S.Cs: Your Playground Is Ready 🛝

Welcome to the 81st 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:

• ⚡️ BUZZ: ECMA Warns Share Companies

• 🪄 Magic Trick: Get Paid Now, Deal With Excuses Later

• 🖼️ Big Picture

Thanks for reading!

BUZZ: ECMA Gives Final Call For Avengers to Assemble

Capital Market

Love is always the answer ♥️

Even if it comes with conditions…

That’s the strategy that Ethiopian Capital Market Authority (ECMA) has been implementing the past year or so with its mandate for all Share Companies (S.C.) to prepare for registering shareholders. 

Deadline is November 23rd, 2025.

ECMA is the governing body that regulates all things shares, bonds, derivatives and ETFs. This allows them to ensure securities are legally issued and transactions are properly registered (capturing capital gains tax, of course). They are the headmaster in this scenario.

Share Companies are the students, eager to stay in the right, listening to what the headmaster says so they can keep their grades up and their shareholders happy.

For those that choose to list on the Ethiopian Stock Exchange (ESX), price discovery is transparent and shares are relatively liquid. Transactions are made through your favorite broker, so no need to find an interested buyer/seller.

What Happens When You List?

🤑 Companies get a big injection of cash by issuing new shares, strengthening their balance sheet

🔎 Yet, they will be scrutinized with stricter regulations and disclosure to the public

🥩 Existing shareholders still keep their stake but dividends could be underwhelming in some cases if companies prioritize boosting their retained earnings for future growth. On the other hand, it might go up as the company flexes its new found wealth! That will all depend on public market dynamics.

🏪 New shareholders will have easier access to a company’s shares by going on the exchange and buying at market price

How Many Could Potentially List?

Plenty.

Think Banks (Zemen, Awash, Bunna), Insurance Companies (Oromia Insurance, Hibret, Nyala), those in Manufacturing (Moha Soft Drink, Habesha Cement, Unilever Manufacturing) and Tech (IE Networks, Kifiya, Chapa) and more…

For existing shareholders, listing gives much needed asset appreciation a.k.a liquidity: your ETB 1000 ETB par value share could turn to ETB 10,000 thanks to more market participants and steeper demand at the time of listing.

On the downside, it does invite dilution. Like when you add too much milk to a bowl of cereal…it’s still the same meal but a slightly different taste.

Some of these companies are PLCs (Private Limited Companies), a less shareholder heavy business structure that the mandate doesn’t apply to. However, a handful are looking at this opportunity to recapitalize their business. 

In fact, a relatively new PLC (At least 2 years in operation) can look to list provided that they meet the listing requirements: you can be a Real Estate Developer or an up and coming AI Data Center, the world is your oyster!

Big Picture

The time to assemble has come: the avengers have been alerted and the reckoning is here. Share Companies of all sizes will soon have ticker symbols on the screens and groupies cheering on when their stock prices go to the moon.

The mandate is a push for ECMA and Ethiopia’s broader ambition to create a very dynamic capital market, a sign of a future healthy economy. 

The country will embark on this new journey and what comes out of it could be pandora’s box. Exciting times ahead!

ፍራንክ Picks 

🚶🏽 Event: Diplomatic Charity Bazaar [ Nov 15, UNECA ]

🗞️ In the news: NBE goes full dad mode with hefty penalties in compliance lapses

♟️ Innovation: Tesfa.ai springs hope into the new look AI talent world

The Unsung Hero of Cash Flow

Finance

Let’s talk about something that could make life a little easier for Ethiopian businesses.

We’re late to everything: meetings, weddings, dates. It’s a lifestyle choice we affectionately call የሀበሻ ቀጠሮ. Sure enough, turns out the fine art of showing up fashionably (and often unapologetically) late even extends to making payments for goods and services we’ve already received.

Suppliers know the drill; chase, remind, call again, remind again and eventually hear “ምናልባት በሚቀጥለው ሳምንት….በእውነት…በእርግጠኝነት!” only to wait yet another month.

