Nohaila Ibn El Farouk, Business Development Manager at Backbase, a leading provider of digital banking transformation solutions across Africa, shares her insights on Ethiopia’s ongoing financial inclusion journey, especially among rural populations and women. With extensive experience spearheading regional strategies and client acquisition for Backbase’s modular Engagement Banking Platform, Nohaila discusses the key barriers to formal account ownership, the enduring role of informal finance, and innovative digital banking solutions tailored to Ethiopia’s unique socio-economic landscape.

In this exclusive interview with Capital’s Groum Abate, she addresses the cultural, infrastructural, and educational challenges that hinder broad adoption of formal financial services, while also highlighting promising trends in modular, “composable banking” that can bridge gaps for underserved groups. Nohaila further explores how fintech and banks can build trust, customize offerings, and foster sustainable financial ecosystems that empower rural communities and women—pivotal to Ethiopia’s economic transformation.

Capital: What research methodologies did you use to collect the data on formal account ownership among rural adults and women?

Nohaila Ibn El Farouk: Desktop research was conducted with sources primarily being: GSMA, World Bank Findex 2022,The revised National Financial Inclusion Strategy (NFIS 2021–2025); Assessing progress and priorities: Ethiopia’s financial inclusion journey 2011-2022

Capital: Could you elaborate on why only 37% of rural adults and 38% of women in Ethiopia have a formal financial account, despite recent sector reforms?

Nohaila Ibn El Farouk: There are several reasons that help explain the low adoption rates of formal financial accounts. One major factor is socio-cultural, as a strong preference for cash transactions remains a significant hurdle for many individuals. Additionally, low levels of financial literacy contribute to limited understanding of available financial products and services. Finally, a lack of trust and awareness means that efforts are needed to build public confidence and educate people about the benefits of financial inclusion.

Capital: How does the informal financial sector, such as community savings groups and equb, still hold such dominance despite the rapid growth in mobile money?

Nohaila Ibn El Farouk: The dominance of the informal financial sectors is largely due to their deep integration within the social and cultural fabric of communities, which fosters strong trust and collective synergy among members. Additionally, these informal systems are flexible and accessible, often requiring minimal documentation and emphasizing collective contributions and sharing. They are also locally tailored to meet specific community needs, including providing support for important social functions such as funerals and weddings.

Capital: The report mentions limited trust in formal institutions. What are the key drivers of this mistrust, and how can banks address it?

Nohaila Ibn El Farouk: The key drivers of mistrust in formal institutions, as long as how banks can address them are:

1. Challenge: Customers perceive banks as lacking transparency regarding fees, interest rates, and terms.

Approach: Clearly communicate all fees and adapt product offerings to align with local requirements.

2. Challenge: Limited financial literacy among potential customers.

Approach: Implement community-based programs to educate and sensitize individuals, fostering better financial knowledge and perception.

3. Challenge: Security concerns, specifically regarding the safety of deposits and the need for widespread insurance awareness.

Approach: Implement training programs and foster partnerships with local community leaders, while simultaneously leveraging technological solutions.

Capital: What specific complexities or perceived difficulties discourage rural and female customers from adopting digital or formal banking products?

Nohaila Ibn El Farouk: Rural and female customers face several perceived difficulties in adopting digital and formal banking products. Limited digital literacy is a major barrier, as many potential users lack sufficient experience with digital technologies, making it challenging to navigate mobile banking applications and platforms. Additionally, there is often a lack of infrastructure, including limited access to smartphones, reliable internet connectivity, and consistent electricity in many areas. Security concerns also deter users, as fears of fraud, scams, and the perceived complexity of digital platforms reduce confidence in these services. Insufficient documentation presents another hurdle, since the absence or scarcity of identification documents complicates compliance with Know Your Customer (KYC) requirements. Moreover, cultural and social barriers play a role, with societal norms or cultural beliefs potentially raising concerns about women managing money independently.

Capital: You highlight lack of ID and documentation as a barrier. Are there regional or demographic differences in this challenge?

Nohaila Ibn El Farouk: There are indeed regional and demographic differences in this challenge and amongst groups, specifically: Difficulty in accessing official identification documents, such as IDs and birth certificates, is prevalent in remote and rural regions, particularly among pastoral communities and marginalized groups. This is primarily due to limited civil registrations, exacerbated by infrastructure and mobility issues, which in turn hinders basic KYC account onboarding at banks. Furthermore, women in rural areas face additional challenges in obtaining relevant identification documents due to socio-cultural factors like literacy rates, mobility restrictions, and gender-based roles.

Capital: Why do most Ethiopians continue to borrow and save within personal networks rather than use banks?

Nohaila Ibn El Farouk: There are several reasons for this trend. One is the cultural norm of equb, a traditional rotating savings and credit association often described as a “merry-go-round” or “table banking” system, which has long served as a feasible alternative to formal banking. Additionally, limited financial literacy means that a formal understanding of the value and benefits of banking is not widespread, contributing to resistance toward adopting formal financial services. Furthermore, challenges around documentation, particularly compliance with Know Your Customer (KYC) requirements due to limited identification documents, also discourage many from using banks.

Capital: What have your findings revealed about the distinct financial behaviors and needs of women versus men in Ethiopia?

Nohaila Ibn El Farouk: Our research reveals that women in Ethiopia remain significantly underserved by formal financial institutions, often relying on informal tools like savings groups or cash-based systems to manage their money. Many Ethiopian women play dual roles, handling household budgets while engaging in small-scale income-generating activities, yet their financial realities are rarely reflected in traditional banking services. Compared to men, women face greater barriers in access, often due to limited trust in institutions, inflexible product design, and a lack of tailored support.

