Ethiopia, as a country with a huge and continuously growing population, has to expand its wings in the Banking sector. Many banks have established and revolved in the sector to reach the current Banking system and provide timely and updated competitive services to their customers. Ethiopia currently has 28 Governmental and Private Banks in the sector. These Banks have various service choices to provide to their customers; customers who are country resident and nonresident (Diasporas) and one of the main services that Ethiopian Banks provide is the international money transferring service.
International Money Transfers mainly bring currency inflow to Ethiopia from many parts of the world where Ethiopian citizens, Foreigners with the origin of Ethiopia, and/or investors and professionals who would like to establish or support Businesses here in Ethiopia.
Inflows from foreigners exist in two primary categories of capital flows: foreign direct investment (FDI), involving foreign investors acquiring stakes in existing companies or establishing new facilities within the recipient market; and foreign portfolio investment, wherein foreign investors engage in trading securities within the recipient market.
This inflow from both Ethiopians and non-Ethiopians (mainly from Ethiopians) from different country’s currencies has a huge effect on the country’s Banking, Business, and general national economy.
Banks in Ethiopia have taken a transformative shift in their financial landscape driven by the latest trends in cash transfers to support the inflow of remittances from the Ethiopian diaspora which stands out to be a significant and evolving force.
Diaspora Remittances: A Lifeline to Ethiopia’s Economy
According to the study of CD4D (Connecting Diasporas for Development) Ethiopia has above 2.5 million diasporas living abroad. In recent years, the Ethiopian diaspora has emerged as a critical pillar in the country’s economic growth. Remittances from Ethiopians living abroad have surged, becoming a lifeline for many households back home. These remittance transfers come through Remittance service providers (RSP) directly through the Banks’ swift or through International money transferring agents working with the Banks.
Ethiopia has more than 70 Remittance service providers and the National Bank of Ethiopia has its regulation of compatibility for these organizations one of which is the need to renew their license every two years.
The Major types of international remittance transfers are Personal transfers, International cash donations, Money to be used for investment, Temporary and permanent migrants transfer, Deposit, and service payments.
The approved entities for offering cost-effective international remittance services in Ethiopia encompass the following institutions/organizations:
- a) International money transfer operators collaborating with licensed banks, such as Western Union, MoneyGram, Maniflo, and Adam Funds, possess the requisite authorization for global money transfer services.
- b) Licensed commercial banks, recognized as business entities authorized for financial intermediation.
- c) Non-financial organizations that are permitted to engage in remittance services through their overseas branches.
Digital Transformation Redefining Remittance Dynamics
A seismic shift is underway as digital transformation sweeps through Ethiopia’s financial landscape. Mobile money services, online platforms, and fintech innovations have revolutionized the way remittances are sent and received. These digital avenues offer speed, convenience, and cost-effectiveness, bridging the geographical gap between the diaspora and their loved ones.
Government Initiatives to Foster Remittance Inflows
Recognizing the pivotal role of remittances in national development, the Ethiopian government has been proactive in implementing policies to encourage and facilitate these financial flows. Initiatives range from regulatory reforms to partnerships with financial institutions, all aimed at optimizing the benefits of diaspora remittances and ensuring their smooth integration into the economy.
Remittance Service Providers (RSPs) in Ethiopia operate within specific regulations. Non-bank RSPs are required to establish partnership agreements with banks to offer cross-border remittances, a practice that has been in place since 2009. Exclusive partnerships are now disallowed. However, the newly issued Directives for Licensing and Authorization of Payment Instruments Issuers and Payment System Operators acknowledge local non-bank financial services operators as official financial institutions, granting them the ability to provide inward international remittance services.
Besides the direct impact of the currency flow through these service providers, Harnessing Remittances for Investment and Entrepreneurship can be a supportive governing system to grow the country’s presence in the world trade by using the sector beyond immediate consumption, diaspora remittances should increasingly be directed toward productive endeavors. Entrepreneurs and small business owners can leverage these funds to start ventures, expand existing businesses, and create jobs. This trend sparks a wave of economic growth and job creation, amplifying the impact of remittances on Ethiopia’s development.
Challenges facing the remittance transfer sector have in Ethiopia
Many challenges are making the remittance transferring sector difficult to use for the Diaspora communities and/or for general users the highlighted list of these challenges are:-
- High remittance costs;
- Access to formal remittance services in both the send and receive Markets;
- Prevalence of informality;
- Limitations in maximizing the productive potential of remittances;
- Coordination between stakeholders;
- Lack of accurate and meaningful data.
- Overcoming Challenges for Enhanced Remittance Impact:
While remittances offer immense potential, challenges persist. Exchange rate volatility, transaction fees, and limited financial literacy can hamper the optimal utilization of remittance funds. Addressing these challenges requires collaboration between various stakeholders, including governments, service provider institutions, Banks, and the diaspora itself, to ensure that remittances translate into tangible improvements in the lives of recipients.
In general Ethiopia’s cash transfer landscape is undergoing a remarkable evolution, driven by the latest trends in diaspora remittances. The confluence of digital innovation, government support, and entrepreneurial spirit is reshaping the nation’s economic and social fabric. As challenges are addressed and opportunities harnessed, the potential for diaspora remittances to fuel Ethiopia’s progress and prosperity is boundless. The journey ahead holds the promise of a more interconnected, resilient, and vibrant Ethiopia, where the bonds between the diaspora and their homeland grow stronger with each remittance sent.
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