“Introductory” remarks to the banking profession
(or how to keep money flowing in a steady stream, despite human turbulence)

Allow me to open this discussion« preliminary »— yes, preliminary, so that it flows smoothly, like a nice flow of capital in a well-polished pipeline — on a small stage of my youth and student days in DESS “Banking-Finance”.Our favorite professor, an expert in ratios as precise as a Swiss watchmaker in white gloves, had a ritual to lighten the mood before tackling the yield curve and the Black-Scholes equation:“Do you know how the banking profession was born?”Anxious silence. No one dared to answer, for fear of confusing the capital reserve with the Indian reservation. So he put on his Northern storyteller air and began.

Once upon a time, in a land of Northern Europe where winters are long and accounts are square, there lived an immensely rich man. Not rich in any way.“I put caviar in my eggs”, no: rich as a granite foundation on which even fiscal storms hesitate to strike. One day, this man had a brilliant idea:“Why let my fortune lie dormant when my fellow men sometimes lack money? I will lend it to those who can repay me.”Practicality, prudence, and a little thrill of altruism: this is the birth of the respectable lender. Reasonable interest rates, reasonable guarantees, clear deadlines: in short, a loan in a gray turtleneck, topped with an impeccable parting.

A few leagues away, the professor continued, lived another man, just as wealthy, but of a more mischievous kind. He had an even more brilliant idea—or more reckless, depending on your degree of banking sunshine:“What if I lent to those who can’t repay?”Fear in the classroom. How to lend tol’irremboursablewithout ending up as a ruined benefactor? The professor smiled : “It’s simple: we invent the profession of banker. Laughter, sometimes nervous, then sighs: we could already feel the“provision for losses”settle in our hearts.

Because the banker,he said, is not a simple lender. The classic lender measures:“Do you have enough to pay?” The banker, himself, scripts : “If you don’t have the money to pay, let’s invent something to keep the money flowing anyway. »We call these instruments. The cynics will say:instruments of torture; the optimists:musical instruments— to each his own ear. Mortgage, surety, pledge, insurance, co-borrower, scoring, securitization: the orchestra enters the pit, and the score suddenly becomes playable, even for the penniless soloist.

Lending to those who can repay is like plumbing: you screw in, you tighten, you charge for the work, and the water flows. Lending to those who can’t is like architecture: you have to imagine arches, buttresses, scaffolding guarantees, and insurance nets. You transform risk into a product, time into a price, uncertainty into a contractual appendix. The miracle is discreet, but spectacular: trust—that invisible and stubborn thing—becomes monetizable, amortizable, and, sometimes, tradable on the shelf.

The teacher liked simple pictures.« The banker sells time », he said.In cash, time is free; in credit, it costs.And the more you hurry, the more you charge per minute. The banker is the watchmaker of impatience: he rents the future to some, in exchange for the promise of the future to others.This is called the transformation of maturities: taking savings that are bored over there and having them visit, under good escort, projects that are happening here.If the walk goes well, everyone greets each other. If the walk goes off the rails, we discover that the risk management resembles an umbrella lent when the weather is nice and taken back at the first downpour – a deliciously unfair caricature, but pedagogically effective.

Then comes causticity, that condiment without which the economy becomes bland soup.“Why lend to those who cannot repay?”For three reasons, our master sorted: first, because they too have projects, and the economy does not only grow in the heated greenhouses of perfect balance sheets. Second, because GOOD price the risk, it’s a profitable art: the higher the obstacle, the more expensive the ticket. Finally, because we can pool, diversify, package — yes, package — these risks in large baskets with reassuring labels, which we sell to people who find it hard to resist the word “prime”even when it comes with the prefix “sub”.

Obviously, causticity had the right to exist.“The banker is the magician who transforms a fragile promise into a solid product, and then sometimes promise when the product breaks.We laugh, a little bitterly, but we understand: between the idealism of financing and the realism of recovery, there are fees, covenants, committees, (capital) buffers, and (bonus) buffers. On good days, these buffers cushion the shocks. On bad days, they serve as a buffer while waiting for recapitalization—private, if all goes well; public, if all goes badly.