That’s where invoice factoring comes in…Money Now, Excuses Later (MNEL)

🐇 Alright, What’s This እንቆቅልሽ

ምን አውቅልሽ!

Invoice factoring is actually a fairly simple financial arrangement in which a business sells its receivables (credit invoices) to a bank or other financial institution, known as a factor, at a discounted rate.

This allows the business to access immediate cash rather than waiting for customers to pay their invoices. Usually applied to credit sales with payment terms of 30 to 90 days.

By receiving a large portion of the invoice value upfront, typically between 70% and 90%, businesses can maintain steady cash flow to cover operating expenses, pay employees or invest in opportunities without taking on traditional debt.

Now, invoice factoring isn’t yet part of Ethiopia’s mainstream financial scene. But, for now, imagine you run a plastic pipe factory. You’ve just delivered pipes worth Br. 10,000 to a ህንፃ መሳሪያ store that promises to pay you back in 60 days.

Instead of waiting, you could “factor” that invoice: a bank might give you Br. 9,500 right away, collect the Br. 10,000 from the chronically late customer later, and keep Br. 500 as its fee. Multiply that by hundreds of invoices a week and suddenly, your cash flow looks a lot healthier.

Behind the scenes, it’s all about trust, data and credit rating systems. You send the bank a list of invoices, and poof, they send you the money. Magical? Almost. It’s the kind of quiet financial service that keeps economies humming.

🎩 Bunny In The Hat

What you are going to do is negotiate on general agreements with a few banks, who will do some due diligence on you and your customers and set terms for what sorts of invoices they will accept.

And then every day you carry on with your transactions and periodically you will bundle up a few hundred transactions and send to your lender a spreadsheet list “here are the 200 invoices we got last week, they add up to Br. 2 million” and your lender will glance through the list and say “sure” and send you back Br. 1.9 million.

Offering factoring services to factories and large businesses (wholesalers) makes even more sense to launch in Ethiopia now, as your customers typically small and medium-sized enterprises (SMEs) already have credit history through digital loans, known as a credit score.

This is particularly beneficial in sectors like manufacturing, construction and agriculture, where timely access to working capital is essential to sustain productivity and growth.

The economy is lubricated. You get your money fast and the ህንፃ መሳሪያ get longer credits.

🐰 Bunny Bites

Although invoice factoring offers quick access to funds and can reduce the risk of cash flow shortages, it comes at a cost.

The factoring bank charges a fee, known as the discount rate, which reduces the overall amount the business ultimately receives. Also, depending on the agreement, the business may still bear the risk of customer non-payment (recourse factoring) or transfer that risk to the factor (non-recourse factoring).

On the other hand, a string of alleged frauds by corporate borrowers in the US is spurring ripples across banks scrambling to prevent future blowups.

A recent legal case involves the auto spare parts supplier First Brands which sent duplicate or inflated invoices to factoring banks. This can be remedied with tighter fraud detection systems without slowing down the process of payouts.

Despite these costs and potential fraud, invoice factoring can be a valuable tool for the economy, meeting liquidity needs for businesses to sustain operations or expand without waiting for long payment cycles.

Big Picture

Invoice factoring is still foreign to Ethiopia and awareness of this financing method remains limited.

The best way to approach it is to leverage what banks already have: credit scores on SMEs and traditional financial analysis of corporate/large enterprises. By applying global best practices (including fraud prevention) to address business needs in Ethiopia, the sky is the limit (…more like NBEs glass ceiling).

The financial sector is heavily dominated by traditional banking and regulatory frameworks for alternative financing tools are still nascent. Despite these challenges, factoring has significant potential to support Ethiopia’s growing private sector by improving liquidity and reducing dependency on collateral-based bank loans.

As the country continues to modernize its financial system and promote SME development, expanding access to invoice factoring could play a key role in enhancing business resilience and stimulating economic growth.

A nudge to Interest-Free Banks to jump on this as the National Bank of Ethiopia recently announced a lift on its credit growth cap.

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