The Microfinance Business Proclamation No. 626/2009, which was issued on 12th of May 2009 is amended by Proclamation No. 1164/2019, which came into effect as of 9th of January 2020 is attached here under. The salient features included into this amendment are the following:
1. The provisions that used to prohibit foreign nationals of Ethiopian origin not to own shares of microfinancing institutions are deleted. As per the new amendment the shares of microfinancing company can be fully held by Ethiopian nationals or foreign nationals of Ethiopian origin or jointly owned by Ethiopian nationals and foreign nationals of Ethiopian origin, or by organizations fully owned by Ethiopian nationals or foreign nationals of Ethiopian origin or jointly owned by Ethiopian nationals and foreign nationals of Ethiopian origin. Foreign nationals of Ethiopian origin are required to pay the values of shares in microfinancing companies only in acceptable foreign currencies. However, the dividends or the proceeds from the transfer, the sale of the shares or the proceeds of the liquidation of the microfinancing company will be paid in Birr and such shareholder is not allowed to repatriate any asset or interest obtained due to its participation as shareholder of microfinancing companies. The amendment has defined foreign nationals of Ethiopian origin as person who is endowed with certain rights to be exercised in Ethiopia as detailed out under Proclamation No. 270/2002.
2. It should be noted that the provision of Article 25 of the Proclamation No. 626/2009, which has explicitly prohibited foreign nationals or organization fully or partially owned by foreign nationals not to open microfinancing company or carry on microfinancing business or operate branch offices or subsidiaries of foreign microfinancing in Ethiopia or acquires the shares of Ethiopian microfinancing companies is still operational.
3. The amendment has also empowered the National Bank of Ethiopia to issue directive that prescribes the manner of participation of foreign nationals of Ethiopian origin in the microfinancing business.
4. The amendment has added as additional purposes and activities in which microfinancing institutions can engage in; these are: provision of digital financial services, provision of agent banking services and provision of interest-free microfinance services. Digital financial services include payments, remittances and insurance accessed and delivered though digital channels. On the other hand, interest free microfinance institution is company that has obtained license from the National Bank of Ethiopia to undertake only interest free microfinance business.
5. As per this amendment, the minimum conditions for the provision of digital financial services, the additional conditions for the licensing, supervision and requirements for the provision of interest free microfinance services, interest free deposit mobilization and fund utilization within the conventional microfinance service will be determined by the directives to be issued by the National Bank of Ethiopia.
6. The amendment has allowed microfinancing institutions to outsource their critical and important functions as long as they meet the minimum conditions that are going to be determined by the directive of the National Bank of Ethiopia. The amendment has defined critical and important functions of microfinances to include functions relating to deposit, loans, local money transfer, microinsurance and any other function as may be determined by the directives of the National Bank of Ethiopia.
7. The amendment has added as additional reasons that entails revocation of the license of microfinancing companies. These are: where the institution becomes illiquid, or insolvent or where the institution fails to obey and operate in line with the law and directive or is unwilling to do so.
8. The amendment requires the auditor of any microfinance institution to submit to the National Bank of Ethiopia a complete audit report, including audit findings and recommendations and a management letter, within the time limit set in the Bank’s directive. in addition, the external auditor of microfinance institution is required to report its audit findings and conclusions to the shareholders of the microfinance institution.
9. The amendment has also prohibited microfinancing companies not to register their amended memorandum and articles of association or alter their name without the explicit and prior written notice of the National Bank of Ethiopia.
10. The National Bank of Ethiopia is also empowered to issue directives that are aimed at protecting the rights and interest of financial service consumers. Furthermore, the Bank is entitled to issue directive for the establishment, operation and cost apportionment of credit information sharing system among financial institutions including microfinance institutions.
11. The National Bank of Ethiopia is also mandated to direct advertisements by microfinance companies. To this effect the Bank can at any time direct microfinance companies to withdraw, amend or refrain from issuing a paid radio or television announcement, a poster, billboard, brochure, circular or other document, and a paid advertisement in regularly published newspaper or magazine that it considers to be false, misleading, deceptive, or offensive.
Posted April 16th 2020
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 microfinance-business-proclamation-1164-2019.pdf | 3927 kB |