Telecoms will lead the Charge, Can Banks Keep Up?

Although commercial banks in Ethiopia introduced a digital payment system some time ago, it has made considerable strides over the past few years as telecom operators with far more customer base than banks were allowed to provide the services. The expansion of the digital payment system has been challenging banks at the trial level, as it involves payment services and small credits. Commercial banks have come to a common understanding that they have already lost the retail aspect of their operations to telecoms.

Ethiopia’s Multifaceted Fight against Inflation

Ethiopia’s recent decline in inflation, from a staggering 33.5% in April 2023 to 23.3% in April 2024, offers a glimmer of hope for the nation’s economic stability. However, the fight against inflation remains far from over. Etsubdink Sileshi (PhD), EBR’s Economic Research & Business Intelligence Unit Director, delves into the factors that contributed to this decline and analyze the complex relationship between inflation, infrastructure development, and Ethiopia’s pursuit of rapid economic growth.

The Evolution of Corporate Governance in Ethiopian Banks

Recently, the National Bank of Ethiopia (NBE) has issued a series of directives about the banking industry. These include directives such as “Requirements for Persons with Significant Influence in a Bank” and “Bank Corporate Governance.” One area that gained attention for reform is bank corporate governance. Deficient corporate governance practices in the banking industry have required repeated NBE interventions. In the past year alone, the controversies around Nib Bank and Amhara Bank and the subsequent NBE interventions indicate the situation.

Choices on Wealth, Environment, and Public Goods

What is the role of government in modern economies? Is it possible to create a more equal society without sacrificing economic freedom or wealth? Should we emphasize equal opportunities or equal outcomes? The idea of “inclusive growth” seeks to strike this balance.

Since the term can be open to interpretation, let me offer a definition: Inclusive growth seeks to boost national wealth and well-being while reducing poverty, ensuring equity across generations, and preserving economic freedoms.

Strategies for a Stronger Ethiopian Economy

Devaluating a currency, which makes one’s currency cheaper and foreign currencies dearer, is a crucial policy intervention in the forex market with severe economic consequences. Of course, the type and degree of these effects depend on the magnitude of devaluation, the level of economic development a country is at and the perception of stakeholders about a currency’s future value.

The Ethiopian currency, the Birr, has undergone devaluation many times. For instance, a 17 % devaluation in August 2010 (roughly from 13.5 birr/$ to 16.5 birr/$). Similarly, a 15 % devaluation was implemented in October 2017 (from 23.9 birr/$ to a little above 27 birr/$). There is no evidence that these measures achieved their target- to reduce the trade deficit in the subsequent quarters, if not years.

Ethiopian Banks Brace for New Era of Monetary Policy, Competition

Many Ethiopian banks have enjoyed profit bonanzas for years due to very expansionary monetary policy, which increased the demand for cheap credit loans and advances. However, this has carried negative real lending rates for over a decade. Furthermore, they have been operating in a protected and relatively predictable environment, giving them the easy means to grow and expand.

Untangling a Multifaceted Challenge for Long-Term Development

Ethiopia, a nation steeped in rich history and ancient tradition, struggles against a multi-headed hydra. This mythical beast embodies the complex and interconnected problems that threaten the nation’s stability and long-term prosperity. Unlike the mythical creature slain by Hercules, Ethiopia’s hydra has three distinct yet intertwined heads, each representing a critical challenge demanding long-term, systematic solutions.

The first head of this formidable tribulation is the relentless surge of exponential population growth. Since the early 1970s, Ethiopia’s population has tripled, transforming it into Africa’s second most populous nation, exceeding 120 million already. Projections paint a sobering picture – by 2030, this figure is expected to reach 145 million, ballooning further to 205 million by 2050 and a staggering 294 million by the year 2100. This rapid expansion within a subsistence economy’s framework creates immense pressure on essential resources.

Globally, Takaful – a Sharia-adherent insurance scheme – is registering unparalleled development. The product is being offered in the form of either family or general Takaful to cater to the need for protection and cooperation at times of risk. Takaful insurance became effective in Ethiopia on the 15th day of June 2020 with the issuance of the National Bank of Ethiopia’s (NBE) Directive No. STB/1/2020, a Directive to license a takaful operator or a takaful window operator. Conversely, the product is at the early introduction and premature stage, while a massive potential exists. Records in Ethiopia demonstrate that the expanding Muslim population is anticipated to be a driving force for the takaful market. However, the question lies with the availability of innovative and value-adding products apart from simply naming the existing conventional insurance products under the guise of Islamic insurance.

How Interest Free Banking Fosters Transparency, Strengthens the Economy

In Ethiopia, following the legal framework for interest-free banking products established a decade ago, the banking industry has introduced a range of Sharia-compliant saving and investment products under window services. The revised banking proclamation passed in 2019 ushered in a new era of full-fledged interest-free banking services. Currently, we have four full-fledged interest-free banks and more than a dozen conventional banks that provide interest-free banking services under window arrangements.

For Ethiopians observing Ramadan, the holy month becomes a time of introspection that extends beyond personal piety. It’s a period to reflect on all aspects of life, including financial dealings. This is where Interest-Free Banking (IFB), also known as Islamic banking, resonates deeply with many.

IFB operates on core principles that align with Islamic teachings. One key concept is the prohibition of riba, which refers to usury or interest. Instead, IFB utilises profit-sharing models like Mudarabah. In a Mudarabah agreement, the bank acts as an investor, providing capital for a project or venture. The client uses their skills and effort to manage the project. Profits are then shared according to a predetermined ratio, fostering a sense of fairness and shared risk between the bank and the client.