The banker is neither angel nor demon; he is the architect of the possible. He dresses uncertainty in a three-piece suit:due diligence, term sheet, closingHe knows that a balance sheet is a novel in two columns: assets, liabilities, and in the middle, the plot of trust. He learns very early on that the worst variable is the human, and that the human, precisely, is the only interesting variable. So he classifies, notes, segments,scorise—to make turbulence believe it’s being well-behaved. Sometimes it works. Sometimes turbulence remembers it’s a storm, and we rediscover that a « stress test » is aptly named.

“And morality?”we asked, like good students who look for the concluding paragraph before even reading the appendix. The professor replied:« The moral is that the banker does not lend tol’irremboursable; he lends againstl’irremboursable: against collateral, against diversification, against a risk premium, against supervision. When he forgets the cons, he is called to order by reality.In other words: without discipline, financial poetry turns into a slam of judicial recovery.

If the first rich man in the fable invented prudence, the second invented creativity. Between the two, the banker has built a profession: organizing the transition from dream to project and from project to flow, while taking a reasonable margin—or an unreasonable one, but it ends badly. He doesn’t have a monopoly on virtue, but he does have a patent on paperwork:suspensive conditions, repudiation clauses, in fine amortizations, triggers, step-up, step-down, and other joys that transform a« Yes » in a succession of“yes, but”.

And we, poor students, ended up laughing—sincerely—because, behind the joke, the picture was accurate. The banking profession excels at holding together opposites: rigor and audacity, fear and appetite, the proclaimed general interest and compound interest applied. We can mock it, we must be wary of it, and we gain from understanding it. Because a society that demonizes its bankers ends up financing itself with tarot; a society that sanctifies them ends up putting a price on everything, including the compass.

So, if you come across, in the pale light of a Nordic winter or under the too frank light of a fiscal summer, a character who talks about lending you despite your weaknesses, don’t cry scandal too quickly. Instead, ask where the counterparts are,how to diversification, and who holds the baton of the orchestra. If the answers hold water, you will have met a banker. If not, you will have encountered a storyteller—and in both cases, you will have learned something about the mysterious economics of trust.

This is why,concludedour teacher, a bit mischievous:“The banker was born the day someone understood that one could lend to reality as it is, not as one dreams of it—even when it cannot repay itself.”And the class, finally relaxed, felt ready to face the next chapter: measured turbulence, in other words… finance in a regime/laminar.

Executive Summary

In Djibouti, loans« school/higher education » that have 0% interest more short-term(3–12 months) are spreading in commercial banks. They appear attractive but have implicit costs(fees, insurance), asalary domiciliation requirement and high deadlines which expose many households to over-indebtedness. In a labor marketnarrow, highly segmentedand marked by youth unemployment among the highest in the world, these financial products are not suitable for financing long or expensive study courses. Conversely,the absence of public systems(targeted scholarships, repayment loansconditionedincome, paid apprenticeship) transfers a macro-social risk onto households, even though educational investment generates measurable private and public returns(income, taxes, productivity). This note explains, with numerical examples,where are the transcurrent loans,Why And comment the State can (and must) intervene, what guarantees plan to protect students and their families.
Key sources: banking offers in Djibouti (BCIMR, BOA-Mer Rouge), employment data (World Bank/FRED, Human Capital Review), sectoral diagnostics and literature on education returns(World Bank/OECD). (bcimr.dj)

1) Context: a learning environment that could be improved and a constrained labor market

• Learning fundamentals and progression: Recent World Bank documents highlight the need to improve learning outcomes, despite gains in access over two decades. In other words,average quality remains a challenge, which weakens subsequent success in higher education. (World Bank)
  
• Access to higher education: the most recent and comprehensive data on tertiary enrollments remains plots for Djibouti, but the profilesSDG4and UNESCO analyses indicate ahistorically low levels at the entrance to higher education. This scarcity of data, in itself, argues for better measure and publish. (Africa Capacity Building Institute)
  
• Labor market : the share of the formal private sector in employment is very modest (~10%), alongside a large public sector and an informal dominant. Skilled jobs are concentrated in the public sector, while the private sector recruits massively at lower qualification levels.World Bank)
  
• Youth unemployment : the rate of unemployment 15–24 years old is established at76.3% in 2024(modeled estimate ILO, World Bank/FRED) –the highest in the worldaccording to recent comparative rankings. The probability of a job quickly after graduation is therefore low, which complicates any accelerated reimbursement. (FRED)
  

Implication: in such a context, model financing mechanisms« fast »on future incomeuncertaincreates risk asymmetryunfavorable to households.

