Accelerating financial inclusion in Ethiopia

Policy change
Written By Naomi Bourne
 

Ethiopia’s renewed focus on sustainable growth is a powerful opportunity for digital financial services. Smart legal and regulatory reforms can increase the benefits to everyone.

A new vision

In 2019, Ethiopia released “Homegrown Economic Reform Agenda (HERA),” which outlines its vision for propelling economic progress.

The country’s leaders hope to create jobs and drive sustainable growth in part by focusing on digitizing the economy. This requires thoughtful changes to the legal and regulatory landscape, especially as it relates to digital financial services.

Reforming the legal and regulatory landscape

The government, through the National Bank of Ethiopia (NBE), is currently focusing their reforms on digitizing financial services and bolstering the infrastructure of financial markets to support digital financial services (DFS). The goal is to foster innovation in the financial sector and leverage DFS to achieve financial inclusion and policy alleviation (Sustainable Development Goal #1).

Our team at the UNCDF Policy Accelerator has been working with NBE on these initiatives since early 2019. During our diagnostic work, we identified the absence of a non-bank e-money issuing licensing regime as an area of opportunity. Since then, NBE drafted and released two directives — Licensing and Authorization of Payment Instrument Issuers Directive No. ONPS/01l2020 and Licensing and Authorization of Payment System Operators Directive No. ONPS/02l2020 — that create opportunities for new kinds of financial service providers such as non-banks electronic money issuers and other types of DFS providers to operate. We reviewed and provided feedback on these directives at various stages of the drafting process.

Our team is currently assisting NBE in developing tools for operationalizing the directives as well as advising in planning and executing onsite and offsite tasks. We hope to make the transition to the new legal and regulatory framework as seamless as possible for both the regulators and market players.

Unifying Ethiopia’s digital payments landscape

Another promising initiative that the government has taken in line with its digital transformation vision is drafting the National Digital Payments Strategy (NDPS) 2020. NDPS aims to provide a roadmap for public and private stakeholders in digitising the country’s payments landscape. Our sister agency Better Than Cash Alliance (BTCA) helped NBE develop the strategy.

The NDPS is expected to be approved by the senior management at NBE before the end of 2020. Once approved, our team is prepared to provide active support to NBE in implementing a host of policy recommendations outlined in the strategy’s action plan. We also hope to work with key stakeholders and provide support on implementation, especially in areas that relate to the key enablers of DFS: Non-bank e-money issuance, use of agents, consumer protection, and proportional (or risk-based) customer due diligence.

Next steps

We remain committed to supporting NBE and other Ethiopian government agencies in their quest to ensure the country’s economy include everyone. Digital financial services has a critical role to play in financial inclusion and economic growth.

For more information, please contact:

Authors

Alexis Ditkowsky

Amani Itatiro

 
Naomi Bourne
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