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Ethiopia Amends Payment System Law to Allow in Foreign Operators

ADDIS ABABA – Ethiopia has amended its National Payment System Proclamation, allowing foreign operators to engage in payment system business in the country.

Lawmakers ratified the amended payment system bill during their regular session on Thursday.

The draft proclamation was the subject of four public discussions held by the house’s budget and finance affairs standing committee after it was referred to the committee on Oct 19, 2022.

Presenting the motion to ratify the bill to the house, Committee chair MP Desalegn Wedaje said the amendment to proclamation no 718/2011 “has become necessary “to enhance the regulatory framework for new developments, changes, and innovations in the National Payment System.”

Authorities initiated the process to revise the proclamation with a view to creating a competitive environment in the payment service.

The proclamation gives the National Bank of Ethiopia the authority to grant a license to payment instrument issuer or payment system operator.

In addition to Ethiopian nationals, “foreign nationals may be allowed to engage in a payment instrument issuer or a payment system operator business,” the law reads.

They will engage in the business by raising capital fully paid in foreign currency, and may also be required to pay an additional fee in forex for joining the protected sector, as per the new law.

A Question over Compliance

While agreeing with the need to have the proclamation, some MPs, however, questioned its compliance with the existing Baking Proclamation which governs the financial sector.

“The current banking law reserves the financial sector to Ethiopian citizens only,” MP Lemma Tessema noted.

“This revised bill, on the other hand, gives a legal framework to allow foreign companies or citizens to engage in the financial sector.”

The house has to amend the banking proclamation first before enacting the new bill and allow foreign companies to work as payment operators with the ratification of the bill,

“Otherwise it would raise a question of chronological order in the legislative process,” said the MP, asking for the house to delay enacting the draft payment system proclamation.

In response, National Bank of Ethiopia Governor Yinagar Dessie (Ph.D.), said the duties of payment operators and banking service providers are different in terms of their respective duties.

“That is why we are governed under two separate proclamations,” the central Bank Governor said. He also confirmed that a revised draft Banking Proclamation that allows foreign financial institutions to enter the sector is currently under discussion and will soon be tabled in the parliament for ratification.

“The payment operators, on the other hand, work various tasks that are not covered by the banking sector,” he said. “The operators cannot replace the banks despite having some overlapping activities.”

In addition, he noted that one of the areas that foreign telecom operators entering the Ethiopian market will engage in is the business of mobile money.

“Ratifying the amended payment system proclamation now is key to facilitate their participation without the need to wait for revised the banking law,” the Central Bank Governor added.

The draft proclamation was eventually ratified with a majority vote and 3 abstained votes. It will enter into force on the date of publication in the Federal Negarit Gazette.

The ratification paves a way for the government to respond to Safaricom telecom Ethiopia’s pending applications to get a license to launch the M-Pesa mobile money services in Ethiopia.

When granted, the license will make Safaricom the first foreign company to start mobile money services in the country, and enable the telco to compete with Ethio Telecom’s TeleBirr mobile money transfer system.

The legal framework to grant mobile money service will boost the ongoing government push to issue a second full-service telecom license for a private operator, after Safaricom Ethiopia.

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