Ethiopia ranks low on financial inclusion

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The 2016 Financial and Digital Inclusion Project (FDIP) Report ranks Ethiopia at 25th place out of 26 countries. The report evaluates commitment to and progress towards financial inclusion across a set of 26 geographically, politically, and economically diverse countries, across four dimensions of financial inclusion – country commitment, mobile capacity, regulatory environment, and the adoption of traditional and digital financial services.

“Evaluating progress toward adoption of affordable formal financial services matters because financial inclusion is a key ingredient in promoting household welfare and broader economic development,” authors of the report, John Villasenor, Darrell West, and Robin Lewis commented.

The report’s findings show that, as one of the lowest-income FDIP countries, Ethiopia faces economic and infrastructural constraints pertaining to financial inclusion.

The report also points out that the National Bank of Ethiopia has established several financial inclusion goals in areas such as digital financial services, financial literacy, and payment systems. In 2014, it established a Financial Inclusion Council (FIC) to advance on inclusive financing and centralize the services offered by various bodies.

The report further states that the interest of foreign financial institutions, such as Kenya’s KCB Group and South Africa’s Standard Bank, should help promote greater competition and service provision within the Ethiopia’s financial market.

According to the World Bank Global Financial Inclusion database, about only 22 percent of adults in Ethiopia have a financial account with a formal financial institution.

As a recommendation, the report states that establishing clear electronic money guidelines and opening up the digital financial services market to a diverse array of nonbank providers could help increase the proliferation of electronic money offerings. It states that expanding access points to financial services is important, as the distribution and availability of physical financial service locations is limited and concentrated primarily in urban areas.

Implementation of the national financial inclusion strategy and efforts to strengthen mobile capacity, including 3G network coverage and mobile phone penetration, are also needed to help drive greater financial inclusion, according to the report.