The Microfinance Business (Amendment) Proclamation No. 1164/2019 was enacted to revise the existing Microfinance Business Proclamation No. 626/2009. It officially came into force on January 9, 2020, upon its publication in the Federal Negarit Gazette.
The primary amendments introduced by Proclamation No. 1164/2019 are detailed below:
1. Amendments to Article 2 (Definitions)
Replaced Definitions:
- Sub-Articles (3), (4), and (6) were updated with new definitions:
- “Company” (Sub-Article 3): Now defines a share company whose capital is wholly owned by Ethiopian nationals, foreign nationals of Ethiopian origin, or jointly by them/their organizations, registered under Ethiopian law with its head office in Ethiopia.
- “Compulsory Savings” (Sub-Article 4): Refers to mandatory deposits required for individuals, groups, or businesses to qualify for loans from an authorized institution, serving as collateral.
- “Financial Institution” (Sub-Article 6): Broadened to include an insurance company, bank, capital goods finance company, micro-financing institution, reinsurer, micro insurance provider, postal savings, money transfer institution, digital financial service provider, or any other similar institution determined by the National Bank.
New Definitions Added:
- Three new Sub-Articles (18, 19, and 20) were inserted after Sub-Article (17), with the existing Sub-Article (18) renumbered to (21).
- “Digital Financial Service” (Sub-Article 18): Encompasses financial services (payments, remittances, insurance) accessed and delivered through digital channels.
- “Foreign National of Ethiopian Origin” (Sub-Article 19): Adopts the definition provided in Proclamation No. 270/2002.
- “Liquid Assets” (Sub-Article 20): Includes cash, deposits with local banks and microfinance institutions, other readily convertible assets, and any other assets declared liquid by the National Bank.
2. Amendments to Article 3 (Powers and Duties of Microfinance Institutions)
Replaced Paragraphs:
- Paragraphs (g), (i), and (k) of Sub-Article (2) were updated:
- New Paragraph (g): Now refers to “Supporting income-generating projects of urban and rural micro and small-scale operators or others engaged in productive activities.”
- New Paragraph (i): Now refers to “Managing funds for micro and small-scale businesses or other related productive activities.”
- New Paragraph (k): Now refers to “Providing financial leasing service to lessees in accordance with Capital Goods Leasing Business Proclamation No. 103/1998 and Capital Goods Leasing Business (Amendment) Proclamation No. 807/2013.”
New Paragraphs Added:
- Three new paragraphs (l), (m), and (n) were added after paragraph (k) of Sub-Article (2), with the existing paragraph (l) renumbered to (o). These enable microfinance institutions to:
- Provide digital finance services (l)
- Offer agent banking services (m)
- Provide interest-free microfinance service (n)
3. Amendments to Article 8 (Measures by National Bank)
New Conditions for National Bank Action:
- Three new paragraphs (c), (d), and (e) were added after paragraph (b) of Sub-Article (1), outlining conditions under which the National Bank may take action:
- When “The institution has become illiquid.”
- When “The institution has become insolvent.”
- When “The institution has failed to obey and operate in line with the law and directive or is unwilling to do so.”
4. Amendment to Article 13 (External Audit)
- Sub-Article (1) was deleted and replaced. The new Sub-Article (1) mandates that a microfinance institution’s external auditor must submit a complete audit report (including findings, recommendations, and a management letter) to the National Bank within a directive-set timeframe. The auditor must also report findings and conclusions directly to the institution’s shareholders.
5. Amendment to Article 17 (Memorandum and Articles of Association)
- Sub-Article (4) was deleted and replaced. The new Sub-Article (4) requires an institution to “register its amended memorandum of association and articles of association or alter the name under which it is licensed.”
6. Addition of New Articles (26 to 32)
- These new articles were added after Article 25, with existing Articles 26 to 30 renumbered as Articles 33 to 37, respectively.
- Article 26: Financial Consumer Protection: Empowers the National Bank to issue directives for protecting the rights and interests of financial consumers.
- Article 27: Credit-Information-Sharing System: Authorizes the National Bank to issue a directive for the establishment, operation, and cost apportionment of a credit-information-sharing system among financial institutions, including microfinance institutions.
- Article 28: Regulation of Advertisement: Allows the National Bank to direct a microfinance institution to withdraw, amend, or refrain from issuing advertisements (across various media) if deemed false, misleading, deceptive, or offensive.
- Article 29: Outsourcing of Critical and Important Functions: States that the National Bank will determine minimum conditions for outsourcing critical and important functions via directive. These functions include deposits, loans, local money transfer, micro-insurance, and other functions determined by the National Bank.
- Article 30: Digital Financial Services: Stipulates that the National Bank shall determine minimum conditions for providing digital financial services through a directive.
- Article 31: Interest-Free Microfinance Service:
- Sub-Article (1): Directs the National Bank to issue a directive prescribing additional conditions for licensing, supervision, and requirements to establish an Interest-Free Microfinance Institution (defined as one licensed to undertake only interest-free microfinance business).
- Sub-Article (2): Permits the National Bank to issue a directive to regulate microfinance businesses related to interest-free deposit mobilization and fund utilization within a conventional microfinance service.
- Article 32: Manner of Participation of Foreign Nationals of Ethiopian Origin in a Microfinance Business:
- Sub-Article (1): Permits foreign nationals of Ethiopian origin, or organizations fully or jointly owned by them, to acquire shares or establish a micro-financing institution in Ethiopia.
- Sub-Article (2): Mandates that the value of shares acquired by foreign nationals of Ethiopian origin must be paid only in an acceptable foreign currency.
- Sub-Article (3): Stipulates that all types of payments due to a foreign national of Ethiopian origin (dividends, share transfers, sales/liquidation, or other shareholding matters) shall be paid in local currency (Birr), and repatriation of any asset or interest obtained in this manner is not allowed.
- Sub-Article (4): Allows the National Bank to issue a directive regarding additional conditions for investment by foreign nationals of Ethiopian origin in a microfinance institution.
7. Other Key Changes
- Deletions of Specific Sub-Articles: Paragraph (a) of Sub-Article (3) of Article 12, Sub-Article (1) of Article 13, and Paragraph (c) of Sub-Article (2) of Article 14 of the proclamation were deleted.
- Replacement of Terms: The terms “Inspector” or “Inspection” mentioned in different parts of the proclamation are replaced by “Examiner” or “Examination,” respectively.