2) Banking products today: “0% interest”… but not zero cost

2.1. Observed characteristics

• BCIMR – Higher Education Credit : 0 %, 12 months, 100 000–750 000 DJF, application fees(25,000 to 75,000 DJF) andsalary domiciliationrequired. (bcimr.dj)
  
• BCIMR – School Credit : 0 %, 12 months, 100 000–500 000 DJF, administration fees (25,000/40,000 DJF), same documentary logic. (bcimr.dj)
  
• BOA-Red Sea – “All to School” : 3–11 months, up to 5 months of salary, compulsory domiciliation and insurance. (Bank of Africa)
  

2.2. Where are the costs hidden?

1. Fixed costs: even at “0%”,application fees substantially create an implicit cost.
   
2. Short duration: spread in3–12 months imposes a high monthly payment, so effort rate heavy for modest/irregular incomes.
   
3. Assurance(depending on the establishment) and salary domiciliation: de facto filter households self-employed And informal. (Bank of Africa)
   

Educational point – “0%” is not “0 cost”.When the fees are paidat the startand that capital decreasesevery month, the cost in relation to average capital used may be pupil(see box).

3) Box – Three simple examples of “implicit cost» and dthe effort rate

Simplified calculations for educational purposes (excluding insurance): distribution into 12 equal monthly payments,fees paid at departure, and capital AVERAGE used ≈ 50% of the principal over the year.

• Home: 150,000 DJF, fees 25,000 DJF
  
  • Average capital ≈ 75,000 DJF →implicit cost ~33%/year (25 000 / 75 000).
    
  • Monthly payment ≈12 500 DJF.
    
• Cas B: 500,000 DJF, fees 40,000 DJF
  
  • Average capital ≈ 250,000 DJF →~16 %/an (40 000 / 250 000).
    
  • Monthly payment ≈41 667 DJF.
    
  • Order of magnitude of the effort rate: a World Bank document (2021) cites≈104 161 DJF average salarypublic And ≈84 221 DJF in private informal: the monthly payment would represent approximately40 %of the first and≈50 % you second. (World Bank)
    
• Cas C: 750,000 DJF, fees 75,000 DJF
  
  • Average capital ≈ 375,000 DJF →~20 %/an (75 000 / 375 000).
    
  • Monthly payment ≈62 500 DJF→ effort rate≈60–74 %on the same salary benchmarks.
    

Conclusion of the box: with fixed cost and short durations, the real costgrows stronglyon thesmall amountsand the low income. Householdsnon-salariedare almost excluded (salary domiciliation). (bcimr.dj)

4) Why the “0% short-term loan” model is poorly suited to higher education

1. Duration/return mismatch: a diplomat takes time to produce income. However, current loansturn off the saidBeforeentry into employment –without grace period. (bcimr.dj)
   
2. Risk of unemployment: with youth unemployment ≈76%, the probability of an integration income immediately is weak →default or arbitration abandonment. (FRED)
   
3. Job segmentation: the formal private narrow (~10%)» propose few qualified positions/entry. Social mobility is mainly based on the public, already saturated. (World Bank)
   
4. Quality and orientation : without reinforcement of learning And matching sectors, we finance studies including the local yield is uncertain. (World Bank)
   

5) The blind spot of public authorities: an investment policy, not a “lost expense”

International literature has long documented private returns (~9% per year of studyon average) andpublic(taxes, lower transfers) substantial to educational investment. In other words,to finance the student, it is notnot“losing” money is buy future growth. (World Bank)

• Private returns: graduates better integrated and better paid during their working life (robust multi-country evidence). (World Bank)
  
