It may be a cliché, but in business, time equals money. Even a one-minute delay, not to mention one that lasts for days, would be extremely costly for any businessperson. This is particularly applicable to the realm of finance.
Given the implications that a delay has on the business decisions that are made, companies want their financial transactions to be processed in real time rather than at some point afterwards. It is the same in Ethiopia, although obtaining such a service has been akin to treading a tightrope for a long time.
When discussing the strides that have been achieved when it comes to the provision of financial services, industry veterans in Ethiopia’s banking sector almost always bring up the difficulties that the country faced in the 1980s and early 1990s. At that time, individuals were even required to present three witnesses in order to open a bank account.
Customers had to wait for days in order to acquire even the most basic banking services, which may take weeks. This pattern, which had been present for more than two decades, was reversed as a result of the partial liberalization of the sector, which made it possible for the private sector to operate within the industry.
In a nation that once had only two state-owned banks, there are now 32 operational banks with an aggregate deposit balance of over 1.5 trillion birr; this represents a great improvement over the situation before, which saw only two banks. A significant advance has also been made in the realm of digital technology in the past four years.
The widespread use of digital transactions is attributable to the proliferation of payment solutions and even mobile money service providers. The concept of mobile banking is becoming increasingly common in Ethiopia. However, not everything has been changed. Some holes are still causing problems for businesses.
Insiders refer to it as RTGS, an acronym that a lot of businesses are averse to. A real-time gross settlement, often known as RTGS, is a type of electronic money transfer in which the actual transfer happens in real time.
In theory, it is a system for the transfer of funds between banks that allows transactions to take place in a continuous manner and for each transaction to be handled in an individual manner without any delay.
RTGS grants the recipient the ability to swiftly and safely access any monies that have been transmitted. It is often administered on a national level by the central bank. Transactions can only take place between participants located within the nation governed by the central bank. The mechanism is typically designated for transactions involving greater amounts of money where it is critical to transfer the funds as swiftly as possible.
But this principle does not necessarily hold true for Ethiopia, as per the experience of traders.
Abay Kiros is a businessperson who works in the garment sector. Because of the nature of his firm, it is expected of him to make transfers to other businesses; nevertheless, doing so has proven difficult for a considerable amount of time. Abay, who alleges that it takes at least three days to transfer funds from one bank to another via RTGS, says “the delay has affected my productivity as well as my relationship with partners and clients.”
Yared Seyoum, another merchant in Addisu Gebya who deals in the sale of traditional garb, ran into the same problem when he was trying to make a transfer.
“I had to wait for more than five days in order to receive 50,000 birr that had been provided to him via RTGS by a business partner,” Yared explained to The Reporter.
Customers had the opportunity to make bank-to-bank transfers by utilizing Ethswitch, which is a national system operator that possesses a system that has connected all of the different types of financial institutions. However, the maximum amount that can be transferred using Ethswitch is less than 100,000 birr, which makes the system less useful for companies that conduct a high volume of transactions.
Tellers at financial institutions typically place the responsibility for a delayed RTGS transfer on their co-workers who provided the final authorization. The moment a consumer walks into a branch with a complaint, the employees there immediately point the finger at the finance managers working at the head office.
A teller at one of the private banks was quoted as saying, “As a teller, all I can do is tell customers to wait because I am powerless to do anything else.”
The banker is confident that there is no connection between the delay and the RTGS system.
“The system is efficient and has been proven globally,” the Banker said, adding, “The delay is the result of the liquidity shortage that has been haunting the industry for the last three months.”
There are also unethical activities in the sector, such as the habit of finance managers at some banks knowingly delaying the transfer of cash during the bank’s closing period and at times when the bank is experiencing a liquidity crunch.
Abay, the trader, has the same kind of suspicions as well.
“The depositor has the right to make the transfer at any point in time, so there should be a consequence when banks deliberately delay funds. There should be a consequence when banks deliberately delay fund, no matter how good their liquidity position is,” he concluded.
Contributed by Daniel Nigussie