PROCLAMATION NO. 591/2008.   DOWNLOAD (pdf)

A PROCLAMATION TO AMEND THE NATIONAL BANK OF ETHIOPIA ESTABLISHMENT PROCLAMATION

WHEREAS, for the rapid economic development of Ethiopia stable price and foreign exchange rate and healthy financial system are being necessary;

WHEREAS, it is necessary for the National Bank of Ethiopia to undertake such other activities as are conforming to the proportional economic growth of Ethiopia;

NOW, THEREFORE, in accordance with Article 55(1) of the Constitution of the Federal Democratic Republic of Ethiopia, it is hereby proclaimed as follows:

PART ONE GENERAL

1. Short Title

This Proclamation may be cited as “the National Bank of Ethiopia Establishment (as Amended) Proclamation No. 591/2008″.

2. Definition

In this Proclamation, unless the context requires otherwise:

1/”authorized dealer” means any person other than a bank, which is authorized by the National Bank to engage in foreign exchange transactions;

2/ “banking business” means including the following:

a)receiving funds from the public as deposit through means that the National Bank has declared to be an authorized manner of receiving funds;

b)under the account and risk of the person undertaking banking business to use the funds referred to under paragraph (a) of this Sub-Article, in whole or in part, for loans, investments and for purposes that the National Bank has declared to be appropriate;

c)the buying and selling of gold and silver bullion and foreign exchange;

d)the transfer of funds to other domestic and foreign persons in the name of the banks themselves or their customers;

e)the discounting and negotiation of promissory notes, drafts, bills of exchange and other evidence of debt;

f)any other activity recognized as customary banking business, which a bank engaging in the activities described from paragraphs (a) to (f) of this sub-article is authorized to undertake by the National Bank;

3/ “banks” mean companies licensed by the National Bank to undertake banking business and banks owned by the Government;

4/”deposit insurance fund” means a fund to be established in accordance with regulation to be issued by the Council of Ministers;

5/”foreign currency” means any currency other than Ethiopian legal tender which is legal tender in any country outside Ethiopia as to which the National Bank has declared to be acceptable for payment in Ethiopia;

6/”foreign exchange’ means any foreign currency, cheques, bills of exchange, promissory notes, drafts, securities, and other negotiable instruments, expressed in foreign currency as well as bank balances in account held in foreign currency or assets in the form of foreign account crediting or set-off arrangements, expressed or payable in foreign currencies provided they are acceptable by the National Bank;

7/ “Government” means the Government of the Federal Democratic Republic of Ethiopia;

8/ “insurers” means insurance companies established in accordance with the appropriate law of Ethiopia;

9/ “liquid assets” mean in relation to financial institutions include:

a)cash;

b)deposits in the National Bank and other domestic and foreign banks acceptable by the National Bank;

c)assets readily convertible into cash expressed and payable in Birr or foreign currency acceptable by the National Bank;

d)such other assets as the National Bank may from time to time declare liquid assets;

10/ “other financial institutions” means micro-finance institutions, postal savings, money transfer institutions and other similar financial institutions established in accordance with the appropriate law of Ethiopia and as determined by the National Bank;

11/ “person” means any natural or juridical person;

12/ “National Bank” means the National Bank of Ethiopia, which is the central bank of the country;

13/ “transaction in foreign exchange” means:

a)the transfer, borrowing, lending, assignment, exchange, purchase, sale, receipt, payment or crediting of foreign exchange; and

b)the conclusion of any contract, agreement, arrangement or understanding, as a result of which any foreign exchange is transferred, borrowed, lent, assigned, exchanged, purchased, sold, received, paid or credited within or outside Ethiopia;

14/“valuable good” or “valuable thing” means anything of value; but shall not include foreign exchange which a passenger brings with him into Ethiopia or any baggage of a passenger as provided in the Customs Tariff Regulation.

15/ “Company” means, as defined by the Commercial Code of Ethiopia, a share company in which the whole shares are owned by Ethiopian nationals and organizations established under the ownership of Ethiopian Nationals registered in accordance with the Ethiopian law and the head office is in Ethiopia.

PART TWO

ORGANIZATION, MANAGEMENT AND FUNCTIONS OFTHE NATIONAL BANK

3. Legal Status

1/ The National Bank of Ethiopia established by Order No. 30/1963 shall continue to exist as an autonomous institution and shall henceforth be governed by this Proclamation.

2/ The National Bank shall have its own juridical personality, and, in particular, the capacity to:

a)contract;

b)sue and be sued; and

c)acquire, own, possess and to dispose its property by sale or in any other manner.

3/ The National Bank shall have its head office in Addis Ababa and may:

a)establish and close branch offices in Ethiopia; and

b)designate, and revoke the designation of, agents and correspondents in Ethiopia and abroad.

4/ The National Bank shall be accountable to the Prime Minister of the Federal Democratic Republic of Ethiopia.

5/ The National Bank shall have:

a)Board of Directors;

b)Governor and Vice Governor to be appointed by the Government; and

c)the necessary staff.

6/The Board of Directors shall be composed of seven members. The Governor and the Vice Governor shall be permanent ex-officio members. The Chairperson of the Board of Directors and the remaining four members shall be appointed by the Government.

4. Purpose of the National Bank

The purpose of the National Bank is to maintain stable rate of price and exchange, to foster a healthy financial system and to undertake such other related activities as are conducive to rapid economic development of Ethiopia.

5. Powers and Duties of the National Bank

For the fulfillment of its purposes, the National Bank shall have the powers and duties to:

1/coin, print or cause to be coined, printed and circulated the legal tender currency;

2/dispose or cause to be disposed coins and notes issued legally;

3/issue its own debt and payment instruments;

4/regulate and determine the supply and availability of money and credit as well as the applicable interest rates and other charges;

5/formulate and implement exchange rate policy;

6/manage and administer the international reserves of Ethiopia;

7/license and supervise banks, insurers and other financial institutions;

8/create favorable conditions for the expansion of banking, insurance and other financial services;

9/set limits on gold and silver bullion and foreign exchange assets which banks and authorized dealers can hold;

10/set limits on the net foreign exchange position and on the terms and the amount of external indebtedness of banks and other financial institutions;

11/make short term and long term refinancing facilities available to banks and other financial institutions as might be necessary;

12/ accept deposits of any kind from foreign sources;

13/collect data from any person and prepare periodic economic studies, on the balance of payments, money supply, price forecasts and other relevant statistical indicators for analysis and for the formulation and determination of monetary, saving and exchange policies as are useful to Ethiopian economy;

14/act as banker, fiscal agent and financial advisor to the Government;

15/take such steps to establish, modernize, conduct, monitor, regulate and supervise payment, clearing and settlement systems;

16/act in compliance with international monetary and banking agreements of Ethiopia and represent Ethiopia in the International Monetary Fund and other international financial organizations formed by central banks;

17/coin special commemorative coins;

18/establish and manage deposit insurance fund;

19/exercise such other powers and functions to execute its purposes as central banks customarily perform.

6. Capital and Reserve

1/The capital of the National Bank shall be totally owned by the Government. The paid up capital of the National Bank is Birr500,000,000 (five hundred million Birr) and may be increased as might be found necessary by regulation to be issued by the Council of Ministers.

2/20% (twenty percent) of the net profit shall be paid each financial year into the General Reserve Fund until such fund equals the paid up capital of the National Bank. The remaining 80% (eighty percent) shall be credited to the account of the Ministry of Finance and Economic Development.

3/Where the General Reserve Fund equals the paid up capital of the Bank, the total amount of the net profit shall be credited each financial year to the account of the Ministry of Finance and Economic Development.

4/Net losses of the National Bank shall be debited to the General Reserve Fund.

5/If at any time, as a result of net losses sustained by the National Bank, the General Reserve Fund is less than the paid up capital, the provisions of sub-article (2) of this Article shall be applied until the General Reserve Fund is again equal to the paid up capital.

6/The Government shall ensure that the paid up capital of the National Bank remain intact at all times.

7. Financial Year and Financial Statements

1/The financial year of the National Bank shall begin on July 1 and end on June 30 of the next year.

2/The profit and loss account, balance sheet and notes to the accounts shall be prepared by the National Bank in accordance with international financial reporting standards.

3/The National Bank shall, within three months from the end of each financial year, prepare and submit to the Government unedited balance sheet as well as profit and loss account.

8. External Audit

1/The Board of Directors of the Bank shall appoint an external auditor annually. The audit report shall be completed and issued to the National Bank’s Board of Directors’ Audit Committee for review and approval, and subsequently submitted to the Government, within six months from the end of each financial year.

2/A duly audited and signed by Auditor concerning balance sheet and annual profit and loss statement shall be published in the annual report to be issued by the National Bank.

9. Powers, Duties and Meeting Procedure of the Board of Directors

1/The powers, responsibilities and functions of the National Bank provided for in this Proclamation shall be vested in the Board of Directors.

2/The presence of four members of the Board of Directors shall constitute a quorum; provided, however, that one of them shall be the Governor or Vice Governor.

3/Meetings of the Board shall be called by the Chairperson or, in his absence, by a member of the Board delegated by him.

4/Meetings of the Board of Directors shall be held at least once every three months; provided, however, that the Chairperson or, in his absence, the person delegated by him, may call a meeting at any time or when the Governor or three board members so request.

5/The Board of Directors shall have its own secretary.

6/The Government shall fix the amount of allowance payable to the members of the Board of Directors.

7/All decisions of the Board of Directors shall be made by a simple majority vote of the members present. In case of a tie, the Chairperson shall have a casting vote.

8/Minutes of meetings of the Board of Directors shall be recorded accurately and in such form as the Board of Directors may determine. Unless the Board of Directors decides otherwise, minutes of the Board of Directors shall be confidential.

9/The Board of Directors may adopt its own rules of procedure.

10/The Board of Directors may, where it deems necessary, delegate its powers to the Governor.

11/The Board of Directors shall have an Audit Committee composed of at least three board members. The Audit Committee shall receive and examine the findings and recommend ations of the internal and external auditors and also give the necessary direction for the implementation.

10. Powers and Duties of the Governor of the National Bank

1/The Governor of the National Bank shall be the chief executive officer of the Bank and, as such, shall direct and supervise the administration and operations of the Bank in accordance with this Proclamation and the decisions of the Board.

2/ The Governor shall prepare the plans and annual budgets of the National Bank and, upon approval by the Board of Directors, implement the same.

3/ The Governor shall be the principal representative of the National Bank, and in this capacity shall:

a)represent the National Bank in its all relations with other persons, the Government, the International Monetary Fund and other relevant financial institutions in which the National Bank is a member;

b)sign individually or jointly with other authorized officers of the National Bank contracts concluded by the National Bank, currency notes or securities issued by the National Bank, annual reports, balance sheets, profit and loss statements, correspondence and other documents of the National Bank; and

c)represent the National Bank, either personally or through counsel, in any legal proceeding to which the National Bank is a party.

4/The Governor may delegate part of his powers and duties to the Vice Governor and other officers of the National Bank, as may be required for the efficiency of the National Bank.

5/The Governor shall, in all his actions, be guided by the purposes of the National Bank as set out in Article 4 of this Proclamation.

11. Powers and Duties of the Vice Governor of the National Bank

The Vice Governor of the National Bank shall assist the Governor and in the absence of the Governor shall discharge all the functions conferred on the Governor.

PART THREE

RELATIONS OF THE NATIONAL BANK WITH THE GOVERNMENT

12. Fiscal Agent and Banker for

the Government

The National Bank shall act as a fiscal agent and banker for the Government and, in that capacity, it shall, in the name and for the account of the Government, engage in the following transactions:

1/accept deposits, collect or take custody of funds deposited by the Government in Ethiopia or abroad, and remit or effect payments and, where necessary, assign banks to carry out these functions in its name and for its account; furnish information regarding such accounts as and when requested by the Ministry of Finance and Economic Development;

2/purchase, sell, transfer or take custody of cheques, bills of exchange, promissory notes and securities;

3/purchase, sell, transfer or take custody of precious metals such as gold and silver, and foreign exchange;

4/administer expressly specified Government accounts in accordance the arrangements to be made with the Ministry of Finance and Economic Development;

5/upon authorization by the Ministry of Finance and Economic Development, manage public debt transactions; manage and sell treasury bills and bond and other securities of the Government;

6/make advances to the Government;

7/buy and sell unconditional negotiable treasury bills and government bonds issued by the Government.

13. Credits and Advances

1/The amount of advances and credit to be extended by the National Bank to the Government for each fiscal year shall be determined in consultation with the Bank and shall be consistent with the maintenance of price and exchange rate stability.

2/The National Bank shall not extend direct credit to any person other than the Government, banks and other financial institutions.

PART FOUR

RELATIONS OF THE NATIONAL BANK WITH BANKS, INSURANCE COMPANIES AND OTHER FINANCIAL INSTITUTIONS

14. Licensing and Regulation

The National Bank shall license and regulate banks, insurance companies and other financial institutions in accordance with the relevant laws of Ethiopia.

15. Credit Extension and Management

1/ The National Bank:

a) for the purpose of maintaining price and exchange rate stability that is conducive to the balanced growth of the economy of Ethiopia, may issue directive governing:

(1)its own credit transactions with banks and other financial institutions; and

(2)credit transaction of banks and other financial institute ions;

b)may engage with banks and other financial institutions in transactions involving the discount, rediscount, purchase or sale, as the case may be, of duly signed and endorsed bills of exchange, promissory notes, acceptances and other credit instruments on the basis of directives issued by it for this purpose;

c)shall determine the rate of interest of legal instruments accepted by it up on discount or rediscount;

d)may make loans or advances to banks and other financial institutions on the basis of obligations and conditions determined by its directive.

