MICROCAPITAL BRIEF: National Bank of Ethiopia Permitting MFIs to Transform into Banks, Banks to Borrow from Foreign Financial Institutions

The National Bank of Ethiopia (NBE), the country’s central bank, recently announced it has passed directives allowing the following: (1) microfinance institutions to transform into banks; and (2) banks in the country to borrow from foreign banks.

The directive regarding foreign investment is meant to address the “chronic foreign currency shortage the country has been facing over for many years.” NBE Governor Dr Yinager Dessie was quoted as saying, “Recently we have been looking for options on how we can get additional hard currency…. We are introducing this directive to help us get additional hard currency.”

MFIs seeking to transform into banks must meet a set of requirements including that (1) no regional government holds more than 70 percent of the shares of the institution; and (2) the institution holds a CAMEL (capital adequacy, asset quality, management competence, earnings and liquidity) rating of at least three out of five.

NBE regulates commercial banks and non-bank financial institutions, with microfinance institutions (MFIs) included in the latter category. Regarding microfinance, NBE establishes licensing requirements for MFIs, audits MFIs, promotes the participation of commercial banks in the microfinance industry and provides training for MFI staff. As of June 2018, NBE reported total assets of ETB 566 billion (USD 15.7 billion).

By Nathan Kiplagat, Research Associate

Sources and Additional Resources

NBE directive on foreign bank lending
https://nbebank.com/wp-content/uploads/pdf/directives/bankingbusiness/sbb-77.pdf

NBE directive on MFI transformation
https://nbebank.com/wp-content/uploads/pdf/directives/bankingbusiness/Relisecing-microfinace-as-abank.pdf

New Business Ethiopia article
https://newbusinessethiopia.com/finance/ethiopia-allows-local-banks-to-borrow-from-foreign-banks/

NBE homepage
https://nbebank.com/

NBE financial reports
https://nbebank.com/annual-report/

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