🤔 To Borrow or Not to Borrow?

Welcome to the 70th 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:

• 🚣 Debt: Making It Work For You

• 🤝 Kenya and Ethiopia Trade Track for Stack

• 🖼️ Big Picture

Thanks for reading!

Truth About Debt: Good, Bad or Just Misunderstood?

Personal Finance

Let’s be honest: most of us have hit that point in life where the bank balance says “nope,” but life says “you need this now.” Whether it’s fixing your car, paying for your kid’s school or investing in that side hustle you’ve been dreaming about.

But before you go knocking on your bank, MFI or neighborhood እድር, take a beat. Here’s the deal with debt, it’s not always bad. In fact, it can be a smart financial tool if you know how to use it wisely. Think of it like fire: great for cooking, terrible if you burn down your house 🔥

Step One: Know Your Numbers

First, let’s talk budget. Before taking a loan, figure out exactly how much you need and how much you can realistically repay each week or month. And don’t forget life’s little surprises like medical bills, car trouble or that ሰፈር ልጅ who ambushes you on your way out.

Then ask yourself:

• How much do I really need to borrow?

• Can I still manage repayments if, say, I lose my job?

It’s tempting to borrow more than you need just because it’s offered. But remember, you’ll be paying it back with interest 📈.

Keep an eye on Annual Percentage Rate (APR). It’s the annualized cost of your loan, meaning how much the equivalent interest cost would be over a year, including all the hidden fees.

Sadly, none of the loan providers shout about it, which is why the central bank, yes, we’re looking at you National Bank of Ethiopia, really should make APR disclosure mandatory by issuing the equivalent of the Truth In Lending Act. Then you’ll have a real picture of those seemingly low daily interest rates from digital loan providers and easily compare your options.

Consider Telebirr’s Mela 1 month loan of Birr 3,000:

• The daily interest rate is 0.67% which seems so cute

• It’s effective annualized percentage rate (APR) comes to 247.55% including the facilitation fee.

• At this rate, assuming a 1 year loan period, you would’ve paid back Birr 10,426.50 (Principal 3,000 + facilitation fee 90 + Interest 7,336.50).

• Since it’s a 1 month loan you pay back Birr 3,693 (Principal 3,000 + facilitation fee 90 + Interest 603)

• Approximately costing you 23% (let that sink in!!). Above conventional loans’ annual rate.

• አያምጣውና late payments come with a daily penalty fee of 0.11%, adding salt to injury.

Buy Now Pay Later (BNPL) credit facilities are also booming in the rest of the world but the rates are more competitive with government oversight. Indonesia capped the maximum daily rates at 0.3%, which still comes up to 109% annualized rate.

Borrowing = Paying in Installments

Borrowing money to buy something is convenient but more expensive than saving for what you want. In a country like ours, one should also consider high inflation which keeps on pushing the target saving amount.

Sometimes, it may make sense to lock-in today’s price and spreading out the payments.

Good Debt vs. Bad Debt: What’s the Difference?

Good debt helps you build a better future. Think:

• Paying for your MBA or even online courses

• Starting or expanding a small business

• Investing in property

These types of loans may cost you today, but ideally, they boost your earning power or net worth tomorrow. That’s the kind of math we like.

On the other hand, bad debt is usually money spent on things that lose value fast or don’t generate income. Like:

• High-interest payday loans

• Splurging on the latest phone you don’t really need

• Borrowing for a vacation you can’t afford

Wait, wait…borrowing for a holiday can make sense (hear us out). If you grab a killer travel package deal and can pay the loan off comfortably, that break might just reboot your productivity and mental health. But again, the key word is comfortably.

Whereas a seemingly good debt, like a productive business loan may turn out bad. As any endeavor comes with risk and the business might fail.

So... Is Debt Good or Bad?

Debt isn’t good or bad. It’s how you use it that matters.

Smart borrowing can open doors. Reckless borrowing can lead straight into a financial trap. In our current economy, where inflation loves to crash every party, it’s even more crucial to weigh the true cost of borrowing vs. the benefits of waiting and saving.

