Ethiopian fintech startup LakiPay has secured a coveted operating license from the National Bank of Ethiopia (NBE), marking a significant milestone for the nascent digital payments sector as the country cautiously embarks on financial liberalisation. The move comes as Addis Ababa, after decades of protectionist policies, begins to tentatively open its doors to foreign investment in banking and finance, albeit with caveats that are raising both interest and questions amongst international players.

LakiPay announced its licensing success last week, highlighting a partnership with state-backed mobile money platform Telebirr to enhance digital payment accessibility across the country. Founded by serial entrepreneur Habtamu Tadesse, also behind ride-hailing app Zayride and fellow fintech ArifPay, LakiPay’s emergence hints at the growing domestic fintech scene eager to capitalise on Ethiopia’s largely untapped digital payments market. Like ArifPay before it, which garnered $3.5 million in local funding in 2021, LakiPay secured investment from Ethiopian individuals and diaspora last year, demonstrating local belief in the sector’s potential.

This domestic dynamism is unfolding against a backdrop of significant policy shift. Last December, Ethiopia’s parliament approved a landmark Banking Business Proclamation, effectively ending decades of ring-fenced banking and for the first time allowing foreign banks to establish a presence. This move, championed by Prime Minister Abiy Ahmed’s reformist government, is explicitly aimed at injecting competitiveness, fostering innovation, and driving broader economic growth within one of Africa’s last major closed economies.

The new proclamation is not a wholesale opening. Strategic foreign investors are limited to a maximum 40% stake in Ethiopian banks, while individual and institutional investors face even tighter caps. Aggregate foreign ownership in any single bank cannot exceed 49%. Foreign banks can establish branches, but must choose between deposit-taking or non-deposit-taking operations, not both. These measures reflect a carefully calibrated approach, balancing the allure of foreign capital and expertise with the imperative to maintain domestic control and stability.

For Ethiopian fintechs like LakiPay and ArifPay, the reforms present a mixed bag. On the one hand, the entry of foreign banks, even in a limited capacity, promises to alleviate long-standing foreign currency shortages that have hampered the growth of the tech sector. Previously, access to hard currency and international capital was a significant hurdle. The new environment could unlock greater access to funding and facilitate crucial cross-border transactions. Furthermore, industry experts anticipate that foreign entrants will drive innovation and demand for more sophisticated financial services, potentially creating partnership opportunities for agile local fintechs.

“Following the amendment… the ecosystem will be opened, which means highly experienced foreign companies will enter into the Ethiopian financial system,” noted Solomon Damtew, former acting director of Ethiopia’s payments and settlement systems directorate, signalling the anticipated influx of international expertise. This could mirror trends in more mature African markets like South Africa and Egypt, where established banks increasingly collaborate with or acquire fintech innovators to bolster their digital offerings.

However, the prospect of foreign competition also presents a clear challenge. Local fintechs, often operating with limited resources and navigating a relatively underdeveloped regulatory landscape, will now face rivals with significantly deeper pockets, established international networks, and proven technological platforms. The pressure to innovate and scale rapidly will intensify. Already, Ethiopia’s move to welcome foreign players in finance is drawing significant attention from the fintech sector. Companies like Nigeria’s Flutterwave and pan-African fintech PawaPay are understood to be making moves to enter the Ethiopian market this year, pursuing strategies of acquisition or organic development, subject to license approvals.

Adding a layer of geopolitical complexity to the liberalisation is a recently revealed caveat: NBE Governor Mamo Esmelealem Mihretu has indicated that licenses will be preferentially granted to firms from “friendly countries.” While the precise definition of “friendly” remains unclear, and potentially subject to political interpretation, this clause introduces a non-economic criterion into the licensing process. It raises questions about transparency, potential for preferential treatment, and the broader message Ethiopia intends to send to the international investment community.

This “friendly countries” stipulation comes as Ethiopia seeks to accelerate its long-delayed accession to the World Trade Organization (WTO). Opening the financial sector has been a key demand from WTO member nations, including the US and Canada, during accession negotiations. While the current reforms represent a significant step in that direction, the inclusion of political considerations in licensing could complicate matters and raise concerns about fair market access.

Despite these complexities, the overall direction is clear: Ethiopia is embarking on a path of financial sector modernisation. While the pace is cautious and the parameters are controlled, the reforms signal a willingness to engage with the global financial system after decades of isolation. For local players like LakiPay, navigating this evolving landscape will be crucial. Securing the NBE license is a vital first step, but sustained success will depend on their ability to innovate, adapt, and potentially partner with or compete against the incoming wave of international finance.

The coming months will be critical in observing how Ethiopia implements these ambitious reforms, and whether the promise of a more open and dynamic financial sector can be realised, balancing national interests with the demands of global integration. The world will be watching to see if Addis Ababa can successfully walk this tightrope.