Lessons for Ethiopia’s Digital Lending Sector from Kenya’s BNPL Collapse

The recent collapse of Kenya’s largest Buy Now Pay Later (BNPL fintech, Lipa Later, due to mounting debt and failed funding efforts, offers valuable lessons for Ethiopia’s digital lending ecosystem. As the number of financial institutions offering digital lending increases in Ethiopia, understanding the forces that led to the collapse of one of Kenya’s promising fintech innovators could prove illuminating. The Company, founded in 2018, recently entered administration, an alternative to liquidation, designed to give insolvent companies a chance to recover and continue operating. For Ethiopia, which is actively nurturing its own fintech ecosystem, Lipa Later’s collapse isn’t just a cautionary tale—it’s a roadmap of what not to do.

The Rise and Fall of Lipa Later

Lipa Later popularized the “Buy Now, Pay Later” (BNPL) model, offering consumers the ability to acquire goods in installments. For a while, it worked. Consumers flocked to the platform, and investors poured in funding. Lipa Later quickly gained traction by offering consumers the ability to purchase goods and pay in installments, targeting a market underserved by traditional credit systems. The company partnered with major retailers, offered a seamless digital onboarding process, and secured early investments from prominent startup accelerators, culminating in a $12 million seed round in early 2022.

Its model was lauded for promoting financial inclusion, allowing middle and lower-income consumers to access essential and aspirational products. Lipa Later expanded into regional markets and was briefly seen as a key player in Africa’s fintech boom

However, cracks began to show in 2024. Despite the late 2024 funding round, financial pressures escalated. Employees went unpaid for months, suppliers chased overdue payments, and legal battles revealed mounting liabilities. In one notable case, a London-based consultancy successfully sued the company for unpaid fees, exposing Lipa Later’s deteriorating financial discipline.

Allegations of trade secret theft also surfaced, involving a former executive accused of joining a competitor and helping launch a rival BNPL product. While the court dismissed the injunction request due to lack of evidence, the episode highlighted the fierce talent wars and IP risks in Africa’s fintech space.

Adding to investor concern was the controversial acquisition of Sky.Garden, a struggling e-commerce platform, for nearly $2 million—despite Lipa Later already facing financial strain.

With administrator Joy Vipinchandra Bhatt now at the helm, creditors have until April 23, 2025, to file claims. Restructuring, sale, or liquidation are all possible outcomes.

Lipa Later’s collapse is more than a failed startup story—it’s a stark reminder of the fragility of fast-growing fintechs, particularly in emerging markets. Despite early success and a promising model, overreliance on external funding, questionable financial decisions, and competitive pressures ultimately led to its downfall.

Takeaways for Ethiopia’s Nascent Digital Lending Sector

Digital lending is gaining traction, promising financial inclusion and greater access to credit. But if the country doesn't heed the hard-earned lessons from its neighbors, it risks repeating the same mistakes—at a potentially larger scale.

One glaring issue is the over-reliance on venture capital and short-term loans. Lipa Later was sustained by investor cash, not sustainable revenue. When economic headwinds arrived, it was unable to weather the storm. Ethiopian fintechs must avoid this trap by building models that are grounded in actual customer repayments and long-term financial planning—not investor hype.

Credit risk was another fatal flaw. Lipa Later’s inability to properly vet borrowers resulted in high default rates. Ethiopia’s digital lenders must do better by tapping into alternative data sources—like mobile money transactions and utility bill histories—to build more accurate and inclusive credit scoring systems. 

Loan recovery is another area that cannot be ignored. Lipa Later struggled to collect what it was owed, partly because of inadequate enforcement mechanisms. In Ethiopia, this means building out more effective collection strategies, from automated reminders to AI-driven risk tracking, and even flexible repayment plans that reflect the realities of seasonal or informal incomes. 

Let’s not forget the regulatory dimension. Lipa Later operated in a space where the rules weren’t always clear, and enforcement was weak. Ethiopia must create a regulatory environment that protects both borrowers and lenders. That means a solid legal framework, clear consequences for defaults, and support for digital enforcement tools that don't increase operational costs. Ethiopia still does not have a digital lending law.

Lipa Later’s collapse serves as a cautionary tale for Ethiopia’s digital lending industry. Strengthening digital literacy, enforcing repayment policies, improving loan utilization, and refining collection strategies are critical steps toward sustainability. Additionally, fostering a culture of responsible lending and aligning fintech solutions with long-term financial inclusion goals will be key to ensuring the growth and stability of digital lending in Ethiopia. Addressing these challenges isn’t just a necessity it’s an opportunity to build a more resilient financial ecosystem for the future.

Disclaimer: “The views expressed in this article are solely those of the author and do not necessarily reflect the views of his current or former affiliated institutions.”