Access to finance in Ethiopia has increased over the years, largely driven by financial institution accounts. Yet, women remain largely excluded from the financial sector, with certain gaps widening over time. This brief analyses data from The World Bank’s Global Findex 2022 and other sources to assess the financial inclusion landscape in Ethiopia and presents both high-level and specific actions to take into consideration. 

Overview

This brief — Assessing Progress and Priorities: Ethiopia's Financial Inclusion Journey, 2011-2022 — analyses the themes of access, usage and financial health using the latest edition of the World Bank Global Findex Database (2022) alongside other large datasets and resources such as those from the GSMA, the OECD, ILO, as well as the National Bank of Ethiopia, Ethiotelecom, and Safaricom

Access

1. Financial institution accounts are leading the way in facilitating access to finance, although gender gaps persist 

2. Mobile money account ownership rates remain low; yet, recent policy and regulatory advancements could advance digitisation in the country 

3. Affordability, accessibility, lack of documentation, and low levels of financial and digital skills drive financial exclusion, in particular for women   

4. Low uptake of digital and mobile internet-enabled devices are a constraint to the growth of digital financial services 

Usage

1. The proportion of people making digital payments is low, especially for women; Cash remains king 

2. Savings clubs and family or friends, as well as financial institutions are popular saving channels, yet women are half as likely as men to use them 

3. Adults in Ethiopia still prefer to borrow informally 

Financial health

1. Understanding how financial sector policies affect financial health is crucial, though insights are still limited 

2. Concerns around financial resilience, freedom, security, and control remain high among adults in Ethiopia  

3. Deepening discussions about inclusive access, meaningful usage, and safe and independent control of financial services remains vital 

Read the full analysis →

High-level options

1. Prioritise financial literacy and digital skills  

Meaningful access, usage, and control over financial and digital financial services

• In Ethiopia, low basic literacy and limited awareness of mobile internet, especially among women, are a barrier to meaningful access, usage, and control over financial and digital financial services. Policymakers should invest in nationwide literacy programs and awareness campaigns, which enhance basic skills, boost confidence, and improve digital proficiency among women and girls 

• Collaboration between the public sector, the development community, and the private sector can lead to tailored interventions, products, and services that cater to the learning needs of digital users. Elevating financial literacy is crucial for reinforcing consumer protection. Equipping individuals with knowledge and skills empowers them to make informed financial choices, hold institutions accountable, activate redress mechanisms, and protect themselves against financial risks

2. Invest in reliable and safe infrastructure for technological innovation

• Limited internet connectivity, especially in rural regions, and lack of proximity to financial services remain a barrier. Continued investments into urban and rural infrastructure are vital to enhance financial service availability, promote digital payments, and stimulate the economy. Collaboration between the public and private sectors is crucial for identifying and overcoming obstacles to agent network expansion

3. Improve data collection and usage for evidence-based policies and regulation

• Understanding the impact of financial policies on vulnerable populations, particularly women, is essential. A revision of the Ethiopian National Financial Inclusion Strategy ad its implementation offer a chance to adopt a comprehensive approach. Measurable indicators for financial inclusion trends, gender disparities, urban-rural differences, and overall financial well-being should be prioritised 

• Collaborating with the private sector is crucial to fund gender-focused research, design client-targeted products, and identify the business case for serving women and low-income clients

4. Build meaningful partnerships to enhance Ethiopia’s journey of inclusion and digitisation

• Bringing together the public and private sectors, civil society, industry and consumer groups, and the international community can help Ethiopia develop more sustainable solutions to achieving financial wellbeing  

• Regular stakeholder consultations are crucial to ensure policies benefit the population and avoid unintended effects. Inclusive policy design and implementation involve listening to marginalised voices, empowering them to hold both government and private sector accountable, with a strong emphasis on including women in decision-making roles to enhance gender diversity in leadership

5. Assess the impact of financial services policies and regulations upon people’s financial health and wellbeing

• The state of financial health, wellbeing, and resilience among adults in Ethiopia is still understudied. Current Findex 2022 data highlight adults’ concerns around financial resilience, financial freedom, financial security, and financial control. It is vital to enhance our knowledge of the implications of financial sector development policies on financial health in Ethiopia. Current developments offer opportunities that may be leveraged, including saving plans, pension coverage schemes, low-value loans, accessible insurance, and targeted awareness campaigns around financial planning and independence 

Specific actions

1._Strengthen licensing of financial entities and enhancing competition  

• The Payment Instrument Issuers and Payment Systems Operators Directives can play a role in facilitating market entry for innovative entities and reducing licensing barriers as per the National Payment System (Amendment) Proclamation no. 1282/2023 

• To encourage competition, adopting a tiered licensing approach based on the type of institution could allow non-mobile money issuers to operate under NBE’s supervision while controlling mobile money providers’ market entry. Increasing licensed entities could enhance market competition, potentially leading to better offerings and lower costs. Strengthening consumer protection is crucial, ensuring financial regulations cover institutions, protecting consumer rights and offering redress mechanisms. Aligning directives with international standards can enhance and regulate Ethiopia's payment landscape

2. Enhance in-house human resources within regulatory entities to improve market stability 

• Enhancing human resources capacity positively impacts on the regulators' ability to license and supervise as well as to properly apply a risk-based and proportional approach for both licensing and supervision. This also has positive benefits on removing barriers of entry, supporting a dynamic competitive marketplace, and enhancing financial consumer protection in Ethiopia

3. Prioritise financial consumer protection  

• Striving for a customer-centric approach to monitoring and supervision requires effective implementation of the Ethiopia’s 2020 Financial Consumer Protection Directive and harmonisation of consumer protection across relevant payments systems directives  

• Strengthening internal policies and procedures on disclosure, transparency, fair access, privacy and data protection, guarantee schemes, and insolvency as well as enforcing redress mechanisms remains fundamental 

4. Enhance interoperability of digital financial services in the market  

• The legal and regulatory environment for Payment System Operators needs to be refined, especially for licensing. There is a need to further clarify criteria for fintechs that fall within the licensing regime provided by the Payment System Operators Directive. This will also promote further interoperability at diverse levels by providing access to the National Switch (EthSwitch) to customers of these fintechs

5. Harness the potential of digital ID to expand access to finance  

• Limited access to proper documentation is a major constraint to account opening and a driver of financial exclusion in Ethiopia, especially for women. Expanding Ethiopia’s digital ID (Fayda) remains key and should be closely intertwined with initiatives around digital public infrastructure and digital public goods

Read the full analysis →

This paper was developed by UNCDF Ethiopia Country Office and UNCDF Policy Accelerator.

About UNCDF

The United Nations Capital Development Fund (UNCDF) is the United Nation’s flagship catalytic financing entity for the world's 47 least developed countries (LDCs).

With its capital mandate and instruments, UNCDF offers “last mile” finance models that unlock public and private resources, especially at the domestic level, in support of households, localities, and small enterprises that are underserved, where development needs are greatest, and where resources are scarcest.

Author

Sophie Falsini

Report design & editing

Darina Hernikova