Major Departures of the New Micro-Finance Business Proclamation

 

Unlike the mainstreaming financial institutions, microfinance institutions play an important role in providing access to finance for rural farmers, small businesses, and other people who are engaged in similar activities, and hence, it was necessitated to have a legal framework to govern this issue i.e., Proclamation No. 626/2009. However, for a variety of reasons the existing proclamation needs amendment and the lawmakers came up with a new proclamation, Proclamation No. 1164/2019 (‘the new proclamation’), which introduces some innovative concepts to the existing proclamation. Therefore, in this piece, I will display some of the fundamental issues which are introduced in the new amending Proclamation. 

 

The existing Proclamation defines ‘company’ as a share company in which capital is fully owned by Ethiopian nationals and hence, it clearly excludes foreign nationals of Ethiopian origin. As part of the policy shift however, the new Proclamation expands the meaning of ‘company’ as a share company as defined under the Commercial Code in which capital is fully owned by Ethiopian or Foreigners of Ethiopian origin (diaspora) or jointly owned by the Ethiopian and Foreigners of Ethiopian origin. Even though the company is registered in another country, as far as its capital is contributed by Ethiopian or Foreigners of Ethiopian origin, as stated under Proclamation No. 270/2002, the law still recognizes it as a ‘company’. Still and all, the new Proclamation excluded foreigners from the microfinance business. 

 

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