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Ethiopia restricts Entry of Foreign Firms in the financial sector

Ethiopia has issued a new directive that allows diaspora and local enterprises engage in provision of mobile money services.

The directive has however prohibited the entry of foreign companies in the sector- a roadblock for companies like M-PESA that have been planning to enter into the Ethiopian market this year. 

According to the directive, the National Bank of Ethiopia will only provide licenses to local mobile money service providers, while being given a mandate to regulate the sector.

The move is expected to bolster the involvement of local private entities and is part of the East African country home grown economic reform agenda, which is partly being implemented with six billion dollar finance secured from the World Bank and IMF.

Signed by Yinager Dessie, Governor of the Bank, the directive puts 50 million Ethiopian Birr (USD1.6 million) as a minimum paid-up requirement to get a license in order to open up a mobile money services providing company.

The amount should be deposited in a blocked account, the directive says.

The directive also says no person, other than Government, is prohibited to hold more than 20% of the shares of any licensed mobile money service provide.

Any company other than a government enterprise is also required to have a minimum of 10 shareholders, the directive says.

The maximum individual electronic money account balance should be 5,000 Ethiopian Birr (USD166.6), while the total liabilities of mobile money service providers should not exceed five million Ethiopian Birr (USD166,666).

 “The directive will have a positive role in raising financial inclusion, deposit mobilization, facilitating transactions and encouraging investments,” said Abdulmenan Mohammed, a Financial Expert with over 15 years of experiences.

Currently, Ethiopia has 16 private and two state-owned banks, with over 6000 branches throughout the country. The number of branches is very insignificant considering the population of the country, which is now over 112 million, according to the World Bank.  

Despite the huge expansion of branches over the past two decades, Ethiopia still remains one of the most under-banked and  unbanked economies even at sub-Sahara African standards.

While the number of bank accounts opened by users in Ethiopia skyrocketed by more than 20-fold over the past two decades, currently reaching 20% of the adult population, it remains low compared to neighbouring countries.

About 43% of adults have an account in the sub-Sahara African region, while 82% of Kenyan and 50% of Rwandan adults hold accounts, according to the World Bank.

“The government has been focusing on brick and mortar financing system. With the introduction of the new directive, Ethiopia will have strong mobile money service providers, which would certainly help build a cashless society and boost financial inclusion,” said Andualem Hailu, a Financial Expert with over two decades of banking experiences.

“Mobile money will have a positive impact. But there should be adequate regulatory framework and supervisory capacity in place as the number of service providers will be large and the number or products will be diverse,” he remarked.

“It success is also dependent on the reliability of mobile networks,” he adds.  

Ethiopia has more than 45 million mobile subscribers, while internet users have reached over 22.7 million, according to ethio telecom.

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