Micri-finance legal framework

The Federal Democratic Republic Government of Ethiopia has issued a proclamation No. 40/1996 for the Licensing and Supervision of the Business of Micro financing Institutions. According to the proclamation, the purpose and duty of Microfinancing Institutions are:

1) Granting credit, in cash or in kind, the maximum amount shall be determined by the National Bank.

2) Subject to conditions set under this proclamation, a micro financing institution may carryout some or all of the following activities:

Accepting savings as well as demand and time deposits;
Drawing and accepting drafts payable within Ethiopia;
Borrowing money for its activities purposes against the security of its assets or otherwise;
Purchasing such income generating financial instruments as treasury skills,
Acquiring, maintaining and transferring of any movable and immovable property including premises for carrying out its business
Providing counseling services to its members;
Encouraging income-generating activities/projects for urban and rural micro operators;
Rendering managerial, marketing techniques and instructive advice to borrowers and assisting them advices in those fields;

Managing funds for microfinancing businesses, and engaging in other activities customarily undertaken by microfinancing institutions.

For details refer to proclamation No. 40/1996

Recently, the National Bank has made some amendments to the directives of MFI proclamation; the major ones are described as follows:

Directive No. MFI 14/2002
Penalty for Failure to Comply with the Requirements of Proclamation No. 40/19996 and Directives of the National Bank of Ethiopia

Directive No. MFI 15/2002
Minimum Liquidity Requirement

Directive No. MFI 16/2002
Minimum Capital Ratio to be maintained by Micro finance Institutions

Directive No. MFI 17/2002
Limits on Loans, Repayment Period and Provisoning Requirement

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