Making Space for Fintech Innovation in Ethiopia

In Ethiopia's fast-evolving digital economy, the promise of financial technology is tangible—but so are the barriers. Solutions that could close Ethiopia’s gaps in financial inclusion, digital payments, and capital access may well come from the next local startup. However, regulatory limbo in Ethiopia is not only difficult for beginners but also for decades old financial institution. 

Regulatory sandboxes offer a vital solution: a structured yet flexible environment where innovation can flourish under the supervision of regulators.

While this approach has become mainstream globally, in places like the UK, Singapore, and Kenya, it is now gaining momentum in Ethiopia, where a fintech ecosystem is emerging against a backdrop of regulatory uncertainty and limited access to finance.

Regulatory sandboxes provide mutual benefits for both innovators and regulators. For businesses, the sandbox environment reduces regulatory barriers, enabling efficient scaling, attracting investment, validating products in real-world conditions, and building credibility. For regulators, it offers a front-row seat to observe emerging technologies, understand associated risks, and craft evidence-based policies that balance innovation and consumer protection.

In Ethiopia, the need for a regulatory sandbox approach has become increasingly apparent. A wave of fintech startups — including mobile money platforms and digital lending services — has emerged. However, many of these ventures face regulatory ambiguity as the sector is new to the country.

For example, there have been cases where innovative products encountered regulatory roadblocks. The Bank of Abyssinia faced scrutiny on two separate occasions. In early 2023, the bank introduced a mobile branch service: a modified truck designed to deliver regular banking services and ATM access. The National Bank of Ethiopia stated it was not ready to regulate such services, which led to the suspension of the truck’s operations.

Around the same time, central bank regulators blocked the scheduled launch of Apollo, an end-to-end digital banking platform developed by the bank. A specific feature within Apollo, allowing customers to self-register for loans, required prior authorization from the central bank. Despite the lack of legislation governing electronic registration and authentication, Ethio Telecom was granted approval to offer microcredit to users registered online.

Although the Bank of Abyssinia later received permission to proceed, the launch of Apollo never took place. In November 2024, regulations finally began to align with practice. A letter allowed digital (remote) customer onboarding for opening bank accounts using Digital ID, provided that all necessary information for account creation was properly collected.

These examples illustrate the need for structured regulatory pathways that support responsible innovation rather than stall it.

One of the key policy documents advancing this agenda is the "Digital Strategy for Ethiopia: Inclusive Prosperity" (Digital Ethiopia 2025). This strategy outlines the Ministry of Innovation and Technology (MInT)'s mandate to implement regulatory sandboxes to enhance access to finance in the ICT sector. It proposes a three-phase roadmap: first, the creation of an Innovation Office within MInT to serve as a bridge between government and the private sector; second, the drafting and submission of a regulatory sandbox regulation for approval by the House of Peoples’ Representatives (HPR); and finally, the transition of the Innovation Office into a fully operational sandbox entity supporting startups and regulatory testing.

Complementing this initiative is the new Banking Business Proclamation No. 1360/2024, which empowers the National Bank of Ethiopia (NBE) to establish its own regulatory sandbox. This move aims to foster financial innovation and expand financial inclusion. 

Additionally, the Ethiopian Capital Market Authority (ECMA) has launched a sandbox tailored to capital market participants. ECMA’s framework outlines eligibility requirements, including the need for novel innovations that enhance market efficiency, demonstrate readiness for live testing within the timeframe set by the Authority, and provide a compelling justification for operating in a sandbox environment under regulatory guidance.

However, the legal and operational details of these sandboxes remain uneven. While ECMA has established a structured process, the Banking Business Proclamation lacks specifics on eligibility criteria and application procedures, delegating those details to future NBE directives. This disparity underscores the need for coherence and alignment across regulatory bodies to prevent fragmentation and inefficiency.

Implementing effective sandboxes also comes with challenges. A 2022 African Development Bank (AfDB) report highlights issues such as trust and credibility deficits, risk of information leakage, limited institutional capacity, and weak legislative frameworks. These concerns are not hypothetical—they have hindered sandbox implementation in other African countries.

To address these issues, Ethiopian regulators must proactively enforce existing data protection laws, allocate resources strategically, and strengthen institutional capacity through training and partnerships. Inter-agency coordination is vital to avoid duplicative or contradictory sandbox regimes. A unified legislative framework that harmonizes sandbox implementation across NBE, ECMA, and MInT is essential.

Kenya’s Central Bank-led sandbox has been credited with accelerating the scale-up of M-PESA and other mobile money platforms—illustrating what’s possible with the right regulatory support.

The Central Bank of Kenya (CBK) employed a 'test-and-learn' strategy, allowing M-PESA to operate under a flexible regulatory framework before formal regulations were established.

This approach involved granting Safaricom a 'letter of no objection,' enabling the pilot and subsequent launch of M-PESA without immediate full regulatory oversight. This regulatory flexibility was crucial in facilitating M-PESA's rapid adoption and success in Kenya

Similarly, local fintechs stand to benefit greatly from sandbox environments that de-risk experimentation. A well-designed and well-executed regulatory sandbox ecosystem could energize the country’s digital economy. Regulators, fintech associations, incubators, academic institutions, and investors must collaborate to design, operate, and refine sandbox environments.