The National Bank of Ethiopia (NBE) has issued a draft directive that would allow foreign nationals of Ethiopian origin to purchase shares in domestic banks using Ethiopian birr, a policy shift expected to attract more diaspora investment into the country’s financial system.

The draft directive, titled Equity Investment by Foreign Nationals and Foreign-Owned Ethiopian Organizations in Banks, sets out detailed procedures for share acquisition and dividend payments. It requires all transactions to be processed through the formal banking system, comply with Know Your Customer (KYC) requirements, and be reported to the NBE on a quarterly basis.

Replacing a 2020 regulation that previously governed equity participation by foreign nationals of Ethiopian origin, the new draft introduces greater flexibility while maintaining oversight on capital movements.

The NBE’s proposal follows years of limited diaspora involvement in Ethiopia’s financial sector. Previous rules that required share purchases in foreign currency and capped aggregate foreign ownership had discouraged potential investors, leaving domestic banks without access to a major source of capital and expertise.

Under the proposed framework, diaspora investors opting to pay in birr will be treated as domestic shareholders and exempted from the 49 percent ceiling that applies to foreign ownership in local banks. However, proceeds from such investments cannot be transferred abroad in foreign currency, ensuring that the funds remain within the domestic financial system.

In its preamble, the central bank states that a sound and well-capitalised banking sector is “crucial for macro-economic stability and growth.” It also notes that carefully managed foreign participation can strengthen capital, enhance efficiency, support technology transfer, and improve governance practices.