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The Future of FinTech in Ethiopia

In light of new directives by the National Bank of Ethiopia, we have organised a webinar series together with IceAddis and the Israeli Embassy in Ethiopia about the future of financial services in Ethiopia. We launched the trilogy with the first webinar on October 20th. Watch the webinar recording here

Find below the key takeaways from the webinar.

This webinar discussed FinTech’s growing relevance, the benefits and challenges that are associated with it, and how the Ethiopian financial system could benefit from its integration. FinTech is making financial services and wealth much more accessible to the Bottom of the Pyramid market, bringing disconnected rural areas into a global payment system and an increase in customers for financial institutions. This growth in openness and an increase in customers is partnered with a more regulated environment whereby governments are involved in the regulation of what is occurring on the internet and how open banking is used.

In Ethiopia specifically, there are challenges in the financial sector. Nebiat Tekle (Account and Reconciliation Manager at Bank of Abyssinia) emphasized how the distinct lack of infrastructure in Ethiopia (with 70% of the population living in dispersed rural areas) makes the adoption of IT infrastructure difficult. Additionally, whilst having financial literacy is important for promoting access to finance, the rate of literacy is only 52%, and reflects a strong gender divide. Small and medium sized enterprises also seem to be discriminated against due to their high risk profile, their lack of collateral, and lack of profitability for the banks.

In Ethiopia, two new directives are changing the landscape of finance opportunities. Within those directives, anyone can apply for payment instrument issuers which replaces the previous Mobile and agent banking directive. If only banks and microfinance institutions could give financial and banking services to the population, the new directive will bring more players to be involved in the market: FinTech, postal services, telecom, and others (supermarkets will be able to do payment). The directive will bring alternative services like micro saving, micro credit, micro insurance, pensions, electronic receipts and more. The second directive is for payment system providers. It will bring new players to provide alternative payment gateway or ATM.

Both directives only allow Ethiopian nationals to apply to get a license, but foreign players can participate if they have an agreement with a financial institution and a license. The National Bank of Ethiopia will oversee the system and outsource the counter-parties. In order to provide more efficient financial services, the government is also preparing new regulations coming soon like requiring electronic transactions proclamations.

The associated security and data protection issues related to the rise of FinTech were discussed too. In order to secure financial services, financial institutions need to ensure that all layers of data are protected. Rahav Shalom Revivo (Ministry of Finance - FinTech and Cyber Manager) commented on the need for a holistic protection by a fusion operation centre which focuses on the multiple aspects of security; cyber security, physical security, embezzlement, fraud prevention and more. In Israel, the National Centre provides free services to financial institutions across Israel in order to help them navigate the security environment, learn about threats, and how to overcome them. A key takeaway was the importance and benefit of sharing information across organisations, nationally and globally; if institutions share their cyber information, an optimum security level can be reached.

In order to facilitate the adoption of FinTech, governments and regulators can either become enablers or showstoppers. Becoming an enabler means aiding the progression of the FinTech ecosystem, however it is also important that the environment remains secure and stable through regulation. The Bank of Abyssinia has a 5 year digital innovation plan that focuses on how they will overcome FinTech barriers. The Bank of Abyssinia can offer cross-border payment thanks to their new partnership with VISA and e-commerce options for SMBs.

Finally, the Israeli experts advise that Ethiopian financial institutions should follow the change and embrace FinTech and that regulatory bodies should share cyber-related information to bring the level of security to financial institutions to a higher level.


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