Yom Postgraduate College

A draft bill that will grant digital credit issuers a special license is in the pipeline, the National Bank of Ethiopia (NBE) said.

Officials of the regulatory body are considering introducing a new legislation that will allow licensing of digital financial service providers.

The new legislation necessitates amending the Banking Business Proclamation as well as Microfinance Business Proclamation.

The current proclamation on payment systems enables licensing of payment instrument issuer and payment system operator. It recognizes fintechs as facilitators of digital transactions between financial institutions and end customers. However, they can also provide digital micro-saving and lending in collaboration with banks, on which Telebirr has begun the service last August.

Based on the existing rule, foreign upcoming Fintechs like M-Pesa, cannot provide digital micro saving and lending, unless partnering with banks.

But if the new legislation is ratified, such companies will be allowed to use their own capital to provide digital micro-lending, without relying on banks’ capital. Yet, it cannot be allowed to collect saving from depositors.

“If a company wants to provide digital credits, it is a different business. NBE is considering a new legislation. A company who has its own capital, and does not need to collect saving from depositors, can do such job,” said Solomon Damtew, Payment and Settlement System Director at NBE.

The Budget and Finance Affairs Standing Committee of the Parliament held a discussion with central bank officials on the revised National Payment System draft proclamation.

During the session, NBE officials indicated that a law that grants a special license is in the works along with the bank business proclamation, which is also under amendment process.

Solomon told the committee that any institution wishing to engage in any digital credit service must first obtain a specialized license from the bank.

“In the existing arrangement, there is no law that allows anyone to extend credit simply from their own assets unless they have collected from depositors or sold a share,” Solomon said.

Once the proposed bill is ratified, firms will be permitted to function as digital credit issuers using the cash collected from their own sources, and the NBE will adopt directives and regulations that will allow digital credit providers to engage in credit-only provisions.

The upcoming digital credit arrangement is projected to increase credit availability and accessibility.

Telebirr Mela is a credit facility that provides loans of up to 2,000 birr per day and up to 10,000 birr per month based on transaction history of customers. M-Pesa, Safaricom’s flagship mobile payment platform, will become Ethiopia’s first international service, competing with state-owned telebirr.

Leave a Reply

Your email address will not be published. Required fields are marked *