2/The measures taken by the National Bank pursuant to sub-article (1) of this Article may, where necessary, be published in newspapers of wider circulation.

16. Other Functions and Services

1/ The National Bank may:

a)timely determine, on the basis of accessing the received deposit or any other scale, the amount of assets to be held by banks, insurance companies and other financial institutions in the form of cash, other liquid assets and government securities; and also timely order the deposit of the same asset with it;

b)in addition to what is stated under Sub-Article (1) (a) of this Article, accept money on deposit from, and collect money for and on account of, banks and other financial institutions;

c)provide payments and clearing services to banks and other financial institutions;

d)keep balances and act as agent or correspondent of banks and other financial institutions.

2/The National Bank may charge fees for the services referred to Sub-Article (1) of this Article. Such fees shall be communicated in advance to the banks and other financial institutions.

PART FIVE

THE MONETARY UNIT AND LEGAL TENDER

17. Monetary Unit

1/The monetary unit of Ethiopia shall be Birr and it shall be the legal tender of the country. The official abbreviation of the Birr shall be “Br”, and “ETB” shall be the international currency code.

2/The Monetary unit shall be divided into one hundred equal parts, named “cents”, the official abbreviation of which shall be “Ct”.

3/All monetary transactions taking place in Ethiopia shall be presumed to be expressed in Birr unless validly agreed upon otherwise by the permission of the National Bank.

4/All monetary transactions shall be recorded and settled in Birr unless otherwise authorized by the National Bank or provided for in any international agreement to which Ethiopia is a party or in any domestic law.

18. Legal Tender

1/The inscription, dimension, design, denomination and other characteristics of legal tender notes shall be determined by the National Bank.

2/The weight, fineness, inscription, dimen sion, design, denomination and other characteristics of coins shall be determined by the National Bank. Similarly, values of commemorative coins at which they shall be accepted as legal tender, their numbers to be minted, weight, fineness, inscription, dimension, design and other characteristics thereof shall be determined by the National Bank.

3/Birr notes lawfully in circulation within Ethiopia shall be unlimited legal tender in the settlement of all public or private debts.

4/Coins lawfully in circulation within Ethiopia shall be legal tender in the settlement of all public and private debts. Unless the parties agreed otherwise, the amount of coins used for settlement of such debts shall not exceed ten Birr; provided, however, that the National Bank and other banks shall, at the request of any holder, change into notes the holder’s coins.

5/Whenever the security and features of a particular issue or denomination of notes or coins are changed or a particular issue or denomination of notes or coins cease to be legal tender as of a certain date, the National Bank shall declare such change or withdrawal by directives. The National Bank shall also announce such declaration through newspapers of wider circulation and other communication media. The National Bank shall give to holders of such notes and coins reasonable time within which to exchange such notes and coins for new ones.

6/No person entering into, or departing from, Ethiopia shall carry with him an amount of Ethiopian currency in excess of an amount fixed or permitted by the National Bank.

PART SIX

INTERNATIONAL RESERVE FUND AND FOREIGN EXCHANGE ADMINSTRATION

19. Maintaining International Reserve Fund

1/ The National Bank shall maintain among its assets an international reserve fund consisting of foreign currencies, foreign securities, gold or other international reserve assets.

2/ The National Bank shall endeavor to maintain, at all times, sufficient international reserve fund as provided for in sub-article (1) of this Article, to cover:

a)payments for immediate and short term imports of commodities and services into Ethiopia;

b)foreign debt payment commitments; and

c) payments for basic services.

3/If the international reserve has declined or, in the opinion of the Governor, appears to be in danger of declining or is at such a level that the Governor considers its adequacy in jeopardy, the Governor shall submit a report to the Board of Directors of the National Bank on the international reserve fund position and the causes that have led to, or may lead to, such a decline, together with recommendations concerning the measures the Governor considers necessary to forestall or otherwise remedy the situation. When the situation persists, the Governor may decline issuance of further foreign exchange permit.

4/The National Bank may enter into bilateral or other international monetary, payment and related agreements which it deems are in the interest of the Bank and the country.

20. Regulation of Foreign Exchange

1/No person shall engage in any transaction of foreign exchange except with banks or authorized dealers or with the special permission of the National Bank.

2/The conditions, limitations and circumstances under which residents of Ethiopia, and nonresidents visiting Ethiopia, or any other person may possess and utilize foreign currency or instruments of payments in foreign exchange shall be determined by directive to be issued by the National Bank.

3/The terms and conditions for transfer of foreign exchange to and from Ethiopia, and the export or import of valuable goods or the transfer of other valuable goods across the customs boundaries or frontiers of Ethiopia in any manner, the return of such goods and the settlement of any foreign exchange that results, or that will result, from such export or import or transfer shall be determined by directive to be issued by of the National Bank.

4/ The Ethiopian Revenues and Customs Authority shall not allow import or export of valuable goods or foreign exchange unless conditions, circumstances and terms determined by the National Bank are fulfilled.

5/The National Bank shall monitor foreign exchange transactions of banks, insurance companies and other financial institutions through on-site inspection and off-site surveillance.

6/Any bank, insurance company, authorized dealer or any other person shall, when directed by the National Bank, produce to it or its designated representative all information, books, records, accounts and other documents in its possession or control which may be required for the purpose of ascertaining whether or not the provisions of this Proclamation and directives issued by the National Bank are complied with.

21. Transactions in International Reserve Assets

1/The National Bank may buy, sell and hold foreign currency notes and coins and such other documents and instruments using various media as are customarily employed in international payments or transfers of funds.

2/The National Bank may keep balances, denominated in foreign currencies, with foreign central banks, its agents or correspondents abroad, and may invest, at its discretion, such balances in time deposits, gold, readily negotiable foreign securities and other investment instruments.

3/The National Bank may engage in foreign exchange transactions with the following:

a)banks and other financial institutions in Ethiopia;

b)the Government, its agencies, and institutions;

c)foreign central banks, foreign banks and financial institutions;

d)foreign governments and agencies; and

e)international financial institutions.

4/ Notwithstanding any other contrary provisions of law, the National Bank may, at its sole discretion, import, export, buy, sell, hold or otherwise deal in precious metals such as gold and silver.

5/ The National Bank may:

a)appoint insurance companies, other financial institutions and authorized dealers to engage in transactions involving foreign exchange, gold or silver;

b)issue directives relating to transactions in foreign exchange, gold or silver;

c)delegate banks and other financial institutions to issue foreign exchange permits.

PART SEVEN

MISCELLANEOUS PROVISIONS

22. Collecting and Disclosure of Information

1/ The National Bank is empowered to collect any information from banks, insurers, micro-finance institutions and any other persons as it may deem appropriate to carry out its duties and responsibilities.

2/ The National Bank shall not disclose the information it collected using its authority under sub-article (1) of this Article to any person, whether within or outside Ethiopia unless the disclosure is:

a)for the purpose of fulfilling the requirements of this Proclamation;

b)in the interest of ensuring the financial soundness of banks, insurers and other financial institutions;

c)to recipients who are legally authorized to obtain such information;

d)to the body to which the National Bank is accountable; or

e)ordered by a court.

3/ No bank, insurer, other financial institution or any other person exercising any function provided under this Proclamation shall, whether within or outside Ethiopia, disclose any information relating to any person or business which comes into his possession or knowledge except:

a)when requested by the National Bank in accordance with Sub-Article (1) of this Article;

b)when legally authorized persons request for such information; or

c)when ordered to do so by a court.

23. Exemption from Taxes

1/The National Bank shall be exempted from the payment of income tax and from value added tax and customs duties and taxes in respect of local and foreign currency notes and coins it imports and traveler’s checks.

2/The National Bank shall be exempted from making customs declaration when importing or exporting gold and silver and local and foreign currency notes and coins.

24. Staff Regulations

The employees and management staff of the National Bank shall be administered in accordance with regulation to be issued by the Council of Ministers.

25. Deposit Insurance Fund

The Council of Ministers may issue regulation on the establishment and management of Deposit Insurance Fund.

26. Penalties

1/ Whosoever:

a) in violation of the provisions of this Proclamation or regulations or directives issued pursuant to this Proclamation:

(1)engages in transactions of foreign exchange or fails to declare to a bank or authorized dealer when he acquires foreign exchange or the right to receive foreign exchange;

(2)receives or effects payments in foreign exchange;

(3)delays his receipt or extinguishes his right to receive foreign exchange;

(4)leaves or attempts to leave or enters or attempts to enter Ethiopian territory carrying Ethiopian currency in excess of the amount fixed or authorized by the National Bank; or

(5)is found carrying foreign exchange in excess of the amount fixed or authorized by the National Bank;

b)with intent to evade the provisions of this Proclamation or regulations or directives issued pursuant to this Proclamation or to distort their application destroy, tears apart, alters, deletes or hides a document or produces false evidence or makes false declaration;

c)discloses information in violation of Article 22 of this Proclamation; or

d)in any other manner violates or obstructs the implementation of this Proclamation or regulations or directives issued pursuant to this Proclamation;

shall, without prejudice to the confiscation of the property with which the offence is committed, be punishable in accordance with the provisions of the Criminal Code.

2/ Unless a higher penalty is applicable under the Criminal Code pursuant to sub-article (1) of this Article:

a)the punishment shall, without prejudice to the confiscation of the property with which the offence is committed, be rigorous imprisonment not exceeding 15 years and fine not less than Birr 50,000 and not exceeding Birr 100,000 where the accused misused the power of his official position or where he committed the offence with intent to improperly amass wealth or where the offence is committed repeatedly;

b)where the offence is connected with currency, gold, security, goods or any other property, the fine shall, without prejudice to the confiscation of the property with which the offence is committed and the punishment of imprisonment, not exceed three times the value of the property unless it is lower than that imposed under paragraph (a) of this sub-article;

c)where the offence is committed by a body corporate, the fine may, without prejudice to the confiscation of the property with which the offence is committed, be raised to six times the value of gold, currency, security, goods or any other property with which the offence is committed unless it is lower than that imposed under paragraph (a) of this sub-article.

3/Whosoever commits over or under invoicing of imported or exported goods shall, without prejudice to the confiscation of the property with which the offence is committed, be punishable with fine up to three times the value of the property unless it is lower than the fine specified under sub-article (2)(a) of this Article, and with rigorous imprisonment from 15 to 25 years.

4/Where any offence under this Article is committed by a body corporate, the director or any other official who was, at the time of the commission of the offence, responsible for the management of the body corporate shall be jointly liable and shall be punishable with rigorous imprisonment from seven to ten years and with fine from Birr 50,000 to Birr 100,000, unless he can prove sufficiently to of the court that he had no knowledge and could not, by the exercise of reasonable diligence, have had knowledge of the commission of the offence.

5/Where the offence is committed by an employee or an agent of a body corporate, such employee or agent shall be punishable in accordance with sub-article (4) of this Article, unless he can prove sufficiently to the court that he had no knowledge and could not, by the exercise of reasonable diligence, have had knowledge of the commission of the offence.

27. Power to Issue Regulation and Directive

1/The Council of Ministers may issue regulations necessary for the implementation of this Proclamation.

2/The National Bank may issue directives necessary for the implementation of this Proclamation and regulations issued pursuant to Sub-Article (1) of this Article.

28. Repealed and Inapplicable Laws

1/The Monetary and Banking Proclamation No. 83/1994 is hereby repealed.

2/No law, regulation or directive, inconsistent with the provisions of this Proclamation, shall have force with respect to matters provided for in this Proclamation.

29. Effective Date

This Proclamation shall enter into force up on the date of publication in the Federal Negarit Gazeta.

Done at Addis Ababa, this 11th day of August, 2008

GIRMA WOLDEGIORGIS

PRESIDENT OF THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

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PROCLAMATION No. 718/2011

A PROCLAMATION TO PROVIDE FOR NATIONAL PAYMENT SYSTEM

WHEREAS, the national payment system is an essential component of the financial infrastructure of the country, whose safety, security and efficiency is critical to ensure financial stability, economic growth and financial inclusiveness;

WHEREAS, it has became necessary to provide rules on establishment, governance, operation, regulation and oversight of the national payment system so as to ensure its safety, security and efficiency;

NOW, THEREFORE, in accordance with Article 55 (1) of the Constitution of the Federal Democratic Republic of Ethiopia it is hereby proclaimed as follows:

PART ONE

GENERAL

1. Short Title

This Proclamation may be cited as the “National Payment System Proclamation No.718/2011″.

