Requirements for Licensing of Capital Goods Finance Business in Ethiopia

Capital Goods Finance Business plays a crucial role in facilitating access to essential machinery and equipment for businesses in Ethiopia. To regulate this sector, the National Bank of Ethiopia issued the Requirements for Licensing of Capital Goods Finance Business Directives No. CGFB/02/2013. These directives set out the criteria and procedures for obtaining and renewing a license for capital goods finance businesses. This legal brief provides an overview of the key provisions of the directives, focusing on the fit and proper criteria, licensing requirements, conditions for commencement of operation, renewal of license, fees, and enforcement actions.

Fit and Proper Criteria

The Capital Goods Finance Business Directives No. CGFB/02/2013 establish stringent criteria for organizers and project managers of capital goods finance businesses. Organizers must appoint a project manager with a minimum of a first degree from a recognized institution and business experience in capital goods finance projects. Both organizers and project managers must submit completed fitness and propriety test questionnaires, demonstrating honesty, reputation, and diligence. Factors such as criminal records, previous regulatory issues, and compliance with codes of conduct are considered in assessing integrity.

Persons with Significant Influence

Individuals with significant influence, such as directors and chief executive officers, must meet specific requirements. Directors must hold a minimum of a diploma and have at least three years of work experience, while a chief executive officer must have a first degree and at least five years of work experience, with three years in a managerial position. These individuals must also demonstrate integrity, financial soundness, and submit updated curriculum vitae and fitness and propriety test questionnaires.

Licensing Requirements

To obtain a license, a capital goods finance company must be established as a share company under the commercial code of Ethiopia. During the pre-application phase, organizers must provide evidence of trade name registration, signed meeting minutes, and a prospectus. The application phase requires submission of various documents, including evidence of paid-up capital, articles and memorandum of associations, and a business plan outlining the company’s operations, financial projections, and governance structure.

Conditions for Commencement of Operation

Before commencing operations, a licensed company must develop comprehensive policies and procedures for various aspects of its operations, such as finance, human resources, and risk management. The company must also hire and train staff and ensure that its premises meet certain standards, including proper ventilation, lighting, and insurance coverage for burglary and theft.

Renewal of License

A capital goods finance company must renew its license annually. The renewal process requires the submission of an application requesting renewal, the original business license, and evidence of payment of the renewal fee. Failure to renew the license may result in suspension or revocation by the National Bank.

Fees

The directives prescribe fees for obtaining a new license and renewing an existing license. An application for a new license requires payment of an investigation fee and a licensing fee, both amounting to Birr 5,000. The renewal fee for an existing license is also Birr 5,000.

Enforcement Actions and Penalties

The National Bank has the authority to revoke or suspend the license of a capital goods finance company for various reasons, including providing false information, failure to commence operations within 12 months, violation of laws or regulations, inability to carry out business activities effectively, or insolvency.

The Requirements for Licensing of Capital Goods Finance Business Directives No. CGFB/02/2013 set out detailed requirements and procedures for licensing capital goods finance businesses in Ethiopia.

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