The Current Law

The current law is ultimately unsatisfactory because it is fragmented, and contained in four different pieces of legislation: The  Civil and Commercial Codes, the Business Mortgage Proclamation, the Proclamation to Provide for a Warehouse Receipts System (Warehouse Receipts Proclamation), and the Capital Goods Leasing Business Proclamation. Under this system, security rights in many movable assets are not registered. Although some security rights are registered, this is far from uniform, as there are different registries for different types of assets, and they are all paper-based. Additionally, there is neither a generalised writing requirement, nor a registration requirement for the perfection of a pledge. It is also impossible to create a security interest in future property under Ethiopian law. Mortgages and pledges alike both require that the debtor have a present interest in the property; it would be insufficient even if the debtor eventually acquires an interest in the property.

Further Reading

The Reform

Ethiopia has been working on a draft law reform for secured transactions, the Draft “Proclamation to Provide for Movable Property Security Rights” (Draft Law). It establishes a single comprehensive online register, whereby security rights are only enforceable against third parties if they are registered. Additionally, priority between competing security rights is determined by reference to the register, so lack of registration could prevent a creditor from enforcing their rights if there is a competing right.

Despite being based on the UNCITRAL model law, this Draft Law is not entirely comprehensive. It focuses on personal property security rights and does not govern immovable property. This means that security interests in land are to remain governed by the old law, which has been in place since 1960, and are subject to different rules regarding priority and registration.

The Draft Law takes a functional approach, so that transactions that are substantially equivalent to securing performance of an obligation are treated as giving rise to security interests. The definition of security right under Art 2(43) of the Draft Law is: “a property right in movable property that is created by an agreement to secure payment or performance of an obligation, regardless of whether the parties have denominated it as a security right, and regardless of the type of movable property, the status of the grantor or secured creditor, or the nature of the secured obligation.” The Draft Law specifically mentions hire-purchase agreements as capable as giving rise to a security interest in Art (4)2, but the general functional approach implies that financial leasing and contracts of sale with retention of title can be characterised as transactions giving rise to security interests. The Draft Law also makes provision for floating interests in future assets, but the law regarding this seems in places unclear.

Draft Law in English:

Online Register:

Further Reading

Last Checked August 2020

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