A huge opportunity is underway for foreign fintech firms desiring to enter Ethiopia. This is due to the revision to the country’s national payment system proclamation that has been submitted to the appropriate standing committee of parliament for further review and will let foreign investors to participate as a payment system operator or instrument issuer.
The 2011 proclamation, which became effective roughly three years ago after the National Bank of Ethiopia (NBE) issued implementer guidelines, is currently being changed to include foreign fintechs to engage and participate in the financial sector either separately or in conjunction with local investors.
The draught proclamation has the paid up capital issue indicated, in contrast to the present proclamation №718/2011.
Read also A New $10M Fund Launched For Startups In Ethiopia, Courtesy Of Innovative Finance Lab
Here’s What You Need To Know
- The draught proclamation’s article 6 sub-article 6 stated that applicants for payment instrument issuer and payment system operator positions must satisfy a minimum paid up capital requirement that may be specified by the NBE directive.
- Although the “licencing and authorization of payment instrument issuers directive no.ONPS/01/2020” that was issued in 2020 stated that a minimum paid up capital of 50 million birr shall be contributed in cash for those who want to invest in the sector, the proclamation that is currently being used has not mentioned about the paid up capital.
- According to article 6.7 of the latest draft directive, foreign nationals may be permitted to operate a subsidiary that is licenced as a payment instrument issuer or payment system operator or engage in the business of issuing payment instruments or operating payment systems.
- Foreign nationals and Ethiopian organisations wholly owned by foreign nationals are required to raise capital wholly paid in foreign currency in order to operate a payment system and/or issue payment instruments. This is stated in subarticle 8 of the constitution.
- Additionally, according to Sub-Article 9, if foreigners own a portion of a fintech company, their capital must be paid in a currency that is recognised abroad.
- The same article’s sub-article 12 mentions payment in foreign currency for joining the protected sector; however, NBE’s forthcoming decree will reveal the amount.
- According to experts, the minimum paid-up capital requirement of 50 million birr is excessive when compared to other industries’ situations. Therefore, it is unlikely that the regulatory body will alter these figures for international investors, therefore new participants will need to raise foreign currency to make up the required paid-up capital.
- The proclamation states that national payment systems must include systems for payments, clearing, and settlement as well as for sending, receiving, and processing payment orders and money transfers in either domestic or foreign currencies.
- The proposed document also said that payment service providers, such as operators, participants, issuers of payment instruments, and any other entity acting as their agent or pursuant to outsourcing agreements, may operate fully or in part in the nation.
“Following the amendment of the proclamation, the ecosystem will be opened which means that highly experienced foreign companies will enter into the Ethiopian payment system. The move will uplift the success that we have so far achieved on the sector and will foster the use of a cashless economy in addition to ensuring financial inclusion besides strengthening the digital payment ecosystem,” Solomon Damtew, acting director of the directorate overseeing payments and settlement systems, recently said in a meeting with bank presidents convened by the National Bank of Ethiopia two months ago.
The two operators now engaged in the sector are Ethio Telecom’s tele birr and Kacha Digital Financial Services, while Safaricom Ethiopia is awaiting the approval of this new proclamation before launching its well-known mobile money service, M-Pesa.
Read also Niger Launches $100M “Startup and Fintech” Competition Backed By World Bank
Solomon recently claimed that the proclamation amendment will change the game because it permits reputable and seasoned foreign corporations to make market investments.
Despite only having been in business for roughly a year and a half, Telebirr has succeeded in converting half of the subscribers of the state-owned telecom company to mobile money users.
Ethiopia foreign fintech Ethiopia foreign fintech
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based lawyer, who has several years of experience working in Africa’s burgeoning tech startup industry. He has closed multi-million dollar deals bordering on venture capital, private equity, intellectual property (trademark, patent or design, etc.), mergers and acquisitions, in countries such as in the Delaware, New York, UK, Singapore, British Virgin Islands, South Africa, Nigeria etc. He’s also a corporate governance and cross-border data privacy and tax expert.
As an award-winning writer and researcher, he is passionate about telling the African startup story, and is one of the continent’s pioneers in this regard. You can book a session and speak with him using the link: https://insightsbyexperts.com/view_expert/charles-rapulu-udoh