The National Bank of Ethiopia (NBE) is considering a revision of the mobile and agent banking directive issued in January 2013.
The directive, which opened the door for banks and microfinance institutions (MFI) to provide transaction-based mobile and agent banking services, was long-awaited for its ability to reach unbanked communities, according to executives who talked to Fortune at the time of the directive’s launch.
The NBE, however, is now assessing whether the involvement level of foreign companies, which partner with local financial institutions by providing them with technology to launch mobile and agent banking, could be construed as an incursion into the banking business – a sector reserved only for Ethiopian nationals.
“It is something that we are looking at very carefully, because the country’s laws are strict,” a senior official within the NBE told Fortune.
Even a company that has a foreign national as a very minor shareholder cannot buy shares in a financial institution, according to existing rules.
“Possible restrictions on licensing may be added, if the central bank deems technology providers are entering into the provision of financial services,” a senior official within the NBE told Fortune.
Amendments on technical provisions of the directive may also be forthcoming, according to this official. Since the country does not have prior experience in mobile and agent banking, international consultants with knowledge of the subject were commissioned by the NBE to look at the directive. These consultants have made some amendment suggestions, which the NBE is now considering, the official said.
Until the NBE clarifies its concerns, it is holding off on granting permanent licenses to financial institutions that have filed applications to launch mobile banking in partnership with technology providers, Fortune confirmed from three officials inside the NBE.
Already several banks and MFIs have submitted applications to launch mobile banking at the NBE. Most of these financial institutions have partnered with the two major foreign mobile banking technology providers with established business inEthiopia- the Irish M-Birr and Dutch-based Bell Cash Technologies. These companies have been licensed as value-added service providers.
M-Birr has partnership deals with Addis, Oromia, Dedebit (Tigray), Amhara and Omo Credit and Saving Institutions – known in the MFI sector as the ‘big five’. While some of these institutions, including Addis, have been granted a pilot run of their mobile banking projects, none have been given a permanent license yet.
Addis could not go through with its permanent mobile banking launch because the National Bank has still not given approval, according to Awash Abetew, president of the Addis Credit & Savings Institution.
The same has happened with the Lion International Bank (LIB), Cooperative Bank of Oromia (CBO) and Bunna International Bank (BIB), which have applied for licenses after partnering with Bell-cash.
“We understand that there is an issue, which the NBE is trying to resolve,” an executive at one of the three banks anonymously told Fortune. “Officials have had several meetings with us over technical aspects of our application and have also met with our technology provider, Bell Cash.”
One of the concerns the NBE has is the revenue sharing agreement these technology providers have with financial institutions, according to sources.
Usually the technology providers use two models when charging for the technology they provide. One way is to ask for a very high initial payment when installing the technology and then providing a small flat fee for each transaction conducted through the mobile banking technology.
Another way is to lower the initial technology installation cost, but charge on a scalable percentage basis for each transaction.
“This means that a technology provider would charge a higher percentage fee for a 6,000 Br transfer, for instance, than it would for a 1,000 Br transaction,” a stakeholder in the industry explained.
Benefitting from larger transactions would mean a bigger involvement in money circulation for technology providers, and can be viewed by some as involvement in the financial industry.
This was part of the conversation that the NBE had with Bell-Cash when reviewing the applications by partner banks.
“Though we did not charge a percentage fee for transactions, we did have a flat-rate fee that was scalable when the value of transactions increased,” Vince Diop, manager of the international Bell Cash, said.
After talks with the central bank, a constant flat rate was set for any transaction, no matter what the value, he told Fortune.
M-Birr was also approached by the NBE and international consultants, who asked the company’s executives their views on what could constitute involvement in the financial sector, Fortune learnt from sources. M-Birr executives were unreachable for comment.
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