2. Definitions

In this Proclamation unless the context requires otherwise:

1/ “book, record, account, document or information” means a book, record, account, document or information recorded or stored in any media including paper or data stored by electronic, optical, magnetic or in any other form;

2/ “card” means any card, or other device, including a code or any other means of access to an account, that may be used from time to time to obtain or deposit money or to make payment, and includes a debit, credit and stored-value card;

3/ “central counter party” means an entity that is the buyer to every seller and the seller to every buyer in a settlement system;

4/ “central securities depository” means an entity in whose register securities or other financial instruments are immobilized so as to enable their transactions to be finally processed by book entry;

5/ “clearing” means the process of transmitting, reconciling and confirming funds or securities transfer instructions prior to settlement and includes the netting of instructions and the establishment of final positions for settlement;

6/ “clearing house” means the National Bank or an entity authorized by the National Bank that provides clearing services but excludes a clearing house recognized under any other law;

7/ “clearing system” means a system whereby participants present and exchange information relating to the transfer of funds, securities or other financial instruments to each other through a centralized system or at a single location and includes mechanisms for the calculation of participants’ positions on a bilateral or multilateral basis with a view to facilitating the settlement of their obligations;

8/ “electronic” mans electrical, digital, magnetic, optical, biometric, electrochemical, wireless or electromagnetic technology or any other technology used in relation to the national payment system;

9/ “electronic communication” mans electronic exchange of messages in a standardized format that allows:

a)visual display or listening of data that is clear and readily understandable; and

b)receiving and retaining the information in the message for subsequent retrieval such as by printing, recording or any other means for later use;

10/ “electronic equipment” means electronic terminal including computer, points of sale, automated teller machine, telephone and other similar devices;

11/ “electronic signature” means a data in an electronic form, affixed to or logically associated with, an electronic message, which may be used to guarantee the authenticity and identify the signatory in relation to the date message and to indicate the signatory’s approval of the information contained in the data message;

12/ “financial institution” means a bank, a micro-financing institution, postal savings, money transfer institution, an insurance company or such other similar institution as determined by the National Bank;

13/ “funds transfer” means any transfer of funds, either representing an order of payment or a transfer of money, which is initiated by a person by way of instruction, authorization or order to a financial institution to debit or credit an account maintained with that financial institution and includes point of sale transfers, automated teller machine transactions, direct deposits or withdrawal of funds, transfers initiated by telephone, internet, card or other devices;

14/ “large value funds transfer system” means large value electronic fund transfers, the amount of which shall be determined by the National Bank, which consists of:

a)an inter-bank funds transfer system;

b)high priority and time critical government fund transfer;

c)clearing and settlement of securities of the government; or

d)any other fund transfer system prescribed by the National Bank as large value.

15/ “National Bank’ means the National Bank

of Ethiopia;

16/ “national payment system” means a system in the Federal Democratic Republic of Ethiopia that consists of the following :

a)sending, receiving and processing of orders of payment or transfers of money in domestic or foreign currencies:

b)issuance and management of payment instruments;

c) payment, clearing and settlement systems;

d)arrangements and procedures associated to those systems specified under paragraph (c) of this sub-article; and

e)payment service providers, including operators, participants, issuers of payment instruments and any third party acting on behalf of them, either as an agent or by way of outsourcing agreements, whether entirely or partially operating in the country;

17/ “netting” means the determination of the net payment obligations or the determination of the net termination value of settlement obligations by setting off or adjusting the payment obligations between two or more participants within the payment system;

18/ “operator” means the National Bank, a financial institution or any other entity authorized by the National Bank as operator;

19/ “participant” means a party who participates in a payment, clearing or settlement system as a direct participant which opens and maintains a settlement account at the National Bank or any other settlement entity or an indirect participant which shall only be able to settle its obligations due through the account of a direct participant;

20/ “payment instrument” means any instrument, whether tangible or intangible, that enables a person to obtain money, goods or service or to otherwise make payment or transfer money such as cheques, drafts and cards;

21/ “person” means any natural or juridical person;

22/ “retail funds transfer system” means a fund transfer system consisting of the cheque clearing system operated and administered by the National Bank and any type of retail fund transfer system authorized by the National Bank;

23/ “settlement” means the act of discharging obligations by transferring funds, securities or financial instruments between two or more parties;

24/ “settlement rule” means the rule that provide the basis upon which payment obligations are calculated, netted or settled;

25/ “settlement system” means a system for the discharge of payment and settlement obligations established and operated by National Bank or any other settlement system authorized by the National Bank;

26/ “stored value” means a representation of value that is intended to be used to make a payment which includes units of value recorded in a computer chip or any other device and may or may not be denominated by reference to units of a currency;

27/ “stored value card” means a prepaid card in which the record of funds can be increased or decreased;

28/ “system” includes a payment, clearing and settlement system;

29/ any expression in the masculine gender includes the feminine.

3. Scope of Application

This Proclamation shall be applicable to all matters related to the national payment system.

PART TWO

POWERS AND DUTIES OF THE NATIONAL BANK, AND ISSUANCE OF AUTHORIZATION

4. Powers and Duties

1/ The National Bank shall establish, own, operate, participate in, regulate and supervise:

a)an integrated payment system consisting of a large value funds transfer system and retail funds transfer system ; and

b) central securities depository.

2/ Without prejudice to the generality of sub-article (1) of this Article, in addition to the powers vested in it under Article 5(15) of Proclamation No. 591/2008, the National Bank shall have the powers and duties to:

a) authorize persons to:

(1) establish and operate a system; and

(2) issue payment instruments;

b) designate payment instruments that can be issued and determine conditions, limitations and standards for their issuance;

c) establish conditions, rules, procedures and standards for the governance, operation and management of systems and verify from time to time that such conditions, rules, procedures or standards are met;

d) prescribe to participants and operators:

/1/ investments in relation to building system infrastructure and system interoperability;

/2/ cost sharing;

/3/ charges for the service they provide; and

/4/ limits on the maximum amount of onetime cash payments.

e) prescribe the basic criteria for appointment of directors and chief executive officers of operators and issuers of payment instruments;

f) provide short term loans to participants or a central counterparty;

g) act as a central counterparty in relation to federal government securities;

h) provide custodian and settlement services to participants;

i)prescribe the nature, form, effectiveness and means of realization of collaterals used for smooth functioning of the national payment system;

j)issue an order to or enter into any agreement with an operator, participant, or a clearing house, in respect of:

(1) risk sharing and risk control

mechanisms;

(2) the operational systems and financial soundness of clearing houses; and (3) such other matters that, in its view, pertain a risk to the financial system;

k)act as a forum for the consideration of matters of policy and mutual interest concerning the national payment system;

l)cooperate with monetary authorities in other countries and international organizations dealing with regulation and oversight of payment systems; and

m) perform any such other functions relating to the national payment system.

5. Authorization and Prohibition

1/ No person, except the National Bank, may be an operator of a system unless such person is authorized by the Bank.

2/ The Ethiopian Postal Service Enterprise, in its financial services activities as regulated by Council of Ministers Regulation No. 165/2009, shall be subject to the duty of obtaining an authorization and to any oversight requirements imposed by the National Bank under this Proclamation.

3/ Without the prior written approval of the

National Bank, no operator may:

a) introduce new system;

b)merge with or take over a system of another operator;

c)enter into any arrangement or agreement for the sale or disposal, by amalgamation or otherwise, of its business, or effect major changes in its line of business;

d)redeem its own shares or effect a reduction of its capital other than through reduction due to operating losses;

e) amend its memorandum and articles of association; or

f) alter the name under which it is authorized to operate a system.

4/ The National Bank may, by written notice, prohibit an operator from operating any system where:

a)the system is detrimental to the reliable, safe, efficient and smooth operation of the national payment system; or

b) the prohibition is otherwise in the interest of the public;

6. Application for Obtaining Authorization

1/ Application for authorization to establish and operate a system shall be submitted to the National Bank.

2/ An applicant for authorization shall pay authorization fee as may be prescribed by the National Bank.

3/ After the receipt of application, the National Bank may make such inquiries as it may consider necessary for the purpose of satisfying itself about the genuineness of the particulars furnished by the applicant, his capacity to operate a system, the credentials of the participants of the applicant’s system and any other matter related to the application.

4/ The National Bank may, if satisfied, after an inquiry under sub-article (3) of this Article, that the application is complete and conforms to the provisions of this Proclamation and directives issued by the Bank, issue an authorization for operating the system under this Proclamation having regard to the following considerations:

a)the need for the proposed system or the service proposed to be undertaken by the operator;

b)the technical standards or the design of the proposed system;

c)the terms and conditions of operation of the proposed system, including any security procedure;

d)the manner in which transfers may be effected within the system, including specifications on clearing and netting procedures;

e)the financial status, experience of management and integrity of the applicant;

f)interests of consumers, including the terms and conditions governing their relationship with operators, when relevant;

g)the impact on monetary and credit policies; and

h)such other factors as it may consider relevant in relation to the national payment system.

5/ The National Bank shall respond to the application submitted in accordance with sub-article (1) of this Article within 60 days of submission of all required information.

6/ The National Bank may prescribe information to be submitted by the applicant and other conditions required for authorization.

7. Suspension of Authorization

1/ Until such time as the short comings indicated below are rectified or the National Bank completes its investigation to decide whether to revoke the authorization, the National Bank may suspend an authorization where an operator:

a) has failed to observe this Proclamation, or regulations and directives issued hereunder

b)has failed to supply accurately and on time the information requested by the appropriate authority pursuant to this Proclamation;

c)failed to comply with the order issued by the National Bank; or

d)with whom the National Bank has reason to believe that the operator is dangerous to the safety, security and efficiency or financial stability of the country until it decides to revoke the license in accordance with Article 9(1) of this Proclamation.

2/ Where the authorization is suspended under sub-article (1) of this Article, the National Bank shall notify the operator, in writing, of the reasons of suspension and the measures to be taken to rectify the shortcomings with in a fixed period of time.

3/ The operator which has received a written notification pursuant to sub-article (2) of this Article shall have the obligation to rectify the shortcomings within the fixed period of time.

4/ Notwithstanding the provisions of sub-article

(1) to (3) of this Article, the National Bank may revoke the authorization of an operator when the occurrence of sub-article (1) of this Article threaten the safety, security and efficiency or financial stability of the country.

8. Effect of Suspension of Authorization
A suspended operator shall not involve in the activities it was authorized for under this Proclamation.

9. Revocation of Authorization

1/ Without prejudice to sub-article (3) of this Article, the National Bank may revoke an authorization where the operator;

a)was authorized on the basis of submission of false or wrong information;

b)operates the system contrary to the purpose and conditions subject to which the authorization was issued;

c)has repeatedly committed the faults specified in Article 7 of this Proclamation;

d)has failed to rectify the shortcomings within the fixed period of time as per Article 7 (3) of this Proclamation;

e)has failed to commence operation within 12 months following the issuance of authorization;

f) has become insolvent, dissolved or winds up; or

g) its business license has been canceled.

2/ Before deciding to revoke the authorization for the reasons specified in sub-article (1) of this Article, the National Bank shall require the operator to submit its written opinion on the anticipated revocation of the authorization. The authorization shall be revoked where the operator has not submitted his opinion within 30 days from the day the letter was received by him or his opinion is not adequate.

10. Use of Agents

1/ When a person provides services linked to payment instruments to customers through an agent, it shall immediately communicate the following information to the National Bank:

a)the name and address of the agent;

b)a description of the internal control mechanisms that will be used by the agent in order to comply with the obligations in relation to control money laundering and terrorist financing; and

c)the identity of persons responsible for the management of the agent in providing the services and evidence that they are fit and proper persons as may be prescribed by directive of National Bank.
2/ Upon receipt of the information in accordance

with sub-article (1) of this Article, the National Bank shall list the agent in a register available to the public.

3/ Before listing the agent in the register, the

National Bank may, if it considers necessary, verify the information provided to it.

4/ If the National Bank is not satisfied with the fitness and propriety of the agent, it may refuse to list the agent in the register in which case the principal shall discontinue the agency relation with this person and notify its customers.

5/ The National Bank may issue directive to prescribe the criteria for being an agent of operator and issuer of payment instruments.

11. Obligation to Ensure Compliance

When operators or issuers of a payment instrument rely on outsourced entities or agents for the performance of operational functions, they shall take reasonable steps to ensure that the requirements of this Proclamation and regulations and directives issued hereunder are complied with.

PART THREE SETTLEMENT, NETTING AND FINALITY

12. Settlement Account and Indirect Participation

1/ Every direct participant to a system shall open and maintain a settlement account on the books of the National Bank or authorized settlement system operator, including the maintenance of minimum balances, on such terms and conditions as the National Bank or authorized settlement system operator may specify.

2/ Every indirect participant to a system shall appoint a direct participant as its agent to settle all its obligations due.

3/ In the case where an indirect participant appoints an agent under sub-article (2) of this Article, the agent shall give the operator notice in writing of the appointment, accompanied by a written confirmation from the indirect participant.

4/ An agent, who intends to terminate its appointment under sub-article (2) of this Article, shall notify the operator in writing not less than 15 days before the date of termination of such appointment.

13. Settlement of Payments

1/ The discharge of settlement obligations between system participants shall be effected by means of entries passed through the National Bank or authorized settlement system on settlement accounts opened under sub-article (1) of Article 12 of this Proclamation.

2/ The settlement rules of the National Bank or authorized settlement system shall be valid and binding on operators, clearing houses, participants, a central counterparty, the National Bank itself and any other party participating in the system.

14. Finality of Payment

1/ Any system shall specify the rules to achieve finality of payment in its operations. This shall include rules establishing irrevocability of orders once these have entered into the books of the system.

2/ The entry or payment that has been effected in terms of rules issued under sub-article (1) of this Article shall be final and may not be revoked, reversed, or set aside, including, without limitation, by insolvency or bankruptcy proceedings or any other law or practice similar in purpose and effect and is not subject to any provision of law or order of an administrative or judicial authority that operates as a stay of that payment.

3/ The National Bank may issue directives to prescribe finality of payment, settlement, netting, and loss allocations and apportionment.

