ADDIS ABABA – The National Bank of Ethiopia (NBE) has increased the minimum initial paid-up capital of microfinance institutions (MFIs) by more than sevenfold.
NBE revised its Minimum Paid-up Capital and Capital Adequacy Requirement Directive to set the new threshold to get a license for microfinance businesses. The revised directive which repealed and replaced the 2015 legislation, became effective as of Jan 16, 2023.
The revision saw the minimum initial paid-up capital required to obtain a microfinance business license to 75 million Birr from 10 million Birr.
Increasing the threshold has become necessary to improve MFIs’ capacity to serve the growing needs of their customers; and foster public trust in them, as per the new directive.
The central bank sent the latest directive to all microfinance institutions for “strict implantation.” At least 40 microfinance institutions are operating in Ethiopia.
The MFIs whose initial paid-up capitals are below 75 million Birr have five years to meet the minimum paid-up capital.
They are now required to submit their action plan for the capital increase to the NBE within three months from the date the new directive became effective.
Leeway for incomings
Microfinance institutions in the process of licensing will be licensed with a threshold hold of 10 million
The directive describes these microfinances as MFIs in the process of a share subscription that held the subscribers’ meeting and applied for a license within 6 months after Jan 16.
However, such MFI shall also be required to comply with the new threshold within 7 years after starting operations and shall submit its action plan towards this end, says the regulation.
Failing to meet the threshold on the time set may put the licensed MFI under NBE receivership.
The appointed receiver may also be required to dissolve the MFI through a merger or be a subject of other measures by the Central Bank, according to the directive.
Ahead of the deadline, however, licensed MFIs may undertake voluntary merger or acquisition transactions if they see difficulty meeting the minimum paid-up capital on time.
“However, such transactions shall be made after securing consent and approval from the national bank,” reads the directive.