEE, the Foundation aims to create an ecosystem where MSMEs can harness the power of digital lending to realize their full potential and ensure sustainable livelihoods for fellow young people,” said Samuel Yalew Adela, Mastercard Foundation Country Director, Ethiopia.
Including SAFEE, the Foundation to date has committed a total of $672 million in Ethiopia, of which $222 million is dedicated to increasing affordable access to finance through various partnerships.”
Over a period of five years, the program will directly drive the creation of job opportunities for 2.18 million young people (80 percent women) and support other programs to enable 3.65 million young people to access credit. The program will focus on supporting vulnerable young people who are traditionally excluded from accessing financial products, including women, persons with disabilities, refugees, and Internally Displaced People (IDPs).
The program addresses the lack of credit history and records, availability of appropriate products and services, low use of financial technology and the cost of managing low-value credit. It also provides the technical assistance required for financial institutions to transition from conventional collateral-based lending to uncollateralized, digitally enabled, credit-score-based lending, and embracing new modality of delivery of financial services.
SAFEE has initially partnered with the Cooperative Bank of Oromia, Bunna Bank, Enat Bank, Amhara Bank, Wegagen Bank, and ZamZam Bank. The facility will increase the number of bank partnerships based on learnings and needs.
To Kifiya, the program is catalytic by design to enable the financial sector transition where uncollateralized digital credit for MSMEs becomes the new normal
“Our partnership with the Mastercard Foundation will enable the unlocking of uncollateralized productive credit products ranging from digital working capital, invoice financing, inventory credit, buy-now-pay-later, and interest-free banking that address the needs and demands of MSMEs,” said Munir Duri, Founder and Chief Executive Officer, Kifiya Financial Technology PLC.