The recently established Ethiopian Deposit Insurance Fund (EDIF) discloses that it will fulfill its minimum fund mobilization objective in ten years. So far, approximately one percent of all insured-based deposits in financial institutions have been accumulated by the Fund. It said that in the near future, the Fund will increase the extent of its coverage.
The Operation Directorate Director of EDIF, Merga Wakweya, states that five percent of the entire deposit amount is the appropriate money to which financial institutions should contribute.
He informed Capital that as the deposit mobilization of financial institutions is increasing annually, their contribution to EDIF will likewise rise concurrently.
“In order to achieve the insured deposit amount criteria at financial institutions, they must fulfill five percent of the deposited mobilization to contribute to EDIF,” he said, adding that, based on a random prediction examined by the Fund, this need will be met in 10 years.
He continued, saying that by the conclusion of the 2023/24 fiscal year, 0.89 percent of the insured-based deposit had been raised from financial institutions, mostly banks.
As of right now, the Fund will cover 100,000 birr, according to the operation director, but “in principle, we believe that the amount will be revised every time, which is international practice.”
He made a suggestion that the maximum coverage amount will be changed in three years, depending on how financial firms mobilize premiums.
According to data from the EDIF, which was established in March 2023 to protect the stability, security, and soundness of the nation’s financial system, 97% of depositors at financial institutions had assets below 100,000 birr.
The majority of the public will be served by the coverage amount, according to EDIF CEO Desalegn Ambaw.
The Fund has raised approximately 6.5 billion birr in premiums throughout the budgetary year, with 31 banks, including the state-owned Commercial Bank of Ethiopia (CBE), contributing 99 percent of the total.
According to Desalegn, CBE contributed 49.2 percent, while private banks provided the remaining amount.
In accordance with EDIF article 19’s establishment and operation regulation no. 482/2021, the Fund shall invest the resources in government securities, securities guaranteed by the government, or any other investment mode that the Fund approves.
The CEO states that the resources that were mobilized were invested in Treasury bills (T-bills) and in the interest-free banking investment, Mudarabah at CBE.
“We have invested over half a billion birr at Mudarabah and bought 5.94 billion birr worth of T-bills in the year,” the CEO said.
During the given period, EDIF generated 185 million birr from its investment.
The sole alternative available to EDIF at this time is to invest its resources in T-bills; “in the future, we might invest in other security instruments, but the major focus will be short-term maturity periods,” Merga stated.
With 86 members as of right now, EDIF targets to raise 7.3 billion birr in premiums from banks and microfinance institutions for the current fiscal year.
Every financial institution that signed a membership contract in accordance with the regulations must pay an annual premium to the Fund equal to 0.3% of their average deposits.
In the last three months of the 2022/23 fiscal year, which is the period that the Fund started operation, EDIF had raised 1.6 billion birr.
The Fund covers current or demand/checking accounts, savings accounts, time deposits, joint accounts, trust accounts, which include fintechs, foreign currency deposits (translated to local currency), voluntary savings accounts, and compulsory savings accounts.