• Public returns: the OECD estimatesnet financial returnssignificant for States which subsidize higher education (order of magnitude:several tens of thousands of dollars per graduate in the countries observed).Transposable in principle in Djibouti, if we target the sectors relevant. (OECD)
  

Consequence: public inaction adds the social cost (abandonment, short-term debt, poor guidance). Conversely, earmarking resourcestowards success(scholarships, adapted loans, apprenticeships)secureprivate yieldAndpublic. Positive signal: a support of US$11.35 million was approved (May 2025) to improve learning opportunities – to be amplified, targeted and linked to student funding.World Bank)

6) Target architecture of “pro-success” financing

6.1. Guiding principle

Aligner financial terms(duration, depreciation, criteria) on actual performance schedule studies and on the domestic employment structure.

6.2. Four operational pillars

Pillar A – Targeted scholarships & success contracts

• Scholarshipsmerit + needfor sectorsa tension(health, education, energy, industrial maintenance, logistics, digital).
  
• Success Contract: payment conditioned to progression (credits validated, attendance), with tutoring and accompaniment.
  
• Annual transparency:insertion rate And entry-level salaries by sector to guide choices (publication obligation).
  

Pillar B – Public or guaranteed “income-related” (IRR) loans

• Refund indexed to an income threshold(eg 8–10% above a floor).
  
• Grace period(12–24 months) after graduation.
  
• Unemployment insurance integrated: if income < floor,suspension automatic.
  
• Management by a public agency(ex. student loan fund), refinanced at low cost(peg from DJF to dollar → monetary stability to be exploited forto lengthen maturities). (banque-centrale.dj)
  

Pillar C – Paid apprenticeships & co-financing for businesses

• Model alternation: part of the costs covered by the employer-trainer, which is committed to an internship/job.
  
• Public bonus (hiring/apprenticeship bonus) for sectors priority.
  
• Transfer of skills clause in public contracts and concessions: obligation to apprentice quotaDjiboutians.
  

Pillar D – Micro-grants and safety nets for access

• Aides priming to cover accommodation, transport, educational kits.
  
• Emergency fund for academic future(illness, death of the provider, etc.).
  

7) Regulatory safeguards for existing “school/study” loans

1. Displaying the total cost: fees, insurance and any levies must be included in aTAEG/TEGclear with numerical examples.
   
2. Fee ceiling: sliding scale proportional to the amount (avoid punitive “fixed fees” on small loans).
   
3. Minimum durations: establish a minimum of 24–60 months for any financing of higher education,with grace.
   
4. Right to postponement : report/suspension without penalty in case of unemployment certification.
   
5. Expanded eligibility criteria: alternatives to the salary domiciliation(partial public guarantees, academic scoring, co-signature by the employer-trainer).
   
6. Prudential supervision: monitoring of effort rate(>30–35% = risk signal) and defects on these segments.
   

8) For an uninformed public: recognize the “red signals” before signing

• “0%” with large fees: the higher the costs fixed and duration short, the more the implicit cost climbs. (Example: 150,000 DJF with 25,000 DJF of expenses ≈33 %of implicit cost over one year; see box.)
  
• Monthly payment > 30–35% of net income: attention to the effort rate; beyond that, high risk of  default and of arbitrage(abandonment of training).
  
• Mandatory salary domiciliation: if your income isirregular(informal),avoid; preferscholarshipsorRPR loans. (bcimr.dj)
  
• Insurance required: check what it covers(death, disability… not unemployment in general).
  
• Duration 3–12 months for recurring costs(housing, transport): unsuitable → favoured-salong maturities.
  

9) Why and how the State must act now

9.1. Economic and social reasons

• Systemic risk households: multiplication of small short-term loans weakens the consumption and increases the vulnerability.
  
• Inefficience allocative: the absence of price signal on orientation (weak insertion data) leads to suboptimal choices.
  
• Equity: the talentsself-employedorruralare excluded by the current criteria (salary domiciliation). (bcimr.dj)
  

9.2. Levers for action (indicative timetable)

• 6–12 months :
  
  • Decree/transparence/TEG And fee ceiling ;
    
  • Publication of indicators/integration/salaries by sector;
    
  • Pilot launch paid apprenticeship(logistics, energy, health).
    
