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Diasporas get thumbs up to venture into banking

Diasporas get thumbs up to venture into banking

A new draft bill, which was designed to amend the existing, restrictive banking and financial services proclamation, has been tabled before the House of People’s Representatives (HPR) offering a new regulation, which has given the green light to foreign nationals of Ethiopian origin to engage in the banking and financial services sector.

During the regular session of the House that was held on Thursday, Deputy Whip, Mesfin Chernet, explained the major improvements on offer and its relevance in contributing to the country’s ongoing reform as well as transfer of knowledge in the financial services sector.

The existing proclamation, which considers Ethiopian-born Diasporas as foreign citizens, bars foreign nationals from opening banks, subsidiaries, or acquire shares in Ethiopian banks.

According to the draft bill, having Diasporas directly participate in the banking sector only conforms to Ethiopia’s effort in the negotiations with the World Trade Organizations (WTO). Hence, the purchase of shares has to be only in Ethiopia and the shareholders will be paid (or earn their dividends) in birr like any other Ethiopian citizen.

But, if foreign nationals of Ethiopian origin hold shares directly in banks or indirectly by holding a share in another organization that holds a share in a bank, the foreign national of Ethiopian origin or the organization in which he is a shareholder, shall pay the values of the share only in acceptable foreign currency.

However, the new draft bill, in addition to improving the restrictive provisions, has further proposed a new provision which would allow the private sector to operate digital-based financial services. Aimed at allowing the operation of this digital based service, the bill has also introduced a broader definition of what a ‘financial institution’ is meant to be or what it includes. These are insurance companies, a bank, a microfinance institution, a capital goods finance company, a reinsurer, a micro insurance provider, money transfer institutions, a digital financial service provider, or such other similar institutions that would be determined by the National Bank of Ethiopia.

Furthermore, the draft grants the National Bank of Ethiopia (NBE) more regulatory roles granting NBE the right to issue directives to regulate banking businesses related to interest-free deposit mobilizations and utilization.

Among the regulatory responsibilities granted, the NBE can demand correction or impose bans on commercial advertisers through media, if it finds the ads as being inappropriate and against fair-trade or in violation of laws and regulations as well as for any other reasons deemed to be harmful.

The new additions further include the provision which does not allow banks to grant loans against the security of its own share. According to the explanatory document, which is attached together with the draft bill, the main reason to restrict banks from granting a loan is because their shares are their capital.

The draft introduces a provision which stipulates the minimum conditions for outsourcing “critical or important functions” which would be determined by directives to be issued by the National Bank. According to the draft, “critical or important functions” of a bank includes deposit mobilization, granting loans, remittance, international banking and any other functions as determined by the regulatory body (NBE).

The new law was slightly debated by MPs before it was referred to the relevant standing committee for further revision.