Federal agencies will soon use the state-owned Commercial Bank of Ethiopia (CBE) as their facilitator for electronic payments, paving the way for close to 198 federal government entities to settle payments using electronic platforms, including POS.

It is part of the government's push to digitise the economy – the Ministry of Trade & Industry is launching a digital platform to enable online business license registration and the Ministry of Revenues working with the CBE to allow online tax payments.

A directive drafted by the Ministry of Finance sets out to designate the CBE as an electronic payment facilitator for recurrent payments such as salaries, procurements, and administrative expenditures like daily allowances and fuel expenses. The decision has left private bank leaders furious.

"This isn't fair," said Hailemelekot Teklegiorgis, former board chairperson of Addis International Bank. "It would legitimise the unfair competition prevalent in the industry."

It is not unusual for federal agencies to prefer the CBE over private banks, a source of apprehension for leaders of the 19 private banks, which command less than 50pc of market share. Industry observers see the latest move by the Ministry as another policy instrument that will help the CBE consolidate its position in the increasingly competitive industry.

Abdulmenan Mohammed, a long-time observer of the financial sector, amplified this sense of misgiving over the CBE's preferential treatment from the state.

"Almost all state-owned enterprises and budgetary organs use the CBE by default," he told Fortune. "But, including a provision in a directive that excludes the private banks is very unjust."

The latest directive aims to replace cash-based transactions in federal offices and universities with an electronic payment system. Signed by Ahmed Shide, minister of Finance, it has become effective beginning July 2, 2021.

The directive, officials at the Ministry hope, will introduce modern transactions, reduce the use of checks or cash, and curb corruption and misuse of public funds.

“The need for cash and checks will be insignificant and stopped completely in due time,’’ said Habtamu Mengesha, head of the Ministry's Legal Directorate. Traditional payment requests, such as petty cash holding, will become digitised, curtailing the possibility of abuse of public funds.

Federal offices and institutions use traditional payment methods for procurement and administrative expenses, although many have been paying salaries electronically for the past few years.

The directive dictates that purchase payments should be made available electronically once an office receives a payment request form filled out by the seller and within five days of the provision of attachments. Pro forma based and small purchases are to be made electronically through a point of sales (POS) terminal with a debit card to be issued by the CBE. Once an institution's sales officials approve the purchase, the purchase amount gets transferred to the debit card.