To close this gap, banks must go beyond simply offering access. They need to create dignified, easy-to-use digital services that provide financial flexibility, accommodate shared decision-making, and align with women’s daily routines. Solutions like mobile wallet-based budgeting tools, microloans linked to cash flow, and savings products designed for education or family goals are key to building trust and inclusion among women, unlocking not just personal growth, but broader economic participation.

Capital: How do rural and urban financial habits differ, particularly regarding saving and borrowing practices?

Nohaila Ibn El Farouk: In rural areas, saving is predominantly informal through community savings groups or keeping cash at home, largely due to limited access to banks and lower digital literacy. Informal borrowing from family and friends is also common in rural areas, as formal credit options remain inaccessible due to documentation gaps and collateral requirements.

Urban Ethiopians still lean heavily on informal methods, although being slightly more engaged with formal banking. However, they are more likely to experiment with mobile money and digital payments. Despite this, both groups underutilize mobile savings tools and digital credit products.

Capital: The report promotes “composable banking” as a key solution. Could you define this in practical terms and explain how it addresses Ethiopia’s unique challenges?’

Nohaila Ibn El Farouk: At Backbase, we define composable banking as a strategy where financial institutions take a building-block approach to digital modernization, allowing them to move at their own pace, molding and building the institution of their dreams. By creating an open, modular IT architecture, banks can embrace a platform model that helps them shift away from complex, monolithic systems towards a simpler, future-proof, customer-centric framework.

In Ethiopia’s context, where we’ve established that financial habits vary widely across urban, rural, and underserved groups, this flexibility is vital. A bank can use composable tools to create offline-ready services for rural communities, launch mobile-first platforms for young urban users, or design savings tools for women-led microbusinesses. It also allows banks to evolve with changing regulations and market demands without needing to rebuild entire systems. Ultimately, composable banking helps Ethiopian banks overcome legacy limitations and deliver more inclusive, responsive, and trusted digital experiences, faster and more sustainably.

Capital: What examples exist—either in Ethiopia or in comparable markets—of banks effectively adopting tailored, modular financial products for underserved groups?

Nohaila Ibn El Farouk: Several banks have effectively adopted tailored financial offerings to serve underserved groups. Dashen Bank focuses on agency and mobile banking to reach unbanked populations in rural areas, employing mobile applications to simplify account opening and to provide savings and loan options. Co-op Bank of Oromia offers specialized financial products designed specifically for rural farmers and women. In Kenya, the M-Pesa M-Shwari platform, a collaboration between Safaricom and NCBA Bank (formerly CBA), delivers flexible products such as savings accounts and microloans, combined with streamlined account opening procedures to serve diverse market segments. Similarly, I&M Bank Kenya launched the “Solo Biz” account tailored for sole proprietors, which combines instant mobile onboarding with dedicated tools for small and medium-sized enterprises. Their modular platform allows for the rollout of new customer journeys as needs evolve.

Capital: Given that mobile savings tools are underused, what are the biggest opportunities for banks and fintechs to drive adoption and trust, particularly in rural areas?

Nohaila Ibn El Farouk: The opportunities for banks and fintechs to drive adoption and build trust include implementing community education programs that foster trust and raise awareness, especially by expanding onboarding initiatives in rural areas. Additionally, leveraging agency banking by utilizing local agents can broaden customer reach and improve accessibility. Providing USSD and SMS-based services is also important, as these enable access to mobile financial services for individuals who do not own smartphones. Finally, developing tailored and flexible financial plans that cater to the specific needs of various communities can help promote greater inclusion and engagement.

Capital: Remittances in Ethiopia are still mostly handled in-person. What would it take for digital channels to become the norm for domestic transfers?

Nohaila Ibn El Farouk: To shift domestic remittances in Ethiopia from in-person transactions to digital channels, three key enablers are essential: trust, usability, and reach. Trust is crucial, as people need strong assurance that their money will arrive safely and instantly. Achieving this requires robust consumer protection measures, clear communication, and collaboration with credible service providers. Usability must address the challenges faced by many Ethiopians, especially in rural areas, such as low digital literacy, limited access to smartphones, and language barriers. Therefore, digital solutions should be intuitive, support local languages, and be capable of functioning offline or on basic phones. Lastly, reach and interoperability are vital because digital channels can only scale if they are widely accepted, affordable, and able to operate seamlessly across different providers and regions.

Capital: What policy or regulatory changes would most accelerate financial inclusion for women and rural communities?

Nohaila Ibn El Farouk: The Simplification of KYC by exploring alternative identification methods for low-value accounts would accelerate financial inclusion. Interoperability mandates will also allow mobile providers or telecoms to enhance access and ease of transactions across platforms.

Capital: Your projections show bank account penetration rising to 70% by 2025. What are the main risks or headwinds to achieving this target?

Nohaila Ibn El Farouk: While Ethiopia is on a promising path toward 70% bank account penetration by 2025, several factors could slow progress if not addressed.

Trust and awareness: many Ethiopians still perceive formal banking as complex, inaccessible, or not designed for their realities, especially in rural and low-income segments. Without focused efforts to build trust and financial literacy, adoption may stall.

Infrastructure gaps: inconsistent mobile coverage, low smartphone penetration, and limited agent networks in rural areas make it difficult to deliver consistent digital banking experiences, which can exclude  already underserved. communities

Product relevance: rigid or generic financial products do not resonate with informal workers, women, or small traders who have variable income and rely on social networks for savings and credit. Without tailoring services to these behaviors, banks risk offering access without real engagement.

Regulatory and ecosystem readiness: seamless interoperability between providers, simplified onboarding (like tiered KYC), and strong data protection are all critical to scale inclusion sustainably.

To meet the 70% target, financial institutions must go beyond access and invest in trust-building, locally relevant solutions, and the foundational infrastructure that enables inclusive digital finance.