The mobile banking game-changer in Ethiopia
New regulations will bring m-banking to Ethiopian consumers, but limits on the companies involved and how transactions must be managed could slow growth.
On 1 January 2013, the National Bank of Ethiopia (NBE) issued a long-awaited directive that allows transaction-based mobile banking for the country's unbanked citizens.
Four major players – Commercial Bank of Ethiopia, M-BIRR, BelCash and Zemen Bank's z-Birr – are expected to begin operations later this year, making Ethiopia the last but one African country to adopt this technology; Zimbabwe continues to resist the tide of m-banking.
"It will be transformational for Ethiopia's economy in general and the financial services sector in particular," says Zemedeneh Negatu, managing partner at Ernst & Young Ethiopia.
He thinks that up to 50 million people could benefit. However, he recognises that the impact is dependent upon increased mobile penetration, as Ethiopia currently has 22 million subscribers, a figure that is expected to rise to 64 million by 2015.
Paper receipts will be required for every transaction, necessitating the use of a printer and a consistent electricity supply, both of which may not be easily available in remote rural areas.
The transfer limit is 6,000 birr ($324) – other countries have a ceiling of $1,000. In addition, foreign-owned companies are disqualified from acting as agents.
The exclusion of non-domestic players from the m-banking market is consistent with Ethiopia's policy for the sector as a whole.
The government's line is that foreign banks are barred because the country's central bank, the NBE, does not yet have the capacity to deal with sophisticated global institutions.
Zemedeneh accepts this argument, citing as evidence the 2008-2009 financial crisis and the inability of Organisation for Economic Cooperation and Development members to regulate big banks adequately.
Other analysts say that the NBE could impose whatever regulations it wanted.
A second reason given for the prohibition is that the country's nascent financial services industry – which was first opened to private ownership in 1994 – needs time to mature before being exposed to international competition.
Some banks, including Enat Bank (meaning mother in Amharic) – which began operating in March and focuses on providing services to women – are glad of the protection.
"Once we have some level of development in all the banking sector, then it will be time for foreign banks to enter the market," notes Fasika Kebede, president of Enat Bank.
Helaway Tadesse, senior vice-president of Zemen Bank, disagrees: "My sense is that most private banks are not particularly worried about the entry of foreign banks. For some it may even be a great opportunity to form profitable partnerships with leading African or global banks."
Still, he does not see the system opening up before 2015, the end of the five-year Growth and Transformation Plan.
The performance of Ethiopia's private banks over the past few years – paying annual dividends of 30-40 percent – suggests that the sector is healthy.
This is not to say that there are not significant challenges. According to Zemedeneh, they have been very slow to adopt technology.
Banks are rolling out ATMs and credit-card payment systems, but they are still limited in number. The banks are also undercapitalised given the country's gross domestic product, Zemedeneh says.
According to many observers, there is large demand for credit from the country's entrepreneurs that is not being met.
This can largely be put down to two factors: an NBE directive exacting a 27 percent levy on new loans for the purchase of government bonds; and a slowdown in the growth of deposits as a result of reduced foreign exchange inflows, tighter monetary policy and high levels of inflation.