Eat Now, Pay Much Later?

Welcome to the 77th edition of ፍራንክ Digest!

Your weekly brief on all things Finance and Investing. Quick, enjoyable reads for busy professionals in 5 minutes or less.

Here’s what’s coming your way:

• 🪄 The Art of Paying in 4

• 🏦 Record Profits: The Weak Birr Leaves Bankers Smiling For The Cameras

• 🖼️ Big Picture

Thanks for reading!

The ‘Financing At The Door’ System

Financing

You know what’s hardest to digest after a big meal at a restaurant? The bill!

We all know the feeling, ግጥም አድርገን ከበላን በህዋላ, we are rewarded with a piece of paper: “loved having you but you stuffing your face with chekena tibs and asa goulash was hard to watch so here is a fine for it”

Maybe that last part is just us but we all pay our bills in full. 

Delicious or not, the bill doesn’t change, amore.

Now, if you frequently eat out and often showcase your devouring skills then you might have wondered, why can’t I eat now and pay later…much later? After all, financing should extend to anything you purchase, right? 

Well Costco’s partnership with Affirm, a Buy Now, Pay Later (BNPL) fintech that enables anyone that uses their app to break up any bill in 4 payments, created a meme worthy headline: finance your hotdog!

Their famous hotdog costs $1.50 and that’s a very low price for any hotdog connoisseur. 

Imagine settling your beye aynetu order in 4 payments!

Affirm actually enables Costco shoppers to ‘pay later’ on items that range from $500 to $17,500, so anything from grills to stoves to gold bars! Repayment periods can be as long as 36 months.

But Buy Now, Pay Later has had its fair share of scrutiny over the years, mostly due to its business model:

• Loans are not reported to the credit bureaus with credit scores unaffected (This is especially bad for someone with good repayment history)

• With little to no due diligence, defaults can start to pile up quickly

Yet, it's an interesting concept to try out in Ethiopia, a country where credit seems like a catchy national anthem where the words are hard to sing along to.

Banks, creditors are not leveraging this potential: instead of consumers coming into branches to ask for a cash loan, why not meet them where the money will be spent? Places like:

🛋️  Furniture stores       (Ex: Solina, Be’Mister, Dubai Furniture)

🚚  eCommerce stores  (Ex: Jiji Ethiopia, Ashewa, Ubuy Ethiopia)

🛒  Grocery Stores        (Ex: Fresh Corner, Bambis, Shoa)

Imagine Melat, a 28 year old, looking to furnish her first apartment.

She steps into the store, picks out the couch that she’s been eyeing for months and pulls out her phone asking ‘Account sint new?’. 

The sales rep steps in and kindly sings the following melody into her ear “🎶You don’t have to drop that cash today, you can just use one of our financing partners…🎶”

Mesmerized by her voice, she provides her info: full name, phone number and Fayda number. The rep, fresh from her musical conquest, enters the details and pulls out the report:

Congrats Melat! You’ve been approved to own your couch in 4 easy payments! 🎉

Well behind the magic will be an algorithm, a risk assessment tool if you will. It looks into Melat, no not deep in her eyes, but rather into her financial discipline. Making sure there are no skeletons in her financial closet. Finances being the main theme here…in case it wasn’t obvious.

And just like that, the financing partner (Dashen, Abyssinia, Commercial Bank, Awash…) provides the moolah and Melat walks out knowing that the couch is hers and her wallet has survived the massacre.

Is Ethiopia ready for this fairytale story? We’re sure that the dream can be purchased somewhere…maybe in 4 easy payments? 🤔

Big Picture

We need to rethink how credit is distributed.

Buy Now, Pay Later (BNPL) is a financing model that has raised questions about its business model overseas. Yet it has shown that, when promoted correctly, it can open new doors to credit seekers, especially when it comes to buying goods and services.

Ethiopia is a blank canvas and lenders need to look at this new kind of financing option. On paper, everyone looks to win: consumers get to spread their payments over time, merchants can clear their inventories because price sensitive buyers have better payment options and lenders can capture more borrowers at the point of sale.

So, what’s keeping us from all living in harmony?

