Fintech Companies And The Amended National Payment System Proclamation in Ethiopia


Fintech is a combination of the terms “financial” and “technology” used to describe a new technology that seeks to improve and automate the delivery and use of financial services. It refers to the integration of technology offerings by financial service companies in order to improve their use and delivery to consumers. Its applications extend from mobile banking and insurance to cryptocurrency and investment apps.

There are several types of fintech companies such as consumer banking and investing, mobile payments, insurance tech, digital lending and leasing, and budgeting apps.[1] Fintech has several advantages that include wider availability, time-saving, cost-saving, and a variety of services provided for the consumer. However, there are also disadvantages to fintech such as security risk, lack of physical branch, and  lack of regulation to control and oversee the operation that may lead to fraud.[2]

Ethiopia has drafted an amendment to the National Payment System Proclamation No. 718/2011 that allows foreign investors and overseas companies access to opportunities in digital financial services.  This has aroused the interest of a number of foreign fintech companies to start their operations in Ethiopia, among which are Safaricom(M-Pesa) and the Nigeria-based Paga which has partnered with the Bank of Abyssinia to develop payment solutions.[3] Foreign-owned fintech companies operating already in the market such as  Hello-cash and M-birr who have partnered with financial institutions are also pleased with the regulatory shift as they can begin the business independently. [4] There are also a few licensed fintech companies established by Ethiopians and foreigners of Ethiopian origin. For example, Arifpay Financial Technologies Share Company,

whose registered capital is about 3 million US Dollars, is the first licensed fintech company as a payment system operator to independently operate in the Ethiopian market.

In the amendment, several new definitions have been included among which payment instrument issuer has been defined as a “company or a government-owned enterprise licensed by the National Bank or a bank or a microfinance institution authorized by the National bank to issue payment instruments.”

The proclamation allows a payment instrument issuer to facilitate the provision of micro-credit including overdraft, micro-saving, micro insurance, inward international remittance, or any other related services digitally in partnership with a financial institution licensed by the National Bank. 

According to the proclamation application for a license to be a payment instrument issuer or payment system operator shall be submitted to the National Bank. An applicant shall also meet the minimum paid-up capital which shall be determined by a directive.

In addition, any business organization other than a financial institution or a government enterprise that wishes to be licensed as a payment instrument issuer or a payment system operator must create a subsidiary (the conditions of establishing one is to be determined by a directive) solely for that purpose.

Foreigners or Ethiopian organizations fully owned by foreign nationals shall engage in a payment instrument issuer and/or payment system operator business through raising capital fully paid in foreign currency.  Ethiopian organizations partially owned by foreign nationals shall invest in a payment instrument issuer or payment system operator business according to the aggregate percentage held by foreign nationals in an acceptable currency.

Forthcoming directives will address a wide range of concerns, including the licensing or authorization fee for application, the additional fee required from a new foreign entrant for joining the protected sector, conditions related to the employment of expats, outsourcing, and the relationship between the parent and subsidiary of a payment instrument issuer or a payment system operator wholly or partially owned by foreign nationals.

If the National Bank determines that the application is complete and confirms that the provisions of this proclamation and any directives that have been issued or may be issued have been met, it will react within sixty days of receiving all necessary documentation.

Finally, the amended proclamation prohibits anyone from entering any operational or system arrangement of routing clearing, settlement, participation, and management of cross-border payments without acquiring written approval from the National Bank of Ethiopia.

The full text of the amended proclamation can be accessed here: National Payment System(amendment) Proclamation

[1] What Is Fintech? Financial Technology Definition | Built In’ (Builtin.com2022)

[2] ‘Advantages and Disadvantages of Fintech Companies’ (BBVA.CH27 June 2022)

[3] Fortune A, ‘Foreign Capital to Enter Digital Financial Services’ (Addisfortune.news2022)

[4] Ibid

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