15. Notification

1/ Where an operator, a participant of a system or issuer of payment instruments becomes bankrupt, placed in scheme of arrangement or wound up it shall immediately lodge a copy of the decision or order with the National Bank.

2/ An operator, a participant or issuer of payment instruments which has lodged an order or a decision pursuant to sub-article (1) of this Article is prohibited from operating or participating in a system.

16. Winding Up or Placement in a Scheme of Arrangement of a Participant

Notwithstanding any provision of law to the contrary relating to insolvency or bankruptcy, the winding up or the opening of scheme of arrangement of a participant in a system shall not affect the finality or irrevocability of any entry or payment which became final and irrevocable in accordance with sub-article (2) of Article 14 of this Proclamation before the copy of the relevant order or decision was lodged with the National Bank.

17. Arrangements and Rules Binding Liquidators

Notwithstanding any provision of law to the contrary relating to insolvency or bankruptcy, if a participant is wound up or placed in a scheme of arrangement or otherwise declared insolvent by a court, any arrangement in relation to the national payment system to which the participant is a party or any netting rules or practices applicable to the system shall be binding upon the liquidator.

18. Collateral for Payment and Settlement Obligation

The rights and remedies of an operator, a participant, a clearing house, a central counterparty with respect to collateral granted to it as security for a payment or the performance of an obligation incurred in a system shall not be affected by insolvency or bankruptcy proceedings or any other law similar in purpose and effect. In particular, such rights and remedies may not be the subject of any stay provision or order affecting the ability of creditors to exercise rights and remedies with respect to the collateral.

PART FOUR ELECTRONIC FUND TRANSFER

19. Terms and Conditions

1/ Any issuer of payment instruments shall prepare clear and standard sample terms and conditions, in relation to electronic fund transfers and stored value cards, applicable to all its customers in similar manner and make it available for their review and possible agreement.

2/ Sample standard terms and conditions stated under sub-article (1) of this Article and any subsequent amendments thereof shall be subject to prior approval of the National Bank.

3/ The National Bank may prescribe by direct- ive basic terms and conditions to be applicable to contracting parties in the business of electronic fund transfers and stored value facilities.

20. Complaint Resolution

1/ Operators, participants and issuers of payment instruments shall establish internal complaint handling procedures in relation to electronic fund transfers and stored value facilities, and shall advise users on the procedures for lodging complaints.

2/ The National Bank may prescribe by direct- ive the procedures for investigating and handling complaints in relation to electronic fund transfers and stored value facilities.

21. Electronic Communication

1/ Where any law provides that information or any other matter shall be in writing, such requirement shall be deemed to have been satisfied if such information or matter is rendered or made available in an electronic form and accessible so as to be usable for subsequent reference.

2/ Notwithstanding any law or customary practice to the contrary, a user may agree that any information which any law or agreement requires an operator or a participant to provide by writing or other means may be provided:

a)to the user’s electronic equipment or electronic address nominated by the user; or

b)by being made available at the operator’s or participant’s electronic address for retrieval by electronic communication to the user on the condition that the operator or the participant:

(1) promptly notifies the user by electronic communication; and

(2)provides the user with the ability to readily retrieve the information by electronic communication.

22. Use of Shared Systems

1/ For the purposes of this Article, parties to a shared system include operators, participants, retailers, other merchants, communications service providers, and other entities providing electronic fund transfer facilities to users.

2/ The rights and responsibilities of parties to a shared system shall be determined by bilateral or multilateral agreement of the parties; provided, however, that the National Bank may, by directive, set basic rights and responsibilities to be incorporated in such agreements.

3/ Operators, participants or issuers of payment instrument may not avoid any obligations owed to their users by reason only of the fact that they are party to a shared system and that another party to the system has actually caused the failure to meet the obligations.

4/ Any operator, participant or issuer of payment instrument shall resolve complaints or disputes with its customers in relation to the processing of electronic fund transfers or stored value cards promptly through its internally established systems. Furthermore, such persons may not require its customers to present their complaints to any other party to the shared system, or to have those complaints or disputes investigated by any other party to the shared system.

23. Validity of Electronic Data

1/ Notwithstanding any provision to the contrary in any other law or customary practice, information as to any transfer of funds through a system which is contained in any document, computer print-out, hard copy, microfilm, floppy or hard disc or any other electronic media or form shall be admissible in any court as evidence of the transfer concerned.

2/ Photographic images such as film, microfilm, microfiche or computer images of original documents such as cheques, securities, certificates of deposits, account ledgers, government securities or other payment instruments shall be admissible as prima facie evidence of the matters or transactions of the original instrument.

3/ Payment instructions, messages and funds transfers that are initiated, processed or executed through electronic means including electronic signatures shall be admissible as prima facie evidence of the matters or transactions carried out.

4/ The National Bank may prescribe by directive standards, formats and conditions for medium of transmission of electronic data and document processing including electronic signature.

24. Presentment of Image for Payments

1/ A cheque or other paper based payment instrument may be converted to an electronic data by the exchange and storage of its image and the corresponding information which shall represent the original instrument.

2/ The image of a cheque or any other paper based payment instrument transmitted through a system shall be recognized as the equivalent of the paper that it represents.

3/ Once payment is effected using the image, the original paper may not be negotiable and can be destroyed.

4/ If the transfer of funds is not effected for any reason using the image, the original item may be presented for payment.

5/ The National Bank may issue directive on imaging of paper based payment instruments and their processing.

PART FIVE REGULATION AND OVERSIGHT

25. Rules of Authorized Systems

1/ Each operator shall establish written rules for the governance, management and operations of a system that it runs.

2/ Rules established by an operator under sub-article (1) of this Article shall be approved by the National Bank.

3/ The National Bank may vary or revoke any rules of the operator established under sub-article (1) of this Article, where it considers appropriate to do so, having regard to:

a) whether the variation or revocation is in the public interest;

b)the interests of the participants in the system;

c)the interests of people who, in the future, may desire access to the system; and

d)any other matters it may consider relevant to smooth, safe and secure functioning of the system.

4/ The rules established in respect of an authorized system shall cease to be in force on:

a)the prescribed expiry date, if any, of such rules;

b)revocation of the rules by the National Bank;

c)voluntary cessation of operations by the operator; or

d) suspension or revocation of authorization of the operator.

26. Changes in a System

No operator may cause any change in the structure, operation or administration of its system without:

1/ prior approval of the National Bank; and

2/ giving notice of not less than thirty days, after the approval of the National Bank, to the other participants of the system.

27. Financial Records

1/ The National Bank may direct operators, participants, issuers of payment instruments and central counterparties to prepare financial statements in accordance with international financial reporting standards.

2/ Any institution which is referred to under sub-article (1) of this Article shall keep such records as are necessary to enable the National Bank to acertain in a manner:

a)exhibit clearly and correctly the state of its affairs;

b)explain its transactions and financial position; and

c)whether it had complied with the provisions of this Proclamation and regulations and directives issued for the implementation of this Proclamation.

3/ Operators, participants and issuers of payment instruments shall register and keep documents for each type of transaction. The form and required entries of such documents may be prescribed by the National Bank.

4/ Without prejudice to the provisions of the Ethiopian National Archives and Library Proclamation No. 179/1999, operators, participants, central counterparties, a clearing house and issuers of payment instruments shall retain all records obtained by them during the course of their operation and administration for a period of 10 years from the date of the establishment of a record.

5/ The retention of records under sub-article (4) of this Article may be effected by electronic means.

28. Audit and Examination

1/ The National Bank may conduct audits or commission independent auditors to conduct an audit of the accounts, books, documents and any other records of an operator, a participant, issuer of a payment instrument or a central counterparty; and each such entity shall assist the National Bank or its auditors to the extent necessary for carrying out the audit.

2/ The National Bank may, where it is of the opinion that it is necessary for the purposes of carrying out its functions under this Proclamation, examine, with or without any prior notice, the premises, apparatus, equipment, computer, machinery, books or other documents, accounts or transactions of an operator, a participant, issuer of a payment instrument or a central counterparty.

3/ An operator, a participant, issuer of a payment instrument or a central counterparty shall provide any information requested by the National Bank and produce all book, minutes, accounts, cash instruments, securities, vouchers, reports or any documents relating to its business or the business of its affiliates for the examination by any examiner or auditors appointed by the National Bank at such time and manner the National Bank, the examiner or auditor specifies.

4/ Any information obtained by the National Bank pursuant to sub-article (3) of this Article shall not be directly or indirectly disclosed to another person except:

a)for the purposes of fulfilling the requirements of this Proclamation;

b)it is necessary to ensure the financial integrity, effectiveness and security of the system;

c)to a recipient who is legally authorized to get such information;

d)ordered by a court of law;

e)to the body which the National Bank is accountable; or

f)it is required for the purpose of meeting obligations which Ethiopia has entered into under international agreements.

29. Appointment and Obligations of External Auditors

1/ An operator, a participant or payment instrument issuer shall appoint an external auditor. The appointment of such auditor shall be approved by the National Bank.

2/ If an operator, a participant or payment instrument issuer fails to appoint an external auditor satisfactory to the National Bank, the Bank may appoint an auditor for such person; and the remuneration of such auditor shall be determined by the Bank and paid by the person to whom the auditor is appointed.

3/ The National Bank shall determine the basic criteria for appointment and tenure of external auditors.

4/ Where in the course of the performance of his duties, the external auditor is satisfied that:

a)there has been a breach of or noncompliance with this Proclamation or regulation, directive, notice or order issued under this Proclamation; or

b)there is evidence that a criminal offence involving fraud or other dishonesty may have been committed;

he shall immediately report the matter to the auditee, the National Bank and other concerned law enforcement agencies.

5/ The National Bank may obtain copies of reports submitted to the auditee by both its internal and external auditors.

6/ An auditor appointed under sub-article (1) or

(2) of this Article or sub-article (1) of Article 28 of this Proclamation may not be liable for reason of compliance with sub-article (4) or

(5) of this Article or any request for information by the National Bank.

PART SIX MISCELLENEOUS PROVISIONS

30. Service Charges

The National Bank may collect service charges from operators, participants and issuers of payment instruments.

31. Settlement of Disputes

1/ Disputes among parties involved in the national payment system concerning any civil matter arising under this Proclamation shall be resolved by mediation.

2/ Where the disputes cannot be resolved through mediation as per sub-article (1) of this Article the matter shall be settled by arbitration.

3/ Without prejudice to provisions of the Civil Procedure Code relating to appeals, the arbitral award under sub article (2) of this Article shall be final and binding on the parties.

4/ The National Bank may issue directive for the resolutions of disputes arising in relation to national payment system in accordance with the provisions of this Article.

32. National Payment System Council

The government may establish a National Payment System Council which shall have an advisory role to the National Bank with regard to the national payment system.

33. Protection for Acts Done in Good Faith

No suit shall lie against the National Bank or officers, employees or agents of the National Bank in respect of anything done in good faith to implement this Proclamation or regulation or directive issued pursuant to this Proclamation, or order or customary practice.

34. Infringements and Administrative Measures

The National Bank may, as appropriate, take one or more of the following administrative measures against any operator, participant or issuer of payment instruments, where it determines that an infringement was committed on any provision of this Proclamation or regulations or directives issued pursuant to this Proclamation, or order or customary practice:

1/ issue written warning to the perpetrator;

2/ impose restrictions or fines on the perpetrator in an amount up to Birr 20,000 per day for each day that the infringement continues;

3/ suspend or dismiss directors, chief executive or other officers or employees of the perpetrator; or

4/ suspend or revoke the authorization of the perpetrator.

35. Offences and Penalties

1/ Unless a higher penalty is applicable under any other law any person who contravenes the provisions of sub-article (1) of Article 5 or sub-article (1) of Article 8 of this Proclamation shall be punished with a rigorous imprisonment from 10 to 15 years and with a fine of Birr 20,000 in respect of each day on which the contravention continues.

2/ If a director, a manager or an employee of an operator, a participant, or issuer of payment instrument:

a)obstructs the proper performance, to be conducted in accordance with this Proclamation, of an auditor or an inspector duly authorized by the National Bank; or

b)damages, destroys, alters or falsifies accounts, books or records of the operator, participant or issuer of payment instrument; or

c)makes false entries or fails to enter material items in the accounts of an authorized system; or

d)fails to provide information which is required to be disclosed pursuant to this Proclamation or regulation or directive issued hereunder or give false or inaccurate information; or

e)discloses any confidential information relating to any person except required or ordered by court, law, legally authorized person or National Bank; shall be punished with a rigorous imprisonment from 10 to 15 years and with a fine from Birr 50,000 to Birr 100,000.

3/ Whosoever without lawful authority makes, or forges or alters any payment instrument shall be punished with rigorous imprisonment from 10 to 15 years and with a fine from Birr 50,000 to Birr 100,000.

4/ Whosoever uses or attempts to use, exports, imports, purchases, acquires, accepts in trust, sells or offers for sale or donates any payment instrument which he knows to be forged, fictitious, altered, lost, stolen, expired, revoked or fraudulently obtained shall be punished with rigorous imprisonment from 5 to 15 years and with a fine from Birr 50,000 to Birr 100,000.

5/ Whosoever, with the intent of unlawful use of them, possesses, imports, exports or transfers machinery, mould, die, paper, metal or other material to be used for making any forged payment instrument shall be punished with rigorous imprisonment from 7 to 10 years and with a fine from Birr 50,000 to Birr 100,000.

