Maleda Innovative Financing Unlocks 1 Million Birr in Collateral-Free Loans for Startups, SMEs

Maleda, a collaborative initiative between Sumuni Creative Solutions, Partnership for Change, and Amhara Bank, is aiming to support startups and small and medium-sized enterprises (SMEs) in Ethiopia by providing collateral-free loans of up to one million birr.

The innovative financing, open to registered and post-revenue businesses at the pre-seed stage, provides additional assistance to the ecosystem by offering access to finance, market linkage, and media exposure as part of its support package.

The collateral-free loans, allocated by Amahara Bank, one of the recent entrants in the banking sector, come with a repayment period ranging from 12 to 18 months. These loans carry an interest rate of 17% and a grace period of 3 months.

“Maleda aims to address the ‘missing middle’ in Ethiopia. There is a disconnection between microfinance institutions and banks, where SMEs are too big for MFIs but too small for banks. Consequently, SMEs are unable to obtain financing from either MFIs or banks,” explained Biruk Girma, the founder, and CEO of Sumuni, in an interview with Shega.

Sumuni, launched last year, is a web- and app-based platform that focuses on due diligence, business development, and matchmaking. It serves as a connecting point for all stakeholders within the entrepreneurial ecosystem, facilitating collaboration for improved outcomes.

Applications for Maleda are submitted through Semuni, with the firm assuming the responsibility of ensuring due diligence and facilitating business development. The call for applications has opened today, and Maleda will be accepting submissions for the next 30 days.

Existing businesses seeking finance to fuel their growth, especially those that have been operating for up to three years and require funding to expand their operations while demonstrating sales and legal contracts for sales orders, are eligible to apply to Maleda.

Partnership for Change, the third partner in the initiative, is a Norwegian Civil Society Organization that specializes in early childhood care and education. Their involvement in the collaboration aims to mitigate the risks associated with uncollateralized loans.

“We are happy to be working with Sumuni and Amhara Bank on the Maleda project that will offer crucial support to entrepreneurs, and we are excited to see what ideas the applicants will come up with that will improve the lives of children in the country,” said Ida Dingsor, Country Manager at Partnership for Change,

After the selection process, the Maleda initiative offers a comprehensive support package to empower SMEs, including media exposure, market linkage, mentorship, and monthly follow-ups until repayment. Startups and SMEs can benefit from valuable lessons in financial management and forecasting, sales and pricing strategy, marketing, and branding through their engagement with Maleda.

While Maleda is open to startups and SMEs from various sectors, it has specific target areas for lending and support. These include women-owned businesses and businesses that create employment opportunities for women, businesses focusing on early childhood development and education, as well as those providing goods and services in these sectors. Businesses located in and around Addis Ababa are also given priority.

Initially planned for two years, Maleda aims to select five applicants in its first phase. “We want to observe the repayment of the loans first before committing more capital. Thus, the repaid funds will automatically be converted back into the funding pool and loaned to other selected applicants. Through the rotation of this capital and additional funding based on Maleda’s success rate, we aim to support 100 SMEs and startups in three years,” stated Biruk.

In Ethiopia, close to two million businesses are registered as MSMEs. According to a 2021 UNDP-commissioned report on inclusive and innovative finance for development, only 1.9% of small enterprises in Ethiopia have access to loans and credit from the traditional banking system. The figure rises to 6% for microenterprises, 20.5% for medium enterprises, and 35.5% for large enterprises.

Recent years have seen various initiatives to try to address this missing middle with new approaches. In May of this year, it was announced that Michu, Ethiopia’s first uncollateralized digital lending platform, disbursed loans exceeding one billion birr. The collaboration between the Cooperative Bank of Oromia and Kifiya Financial Technology served 100,000 businesses, with an average loan amount of 12,000 birr per borrower.

In addition, the UNDP and the National Bank of Ethiopia (NBE) launched the Innovative Finance Lab in October 2022, aiming to establish a hub for piloting and scaling up flexible and innovative financial instruments that cater to the capital needs of Ethiopia’s startups and  Micro, Small & Medium Enterprises (MSMEs). The joint initiative aims to unlock 10 million dollars of capital financing in the next two to three years.