One of the largest private banks in Ethiopia is seeking to develop financial services tailored to improve the growth prospects of up to one million small businesses.
Ethiopia’s Dashen Bank is partnering with US-based non-profit Accion to help develop digital financial services for small businesses that currently have limited or no access to formal banking, many of them run by women.
Accion, which aims to further financial inclusivity around the world, is providing technical assistance and grant funding to Dashen Bank, which will support the building of an innovation hub and other initiatives to develop products and services suitable for underserved micro, small and medium-sized enterprises (MSMEs).
The Mastercard Center for Inclusive Growth – a philanthropic arm of Mastercard – is also providing financial support for the initiative, as part of a long-term partnership with Accion.
Dashen is one of Ethiopia’s largest private banks, with a network of some 900 branches, more than 1,000 ATMs and more than over 2,000 point-of-sale terminals across the country. As such, it is well placed to play a major role in reaching the many small-scale Ethiopian traders that have limited access to financial services.
Access to credit
Ethiopia’s nearly two million MSMEs are an important part of the economy, but only 6% of microenterprises and 1.9% of small enterprises have access to formal credit, Accion said, citing UN figures. The financing gap in Ethiopia’s MSME sector is estimated to be $4.2bn (€4bn).
Many of those Dashen Bank and Accion are seeking to reach with the initiative are women-owned small-scale businesses, such as small shops and market stalls, which operate mainly with cash.
Fewer than 40% of women in Ethiopia – compared to around half of men – have an account at a formal financial institution, barring them from accessing Ethiopia’s rapidly developing digital financial ecosystem, according to Accion. Women also commonly lack ownership of assets to meet collateral requirements for loans.
Raliat Sunmonu, vice president, Middle East and Africa at Accion Advisory told Impact Investor that though Dashen Bank has several million individual and business customers, less than 10% of that figure represent micro and small businesses.
She said that MSMEs are often well-run and creditworthy, even if they transact mainly in cash and have few assets, as is often the case with those run by women.
“A good chunk of Dashen’s customer base are actually MSMEs that don’t present as such to Dashen, as they may not have the right paperwork and so on. If Dashen can start looking at them as businesses, then it can offer them more types of financial solutions,” Sunmonu said.
Improved credit scoring
That shift is being helped by artificial intelligence and other technology that is removing roadblocks to financing for MSMEs. One example is the development of new credit scoring models that better reflect the financial health of MSMEs and help facilitate the provision of non-collateralised loans. Another avenue is through the provision of embedded finance products that allow existing FMCG suppliers to provide credit to MSMEs.
As part of the initiative, Dashen is also exploring partnerships with digital platforms and marketplaces that have emerged over recent years. They provide a conduit to the MSME customer base that the bank needs to reach, and they already operate online payments systems and other services from which useful data on customer behaviour can be drawn.
Technical assistance is being provided by Accion for two years with monitoring taking place for a further two years to assess the success of products and services implemented.
Sunmonu said Accion is able to draw on its experience helping financial institutions in other countries to develop similar innovation hubs or execute digital strategies, even though there is no one-size-fits-all approach that can be applied across different countries.
“Our role is, firstly, to keep a singular focus on delivering impactful and meaningful financial and digitally-enabled solutions for small businesses, making sure the innovation hub really responds to that. Then we can help Dashen put together the processes, the tools, people and skills that are required to drive the innovation hub long term and more sustainably,” she said
Another area of collaboration will be in change management, helping leaders and the rest of the workforce at Dashen to make the shift in mindset and working practices needed to accommodate MSME customers and provide the financial products best suited to them.
Accion hopes that the innovation hub and other solutions delivered through the initiative will help Dashen reach at least one million MSME customers, with 250,000 of those actively using those services repeatedly.
“For an institution like Dashen in Ethiopia, those are incredible numbers when it comes to serving MSMEs. The entire Ethiopian banking system collectively has provided loans to around 160,000 entities, so for one institution to go to a million – that’s revolutionary,” Sunmonu said.
Accion’s recent initiatives to promote financial inclusion elsewhere in the world include the launch of a $153m fund to invest in the digital transition of companies serving MSMEs across South and Southeast Asia, Latin America, and Africa, and support for a $34.5m equity round for India’s Flexiloans, which lends to the country’s small businesses via a digital platform.