6/ Whosoever:

a)furnishes goods, services or any other valuable interest upon presentation of a payment instrument which he knows is forged, fictitious, altered, lost, stolen, expired, revoked or fraudulently obtained; or

b)knowingly receives, conceals, uses, transfers or transports money, goods or services obtained by use of any forged, fictitious, altered, lost, stolen, expired, revoked or fraudulently obtained payment instrument; shall be punished with imprisonment from 2 to 5 years and with a fine.

7/ Whosoever:

a)without being an issuer or agent thereof, sells a payment instrument; or

b)buys a payment instrument from a person other than the issuer or its agent;

shall be punished with an imprisonment up to 3 years and with a fine up to Birr 5000.

8/ Without prejudice to the provisions from sub-article (1) to (7) of this Article, any person who contravenes or obstructs the implementation of other provisions of this Proclamation or regulations or directives issued hereunder shall be punished with an imprisonment up to 3 years and with a fine up to Birr 10,000.

9/ Without prejudice to the rights of third parties, any asset derived from the commission of an offence referred to in this Article shall be confiscated by the government.

36. Transitory Provisions

The provisions of this Proclamation shall apply on operators, participants, issuers of payment instruments and their agents conducting business on the effective date of this Proclamation within the time period to be specified by the National Bank.

37. Power to Issue Regulation and Directive

1/ The Council of Ministers may issue regulations necessary for the proper implementation of this Proclamation.

2/ The National Bank may issue directives and orders necessary for the proper implementation of this Proclamation and regulations issued pursuant to sub-article (1) of this Article.

38. Inapplicable Laws

No laws, orders or customary practices, shall, insofar as they are inconsistent with the provisions of this Proclamation, be applicable with respect to matters provided for by this Proclamation.

39. Effective Date.

This Proclamation shall enter into force up on the date of publication in the Federal Negarit Gazeta.
Done at Addis Ababa, this 18th day of July, 2011

GIRMA WOLDEGIORGIS

PRESIDENT OF THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

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(Taken from Law of Banking, Negotiable Instruments and Insurance

Prepare by Fasil Alemayehu and Merhatbeb Teklemedhn
Sponsoredby Justice Justice and Legal System Research Institute)

           The Requirements to Carry on Insurance Business
Art 656 of the Commercial Code provides that the law shall determine the conditions under which physical persons or business organizations may carry on insurance business.
Therefore, we have to refer to other parts of the commercial code and other laws to find out as to who may undertake insurance business and the conditions under which it may be undertaken. Accordingly, Art 513 of the code provides that banks and insurance companies cannot be established as private limited companies, i.e., a private limited company cannot engage in banking, insurance or any other business of similar nature. Similarly, Art 6(1) of the Licensing and Supervision of Insurance Business Pro No 86/1994 provides that no person may engage in insurance business of any type unless it applies to and acquires a license from the National Bank
of Ethiopia for the particular class or classes of insurance. Furthermore, Art 4(1) and Art 2(3) of the same proclamation provide that such person has to be a share company as defined under Art 304 of the commercial code.
These requirements / conditions in effect prevent foreigners from engaging in insurance business and foreign banks from opening branches and operating in Ethiopia. The most probable reason for this position is the need to protect infant domestic insurance companies which do not have the desired financial strength, knowhow and human resources to be able to compete with foreign banks which have superior capacity in these areas.
The other condition that a person must fulfill to obtain a license relates to the minimum capital of the company, i.e., it must have a minimum capital of 3 million Birr if it is applying for license to undertake general insurance business i.e., insurances other than insurance of persons, and 4 million Birr if it is applying for a license to undertake long term insurance business, i.e., insurance of persons and 7 million where the application is to undertake both classes of insurance. Such capital has to be paid up in cash and deposited in a bank in the name of the company to be established as an insurance company.

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Clik here to view.LICENSING AND SUPERVISION OF BANKING BUSINESS

Directives No. SBB/ 48/2010     DOWNLOAD (PDF)

ASSET CLASSIFICATION AND PROVISIONING FOR DEVELOPMENT FINANCE INSTITUTIONS

1. Issuing Authority

These Directives are issued by the National Bank of Ethiopia pursuant to the authority vested in it by articles 21 and 22 of Banking Business Proclamation No. 592/2008.

2. Short Title

These Directives may be cited as “Asset Classification and Provisioning for

Development Finance Institutions Directives No. SBB/ 48/2010”.

3. Purpose

The purpose of these Directives is to provide guidelines to development finance institutions to assure that:

3.1loans are regularly reviewed and prudently classified in a manner that appropriately reflect credit risk;

3.2loans which are not performing in accordance with contractual repayment terms are timely recognized and reported as past due ;

3.3accrued but uncollected interest on loans is properly accounted for; and

3.4timely and adequate provisions are made to the “Provisions for Loan Losses Account” in order to ensure that disclosed capital and earnings performance are accurately stated.

4. Definitions

4.1“Capitalized Interest” means any accrued and uncollected interest that has been added to the principal amount of loans at a payment date or maturity; it also includes uncollected interest that is rolled-over into new loans.

4.2“Cash Collateral” means credit balances on accounts in the books of the development finance institution over which customers have given the institution a formal letter of cession and which the institution at its discretion has transferred from the customer’s account(s) to a specific or general cash collateral account(s) or blocked.

4.3 “Cash-substitutes” include:

4.3.1a security issued by the Federal Government of Ethiopia;

4.3.2an unconditional obligation or guaranty issued in writing by the Federal Government of Ethiopia;

4.3.3an unconditional obligation or guaranty issued in writing by a foreign bank with an A or above rating by Standard and Poor’s

Corporation, Moody’s Investor Services or any other international rating agency, approved by the National Bank of Ethiopia, in its latest rating; and

4.3.4other liquid and readily marketable securities approved in writing by the National Bank of Ethiopia and which are held in the vaults of the development finance institution.

4.4“Development finance institution” means an institution which is engaged mainly in medium and long term project finance business, with the purpose of promoting development in the industrial, agricultural, construction, services, commercial or other economic sectors;

4.5 “Loans” means any financial assets of a development finance institution arising from a direct or indirect advance of funds (i.e. unplanned over drawings, participation in loan syndication, the purchase of loans from another lender, etc.) or commitment to advance funds by a development finance institution to a person that are conditioned on the obligation of the person to repay the funds, either on a specified date or dates or on demand, usually with interest. The term includes a contractual obligation of a development finance institution to advance funds to or on behalf of a person, claim evidenced by a lease financing transaction in which the development finance institution is the lessor, and line of credit to be funded by the development finance institutions on behalf of a person.

4.6“Medium or long term loans” means loans with original repayment or maturity period of two years or more.

4.7“Net Recoverable Value” means the most probable value of a loan which will be realized from the sale of collateral securing the loan in a competitive and open market. For the purposes of these Directives, the most probable value of a loan recoverable from the sale of collateral securing the loan shall be the outstanding principal balance of the loan or advance multiplied by the “average recovery rate” of a development finance institution for loans secured by the collateral, provided that such average recovery rate shall not be 15 (fifteen) percentage points greater than “industry average recovery rate”. If a development finance institution has no information on aggregate net cash receipts or total net market value of acquired properties to compute its own average recovery rate, it shall use industry average recovery rate to determine the most probable value of a loan.

4.7.1The term “ average recovery rate” means aggregate net cash receipts from sale of collateral plus total net market value of acquired properties, divided by the aggregate outstanding principal balance of the loans backed by the collateral sold or otherwise acquired by a development finance institution calculated over the period of 18 consecutive months preceding the date of computing minimum provision requirement as laid down in these Directives. In case a loan or an advance is secured by more than one collateral, such loan or advance and the collateral securing it shall be excluded from computation of average recovery rate unless all properties backing the loan or advance are sold or otherwise acquired by the development finance institution.

4.7.2“Aggregate net cash receipts” means net cash collection (after deduction of any expenses associated with the sale of the collateral which may have been necessary to place the collateral in a saleable condition), over 18 consecutive months preceding the date of calculating minimum provision requirement, of a development finance institution from the sale of collateral which have been seized or foreclosed by the institution in satisfaction of loans previously granted.

4.7.3The term “total net market value of acquired properties” as used in these Directives means the average of ask or reserve price of acquired properties and the highest offer bid amount registered at the last auction in the market that preceded the acquisition by a development finance institution for properties which previously were offered by borrowers as collateral against loans. The highest offer bid amount for auctioned property in absence of a bidder at the last auction shall be zero.

4.7.4 “Ask or reserve price” means minimum price at which lending development finance institution is willing to sell foreclosed assets.

4.7.5The term “ industry average recovery rate” means aggregate net cash receipts plus total net market value of acquired properties, divided by the aggregate outstanding principal balance of the loans backed by the collateral at the time the collateral was seized, foreclosed, repossessed or otherwise acquired by all banks, including development finance institutions, operating in Ethiopia calculated over the period of 18 consecutive months preceding the date of determining minimum provision requirement. In case a loan is secured by more than one collateral, such loan and the collateral backing it shall be excluded from computation of industry average recovery rate unless all properties held as collateral against the loan are sold or otherwise acquired by the banks. The National Bank of Ethiopia shall compute such industry average recovery rate

every calendar quarter and distribute to development finance institutions.

4.7.6In determining the average recovery rate as set out under 4.7.1 herein above, the net market value of acquired property and/or the net cash receipt from the sale of collateral shall not exceed 100% of each outstanding non-performing loan backed by the collateral and used in the calculation of the average recovery rate.

4.8“Non-accrual Status” means that a loan has been placed on a cash basis for financial reporting purposes. Interest on such loans accrued on the books of the development finance institution, or for which a specific reserve (such as a suspended interest account) has been established by the development finance institution to offset the full amount of interest being accrued, shall not be taken into income unless as otherwise provided in these Directives.

4.9“Non-performing loans ” means loans whose credit quality has deteriorated such that full collection of principal and/or interest in accordance with the contractual repayment terms of the loan or advance is in question.

4.10 For purposes of these Directives,

4.10.1short term loans are non-performing when principal and/or interest is due and uncollected for 90 (ninety ) consecutive days or more beyond the scheduled payment date or maturity;

4.10.2 medium and long term loans are non-performing when principal and/or interest is due and uncollected for 180 (one hundred and eighty) consecutive days or more beyond the scheduled payment date or maturity;

4.10.3the entire principal balance of loans outstanding exhibiting the characteristics described under articles 4.10.1 and 4.10.2 hereof shall be considered as non-performing.

4.11 “Person” means any judicial or natural person.

4.12“Provisions for Loan Losses Account” means a balance sheet valuation account established through charges to provision expense in the income statement in respect of possible losses in the loan portfolio.

4.13“Renegotiated Loans” means loans which have been refinanced, rescheduled, rolled-over, or otherwise modified at favorable terms and conditions for the borrower because of weaknesses in the borrower’s financial condition and/or ability to repay. However, the term excludes loans held by projects under implementation.

4.14 “Short term loans” means loans with original repayment or maturity period of less than two years.

4.15“Suspended Interest Account” means an account where previously accrued but uncollected interest on loans required to be placed on non-accrual status is reserved out of the income of the development finance institution.

4.16“Total capital” means the paid up capital, legal reserve and any other unencumbered reserve acceptable to the National Bank of Ethiopia held by a development finance institution.

4.17“Well-Secured” means that a loan is secured by cash collateral or cash-substitutes sufficient to repay the full debt (principal plus accrued interest); for purposes of these Directives, sufficiency shall include proper legal documentation evidencing the institution’s claim on the collateral.

5. Loan Review

5.1The board of directors of each development finance institution is responsible for establishing a loan review system which provides for the accurate and timely recognition of problem or deteriorating loans, assuring the adequacy of the Provisions for Loan Losses Account, and assuring that accrued but uncollected interest reflected in the books of the institution are in accordance with the requirements laid out in these Directives.

5.2The board of directors of each development finance institution shall assure that a review is made of the quality of the institution’s loan portfolio on a regular basis, but no less than once each calendar quarter. At the end of each calendar quarter, or more frequently if warranted, the board of directors shall require the executive officer(s) of the institution to take appropriate measures in response to the findings of the loan review function to:

5.2.1accurately reflect earnings by assuring that all loans categorized as non-performing in accordance with the requirements laid out in these Directives are placed on non-accrual status and accrued but uncollected interest has been reversed out of the institution’s income;

5.2.2assure that the Provisions for Loan Losses Account is adequate to absorb potential losses in accordance with the requirements laid out in these Directives; and

5.2.3correct problems, either in individual loans, loan underwriting practices, compliance with prudent lending standards and the board-approved lending policy, or other credit administration weaknesses as may be identified by the loan review function, within a specified time frame.

5.3The board of directors of each institution shall maintain adequate records supporting its evaluation of potential losses in the loans portfolio and the entries made to reflect earnings and the adequacy of the Provisions for

Loan Losses Account; such records shall be made available to examining personnel of the National Bank of Ethiopia upon request.

5.4 The loan review function shall assure on an on-going basis, at a minimum, that:

5.4.1lending activities are in compliance with prudent written lending standards as approved and adopted by the board of directors;

5.4.2the board of directors is adequately informed of the risks and potential loss exposure in outstanding loans;

5.4.3problem or deteriorating loans are properly and timely identified, classified, and placed on non-accrual status in accordance with the requirements laid out in these Directives;

5.4.4appropriate provisions are made to the Provisions for Loan Losses Account for loans classified in accordance with the requirements laid out in these Directives; and

5.4.5uncollectible non-performing loans are written off as appropriate.

