Ethiopia Considers a Sh19 billion Fee for M-Pesa Entry

If the Horn of Africa country’s proposed regulations are passed, the Safaricom-led consortium in Ethiopia will pay $150 million (Sh18.9 billion) in licence fees to roll out M-Pesa in the populous nation.

The proposed rules that will guide the licensing and launch of mobile money operations such as M-Pesa include the amount known as an investment protection fee.

“A foreign national applicant shall present evidence for the payment of $150 million or equivalent in another foreign currency for investment protection fee,” reads the draft published by the National Bank of Ethiopia, the country’s banking sector regulator.

Foreign investors must pay an investment protection charge in order to invest in companies that are only open to domestic investors or the government.

The sum will be in addition to the 50 million birrs (Sh117.81 million) that Safaricom must deposit in a bank account with restricted access as paid-up capital.

To debate the draft, the National Bank of Ethiopia is scheduled to meet with representatives from Safaricom Ethiopia, the Ethiopian Telecommunication Authority, banks, microfinance institutions, and payment system operators on Tuesday.

Mobile money in Ethiopia is expected to increase M-visibility. Pesa’s Since its inception in 2007, M-Pesa has been increasing its share of Safaricom’s revenue mix.

M-Pesa contributed Sh107.69 billion, or 39.9%, of the telco’s overall mobile service income of Sh269.86 billion for the fiscal year that ended in March 2022.

With more than 112 million residents, Ethiopia is the second-largest country in Africa by population, and given the sizeable unbanked population, M-Pesa is anticipated to flourish.

Following a Sh107 billion ($850 million) bid, a Safaricom-led consortium that also includes Vodacom and Vodafone was awarded a telecom license in Ethiopia in May. But the group is unsure of the requirements for an M-Pesa license.

Now that Safaricom will have to pay more money to obtain a mobile money licence, it is evident from the draft directive on licensing and authorization of payment instrument issuers that this is the case.

Safaricom will be obliged to implement M-Pesa within six months of receiving the license if the proposal is approved in its existing form.

Dilip Pal, the chief financial officer of Safaricom, stated in November that the company was already getting ready to launch as soon as it had the license.

“I think that’s the work that we are currently doing to make sure that our ability to launch in time, we can do it pretty fast, that we are not waiting sequentially to create those capabilities,” said Mr Pal.

In order to cover the initial expenditures of its debut in Ethiopia, Safaricom has already taken out a Sh50.44 billion ($400 million) bridge loan. The company anticipates reaching break-even in its fourth year of business.

The bridging loan was taken last November, said to Peter Ndegwa, CEO of Safaricom, although the telco is eager to get external debt into the Ethiopian unit’s books.

Other prerequisites include policies regarding the security of the digital wallet items, a five-year business strategy, central bank approval of key product executives, and a regional rollout timeline.

Safaricom’s M-Pesa license will enable it to compete with state-owned Ethio Telecom’s Telebirr mobile financial service, which was introduced in May 2021 and quickly drew in millions of customers.

For accounts categorized as level one and level two, the National Bank of Ethiopia is recommending an aggregate daily transaction limit of 20,000 birr (Sh46,900) and 300,000 birr (Sh703,600). On how the classification will be made, no specifics have been provided.

The banking regulating body in Ethiopia is eager to support mobile money for additional purposes including tax collection and salary payments and will give limit waivers in such circumstances.

“The National Bank may, upon a written request from a payment instrument issuer, grant exceptional authorization for the payment instrument issuer to exceed the aggregate daily transaction limit for internal inward remittances, salary payments and tax payment services,” says the bank.