Financial Regulation and Supervision in Ethiopia

The Ethiopian financial sector is characterized by low level of development and relatively closed in nature than its east African neighbors. When we see the main financial development indicators in Ethiopia: branch to population ratio is 62,063[1]; percentage of adult population which has access to formal credit is 1.197% [2]and ranked 104[3] in the world in getting credit. Consequently the country’s financial system is distinguished by its negative real interest rate (-22.5 for saving rate and -21.80 for lending rate)[4], 85.4% [5]of total loans required collateral and the required collateral as percentage of loan is 234%[6] which is the highest in the sub Saharan Africa. Regarding financial regulation there are two opposing theories; the financial repression school where taken financial regulation in the form interest rate control as important policy tool for developing countries and the liberalization school where considered privatization of the government owned financial institutions and financial liberalization as important policy tool for the sake of efficiency, soundness and to increase competition in the financial sector. In this regard even though the government Ethiopia acknowledges the importance of financial liberalization for the country financial development it follows gradualism approach to liberalization. For those reasons government intervention rate in the Ethiopian financial system is one of the highest (425.03%)[7]. In line with this the paper tries to analyze the trends of financial development, the mode of liberalization and type of regulation and supervision in Ethiopia financial sector. Keywords: finical development, regulation, supervision, liberalization, Ethiopia [1] NBE annual report 2011/12 [2] ADI [3] ADI [4] NBE annual report 2011/12 [5] ADI [6] ADI [7] AD