5.5The loan review function shall regularly and on an ongoing basis review all loans which exceed 5% (five percent) of a development finance institution’s total capital to a single borrower, calculated in accordance with the Single Borrower Loan Limit Directives of the National Bank of Ethiopia, all loans required to be placed on non-accrual status in accordance with the requirements laid out in these Directives, and a sampling of the remaining loan portfolio to determine that loans reflected as performing on the books of the institution are in fact performing pursuant to the requirements and definitions laid out in these Directives.

5.6The loan review function shall be performed by the board of directors of each development finance institution or a group of individuals to be designated by the board of directors, who are knowledgeable in credit analysis methodologies and who are not involved in the lending activities of the institution. In the latter case, the group shall on a regular basis, but not less than once each calendar quarter, report its findings directly to the board of directors in writing.

6. Placement of Loans on Non-accrual Status

6.1All non performing loans shall be placed on non-accrual status, unless the loans are well-secured.

6.2Accrued but uncollected interest being carried on the books for loans which are required to be placed on non-accrual status in accordance with the requirements laid out in these Directives shall be eliminated by the end of the calendar quarter in which the loans are required to be placed on non-accrual status, but in no event later than the fiscal year-end date of the institution, whichever is sooner.

6.3 A non-performing loan or advance placed on non-accrual status may

be restored to accrual status only when:

6.3.1 none of the outstanding principal and/or interest is past due; and

6.3.2for renegotiated loans , where all past due interest is paid by the borrower in cash at the time of renegotiation and the loan or advance is not classified as “Substandard” in accordance with article 7.1.6. of these Directives.

6.4Development finance institutions shall report to the National Bank of Ethiopia on a quarterly basis loans which exceed 5% (five percent) of the institution ‘s capital that have been restored from non-accrual to accrual status.

6.5 If a development finance institution has multiple loans outstanding to a single borrower as calculated in accordance with the Single Borrower Loan Limit Directives of the National Bank of Ethiopia, and one loan or advance meets the criteria for non-accrual status, then the institution shall prepare a current written evaluation of the borrower’s creditworthiness evidencing that repayment prospects for the other loans are reasonably assured; should such written creditworthiness evaluation suggest that repayment prospects for the other loans are in question or otherwise uncertain, then all such loans to the borrower shall be placed on non-accrual status regardless of any requirements laid out in these Directives.

7. Classification of Loans

7.1 For the purpose of these Directives, development finance institutions shall classify all their loans, into the following five classification categories using the criteria described below:

7.1.1 Pass

Loans in this category are fully protected by the current financial and paying capacity of the borrower and are not subject to any criticism. Notwithstanding the generality of this statement, the following loans shall be classified pass:

a)short term loans past due for less than 30 (thirty) days,

b)medium and long term loans past due for less than 90 (ninety) days; and

c)any loan, or portion thereof, which is fully secured, both as to principal and interest, by cash or cash-substitutes, regardless of past due status or other adverse credit factors.

7.1.2 Special Mention

The following loans at a minimum shall be classified special mention:

a)short term loans past due for 30 (thirty) days or more,

but less than 90 (ninety) days;

b)medium and long term loans past due 90 (ninety) days or more, but less than 180 (one-hundred-eighty) days;

7.1.3 Substandard

The following non-performing loans at a minimum shall be classified substandard:

a)short term loans past due 90 (ninety) days or more, but less than 180 (one-hundred-eighty) days;

b)medium and long term loans past due 180 (one-hundred-eighty) days or more, but less than 360 (three-hundred-sixty) days;

7.1.4 Doubtful

The following non-performing loans at a minimum shall be classified doubtful:

a)short term loans past due 180 (one-hundred-eighty) days or more, but less than 360 (three-hundred-sixty) days;

b)medium and long term loans past due 360 (three-hundred-sixty) days, but less than 3 ( three) years;

7.1.5 Loss

The following non-performing loans at a minimum shall be classified loss:

a) short term loans past due 360 (three-hundred-sixty) days or more;

b)medium and long term loans past due 3 (three) years or more;

7.1.6Without prejudice to the classification criteria used for the Sub-Standard category set out under article 7.1.3 herein above, renegotiated non-performing loans shall be categorized as “Substandard” unless equivalent of all past due interest is paid by the borrower in cash at the time of renegotiation and the following payments are made by the borrower on a consistent and timely basis in accordance with the restructured terms of the loan

a)in the case of loans with monthly or quarterly installment repayments, at least 3 (three) consecutive repayments;

b) in the case of loans with semi-annual installment repayments, at least 2 (two) consecutive repayments;

c) in the case of loans with annual installment repayments, at least one repayment.

7.1.7If a development finance institution has multiple loans outstanding to a single borrower as calculated in accordance with the Single Borrower Loan Limit Directives of the National bank of Ethiopia, and one loan or advance meets the criteria for non performing, then the institution shall prepare a current written evaluation of the borrower’s creditworthiness evidencing that repayment prospects for the other loans are reasonably assured; should such written creditworthiness evaluation suggest that repayment prospects for the other loans are in question or otherwise uncertain, then all such loans to the borrower shall at a minimum be classified as substandard regardless of any requirements laid out in these Directives.

7.1.8A development finance institution shall not reschedule, restructure or renegotiate a short term loan to a borrower for more than three iterations.

7.1.9Before rescheduling, restructuring or renegotiating a short term loan, a development finance institution shall collect in cash full amount of interest in arrears thereof and the following principal amounts:

a)a minimum of 25% of outstanding principal balance in case of rescheduling, restructuring or renegotiating for the second time.

b)a minimum of 50% of outstanding principal balance in case of rescheduling, restructuring or renegotiating for the third time.

7.2Notwithstanding the classification criteria laid out under article 7.1 herein above, a loan may be subject to more severe classification by examiners of the National Bank of Ethiopia if the actual condition of the loan warrants such classification. Conditions that warrant more severe classification may include, but are not limited to: (i) significant departure from the primary source of repayment; (ii) repayment terms which are too liberal or inconsistent with the purpose and nature of the loan or advance and/or collateral held; (iii) delinquencies which have been technically cured by modifying the repayment terms, refinancing or renewing the loan, or advancing additional funds for the purpose of meeting repayment requirements on an existing loan or advance.

8. Provisioning Requirements for Loans

8.1Development finance institutions shall maintain a “Provisions for Loan Losses Account” which shall be created by charges to provision expense in the income statement and shall be maintained at a level adequate to absorb potential losses in the loans portfolio. In determining the adequacy of the Provisions for Loan Losses Account, provisions may be attributed to individual or groups of loans.

8.2The Provisions for Loan Losses Account shall always have a credit balance. Additions to or reductions from this account shall be made only through charges to provisions in the income statement at least every calendar quarter.

8.3Development finance institutions shall maintain the following minimum provision percentages against the outstanding principal amount of each loan or advance classified in accordance with the criteria for the classification of loans as laid out under article 7 herein above,

8.4Where reliable information, such as (i) historical loan loss experience, (ii) current economic conditions, (iii) delinquency trends, (iv) ineffectiveness of lending policies and/or collection procedures, or (v) lack of timeliness and accuracy in the loan review function, suggests that losses are likely to be more than the above minimum provision percentages, development finance institutions may be required to maintain larger provisions.

8.5The minimum provision requirements for each classification category here in above shall be applied against the total outstanding principal balance, not against the amount of past due payments, for each loan or advance, or portion thereof, classified regardless of whether the loan or advance is analyzed and provided for individually or as part of a group.

8.6Before applying the minimum provision percentages laid out under articles 8.3.3, 8.3.4 and 8.3.5 herein above, development finance institutions may deduct from the outstanding non-performing loans :

8.6.1 any accrued but uncollected interest held in a suspended interest

account (by debiting this account); and

8.6.2 in the case of loans secured by physical collateral net recoverable value, provided that such net recoverable value to be deducted shall not exceed 97% (ninety seven percent) ) of the outstanding non performing loan, or estimated collateral value backing the non performing loan; whichever is lower.

9. Prohibition and Review of Financial Statements of Borrowers

9.1Development finance institutions are prohibited from extending overdraft loans to their borrowers. For the purpose of these Directives “Overdraft loan” means a deposit account on the books of the development finance institution with a debit balance.

9.2Development finance institutions shall review financial statements for the latest financial year of a borrower, who has been in business for a year or above, audited by external auditors before granting loans of Birr 5 million or above.

10. Loan repayment schedule

Development finance institutions shall base periodic loan collections from their borrowers on cash generating capacity of the business financed by the loan. Without limiting the generality of the statement hereof, they shall collect medium and long term loans at least:

10.1 monthly from business that regularly generates cash daily;

10.2 quarterly from business that regularly generate cash in two to 30 days;

10.3 semi annually from business that regularly generate cash in 31 to 180 days;

10.4 annually from business that generate cash in 181 to 360 days; and,

10.5 as shall be determined by board of directors of each institution in all other cases.

11. Examiner Review

11.1.Each development finance institution shall maintain adequate records in support of its evaluation of potential loss exposure in the loans portfolio and of the entries made to ensure an adequate Provisions for Loan Losses Account which shall be made available to examining personnel of the National Bank of Ethiopia upon request to assess the reasonableness of the institution’s loss

estimation procedures, the reliability of the information on which estimates are based, and the adequacy of the Provisions for Loan Losses Account.

11.2.Should examining personnel in applying the requirements of these Directives and after discussions with the executive officer(s) of the institution find the Provisions for Loan Losses Account to be inadequate by more than 10% (ten percent) when compared to the findings of an on-site examination, the board of directors shall within 30 (thirty) days of such notice by the National Bank of Ethiopia of any deficiency in the Provisions for Loan Losses Account require the executive officer(s) to record the appropriate entries to increase the balance of the Provisions for Loan Losses Account to a level which is within 10% (ten percent) of the estimated amount of the Provisions for Loan Losses Account determined by examining personnel of the National Bank of Ethiopia.

11.3.In the event of material disagreements between examining personnel of the National Bank of Ethiopia and the executive officer(s) of the institution regarding the appropriateness of additional provisions needed to the Provisions for Loan Losses Account, the board of directors may appeal to the National Bank of Ethiopia. Notwithstanding this appeal, it is incumbent on the executive officer(s) of the institution to attend all loan discussions and meetings during on-site inspections in order to be fully apprised of examiner concerns with respect to all classified loans.

12. Other Provisioning Requirements

12.1.Provision for depreciation of fixed assets shall be made out of the annual income of a development finance institution in accordance with the law.

12.2.Operating and accumulated losses shall be provided for from the annual net profit until such losses are fully covered.

12.3.The value of any assets lodged or pledged to secure a liability, as indicated under Article 21(1)(b) of Proclamation No. 592/2008, shall be fully provided for upon the lodging or pledging of any asset.

12.4.Preliminary expenses representing expenses relating to organization or extension or the purchase of business or good will and including share underwriting commission shall be fully provided for within a maximum of 5 (five) years.

12.5.Any uncollectible claims, other than loans, shall be classified and provided for in the same manner and method laid down in these Directives for loans with monthly repayment program or

otherwise written off as other operating expense of the institution as they are identified.

13. Interpretation of the Directives

All loans held by a development finance institution must be accounted for and categorized in accordance with the requirements laid out in these Directives. No interpretation of these Directives shall be permitted unless confirmed in writing by the National Bank of Ethiopia. In recording a loan or advance not covered in principle by the requirements laid out in these Directives, a development finance institution shall make a written request to the National Bank of Ethiopia to confirm the proper application of the requirements laid out in these Directives.

14. Reporting

Development finance institutions shall submit to the Banking Supervision Directorate of the National Bank of Ethiopia a quarterly report on loan classification and provisioning in accordance with the table attached with these Directives which shall be part thereof.

15. Effective Date

These Directives shall enter into force as of the 5th day of August 2010.

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Clik here to view.LICENSING AND SUPERVISION OF BANKING BUSINESS Directives to Authorize the Business of

Interest Free Banking   DOWNLOAD (PDF)

Directives Number SBB/51/2011

WHEREAS there has been increasingly strong public demand for interest free banking products in Ethiopia;

WHEREAS supply of such products by banks has to be carried out in a safe and sound manner;

WHEREAS there has been lack of regulatory framework for interest free banking business;

NOW, THEREFORE, in accordance with Article 22(2) of Banking Business Proclamation Number 592/2008, the National Bank of Ethiopia hereby issues these directives.

1. Short Title

These directives may be cited as “Directives to Authorize the Business of Interest Free Banking No. SBB/ 51/2011”

2. Definitions

For the purpose of these directives, unless the context provides otherwise:

2.1“bank” means a company licensed by the National Bank to undertake banking business or a bank owned by the Government;

2.2“interest free banking business” refers to banking business in which mobilizing or advancing funds is undertaken in a manner consistent with Islamic finance principles and mode of operation that avoids receiving or paying interest;

2.3“interest free banking window” refers to a unit within a conventional bank exclusively offering interest free banking services; and

2.4“National Bank” means the National Bank of Ethiopia.

3. Scope

Provisions of these directives shall apply to all banks in Ethiopia engaged in interest free banking business.

