Paper

Revisiting the Regulatory and Supervision Framework of the Microfinance Industry in Ethiopia: Report No. 13

How to improve the regulatory and supervision framework of the microfinance industry in Ethiopia?

This study discusses the progress made in the regulatory and supervision framework of the microfinance industry in Ethiopia. It discusses in detail:

  • The financial system and microfinance;
  • The structure of the microfinancial system;
  • Regulation and supervision;
  • Regulatory and supervision issues for microfinance.

The study concludes that:

  • Ethiopia has made progress towards creating the enabling legal and policy environment for establishing sustainable microfinance institutions (MFIs);
  • It has simplified the process of licensing a microfinance business;
  • There is a lack of competition in the market;
  • The licensing of MFIs in the form of share companies has created ownership and governance problems;
  • The group lending and peer-monitoring model functions well at the early stages, but its usefulness declines as clients mature.

The study recommends that there is a need to:

  • Encourage competition;
  • Investigate ways for improving the governance and management of microfinance businesses;
  • Lift or increase the ceiling on loans and repayment;
  • Reduce dependence on the group-lending method and allow successful clients with their own collaterals to take up loans without making the whole group liable for their actions;
  • Build The National Bank of Ethiopia's capacity to supervise and regulate the microfinance sector;
  • Find ways to increase the participation of donors and NGOs.

About this Publication

By Shiferaw, B., Amha, W.
Published