The Oldest Social Insurers May Spur Its Youngest Capital Market

The Oldest Social Insurers May Spur Its Youngest Capital Market

Sep 20 , 2025. By Lea Mehari ( Lea Mehari (lea.mehari@aau.edu.et.) is a consultant in international and policy and in business laws, with experience advising on regulatory frameworks and institutional development. She lectures in law and currently serves as the director for external relations and partnerships at Addis Abeba University, where she leads strategic collaborations with academic, public, and private sector stakeholders. )

When Parliament passed a capital market law in 2021, it marked the beginning of a new chapter for the domestic financial system. The launch of the Ethiopian Securities Exchange (ESX) this year, paired with regulatory directives, has set the stage for a dramatic transformation. Yet, beneath the headlines, the question remains, who will provide it with the long-term capital needed to make the new market viable, asks Lea Mehari (lea.mehari@aau.edu.et.), a director for external relations and partnerships at Addis Abeba University.

The long-promised securities market in Ethiopia is finally shifting from blueprint to reality. Parliament laid the legal foundation in 2021; the Ethiopian Securities Exchange (ESX) held a splashy debut earlier this year, and the Ethiopian Capital Market Authority (ECMA) is issuing directives at a pace. What remains unresolved, however, is a more fundamental question: who will supply the securities, and the steady stream of buyers, to make the Exchange a functioning market?

One unexpected answer may lie in Ethiopia’s oldest and most trusted social insurers: the neighbourhood edir. For generations, these informal associations have organised funerals, collected dues to comfort the bereaved, settled local disputes, and mobilised aid during floods, fires, or war. Less noticed, but no less consequential, is their habit of investing surplus funds. During the Grand Ethiopian Renaissance Dam (GERD) fundraising drive, some edirs bought government bonds. Others quietly acquired shares in banks, micro-lenders, or real estate ventures, accumulating balance sheets that belie their informal image.

Their potential is only now coming into sharper focus. A 2024 survey by Kotebe Metropolitan University,commissioned by the Addis Ababa Women, Children & Social Affairs Bureau,counted 6,796 edirs in the capital alone. No consolidated balance sheet exists, but one anecdote is revealing: an edir that invested 35,000 Br in a start-up bank fifteen ago now holds stock valued at over 10 million Br. The leap underscores the long-term power of collective patience and the compounding returns it yields.

City authorities have responded. A 2024 directive grants edirs legal personality, mandates their registration, and authorises them to deploy resources “for economic as well as social purposes.” Once registered, an edir becomes a proto-financial institution, eligible, at least in theory, to participate in the ESX as a buyer or seller the moment its trading engine goes live.

Institutional investors, not small savers, dominate mature markets. In the United States, pension funds, insurers and mutual funds own about two-thirds of listed equities. Households supply spice on the margin. Ethiopia cannot yet rely on a retail boom. Disposable income is limited, and surveys show many adults still avoid interest-bearing bank accounts. By contrast, almost every urban family, and many rural ones, belongs to at least one Edir. Harness that network, and the country could nurture an indigenous bloc of long-term investors ready to anchor the fledgling exchange.

The legal bridge is already in place. A 2024 directive on public offer and trading of securities defines a “collective investment scheme” as any pooled vehicle managed for profit. ECMA’s draft directive on such schemes, now out for public comment, says an arrangement should register if it involves fund management and pools contributions to share income from securities or other property. By that yardstick, an Edir qualifies because it collects dues, mobilises resources and allocates funds for members’ benefit.

With juridical personality, an Edir could register as a collective investment scheme operator or channel money into a licensed fund run by professionals.

Of course, some risks exist. Informal groups can lack transparency and may splinter under pressure from factional divisions. The directive issued by the City government last year tries to address those risks through audits, model constitutions and leadership training. ECMA can go further with tiered compliance for small edirs, portfolio caps tied to lighter reporting, and mandatory use of licensed fund managers to diversify holdings. Such measures would shield savers from the volatility that can sour confidence in a new market.

The upside is worth the effort. Suppose one-tenth of Addis Abeba’s edirs commit half a million Birr each to a bond fund, a conservative figure in light of the 10 million Br success story. The pool would exceed 3.4 billion Br, enough to anchor a municipal-bond issue or underwrite a telecom share sale. Replicate the exercise nationwide, and edirs could rival, even surpass, the foreign investors' officials court with equal parts hope and caution.

To tap that reservoir, intermediaries should meet edirs on their terms. They could reach out to them in local halls, with prospectuses in

indigenous languages, modest entry thresholds, phone-based payment channels and redemption windows timed to holidays when members need cash. Legal clarity should also extend beyond the capital. Edirs in other regions need a federal rulebook or risk falling into limbo, legal in one jurisdiction, but invisible in another.

Treasury yields have slipped toward single digits, nudging savers to look for higher returns. Banks face liquidity strains after last year’s depreciation, limiting their appetite for large deposits. The ESX, expected to open its order book in early 2026, needs patient buyers to steady prices. Edirs, conservative by design, fit the bill.

Success could ripple beyond funeral societies. If Edirs mature into bond and equity holders, they set a precedent for other indigenous pooling systems, such as the community group, “Mahiber”, to formalise and invest. The market would then rest on centuries-old communal finance rather than imported templates alone.

The story of the edir mentioned here deserves retelling in policy circles. It captures compounding, prudence and collective oversight, traits a nascent bourse badly needs. Coupled with the new directive and forthcoming collective investment scheme rules, it signals official intent to empower, not bypass, traditional institutions. ECMA should license brokers, approve listing rules and install surveillance software, while the ESX is scrambling to secure a clearinghouse and trading platform.

Amid that din, persuading volunteer funeral committees to file paperwork can seem trivial. It is not. Without them, the market could open to a shallow pool of hot money and sputter.

Policymakers, therefore, should act fast. They can begin by replicating Addis Abeba’s registration regime nationwide. They can also finalise the collective investment scheme rulebook with a dedicated annexe for edirs. Finally, enlisting banks and fintech firms to create edir accounts that sweep idle balances into approved funds at the touch of a phone can yield several results. Ethiopia would then disprove the notion that capital markets demand sophisticated investors. All it needs is a social trust, an asset that is already abundant.

Edirs have stored that trust for centuries. Now they can invest it, with dividends to match.

PUBLISHED ON Sep 20,2025 [ VOL 26 , NO 1325]