4. Authorization

4.1 A bank shall obtain a written authorization from the National Bank to carry on interest free banking business.

4.2 A bank which wishes to obtain an authorization to carry on interest free banking business shall submit a duly completed application in the prescribed format together with documents specified below:

a)a report on resource mobilization and use;

b)planned balance sheet structure for interest free window and the whole bank;

c)maximum share of planned interest free business in total consolidated balance sheet of the bank;

d)risk management framework for all interest free banking products;

e)a statement on availability of adequate capacity and facilities to run interest free banking business;

f) accounting aspects, such as accounting policies to be followed and profit and loss sharing mechanisms;

g)evidence of financial strength as reflected in capital adequacy, asset quality, earnings capability, future earnings prospects, and current liquidity position and forecast for the next 12 months;

h) track records of adherence to prudential regulations, credit discipline, quality of customer services ;

i) a statement on the convenience as well as the needs of the population of the area to be served by interest free banking services;

j) methods of segregating the funds of interest free banking businesses from all other business ; and

k) such other information as required by the National Bank while processing the application.

4.3The National Bank shall evaluate the application submitted by a bank in view of risk management, Banking Business Proclamation, applicable directives issued by it as well as other rules and regulations; and upon its satisfaction, may authorize the applicant to open an interest free banking window.

5. Prohibition

5.1Banks shall not alter maximum share of interest free banking business in their consolidated balance sheet without prior approval of the National Bank.

5.2Failure to comply with sub-article 1 of this article may result in the closure of interest free banking window.

6. Maintenance of Accounts and Financial Statements

Banks engaged in interest free banking business shall:

6.1keep separate books of accounts in respect of interest free banking operations and ensure proper maintenance of records for all transactions for segregation of funds.

6.2report their interest free banking business activities every month to the National Bank.

7. Compliance with Regulatory and Supervisory Requirement

7.1In conducting interest free banking business, banks shall comply mutatis mutandis with all regulatory and supervisory requirements except National Bank’s directives on interest rate.

7.2 Equity participation in a project or a company shall be in strict compliance with “ limitation on Investment of Banks Directives No. SBB/12/96’’.

8.Effective Date

These Directives shall enter into force as of the 1st day of October 2011.

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Brief Note

This directives limits the total remuneration to be payed to members of board of directors of a bank to a maximum of 74, 000.00 Birr. (Fifty two thousand Birr)According to article 4.1 of the directive,  Annual board compensation to a director shall not exceed birr 50,000 (fifty thousand birr). In addition o this lump sum payment, the monthly allowance to be paid to a single board member could not exceed birr 2,000 (two thousand birr). The Directive strictly prohibits payment of any financial or otherwise remuneration or benefits other than the stated yearly compensation and monthly allowance.

The directives also prohibits employee of a bank, be it permanent or contractual from becoming members of board of directors.

LICENSING AND SUPERVISION

OF BANKING BUSINESS

Limits on Board Remuneration and Number of Employees Who Sit on a Bank Board Directives No. SBB/49/2011

WHEREAS, a sound corporate governance is vital for the health of individual banks and the banking sector as a whole;

WHEREAS, excessive remunerations recently being paid by banks to directors have become a threat to the health of the banking system;

WHEREAS, there is a need to separate board and executive functions, so as to ensure proper checks and balances, in banks;

NOW, THEREFORE, in accordance with paragraphs “e” and “f” of sub-article 4 of article 14 of Banking Business Proclamation No 592/2008, the National Bank of Ethiopia hereby issues these directives.

1. Short Title

These Directives shall be cited as “Limits on Board Remuneration and Number of Employees Who Sit on Bank Board Directives No. SBB/49/2011″.

2. Definitions

For the purpose of these directives, unless the context provides otherwise:

2.1 “bank” means a company licensed by the National Bank of Ethiopia to undertake banking business or a bank owned by the Government;

2.2 “Board allowance” refers to an amount of money that is paid in kind or in cash from any account of the bank to directors to cover incidental costs related to their board membership;

2.3 “Board compensation” refers to any money other than board allowance that is paid, in cash or otherwise, to a director from the bank’s net profit or from any other sources;

2.4 “Director” means any member of the board of directors of a bank, by whatever title he may be referred to;

2.5 “Employee” means a chief executive officer, a senior executive officer or any other person who is appointed or hired by a bank to carry out its day-to-day operational activities;

2.6 “Remuneration” includes board compensation and allowance paid to each director;

3. Scope of the Directives

These directives shall apply to all banks operating in Ethiopia.

4. Remuneration of Directors

4.1 Annual board compensation to a director shall not exceed birr 50,000 (fifty thousand birr).

4.2 Monthly allowance paid to a director shall not exceed birr 2,000 (two thousand birr).

4.3 No bank shall pay any financial or otherwise remuneration or benefits other than those stated under sub-articles “4.1” and “4.2” of this article in whatsoever form to its directors any time.

5. Number of Employees Who Sit on Bank Board

No employee of a bank, be it permanent or contractual, shall sit on the board of any bank.

6. Effective Date

These Directives shall enter into force as of 15th day of January 2011.

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Regulation no. 160-2009 National Lottery Administration Re-establishment

Regulation no. 161-2009 Coffee Quality Control and Transaction

Regulation no. 162-2009 Irrigation Development Investment Incentives

Regulation no. 163-2009 Wildlife Development, Conservation and Utilization

Regulation no. 164-2009 Council of Ministers Income Tax (Amendment)

Regulation no, 165-2009 Ethiopian Postal Service Enterprise Establishment

Regulation no. 166-2009 Work Permit Fees (As Amended)

Regulation no. 167-2009 Federal Hospitals Administration        Corrigendum no. 8-2009

Regulation no. 168-2009 Registration and Administration of Charities and Societies

Regulation no 169-2009 Acess to Genetic Resources and Community Knowledge Communitynity Rights

Regulation no. 170-2009 Ethiopian Electric Power Corporation Re·Establishment

Regulation no. 171-2009 Financial Intelligence Establishment

Regulation no. 172-2009 Re-Organization of the Management of the National Bank of Ethiopia

Regulation no. 173-2009 Classification of Tourist Facilities

Regulation no. 174-2009 Catering and Tourim Training Center Establishment

Regulation no. 175-2009 Genet Hotel Enterprise Establishment

Regulation no. 176-2010 Ethiopian Meat and Dairy Technology Institute Establishment (Amendment)

Regulation no. 177-2010 lnfomtttion Technology Park Corporation Establishment

Regulation No. 178-2010 Sesame and White Beans Transaction

Regulation no. 179-2010 Army Foundation Establishment

Regulation no. 180-2010 Textile Industry Development Institute

Regulation no. 181-2010 Leather Industry Development Institute

Regulation no. 182-2010 Metal Industry Development Institute Establishment

Regulation no. 183-2010 Metal and Engineering Corporation Establishment

Regulation no. 184-2010 Public Procurement and Property Disposal Service Establishment

Regulation no. 185-2010 Defence Construction Enterprise Establishment

Regulation no. 186-2010 Defence Construction Materials Manufacturing Enterprise Establishment

Regulation no. 187-2010 Construction Design Enterprise Establishment

Regulation no. 188-2010 Repealing of the Regulation for the Implementation of African Peer

Regulation no. 189-2010 Ethiopian Food Medicine and Health Care Adminstration and Control Authority Establishment

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LICENSING AND SUPERVION OF THE BUSINESS OF FINANCIAL INSTITUIONS DOWNLOAD (.pdf)

Regulation of Mobile and Agent Banking Services

Directives No. FIS /0112012

Whereas, use of technology and innovative financial service delivery channels such as mobile devices and agents have significant contribution in deepening financial service accessibility to the wider section of the population at an affordable price;

Whereas, it has been found essential to encourage and enhance savings mobilization through the use of alternative and innovative financial services delivery channels;

Whereas, there is a need to set the minimum standards for risk management and customer protection on the delivery of mobile and agent banking services;

Whereas, the National Bank of Ethiopia is responsible for ensuring , that financial institutions are delivering mobile and agent banking services without compromising the safety and soundness of the financial system of the country;

Now, therefore, in line with the powers vested in it by article 10 (5) of National Payment System Proclamation No. 718/2011 and article 59 (2) of Banking Business

Proclamation no. 592/2008, the National Bank of Ethiopia has issued these directives.

1. Short Title

These directives may be cited as “Regulation of Mobile and Agent Banking Services Directives No. FIS/0l/2012″

2. Definitions

For the purpose of these directives:

2.1″agent” means a person engaged in a commercial business activity and has been contracted by a financial institution to provide the financial institution on its behalf in a manner specified in these directives

2.2″agent banking” means the conduct of banking business on behalf of a financial institution through an agent using various service delivery channels as permitted under these directives;

2.3″bank” means a company licensed by the National Bank to undertake banking business in Ethiopia or a bank owned by the Government;

2.4″cash in and cash out services” refers to the deposit and withdrawal of funds including payments by customers to/from their mobile account using a variety of options including bank-branch counters, automatic teller machines and authorized agent locations;

2.5 “customer” means an individual or entity who uses mobile and agent banking services of financial institutions offered through mobile devices;

2.6″deposit” means placement of money with financial institutions, repayable on demand, or otherwise accepted by financial institutions from the public;

2.7″financial institution” means a bank or a microfinance institution;

2.8″fund transfer” refers to the transfer of funds from a customer’s or agent’s mobile or regular account to any other account or vice versa;

2.9″microfinance institution” means a company licensed by the National Bank to carryon micro financing business;

2.10″mobile account” means an account maintained by a customer in a financial institution in which debits and credits are effected by virtue of electronic fund transfer and which is used to conduct mobile banking activities as outlined in theses directives;

2.11 “mobile banking” means performing banking activities which primarily consists of opening and maintaining mobile/regular accounts and accepting deposits; furthermore, it includes performing fund transfer or cash in and cash out services using mobile devices;

2.12″mobile device” means mobile phones, smart phones, table personal computers, point of sale terminals or any other similar devices;

2.13″National Bank” means the National Bank of Ethiopia.

2.14 “person” means any natural or juridical person;

2.15 “pilot period” refers to the period in which mobile and agent banking service is being holistically tested with regards to its conformity to predetermined business and technical requirements in a limited test environment without making any public promotion;

2.16″real time” means the electronic processing of transactional data instantaneously upon data entry or instantaneous receipt of transaction command to a financial institutions central system.

3. Scope of the Directives

These directives shall apply to financial institutions that conduct mobile and agent banking services as set out in these directives

4. Modes of Business Conduct

4.1 Only financial institutions that are licensed by the National Bank are allowed to engage in mobile banking services.

4.2 Mobile and agent banking services shall be carried out only within the geographical boundary of Ethiopia and with only Ethiopian Birr.

4.3 Financial institutions can carry out mobile banking through their agents as specified in these directives.

4.4 Where financial institutions carryout mobile banking services through agents:

4.4.1 the financial institution shall be fully responsible and liable for all actions and omissions of its agent and this responsibility shall extend to actions of the agent;

4.4.2 all transactions involving deposit, withdrawal, payment or transfer of cash from or to an account shall be made on real time basis and financial institutions shall ensure that agents are able to carry out real time transactions;

4.4.3 agents shall not under any circumstance accept funds from customers that exceed their prepaid balance with financial institutions;

4.4.4 financial institutions shall automatically debit or credit the account of the agent or customer upon conduct of any transaction that necessitates reduction or increase of the account balance of the agent or customer; and

4.4.5 a financial institution shall have a mechanism to uniquely identify each of its agents.

5. Limits on Mobile Banking Transaction

5.1The maximum balance that should be available in a mobile account of a person with a financial institution at any time shall not exceed Birr 25,000 (Twenty Five Thousand Birr).

5.2 Daily mobile banking transaction that involves debiting of an account by a person with financial institution shall not exceed Birr 6,000 (Six Thousand Birr)

6. Application Processing and Approval

6.1. Prior to commencement of operation, a financial institution that intends to provide mobile and agent banking service shall seek approval from the National Bank.

6.2 A financial institution shall enter into a written contract with third party service providers such as technology service providers and telecom companies and such contracts shall clearly define the roles and responsibilities of each party in the provision of mobile and agent banking services.

6.3 A financial institution at the time of application shall submit to the National Bank at least the following.

6.3.1 Business plan that contains at least:

i) brief analysis of the country’s economy with particular focus on the financial system;

ii) operational and financial viability of the intended mobile and agent banking services for at least three years;

iii) pricing strategy including the initial transaction fee and charges that takes into account the sustainability of the mobile and agent banking service and the affordability of the service to the wider market;

iv) products and services to be offered, target markets, regional distribution and coverage of the service; and

v)agency arrangement to be used, technology service to be deployed, fee sharing arrangement, stakeholders and their respective role in the delivery of the service, impact of the services in improving financial service accessibility.

6.3.2 Operational Policy and Procedure Manual containing at least:

i) responsibilities of the board and senior management of a financial institution in relation to the new services;

ii) organizational structure of the mobile and agent banking functions and associated responsibilities;

iii) details of products and services to be offered such as product features, fees and charges, and transaction limits for the product;

iv)detailed narrative description and work flow diagram of the services to be provided (including registration, account opening; cash in transactions, fund transfer/remittance, cash out procedures);

v) accounting procedures and recording of transactions;

vi) agent management where applicable;

vii) internal control procedures;

viii) manner of reporting; and

ix) complaint handling and redresal system

6.3.3 Risk Management Policy and Procedure containing at least:

i) description of the inherent risks such as operational risks, reputation risks, legal risks and liquidity risks and specific policies, processes and systems that are in place to manage these risks; and

ii) notwithstanding the provision stated above, description of the inherent risks and the specific policies and processes that are in place to deal with risks shall specifically adresss risks emanating from customer, agent, technology service provider, mobile network operator and financial institution perspective.

