The Need to Establish Deposit Insurance in Ethiopia
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Date
2019-06
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Addis Ababa University
Abstract
Modern banking business in Ethiopia has started in 1905 and passed through different legal reforms made through these years. Even though the banking sector is not developed but it shows some progress towards building capacity and the use of some technology. As per the NBE establishment proclamation and the Banking business proclamation, one of the most banking business activities is receiving funds from the public in the form of deposit. Bank depositors put their money in a bank in the form of deposit, believing they can collect at any time they want to withdraw it. On the other hand, banks use the money they collect from depositors to provide loans to their customers and put on different investments. As risk is inevitable in business activity, such loans may not be performed and investments may not succeed and the bank may fail to pay back its depositors the money they deposited.
What banks or the government of Ethiopia do if a single or some banks fail and unable to pay back the fund they have collected in the form of deposit, and the main purpose of this research is to assess the existence of laws, regulation or any directive or circular in relation to the banking business adopted to protect bank depositors in the form of Deposit insurance fund. The finding of the researcher indicates that there is no explicit deposit insurance fund established to protect bank depositors in Ethiopia. The researcher also found the existence of some implicit/indirect kind of protection, which is not enough and adequate to protect depositors. Finally, the researcher reaches NBE officials and law professionals to find whether any progress towards establishing DIF. And the researcher found that the NBE believes in its importance of the establishment and there are some un progressed progress.
That is NBE made some movement in 2010 on studying the issue and in 2014 prepared a draft proposal on its establishment even not posed for discussion then after there is no progress for five years. Looking into the present situation of the banking activity, future possible challenges and other countries experience the researcher recommends that without taking further time the NBE has to establish EDIF to protect bank depositors.
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Law