The National Bank of Ethiopia (NBE) has introduced a new policy that mandates the use of the country’s national digital ID, Fayda, for all banking transactions across the country. This policy, which became effective and applicable to banks in Addis Ababa from January 1st, 2025, will extend to other banks in the country’s major cities by July 1st, 2025 before being implemented nationwide by January 1, 2026.
Also, by the policy, all bank accounts must be linked to the Fayda IDs of their owners by December 31, 2026. This is to give Ethiopians more time to register for and link their digital ID to their bank accounts. Already, about 11 million Ethiopians have registered for Fayda.
Ethiopia, with over 133.8 million people ranks the 2nd most populous country in Africa. By economics, it ranks the 5th strongest on the continent.
In a bid to improve the country’s economy and digital infrastructure, the country’s parliament passed the Ethiopian Digital ID Proclamation (Proc No. 1284/2023) into law. The Proclamation was the legal basis for the country to undertake the digital Fayda ID project.
The project is primarily funded by the World Bank to the tune of $350 million, out of which $50 is a grant from the International Development Association’s Window for Host Communities and Refugees to accelerate the project and make it accessible to every Ethiopian.
Insights into funding for Fayda
By the funding plan, $214 million was specifically designated for inclusive issuance of the ID. $68 of the total funds has also been set aside for the technical infrastructure of the Fayda project.
Infrastructure construction and service provision will receive $21 million and $35 million respectively, while $12 million will be allocated to project management.
Apart from funding from the World Bank, the Fayda project also enjoys support from the European Union (EU). The EthioConnect infrastructure, currently under development, is sponsored by the EU through DT Global with €100 million. EthioConnect is being developed to facilitate the operations of Fayda by acting as a data exchanging system to facilitate information sharing between government agencies.
The implementation of the use of Fayda as a bank transaction requirement is part of the Ethiopian government’s broader digital strategy for the 2025-2030 period. It should be recalled that the country has been taking huge strides to revolutionise its financial sector, including introducing a new law that makes it possible for foreign banks to operate within the country.
For the NBE and other authorities, Fayda is a critical tool to streamline access to essential financial services such as loans and credit and create a more robust financial ecosystem.
Also, the introduction of the digital ID is aimed at helping the country tackle issues relating to financial fraud which has cost an estimated 1.3 billion Birr. This is according to the latest NBE financial sector stability report in November 2024.
The use of Fayda for financial transactions is also aimed at ensuring the security of bank customers’ data and making transactions more secure, in line with international banking best practices.
The NBE had previously mandated all banks in Addis Ababa to request their customers’ Fayda IDs when opening new accounts for them (the customers). The development, which took effect on December 23, 2017, requires customers to provide their “Fayda number” as part of the account opening process, making it a necessary Know-Your-Customer (KYC) requirement for all banks and financial institutions.
Another use for Fayda?
Beyond the financial sector, the Ethiopian government may also move to include the Fayda as part of the requirements that air passengers boarding local flights would have to present before their flights. This requirement is anticipated following the Memorandum of Understanding signed between Ethiopian Airlines and the Ethiopian ID Program (NIDP) in October 2024.