6.3.4Board minutes showing that the board of directors of specific financial institution has reviewed and endorsed the mobile and agent banking services to be provided

6.3.5Agent due diligence policy and procedure and declaration of agent suitability assessment signed by a chief executive officer or chairperson of board of directors of a financial institution as set out under article 9.3 of these directives.

6.3.6Penalty matrix that shall be imposed on agents for possible violations of agreements and malpractices

6.3.7Agreement entered with third parties including technology service providers and telecom companies.

6.3.8Such other information as may be requested by the National Bank

6.4The National Bank, based on the criteria set out in these directives shall either approve for a pilot launch or decline a request made by a financial institution for the delivery of mobile and agent banking service and shall communicate same in writing to the applicant.

6.5 The pilot period shall stay for a minimum period of two months and shall not at a maximum exceed three months.

6.6 During the pilot period, the financial institution shall test the new service on a limited scale without making any public campaign and promotion related to the services. After completion of the pilot period, the financial institution shall prepare detailed report on the results of the pilot and submit same to the National Bank along with application. The pilot test report shall contain at least:

6.6.1 the volume and type of transactions executed,

6.6.2the outcome of the pilot transactions, errors, omissions identified,

6.6.3complaints received from customers,

6.6.4 any other issues and deviations identified, and

6.6.5 modifications and changes sought as the result of the pilot

6.7 The National Bank, based on the result of the pilot test and its own business risk assessment shall either grant or reject full authorization and approval for mobile and agent banking service within a maximum of one month from the date of submission of complete report as specified under article 6.6 hereinabove.

6.8 Applicants that do not qualify for full authorization as a result of the pilot test shall be given three months to correct their weaknesses to the satisfaction of the National Bank.

6.9 Applicants that fail to correct their weakness to the satisfaction of the National Bank within three months shall smoothly phase out their mobile and agent banking operation as per instructions of the National Bank.

6.10 Notwithstanding the provision stated above, the National Bank on sufficient grounds including violation of the provisions stated in these directives by concerned financial institution or in anticipation of any perceived or actual risk occurring in relation to the service may suspend or withdraw the approval and call the service off.

7. System Technology

7.1 The technology used for delivery of mobile and agent banking services must be secure and should at least ensure the following, which shall be part of the technology risk management program of a financial institution:

7.1.1User Risk:
User awareness on their information security including how to secure Personal Identification Number (PIN) and other security features.

7.1.2Infrastructure and Software Application Risk:

i) information security standard,

ii) application error, message type and message handling,

iii) PIN and user authentication,

iv) financial and non financial data storage,

v) availability of services and backup,

vi) confidentiality of user information,

vii) data and transaction integrity,

viii) maintenance of audit trails ,

ix) segregation of duties, and

x) authorization controls.

7.1.3 Communication Media Risks:

i) communication protocol risks,

ii) data storage risks, and

iii) availability and quality of service

7.1.4 Agent and Third Party Service Provider Risks:

i) data encryption and message integrity,

ii) data storage and backup,

iii) physical and logical access to system, and

iv)authenticity and non-repudability of communication.

7.1.5 Business Continuity Plan:

i) availability of services,

ii) disaster recovery site,

iii) standardize way of the data center,

iv) redundancy of network communication, and

v) antivirus protection.

7.1.6 Interface Feature of the Application:

The system should be open (need to have a feature of interoperability with other system in any file format).

7.2 Notwithstanding the provision stated above, the information security policy of a financial institution shall be suitably and regularly updated and enforced to take care of the security controls required from time to time.

8. Customer Due Diligence Requirements

8.1 Financial institutions shall ensure their agents fully comply with the requirements of “Prevention and Suppression of Money Laundering and the Financing of Terrorism Proclamation Number 657/2009″ and “Customers Due Diligence of Banks Directives No. SBB/46/2010″

8.2 Notwithstanding the provision stated above, financial institutions shall train their agents on prevention of money laundering and financing of terrorism requirements and on the procedures to be followed to ensure same.

9. Agent Management

9.1 Permissible Activities of an Agent

9.1.1 An agent, on behalf of principal financial institution, shall open regular saving account of natural persons. In addition, an agent may provide any of the following services as may be specifically agreed between it and the financial institution:

i) perform customer due diligence and “ Know Your Customer (KYC)”

ii) open mobile account of natural persons

iii) perform cash in and cash out services;

iv) transfer funds between different parties; and

v) perform various payment services.

9.1.2 Notwithstanding the provision stated above, agents shall not undertake banking transaction that involves the use of check and other check related instruments and any other operation related with provision of credit.

9.2 Agent Contract

9.2.1 Any person who is engaged in valid and lawful business or commercial activity within Ethiopia can be an agent of a financial institution. However, in case an agent has a specific regulatory body to which it is accountable to, it shall produce a written consent from the regulatory body permitting entering of agency agreement.

9.2.2 In making agency arrangement, a financial institution shall enter into a written contract with an agent for the provision on its behalf any of the mobile and agent banking services specified in these directives.

9.2.3 Every contract made between a financial institution and an agent shall contain at a minimum provisions that are specified under Annex I of these directives which is part hereof.

9.2.4 A financial institution shall provide certificate of agency to an agent that provides banking service on its behalf.

9.2.5In branding agent network, financial institution shall avoid use of words like bank, micro finance, financial intermediary, microfinance bank or any other word that might suggest that the agent by itself is a financial institution.

9.2.6Notwithstanding the provision stated under 9.2.1 above, i) a foreign person or entity that is fully or partially owned by foreign nationals ii) religious entity which is faith based and iii) not for profit such as non government organizations whose applicable law prohibits from engaging in profit making business shall not be an agent of any financial institution.

9.2.7 Other than the mobile and agent banking services specified in these directives, agents shall not engage in the marketing and sales of any other products of the financial institution.

9.2.8. under no circumstances shall agents impose a separate terms and conditions and charges apart from those provided by financial institution

9.3 Agent Due Diligence

9.3.1 Financial institutions making agency arrangement shall have a clear and well documented agent due diligence policy and procedure (for initial and ongoing assessment of agents). In addition, financial institutions, on the basis of same, shall conduct assessment of agents and take necessary corrective actions to ensure proper management of agents.

9.3.2 In assessing the due diligence of agents, financial institutions shall consider all relevant factors, including but not limited to:

i) the entity has an existing well established business/commercial activity and that the sources of funds of the agent have been ascertained;

ii) the entity possesses appropriate physical infrastructure and human resources to be able to provide services with the necessary degree of efficiency and security;

iii) the agent, as certified by police certificate from local police station, has no criminal record in matters related to finance, fraud, honesty or integrity and has a good/acceptable reputation;

iv) audited financial statements at least for the last one year, where applicable;

v) liquidity position of the agent to entertain deposit and withdrawal requests of customers; and

vi) any other matter that may negatively impact on the agent has been considered.

9.3.3 Notwithstanding the provision stated above, a financial institution shall at a minimum secure the following information from the agent it intends to work with as applicable:

i) the name of the entity proposed to be an agent;

ii) the certificate of incorporation, certificate of registration or valid permit or business license of the entity whichever is applicable;

iii) a description of the commercial activity the entity has been carrying on prior to the date of application;

iv) physical location, postal address and telephone number of the entity and its working hours; and

v) evidence of availability of funds to cover agent operations including deposits and withdrawals by customers.

9.3.4. The financial institution shall keep the information provided under the above provision in a confidential manner and in a safe custody and shall produce it to the National Bank as and when required.

9.3.5. The financial institution shall be responsible for the accuracy of the information provided by an agent and shall sensitize its agents on the provisions of theses directives and the obligation to comply with all the requirements.

9.3.6. The financial institution shall submit to the National Bank the agents list and information as per Annex II of these directive

9.3.7 In addition to the above, financial institutions, as specified under Annex III of these directives, shall provide a declaration signed by the chief executive officer or chairperson of the board of directors of that respective financial institution confirming that the institution has carried out the due diligence of the reported agents and they have been found to meet the minimum suitability assessment requirements as set out in these directives.

9.3.8 The National Bank, upon receipt of information of agents, shall list the agent in a register available to the public.

9.3.9 A financial institution may make one declaration for several entities as its agents or one declaration for a single agent as the case may be.

9.3.10 Upon receipt of list of agents and related information from a financial institution, the National Bank, if it considers necessary, shall verify the information provided to it. If the National Bank is not satisfied with the fitness and propriety of the agent, it shall require the financial institution to immediately discontinue the agency relation and terminate any agreement entered with such agent.

9.4 Agent Contract Termination

9.4.1 In addition to the provisions for termination of the agency contract as may be set out in the contract itself, an agency contract shall be terminated if an agent:

i. carries on agent banking business when the agent’s principal commercial activity has ceased;

ii. is found directly charging customers by itself without the knowledge of the financial institution and or against any of the predefined agreements entered with the financial institution;

iii. is guilty of a criminal offence involving fraud, dishonesty or other financial impropriety;

iv. sustains a financial loss or damage to such a degree which, in the opinion of the financial institution, makes it impossible for the agent to gain its financial soundness within three months from the date of the loss or damage;

v. is being dissolved or wound up through court or otherwise;

vi. in case of a sole proprietor, dies or becomes mentally incapacitated;

vii. .transfers, relocates or closes its place of agent banking business without the prior written consent of the financial institution;

viii. fails to hold or renew a valid business license; and

ix. violates any provision of theses directives as may in the opinion of the financial institution warrant termination of the agency relationship.

10. Notification and Publication of List of Agents and Related Information

10.1 Financial institutions shall have a dedicated unit at head office level that is responsible for coordinating mobile and agent banking services and centrally maintaining mobile and agent banking service related information.

10.2 Financial institutions shall submit to the National Bank an updated list of agents and their related information on quarterly basis.

10.3Financial institutions shall publish an updated list of all agents and related information, products and services offered and fee structure in their websites at least on a monthly basis and other publications as they may deem appropriate. Such information including the information specified under annex II of these directives shall be disseminated to all their branches and may also be disseminated to their agents.

11. Relocation, Transfer and Closure of Agent Premises

11.1 No agent shall relocate, transfer or close its agent banking premises without the prior written consent of the financial institution.

11.2 Notice of intention to relocate, transfer or close agent banking premises shall be served to the financial institution at least thirty days or longer period as may be agreed upon in the contract.

11.3 Each financial institution shall duly report to the National Bank the relocation, transfer or closure of agents as set out in these directives.

12. Customer Protection

Financial institutions shall put in place adequate policies and procedures to address customer protection and compliant redressal issues. To this end, the policies and procedures should address at a minimum the following:

12.1 customer identification procedure;

12.2 a mechanism for the customer to easily identify agents and the services provided through agents;

12.3 a requirement for agents to issue a standard, uniform and easily identifiable paper receipts for all transactions undertaken through them;

12.4 keeping secrecy and confidentiality of customers’ information;

12.5 requirements for mandatory disclosures of terms and conditions , risks and responsibilities of the customers and service providers

12.6 information such as standard logo/brand, list of products and services, copy of certificate of agency, service charges, updated list and address of agent network, mobile number of the agent, shall be displayed in the premise of the agent in a visible manner;

12.7 transparency in pricing products and services;

12.8 financial institutions shall store and avail at least the last 10 transactions
conducted by a customer on the system itself online;

12.9 a help desk, dedicated customer care telephone lines, and disclosure of the details of the help desk;

12.10. notification of customers on the timeframe and the circumstances in which any stop-payment instructions could be accepted;

12.11. recording/registering all customer complaints and how such complaints are redressed; and

12.12. establish a reasonable time frame upon which customer complaints shall be addressed which in any case should not be more than thirty working days from the date of reporting or lodging the complaint.

13. Reporting Requirement

Financial institutions that provide mobile and agent banking services shall:

13.1promptly report to the National Bank any suspected or confirmed cases of fraud, major security breaches, any material service interruption or other significant issues; and

13.2submit to the National Bank information related to the services as specified under Annex II, Annex III and Annex IV of these directives on quarterly basis within three weeks from the end of each quarter.

14. Effective Date:

These directives shall enter into force as of the 1^st  day of January 2013.

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PROCLAMATION No. 807/2013

PROCLAMATION TO AMEND THE CAPITAL GOODS LEASING BUSINESS PROCLAMATION

WHEREAS, it has became necessary to amend the Capital Goods Leasing Business Proclamation No.103/ 1998;

NOW, THEREFORE, in accordance with Article55 (1) of the Constitution of the Federal Democratic Republic of Ethiopia, it is hereby proclaimed as follows:

1. Short Title

This Proclamation may be cited as the “Capital Goods Leasing Business (Amendment) Proclamation No. 807/2013″.

2. Amendment

The Capital Goods Leasing Business Proclamation No. 103/ 1998 is hereby amended as follows:

DOWNLOAD FULL TEXT

Following the issuance of the new amendment the National Bank of Ethiopia has issued two directives for its implementation.

Clink the links below to download.

• LICENSING AND SUPERVISION OF THE BUSINESS OF CAPITAL GOODS FINANCE COMPANIES

Requirements for Licensing of Capital Goods Finance Business Directives No. CGFB /02/ 2013    DOWNLOAD

• LICENSING AND SUPERVISION OF THE BUSINESS OF CAPITAL GOODS FINANCE COMPANIES

Minimum Paid Up Capital Requirement Directives No.CGFB /01/ 2013      DOWNLOAD

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The post Limits on Board Remuneration and Number of Employees Who Sit on a Bank Board Directives No. SBB/49/2011 appeared first on Ethiopian Legal Brief.

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