ፍራንክ Picks 

🚶🏽 Event: Future of (Digital) Work Summit [Oct 17-18, Science Museum]

🗞️ In the news: CBE Capital x Waliif sign a deal that’s first of its kind 

♟️ Innovation: Coffee trading climbs on the blockchain train with Waga Token

Banks Have A Good Year For All The Wrong Reasons

Banking

If you ever needed proof that money can multiply overnight, look no further than Ethiopia’s 2024/25 bank earnings.

One day the birr was holding on at 56 to the dollar. Then in July 2024, the government decided to let the market decide the Birr’s real value (sort of).

And the market, being the market, decided the birr was worth a lot less - about 150% less at current exchange rates of 142 birr to the dollar.

Suddenly, banks sitting on foreign currency woke up to discover their dollar balances had bulked up, in birr terms, like they’d spent a year at the gym.

Their financial statements? A festival of zeros and commas.

The Boom

Take Zemen Bank.

Once the lean new kid on the block, now flexing a 5.87 billion birr net profit, up from 2.4 billion a year earlier. Add a 1, drop the zero and it comes out to….a 145% jump year-on-year.

It pulled in 14.4 billion birr in total income, nearly half from interest on loans and another 3.87 billion birr from foreign exchange gains.

Importantly for those of you that have Zemen shares: if you haven’t already, you’ll soon be getting 47.8% in dividends! በለው, hard to believe but here’s their report! Buy yourselves something nice…like more shares.

As for expenses? Sure, they rose nearly 40%, but when your top line more than doubles, who’s counting?

Zemen also poured cash into new IT systems, automation, and cybersecurity. All sensible investments, but if you’ve ever used their mobile app you’d wonder where all that money actually went. 

Seriously, it is terrible. Zemen Bank, here’s an idea: make your app ዘመናዊ!

Meanwhile Awash Bank, the old heavyweight among private banks, announced a record 22.7 billion birr pre-tax profit, also more or less double its previous year’s record.
And Wegagen, often the quiet and sometimes forgotten middle child of the banking family, grew profits by 73% year-on-year, comfortably clearing its capital requirements early.

Everywhere you look, balance sheets are ballooning, and bankers are smiling for the cameras.

The Twist

Of course, not all that glitters is growth.
A big slice of this profit boom isn’t from banking brilliance or innovation. It’s from exchange rate translation.

When the birr weakens, any asset denominated in dollars instantly looks fatter in local currency. So a bank holding $100 million worth of trade finance suddenly gets to record billions more in birr income, without actually doing anything new.

The financials are technically true, but not exactly natural. It’s a bit like getting taller because the measuring tape got shorter.

Sure, the same devaluation that boosted profits also jacked up import costs, IT expenses, and dollar-denominated liabilities.
But while the books look fantastic in birr, the real purchasing power (and the ability to pay for imports or repay foreign obligations) hasn’t really improved.

In other words, as banks announce earnings for the last year, it’s all unicorns and rainbows until you realize it’s just the birr playing tricks on us again.

The Outlook

For now, the sector looks healthier than it has in years with big profits, rising deposits, and banks finally flirting with capital markets.
But next year, the comparison likely won’t be so flattering. Barring any policy surprises from the National Bank, the devaluation bounce will fade and profit growth will depend on actual banking, not accounting magic.

Zemen seems well positioned for that shift: a low non-performing loan ratio (2.81%), a much needed digital push, and a growing retail base.
Awash, with its vast branch network and muscle, will still outscale anyone.
Wegagen’s early capital compliance gives it breathing room.

Still, the real question for all of them: can Ethiopian banks compete with the imminent entry of foreign banks?

Frank’s Take

• Good year, wrong reasons. These over-the-top profits are exchange-rate illusions wearing a suit.

• Currency gains ≠ competence. Let’s see who’s smiling when the birr stabilizes and we can separate the genuinely strong from the temporarily lucky.

• Next stop: capital markets. Ethiopia’s banks will soon have to list on the nascent Ethiopian Stock Exchange (ESX). At that point, they’ll have no choice but to find out what investors really think they’re worth.

Thanks for sticking with us, ፍራንክ family! Keep those wallets smart and your inbox open - we’ll be sliding in next week!