If you're not sure, talk to a financial advisor, your bank manager or even a friend who’s oddly good with money.

At the end of the day, financial literacy is your best defense and offense. It helps you spot the difference between a great loan opportunity and a shiny trap in a fintech app.

So ask questions. Do the math. And borrow wisely.

 Big Picture

1. Debt is a tool, not a villain- Borrowing can help you move forward. But splurging on things that lose value (hello, impulse buys) without a repayment plan? That’s bad debt waiting to happen.

2. Know before you owe- Always check how much you really need, what you can comfortably repay, and the total cost (yes, that includes interest, fees, and inflation).

3. Use debt to grow- With inflation rising and shiny loan offers everywhere, financial literacy is your best armor. Make credit work for you, not against you.

ፍራንክ Picks 

🚶🏽 Event: Oracle Siebel CRM Workshop [Aug 28th @Sheraton]

🗞️ In the news: Resettlement for ET’s mega airport adds $350M to budget

♟️ Innovation: Pimp out your car on Yango’s rental platform

Kenya Asks The Vital Question “Who’s The Big Boss Here?”

Banking

For the most part, neighbors get along. 

From sharing sugar to spilling tea ☕, your neighbors are like extended family members: helpful, reliable, sometimes a bit annoying (Those epic Olympic battles!) and always close by.

That’s been the case for Ethiopia and Kenya.

Now that relationship seems to have taken a big step forward - this time, away from the track and into the boardroom.

💼 Nini mpango?

Wouldn’t you like to know? Enter Ethiopia’s Banking Business Proclamation No. 1360/2025

The deal here is that, Ethiopia, who’s opening up its banking sector like it’s opened up its heart to electric vehicles, is dangling its investment potential to foreign institutions by encouraging them to take a slice of its financial አምባሻ.

KCB Group, Kenya’s largest bank by asset, is looking to knock on our door. And as good neighbors, it’s only right that we answer.

It’s plotting an entry with the acquisition of a local bank (Unidentified so far) to make its tuxedo themed debut on the financial scene.

KCB argues that, for a successful venture, it will need to circumvent the current ruling set up by Ethiopian authorities forcing foreign entities into minority shareholding positions (40% percent of a domestic bank with caps on total foreign ownership at nothing more than 49%).

🧠 Hoja ya wajanja?

We certainly think it’s a clever move. 

Gaining entry into this nascent sector will be a huge undertaking, like catching your breath after a 10,000 meter race. 

Equipped with the right amount of capital, KCB’s move could pay dividends (See what we did there?) as it looks to acquire an entity that already has a license to operate, robust assets on its balance sheet, a well segmented customer base, partnerships on the table and possibly a brand value that may or may not work in their favor.

🎯 Walengwa ni wapi? 

While it’s not easy to pick out a target bank, KCB will probably have these criteria in its evaluation checkboard:

• Price-to-Earnings (P/E)

  > This tells us the amount shareholders are paying for each birr of the bank’s earnings

• Technological integration 

  > Banking is very much digital these days, a lack of adequate infrastructure could force for the Kenyan giant into a steep investment spree

• Brand value (Not just the logo)

  > Beyond money, KCB will have to make an argument to targeted shareholders that its values mirror those of the the soon to be acquired bank

We are not on the due diligence committee and we understand that there are more points to go over before settling for a bank just because of its cute logo. Nevertheless, this acquisition won’t be quick and expect resistance from local counterparts!

Picha Kubwa

1. A shake up in the Ethiopian banking sector is coming. With foreign investors keen on putting their mark on an untapped market, it might seem like mixing oil with water, an unlikely couple.

2. Ethiopia’s banking proclamation looks to break that boundary and KCB is at the forefront of it all. Its acquisition gameplan will be the first of its kind if it goes through, the question is, who’s the victim or maybe even, the lucky winner?

3. Kenya’s more established banking sector has defined the power of play, they're coming in as buyers whereas Ethiopia’s local boys are becoming targets. But maybe that’s how it was written in the stars all along…

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