The capital market is entering a critical moment as regulators ease enforcement for companies that missed a share registration deadline.

The move denotes a notable shift in tone for the Ethiopian Capital Market Authority (ECMA) that, until recently, had placed mounting pressure on firms to comply with new rules intended to bring order and transparency to the fledgling market for shares. The deadline, which expired two weeks ago, had left many companies concerned about the risk of penalties. However, Hana Tehelku, director general of the ECMA, signalled a more flexible approach.

“There is no one-size-fits-all rule,” Hana told Fortune. "Each case will be evaluated individually, with exemptions granted to newly formed companies, those facing financial difficulty, and firms that reported losses in the past year."

While the directive governing initial public offerings (IPO) does not specify penalties for missing the registration deadline, the most severe consequences remain for companies that sell shares before registering with the Authority. Such actions, according to ECMA, could trigger criminal liability. Under the current regulations, share registration is mandatory for companies with more than 50 shareholders or capital exceeding 100 million Br. The penalties for selling unregistered shares are among the strictest, subjecting violators to prison terms of up to 15 years and fines of 150,000 and 300,000 Br.

For companies and, in particular, microfinance institutions (MFIs), the pressure to comply has come with a price. Compliance costs have emerged as a barrier for the sector. Out of approximately 60 microfinance institutions nationwide, around 35pc have yet to meet the minimum paid-up capital requirement of 75 million Br, a threshold that should be achieved by 2028.

Zegeye B. Kebede, CEO of Meklit Microfinance Institution S.C., described the financial strain in no uncertain terms. Advisory fees for share registration reached as high as 11 million Br, a figure that created “major financial pressure.” Founded in February 2000 with a paid-up capital of 200,000 Br, 191,000 Br of which came from Progynist, a local NGO focused on women’s empowerment, Meklit’s capital has since grown to 458 million Br. It now counts over 511 shareholders, manages a loan portfolio exceeding one billion Birr, holds savings of more than 300 million Br, and operates 35 branches with a staff of over 280.

According to Zegeye, the share registration deadline arrived before the licensing of capital market service providers such as Wegagen Investement Capital, CBE Investment Capital, and Ethio Fidelity.

“Had licensed service providers existed before the deadline, companies wouldn't have faced high costs of 10 million to 11 million Br,” he told Fortune.

Microfinance institutions have banded together through industry associations, splitting into two groups to hire advisors collectively. The result was a substantial reduction in spending for each. Meklit’s fees, for instance, fell by nearly 70pc, to 3.3 million Br. For smaller firms, the cost was even lower, sometimes as low as 800,000 Br, depending on company size. Meklit now expects to complete its share registration in the coming weeks, a milestone in a sector that has struggled with the regulatory transition.

Support for companies still awaiting share registration has come from licensed securities investment advisers such as I-Capital Institute Plc. According to its CEO, Gemechu Waktola (PhD), his firm’s services cover companies that filed registration documents before the deadline and those still lagging behind.