Ethiopia has introduced a legal framework for collective investment schemes, a move that could reshape how millions of savers build wealth. The Ethiopian Capital Market Authority (ECMA) issued Directive No. 1150/2026 on the Operation of Collective Investment Schemes in September 2026, creating the regulatory foundation for mutual funds, money market funds, real estate investment funds and exchange-traded funds. The directive runs to 176 articles and represents a significant gap-filler in Ethiopia's capital market infrastructure, which has lacked the investment products that ordinary households worldwide rely on.
Collective investment schemes allow savers to pool money into diversified portfolios managed by licensed professionals, with each investor owning units proportional to their contribution. The concept is not new globally. Historians trace the first such fund to Amsterdam in 1774, and the first modern open-ended mutual fund appeared in Boston in 1924. According to the Investment Company Institute, regulated open-ended funds worldwide held about US$84.9 trillion at the end of September 2025, with money market funds holding US$12.7 trillion and ETFs holding about US$18.1 trillion. For Ethiopia, where savings are concentrated in bank deposits and real assets such as land and buildings, this combination is genuinely new.
Neighbouring East African markets show what growth is possible. Kenya's collective investment scheme assets grew from KSh56.6 billion in March 2018 to KSh679.6 billion at the end of September 2025, a roughly twelvefold increase in seven years, with 55 approved schemes running 234 funds. Uganda's unit trust industry has grown at double-digit rates to more than Shs6 trillion (about US$1.7 billion), with funded investor accounts nearly doubling to more than 211,000. South Africa's collective investment schemes held R4.16 trillion across 1,899 portfolios at the end of June 2025, with R146 billion of net inflows in the preceding year.
The Directive introduces several safeguards. Every scheme requires an ECMA-licensed Operator and an independent Custodian, with commercial banks able to act as custodians only with approval from the National Bank of Ethiopia (NBE) and an ECMA license. Boards must have at least five voting members with an independent majority including the chair. The Operator may own no more than 10% of a scheme it runs and must hold that stake for two years. Redemption proceeds must be paid within five business days, and suspending redemptions requires board and ECMA approval for no more than 28 business days without re-authorization.
The opportunities span the economy. Savers gain diversification and professional management with small amounts. Corporate treasurers can place idle cash in money market funds, and firms seeking capital gain a new class of buyer. Banks can offer custody, distribution through branches and fund management through investment-bank subsidiaries, while insurers can match long-term liabilities with long-term, diversified assets. Microfinance institutions gain a low-cost product to distribute to clients. Professionals including lawyers, auditors and valuers will be needed to structure schemes and draft documentation.
For Ethiopia's savers, borrowers, business owners and investors, funds offer access to government securities, listed shares and income-producing property that individuals rarely reach on their own, alongside the capital deepening benefits of an institutional investor base. However, several issues will decide whether funds take root. The legal fit between Unit Investment Companies and Ethiopia's Commercial Code requires clarity on how the registry will record a company with no fixed capital. Tax treatment is urgent: if income is taxed at fund level and again when distributed, funds will lose out against direct investment. The thinness of the Ethiopian Securities Exchange, which has only a handful of listed companies, means most funds will initially hold government securities rather than equities.