For decades, access to credit in Ethiopia depended on collateral that most small businesses didn’t have. In the past few years, that equation has shifted: bank and fintech partnerships are changing the landscape through digital platforms by processing uncollateralised loans to Micro, Small and Medium Enterprises (MSMEs) at scale, powered by alternative data, disciplined risk controls, and incentives such as blended finance and guarantees. The result is not a marginal product but a systemic change, one that is redefining how entrepreneurs, especially women and youth, enter and grow in the formal economy. Today, Ethiopia has surpassed over 50 billion Ethiopian Birr (ETB) (≈421 million USD) in uncollateralised digital lending for MSMEs, within just two and a half years from commencement.
The challenges MSMEs have historically faced are multifaceted: lack of titled collateral, thin credit files, gender gaps on the demand side, and lack of appropriate and relevant financial products on the supply side. These barriers have hampered the sustainability and growth of a retailer seeking to work in capital finance for a corner shop in Hawassa or an agri-dealer in West Oromia who needs inventory credit to supply nearby smallholder farmers and remain competitive in the market.
With the launch of the pioneering Michu digital lending platform for MSMEs by the Cooperative Bank of Oromia, the ecosystem has seen a complete shift. The platform solved for long-missing, relevant products for MSMEs by leveraging alternative data, artificial intelligence, and digital, instant, remote, data-driven decision making, paving the way for greater financial inclusion.
This represents a significant leap in the history of productive credit in Africa, where traditional collateral-based lending has rarely favoured MSMEs. In a typical MFI or bank in Ethiopia, MSMEs were required to have a formal financial history (bank transactions or credit history), collateral, and to spend at least one month processing a loan, providing multiple documents and making repeated visits to bank branches or credit departments. Today, thanks to technology, this process has become instant. Any MSME in Ethiopia can now access digital lending platforms such as Efoyta by Wegagen Bank, Abol by Bunna Bank, Lewedaje by Amhara Bank, or Malefiya by Enat Bank and instantly apply for working capital loans. The first full-fledged Shariah-compliant digital financing platform, Ansar by ZamZam Bank, also provides digital Murabaha financing, where embedded marketplaces on digital financing platforms are becoming a new way to meet demand and drive sustainable growth.
Alternative data–driven intelligent platforms now score customers in seconds, generate loan offers, and disburse funds directly into the MSME’s bank account. This typically takes as little as 10 minutes for first-time applicants and less than one minute for repeat applications once the first loan has been repaid. From my work leading an intelligent financial platform that powers productive credit, and coming from a traditional banking background, the scale of inclusion and usage Ethiopia is creating for the MSME ecosystem underscores the depth of change underway.
The transformation in Ethiopia’s MSME finance market is not happening in isolation; it is the result of deliberate regulatory and market moves. A key enabler has been the National Bank of Ethiopia’s policy shift, especially the Payment Instrument Issuer and Use of Agents directives, which created room for new digital credit delivery channels, including the licensing of the first private payment instrument issuer, Kacha Digital Financial Service S.C. Building on this regulatory space, partnerships between fintechs and banks have accelerated change. For example, the collaboration between Kifiya Financial Technology, an AI-driven (artificial intelligence) financial infrastructure provider, and the Cooperative Bank of Oromia produced Michu, Ethiopia’s first large-scale digital MSME lending platform. The success and learnings from Michu catalysed at least five other commercial banks to segment their customer bases, craft MSME strategies, and launch similar uncollateralized digital lending products.
At the heart of these platforms is artificial intelligence and alternative data, turning scarce or non-traditional information into credit insight. Instead of relying on full financial statements and collateral, lenders analyse digital transaction flows, mobile usage patterns, geolocation stability, repayment history on starter loans, and other behavioural signals. Following Michu’s initial 5 billion ETB disbursement and thousands of successful MSME journeys within a year and a half of fully bank-funded borrowing, this approach was reinforced by blended finance. Notably, the innovative Sustainable Access to Finance to Enable Entrepreneurship program designed by Kifiya in partnership with the Mastercard Foundation created a unique Transitional Liquidity and Guarantee Facility, which uses innovative 1:3 capital matching and guarantees to de-risk banks and encourage scale. Together, these factors have triggered a system-level shift where data becomes collateral, credit scores substitute for balance sheets, and digital profitability and impact define the new language of credit.
The success of Michu, in inclusion, diversification, and profitability of commercial loans, has demonstrated the viability of working with MSMEs. This triggered a segment-led shift at a large scale, moving beyond product diversification to sustainability. The Cooperative Bank of Oromia won the Sustainable Financier of the Year award at the Global SME Finance Forum 2025. This progress is substantiated by 2.1 million loans and 310 million USD disbursed to more than 430,000 unique MSMEs. Globally, the platform I help steer has already powered 420 million USD in disbursements and 2.9 million loans, using the power of AI ecosystem technologies, harnessing inclusion through alternative data. Digital and financial literacy programs, credit scoring and intelligent decision-making, customer education, and intensive business development are helping improve the bankability of MSMEs while reducing the ratio of non-performing loans.
What we are doing in Ethiopia doesn’t stand alone; other markets have broken similar ground in their own ways. In Kenya, players like Branch proved you can lend without a formal credit file by leaning on the digital footprint of a phone, mobile money flows, handset stability, and repayment behaviour. Tala, working across Kenya, the Philippines, and Mexico, showed how everyday phone usage and payback history can be turned into a living credit profile for people long invisible to banks.
But our work in Ethiopia is different and, in many ways, harder. Kenya had M-Pesa and years of mobile money rails; Tala often operates where at least some digital ID or bureau data exist. Here, we’ve had almost none of that. The history of uncollateralised digital credit for MSMEs and the biggest mobile money platform, Telebirr, began almost at the same time. The credit bureau operated by the National Bank of Ethiopia (NBE) is not yet open for referencing to enable digital loans. Yet the waiver of fees for loans below a 100,000 ETB ticket size is a massive enablement from the NBE, even as requirements to report any digital loan to the credit reference bureau remain mandatory. Very limited formal data on MSMEs exists. Yet by opening the regulatory door, building strong bank–fintech partnerships, using AI and alternative data, and bringing in catalytic blended capital, we’ve managed to move from collateral to confidence at real scale.
The road ahead, which always excites my colleagues and me, is about expanding reach and deepening financial services, moving from simple inclusion to real usage, from adoption to sustainability, growth, and productivity. It is about financing agricultural value chains, shifting pricing to fully risk-based models, and helping our financial institutions grow by creating value where it matters most.
What matters is using AI and alternative data to unlock job creation for Ethiopia’s overwhelmingly young population, 70% under the age of 30, with a median age of 19, through the seed finance and working capital these young entrepreneurs need. What matters is deepening reach into peri-urban and rural areas to catalyse agricultural productivity and enable a transition to value addition, through sector-specific understanding and the design of appropriate financial products. It is about using credit as a driver of inclusion by integrating last-mile touchpoints and embedding financial services into everyday non-financial transactions. What also matters is shifting to value-based intermediation, moving beyond traditional pre-shipment or overdraft loans for corporates and avoiding “evergreening” portfolios through constant restructuring. And what matters deeply to us is replicating the learnings and experience from Ethiopia across other African countries where MSMEs are still struggling to access the growth capital they need.
By Yigermal Meshesha
General Manager (Intelligent Financial Services) at Kifiya Financial Technology PLC
Digital Frontiers Institute Alum and Community Member
(Article originally shared on Digital Frontiers Institute on 3 February 2026)