Hey crew, here’s to another week of cutting through the noise and focusing on what actually moves financial minds forward.

No buzzwords, just clear shifts you can use:

🛻 Why Always Collateral?

🫦 Equity Bank Does Some Light Flirtation

⚡️Large Institution Signs Large Thing In Large Conference Room.

Here’s to the 108th edition

Let’s dive in.

The Chicken and the Egg problem is a classic brain teaser. It asks the question: which came first? The Chicken or the Egg?

Bet the you’ve never thought about that.

Yet, the same paradox can be used in the borrowing world where collateral is put into the mix.

Collateral is used to hedge any risk of default (Let’s say you take the money and go to Mombasa 🏖️ for a unjustified weekend getaway instead of paying off your 16% car loan, they can take your collateral and call it a day to cover their losses).

The collateral is a guarantee, an insurance on your word, the thing that will make your borrower sleep peacefully at night when chamomile tea is not working.

But, there’s a problem. If you apply to get a house and need another house as collateral, how does that work?

You need property to borrow money to buy property? The logic ain’t logic-ing until you understand that you can use other people’s asset as collateral. True friendships and ዝምድና ties are tested this way fyi.

And that’s how lending, especially in Ethiopia, works most of the time. Mind you, the new house can be collateralized itself, but only if it ‘exists’ and it has proper paperwork. Under construction future homes can be a touch tricky to appraise and hold on to…

How Does This Affect Me? If you’re looking to take out a loan, the word ‘collateral’ will be used repeatedly. Be aware that most of the time, the collateral is 100% to 125% or more of the value of whatever that you’re buying.

Digital loans are now reducing the need for collateral, starting with smaller loans and higher interest rate.

Understanding the terms of the loan is key and of course. Bur in case of collateral, make sure you are not putting your family heirloom at risk!

Kenya’s Equity Bank just left heart emojis ❤️❤️❤️ to a certain someone in Ethiopia.

That certain someone was revealed to be Sidama Bank, an institution with roots in microfinance which gradually grew into a full fledged bank.

Sidama is not very renowned in the corridors of the banking halls here but it possess something that every foreign bank is salivating over: an Ethiopian Banking License!

What’s the early relationship status you say? Well, it’s…confusing.

The signed agreement promises the establishment of “a formal banking relationship” which we interpreted as Equity opening up a ‘virtual regional branch’ in Ethiopia but with limited service offerings.

This looks like the early stages of a serious relationship: it all starts with a little flirting, then we say those magic words, followed by a commitment to live together and then. Boom. Married…Equity Bank is in the Ethiopian market, stretching its legs on the couch and making itself comfortable.

How Does This Affect Me? Equity is one the leading banks in Africa, its reputation and experience in other markets will translate positively on us.

If marriage is where it’s going, new products and services could be at our fingertips: credit cards and overdraft to name a few. So, should we not support the potential nuptials? 🕊️

Ethiopia’s capital market is preparing to introduce something called Collective Investment Schemes, or CIS.

Awful name. Sounds like a department that asks for three copies of your ID.

But the idea is actually very useful, especially because this is less about large institutions signing large things in large conference rooms, and more about a much simpler question:

What should ordinary people do with their money before inflation eats it with shiro?

The Ethiopian Capital Market Authority (ECMA) has finalized the directive and sent it to the Ministry of Justice for final review. It’s unclear why the ECMA needs the Ministry of Justice’s stamp of approval on its own directive, but that’s the “large institutions signing large things” part covered.

The useful part is this: once approved, licensed professional fund managers will be able to launch products like mutual funds, money market funds, and real estate investment funds.

In plain English, a CIS lets many people put money into one professionally managed fund. The fund manager then invests that money on their behalf.

Why should you care?

Because most of us don’t have enough money, time, or blood pressure medication to invest properly on our own.

Say you have 20,000 birr sitting in your account.

It’s too small to buy property.
Too small to start a serious business.
Too precious to give away.
And too exposed to inflation if it just sits there doing nothing, except sending you occasional SMS alerts about meagre interest deposits.

A money market fund, for example, could pool your 20,000 birr with thousands of other people’s money and invest it in safer short-term instruments like government securities, currently yielding about ~13.5% in interest, much higher than your average ~7% savings interest. You still own your share, but you don’t have to personally understand auctions, yields, maturity dates, and all the other big words that make people sweat.

That’s the point.

CIS products could give ordinary savers a middle option between leave it in the bank and buy apartment in a place your ደላላ insists will become the next Summit.

How does this affect me?

Not immediately. Mutual funds won’t appear in your banking app tomorrow morning next to mobile transfer and school fee payment.

But once licensed fund managers enter the market, you could eventually have more ways to save, invest, diversify, and protect your money from slowly losing value.

All Things Considered

This is boring paperwork with real-life consequences.

Because personal finance in Ethiopia is still too limited. Most people are told to save, but not shown where to put the savings. They’re told to invest, but the options often require huge money, insider access, or suspicious confidence.

CIS products won’t solve everything. But if done properly, they could give regular people a safer, more formal way to make small money act a little bigger.