finance minister to strengthen the required criteria to establish Banks
The Ethiopian finance minister has announced that the criteria which are required during the establishment and launching of new Banks in Ethiopia will face some changes and add more strengthening policies to grow the sector, the Minister Ato. Ahmed Shide Explained that the change is in consideration because Ethiopia is having a high numbered of upcoming new Banks The minister made it clear that most of the Banks are joining the market holding a very similar vision and work practice and within the upcoming change of regulation Banks which share a similar purpose shall consider to merge and work for there sustainable existence on the sector.
He also advised banks to think about mergers, since the requirements for establishing a bank in Ethiopia are getting wider and stronger, banks with the same purpose should prepare to merge and work, said Finance Minister Ahmed Shide.
The finance minister Mr. Ahmed, in his appearance and honor speech he gave at the inauguration program of Ramis Bank ( the fourth bank established to provide completely interest-free banking services in Ethiopia.) made a bold point and explained that the requirements for establishing banks are getting stronger and the government is opening up the financial sector to foreign companies, and the local Banks should be ready for the competition that awaits them.
The Minister stated that for banks to strengthen themselves, one option is for banks with similar objectives to work together and strengthen each other’s aim.
What is the current finance minister’s requirement on Bank establishment?
Currently, the main requirement for establishing a bank in Ethiopia is the amount of capital. According to the National Bank of Ethiopia law issued a year ago, the paid-up capital required to establish a bank was decided to be five billion Ethiopian birr.
The Deputy Governor of the National Bank of Ethiopia Mr. Solomon who was also present at the opening ceremony stated that even if progress is being made in Ethiopia’s interest-free banking service, only 40 percent of the total deposits collected are used for loans, which is a sign that more work needs to be done.
According to the Deputy Governor, in the eleventh month of the financial year, the total amount of deposits collected through a window and completely interest-free banks reached 171 billion birr. However, he mentioned that only 40 percent, or 68.8 billion birr was transferred to consumers in the form of loans. The number of interest-free depositors reached 15.60 million.
“Only 40 percent was used for loans. We see that 60 percent of this is not provided in the form of finance,” said Mr. Solomon, which still has a long way to go in terms of accessibility, so we need more work in terms of financial knowledge, customer protection, and legal framework.
He pointed out that the National Bank has started various activities, believing that it is necessary to study and implement financial options to fill this gap.
Mr. Solomon reminded me that the number of users who took loans from institutions that provide interest-free banking services is only 39.9 thousand. In general, this indicates that banks that offer interest-free services are not lending as many deposits as they have collected.
Apart from the banks that are currently providing the service at the window level, nine macro-finance and insurance companies are providing interest-free banking services at the window level, so the number of those providing services in this sector has reached 2, likewise, four insurance companies provide interest-free insurance services in Ethiopia. which has given 48.41 million birr worth of interest-free insurance services only in the previous week
Thus, it is said that interest-free banking services and interest-free insurance services have a long way to go in terms of accessibility.
According to Mr. Solomon, there is progress in Ethiopia’s interest-free banking service, but only 40 percent of the total deposits are used for loans, which shows that more work needs to be done. In this regard, there is still a lot to be done, but the National Bank of Ethiopia is working to fill this gap.
In particular, the deputy governor replayed the given comments regarding the frame work not being enough stating that the framework is under correction and that the national bank is working on the legal framework.
Regarding Ramis Bank, Mr.Ahmed, finance minister remained that Ramis Bank which is one of the banks established to provide completely interest-free banking services, shall not only stand its vision only on the country level but on being one of the best servers in East Africa.
The Minister of Finance Ato Ahmed stated that the country’s access to finance is growing from time to time and stated that various reforms have been implemented to increase financial inclusion.
Among them, he cited as an example the introduction of an independent Shariah-based interest-free banking service. He said that banks that were established to provide interest-free banking services have shown many benefits to the people who were unable to come to the bank because of their faith.
In addition to answering the question that has been asked for ages, the launch of this service was also a matter of rights, and the results obtained