Ethiopian Deposit Insurance Fund Starts Operation

ADDIS ABABA – The Ethiopian Deposit Insurance Fund (EDIF) has officially begun operations today.

The National Bank of Ethiopia (NBE) established the Fund to serve as a financial safety net for depositors of banks and microfinance institutions.

Its first CEO Merga Wakweya and Board chair Solomon Desta announced the personalization of the fund at a press briefing on Thursday.

The primary task of the Ethiopian Deposit Insurance Fund is to offer explicit depositor protection and prevent a bank run.

The financial sector has shown notable growth across multiple dimensions in recent years. The deposit bank accounts alone surged to 129.52 million in June 2023 from 98.59 million in the same month last year, per NBE data.

Starting today, the EDIF covers deposits of 100,000 birr and more per depositor in the member institutions, the Fund’s CEO said.

The fund will make payments to insured depositors in case a member bank or microfinance institution fails.

According to the Board Chair, it will have a crucial role in maintaining depositors’ confidence and preserving financial stability, among others.

Currently, there are 31 banks and 44 microfinance institutions operating in Ethiopia. These and incoming institutions are expected to sign membership agreements with the Fund to offer deposit insurance coverage for their customers.

EDIF has raised 1.6bln Birr, so far

EDIF is authorized to undertake various activities to achieve its objectives including issuing directives and collecting premiums from financial institutions.

Last July, the EDIF issued its first directive, an initial and annual Premium Contribution of Member Financial Institutions Directive 01/2023.

Per the directive, each institution is expected to pay an initial premium of 0.04% of its total deposit reported to the NBE in March 2023 to the fund in three installments until July 2025.

They will also make an annual premium contribution of 0.3% of their respective average total deposit to the Fund’s account opened and maintained at the NBE.

In the current fiscal year, the fund plans to collect a total of 6.1 Billion Birr from the financial institutions. More than 1.6 Billion Birr have been collected so far, its CEO Merga said during the press briefing.

The operationalization of the EDIF comes in the wake of a significant jump in deposit liabilities and authorities’ push to open up the finance sector for foreign investors.