Telebirr...The Bank Killer?

Your weekly brief on all things Finance and Investing. Quick, enjoyable reads in 5 minutes or Less.

Topics this week: 

• Telebirr vs Banks: a clash of titans

• Shining a light on Ethiopian Electric Power's 300 Billion Birr debt  

Thanks for reading!

Telebirr...The Bank Killer?

In May 2021, in anticipation of Safaricom’s entry, the state owned telecom operator Ethio Telecom launched a new mobile based financial services app. 

Telebirr was not marketed with great fanfare. Nevertheless, 3 years in, it’s become a financial juggernaut. So what does this mean for the banking industry?

For starters, Telebirr boasts 41 million users (up from 36 million in 2022). In terms of banking solutions, they provide remittance services (With 20% cash reward) and small/micro loans (usually backed by either CBE or Dashen). 

The platform is technology first: this huge upper hand gives them the flexibility to try out new ways to capture a generation that has practically grown up with smartphones in their hands - የፌስቡክ ቤተሰቤ you know who you are! 

• It doesn’t need new branches to attract customers, instead scaling through cross-selling existing ones with the help of:

  • 148 master agents

  • 145k agents

  • 143k merchants

• Users skyrocketed when the government mandated that all fuel/diesel purchases and certain public services be conducted cashless.

A rosy start by many standards given banks are still predominantly doing what they’ve always done: taking customer deposits and lending out. Reliable. efficient technology is still a work in progress ('ሲስተም የለም'}. Still, Telebirr’s rapid growth has pushed certain banks to expand their digital offerings: you can now pay for school fees and utilities through digital wallets such as Apollo & Coopay-Ebirr most notably.

So why hasn’t Telebirr already shaken the banking industry to its core?

Well, the main reason holding Ethio Telecom back is that it doesn’t have a banking license (Essential for holding customer funds). It’s a telecom operator not a bank, no argument there.

Secondly, it’s government owned and it won’t allow itself to cannibalize its prized possession in CBE, the country's largest - sometimes money leaking (ወይ ገንዘቤ) - bank. 

And lastly, Telebirr's core business is different, acting more as retail service for transfers, remittances, utility payments and more. It integrates well with third party apps, making money on transactions rather than picking up interest on loans.

 For now, coexistence might just be the name of the game.

Ethiopia Electric Power (EEP) owes CBE 300 Billion Birr. What next?

A team from the የመንግስት ልማት ድርጅቶች ቋሚ ኮሚቴ revealed that the energy provider owes CBE, the largest bank in the country, over 300 Billion Birr!

This was revealed during a performance review meeting a few weeks ago.

EEP is by no means a small organization yet the sheer size of the debt raises questions over how loans are distributed, especially ለመንግስት ተቋማት.

One could argue that power generation is a highly capital intensive business. Plus, once generated, that power needs to be distributed which requires a solid infrastructure system. Add to that labor, maintenance, renovations and you get the picture of the mounting expenses that a power supplier has to incur. 

Be that as it may, ለማንኛውም ኩባንያ 300 Billion is a gigantic sum. So why was EEP able to over-leverage so much?

Few theories: 

• As a State Owned Enterprise (SOEs), the lever can be pushed forward far. In the end, it’s an SOE, it has the backing of the government and national bank

• It provides an important service: delivering essential electric power to the country. It has a monopoly meaning it owns the market!

• EEP owns high value assets that it can show as collateral.

• CBE is a government owned bank. Giving out a loan to another SOE is like shuffling money from one pocket to the other.

EEP, along with Ethiopian Airlines, was in line to be one of the few SOE’s to be partially privatized. 

A pragmatic approach from the government indeed but it begs the question: if shareholders are introduced, how will detrimental financial mistakes (like being 300 Billion Birr in debt) impact investors? 

 Will it even be an attractive investment if the organization, still አውራ ድርሻ እያለው, makes high risk decisions that will negatively impact investor returns? 

A lot to ponder and yet we shouldn't expect an electrifying response of debt repayment soon (No pun intended). 

Ethiopia is aiming to collect foreign currency by exporting electricity, at this point, paying off debt is not the utmost priority!

Thanks for reading and see you next week with more frank content!