Digital Lending Law Long Overdue in Ethiopia

• The central bank of Ethiopia views digital lending as essential for achieving financial inclusion at scale.
• Digital lending platforms have increased since the launch of the first such platform in 2022, with around a dozen now available in Ethiopia.
• Current challenges in the digital lending sector include a lack of transparency, inadequate credit limit policies, poor awareness campaigns, and insufficient borrower protection mechanisms.
• Specific regulations governing digital lending are urgently needed to address these issues and provide a framework for responsible lending.
• The National Bank of Ethiopia has allowed non-financial institutions to enter the digital lending market, changing the previous bank-led model.
• Popular platforms like Michu and telebirr have disbursed significant sums in loans, targeting MSMEs and individuals.
• While the potential financing demand from MSMEs is estimated at $9.6 billion, existing loan limits remain low, especially for individual borrowers.
• Transparency and clear disclosures are crucial; borrowers often do not fully understand the terms and conditions or the actual cost of borrowing.
• Experience from other countries shows that without regulatory oversight, digital lenders can engage in predatory practices and impose high penalties.
• The Ethiopian government is encouraged to establish a robust regulatory framework, improve digital literacy, and strengthen consumer protections to safeguard borrowers.

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