House amends law to involve diasporas in financial services
The House of People’s Representatives (HPR) has amended two separate proclamations to allow foreign nationals of Ethiopian origin to engage in local insurance and microfinance businesses.
The draft bills, first received to be amended a month ago, were referred to the Revenue, Budget, and Finance Standing Committee for further revisions.
In its third regular session held on Tuesday, and after a month-long revision, Nafekush Dessie, the Chairwoman of the Revenue, Budget, and Finance Standing Committee’s subcommittee has presented a report before lawmakers.
She told legislators that the subcommittee has found useful amendments on the existing Insurance Business Proclamation which particularly resolves the longstanding complaints in the sector.
The amended law will help combat illicit financial transactions, said Nafekush, as opposed to concerns raised by some MPs who had doubts over the capability of the National Bank of Ethiopia (NBE) to control the activities of the insurance businesses.
She further noted that the proposed amendment will “significantly offer foreign nationals of an Ethiopian origin, the long-awaited green light, letting them take part in the sector, in-turn contributing to the country’s economic growth.
As stipulated in the revised bill, NBE has been granted the power and supervisory role over investments in insurance companies of an Ethiopian origin. In addition, NBE is also tasked to supervise reinsurers as well as issuing directives necessary to supervise reinsurers.
Furthermore, the new bill introduces a new service in the sector identified as the ‘Digital Finance Service.’ NBE is empowered to determine minimum conditions required to join this newly endorsed business.
After listening to the chairwoman’s report, the House has approved the revised draft bill without any challenges. Nevertheless, the revised bill still does not allow foreigners from taking part in the local insurance business except giving the go-ahead to Diaspora’s.
According to economists, the most probable reason for the Ethiopian government to prevent foreigners from engaging in insurance businesses was to protect the infant domestic insurance companies, which do not have the desired financial strength, know-how and human resources to be able to compete with foreign insurances.
The Insurance Supervision Directorate of NBE stipulates the amount of the minimum paid-up capital required for any insures who apply for a license. Accordingly, foreigners with an Ethiopian origin need to have a minimum capital of 60-70 million Birr to apply for a license in order to undertake general insurance business activities, other than insurance of persons.
Such capital has to be paid-up in cash and deposited in a bank in the name of the company, to be established as an insurance company.
In the same session, the House listened to a similar report presented by the standing committee to revise the existing microfinance institutions proclamation. Likewise, the previous proclamation bars foreign nationals of an Ethiopian origin from engaging in the local microfinance business.
In the same fashion, the House approved the revised draft proclamation by a majority vote.
It is to be recalled that Prime Minister Abiy Ahmed (PhD) vowed to open the economy to private investments, raising hopes for easier access to funds.
It is to be recalled that during the previous parliamentary year, the legislature amended banking and finance related proclamations, which at least allows foreign citizens of an Ethiopian origin engage in the banking and finance sectors.