Mobile Money-Telecom Decoupling

The Future of Ethiopia’s Economy at Stake

Ethiopia has been seen as one of the last frontiers of untapped growth in Africa. When the federal government decided a couple of years ago to liberalize the telecom sector and put an end to the 125-year-long monopoly held by Ethiotelecom, investors welcomed the news, and citizens for their part leaped for joy. The jubilation was understandable as the quality of the service delivered by Ethio telecom had been substandard, to say the least, and was the main cause, among others, for Ethiopia to be left at the station rather than being onboard the digital economy train.

Therefore, when it was announced just a few weeks ago – in what seems to be a rushed move by the Ministry of Finance – that a mobile money license would be handed to Safaricom Ethiopia, many had developed a knee-jerk reaction to the opening of sectors to foreign investors by then and equally became jubilant.

However, mobile money directly touches the financial services sector and more specifically the banking industry, which is responsible for carrying an economy. Hence, extra care is needed when such licenses are issued.

The National Bank of Ethiopia (NBE) has been hard at work for the last few years and has done a tremendous job, given its limitations, at keeping up with emerging trends in the financial services sector. For example, in 2020, the NBE issued a long-awaited directive that allowed for the first time Fintech companies to acquire a Payment System Operator (PSO) license and offer payment processing and related services. Similarly, the same year, the NBE issued another directive that allowed non-traditional financial institutions to engage as Payment Instrument Issuer (PII), including mobile money.

The NBE carefully crafted these directives to ensure that both financial institutions and non-traditional financial institutions evolve in a well-calibrated ecosystem in which each player focuses on their core competencies, and together create a pathway for Ethiopia to transition into a middle-income economy by 2030.

In August 2022, the Governor of the NBE – Yinager Dessie (Ph.D.) – explained how the Ethiopian banking industry grew in asset, capital, deposit, loan distribution, loan collection, and other financial growth indicators. Total bank deposits stood at ETB 1.7 trillion in 2022 bringing Ethiopia’s deposits-to-GDP ratio to 26 Pct, still lagging behind the average of 56 Pct for lower- and upper-middle-income economies.

The calibration of the ecosystem is important because while mobile money ensures the inclusion of the unbanked, it tends to drain the capacity of banks to mobilize deposits, a key for the banking industry to increase credit disbursal.

Micro, Small, and Medium-sized Enterprises (MSMEs) are the backbone of an economy and even though they represent 98% of the companies registered in Ethiopia in the last ten years (Source: Ministry of Trade and Industry), they have been suffering from lack of access to capital.

The NBE is very much aware of this fact and is setting the foundations to enable an environment where MSMEs thrive, and for the Ethiopian economy to finally engage in a virtuous circle where banks increasingly mobilize deposits and return the favor to MSMEs through loans.

Telco-led digital payment services in Ethiopia are rightfully being regulated by the National Bank of Ethiopia, while telecom services are being regulated by the Ethiopian Communications Authority. However, since Ethiotelecom has been issued a mobile money license, it has been following all regulations and has not stepped into territories where it could create an imbalance in the ecosystem well calibrated by the NBE. In addition, Ethio telecom is a public entity which is easier for the NBE to regulate. Both PSO and PII directives issued in 2020 by the NBE have limited ownership to Ethiopian nationals, the Ethiopian Government, and foreign nationals of Ethiopian origin (Ethiopian diaspora).

As Safaricom Ethiopia and future foreign-owned telco providers are understandingly showing intense interest in a mobile money license, regulators need to re-calibrate the ecosystem while following regulatory tenets in line with national aspirations.

Safaricom Ethiopia is currently requesting the regulator to include a mobile money (PII license) business as one of its business departments under the telco license which is being regulated by the Communications Authority. The NBE is duly opposing the request based on two justifications. On one hand, it will prove to be impractical for the NBE to regulate and control the mobile money business department, on the other hand, the request does not offer any mitigation to the risk posed in the event the parent telecom company faces financial difficulty and takes in its storm the mobile money department housed within it.

The type of license Ethiopian authorities are envisioning for M-Pesa is correct, and their justification is not only based on the above two points. The NBE is also concerned with the potential danger it may have on local banks in terms of deposit mobilization.

After 125 years of telco monopoly, Ethiopia wants to stay away from a monopoly of digital payments. Indeed, if left unchecked, mobile money can impose ways to force consumers into a closed bubble where interoperability and open standards do not exist. For example, in Kenya, through mandatory transfer charges, high interest on loans, and predatory mobile loan services, millions of consumers are left in unending debt cycles. As a result, there is an ongoing debate in Kenya on whether to split M-Pesa from Safaricom Kenya. If M-Pesa is regulated by the Central Bank of Kenya (CBK), Safaricom will no longer have to partner with other banks to offer financial services. Instead, it will become a gigantic digital bank and could eat commercial banks for lunch and dinner.

Hence, in addition to the NBE’s justifications, additional regulatory challenges need to be considered. First, being a new concept in Ethiopia, the regulators have very limited precedence to draw upon and since mobile platforms cut across various sectors, the regulators need to be more conversant with all the operational aspects. Unless a separate license is given, the process will be led by non-bank organizations, and so outside the scope of financial regulation. It is dangerous to operate such a large payment and financial structure outside NBEs’ regulatory framework.

Second, there is a lack of adequate consumer protection mechanisms in Ethiopia and thus NBE wants to ensure the financial stability of the economy, preserve public confidence, and enhance data privacy and consumer protection laws to guard against anti-competitive and monopolistic practices.
Ethiopia has been rightfully moving toward a more liberal economy and is being complemented by the inflow of foreign investment and a vibrant digital economy after decades of central economic planning and development-state-led growth. The country has embarked on a significant number of reforms in the last few years to score economic growth led by the private sector.

Ethiopia is now at a crossroads as it is making monumental reforms in the financial sector. The country can either smoothly transition into a middle-income economy backed by a strong and well-calibrated banking and financial services ecosystem, or it can fall into a whirlpool where banks are weakened and not able to support an economy growing in weight on its shoulders.

Since the national economy is a sensitive matter of great public interest, the NBE needs to exercise broader oversight over the stability of financial systems across the economy. M-Pesa is a large mobile money provider and it would be unwise to operate such a large payment and financial structure outside NBE’s regulatory framework or without proper regulation. NBE should stand firm in separating the regulation of payment services from the regulation of telcos. Laxity can lead to unnecessary complications when innovations grow into complex systems and become too complicated to regulate.


11th Year • Nov 2022 • No. 112

Bernard Laurendeau

is a Arifpay CEO, He can be reached at, bernard@arifpay.net EBR received this article from PS.


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