• 12–24 months :
  
  • CreationStudent Grants and Loans Agency(one-stop shop; RPR management);
    
  • Fund the guarantee targeted (50–70% of banking risk) for loans to60–120 months ;
    
  • Pactes companies-university/CFP: co-financing of costs against engagement d’embauche.
    
• 24–48 months :
  
  • RPR extension to the stronger(bilateral recovery agreements);
    
  • Scholarships/post-master’s degrees in exchange for a service public (ex. 3–5 ans).
    

Existing support: the IDA envelope11,35 M US$(May 2025) canto primethe ecosystem: measurement of achievements, orientation, seed funds, success grants, first cohortRPR. (World Bank)

10) Respond to common objections

• « We don’t have the means »: the returns (taxes, VAT via consumption, lower social transfers)surplusmedium-term costs in many contexts; the key is to targetthe sectors tolocal yieldand of conditionhelp withsuccess. (OECD)
  
• “The private sector must finance” : Yes, more with co-financing And risk sharing(limited public guarantee, alternation). The private sector alone cannot absorb macro risk, nor broadcast the equity access.
  
• “0% solves everything”: no. Without adequate duration, grace, unemployment insurance And transparent total cost, the 0% hides a high implicit cost and one unsustainable effort rate(see box).
  

11) Summary recommendations (public policy checklist)

1. Make it mandatory to display the total cost(TEG) for all “school/study” loans.
   
2. Extending maturities(≥ 60 months for higher education) and establishing agrace(12–24 months).
   
3. Set up an RPR public loan(income-based reimbursement) via a dedicated agency.
   
4. Deploy of the targeted scholarshipsandmicro-scholarshipsdaily life (housing, transport).
   
5. Institutionalize alternationand theco-financingbusiness-state-student.
   
6. Publish annually: integration rate, entry-level salaries, abandonment,by sector.
   
7. Open eligibility to self-employed(partial public guarantee, academic scoring).
   
8. Frame THE fixed costs(proportional scale, ceiling).
   
9. Lean back the effort to existing supports(IDA 2025) to finance measurement, guidance, and aRPR pilot. (World Bank)
   

12) Conclusion

Current funding of studies byultra-short loans is 0% more expensive in practice is not a sustainable solution for Djibouti: it shifts the risk of the education system and the labor market on households, who are the least capable to absorb it. In a country where the youth unemployment is exceptionally high, where the formal private only absorbs one petite fraction of the workforce, and where the fundamental learnings still need to be strengthened, the only rational way is to treat education as a public investmentassorted withfinancial safeguardsand areal policy of matching training and employment. The tools exist:targeted scholarships, RPR loans with grace, paid apprenticeship, limited public guarantees And transparency results. Implemented consistently, they reduce the trapsfor families,securestudy trajectories andmaximisentreturnsprivate and public education – that is,exactly the opposite of “lost funds” financing. (FRED)

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Key references (selection)

• BCIMR: Higher education credit / School credit (conditions, fees, domiciliation). (bcimr.dj)
  
• BOA-Red Sea: “All at School” loan (duration 3–11 months, direct debit, insurance). (Bank of Africa)
  
• Youth unemployment: FRED (Bank of Saint-Louis) –World Development Indicators(ILO modeled), Djibouti 2024. (FRED)
  
• Employment structure : Djibouti | Human Capital Review(World Bank). (World Bank)
  
• Learning/quality: World Bank Document (Education Sector Context Annex). (World Bank)
  
• Appui IDA 2025: World Bank Press Release (May 2025). (World Bank)
  
• Education Returns: Psacharopoulos & Patrinos (2018); OECD indicators (public returns). (World Bank)
  

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Appendix – Methodological note

This note is aimed at an uninformed public, in particular Djiboutian students: the calculations of « equivalent implicit rate  » are educational, intended to illustrate the impact of fixed costs on a loan amortized in 12 months. The APRofficial would depend on the exact flow schedule(date of charges, insurance, collection dates). The figuresjob and learningrefer to the latest available public sources and must be updated each year by the authorities (proposal § 11-6). (bcimr.dj)