Understanding Financial Inclusion in Ethiopia

Mossie, W.A. (2022) ‘Understanding financial inclusion in Ethiopia’, Cogent Economics and Finance, 10(1).

The author commenced by  reiterating the G20 Summit agenda that recognises financial inclusion as one pillar of global economic development. Financial inclusion is defined as the accessibility and availability of formal financial services including bank deposit, credits, insurance, and all other financial services for  individuals participating in the economy. Financial Inclusion believed to benefit the interests of low-income earning communities by addressing their financial constraints, financing small projects and facilitating self-employment. Although financial inclusion has an implication on economic growth, poverty reduction and promotion of entrepreneurship, its implementation is at a lowest stage in Sub-Saharan Africa. Ethiopia, one of developing countries, has taken various steps to promote financial inclusion through expansion of micro-finance services, banks, and insurance companies. However, progress is very low and most of the services are concentrated in the urban areas.

Mossie’s study used World Bank’s 2017 Global Findex databases which consist of a set of financial inclusion indicators. The database contains 143 countries’ survey data collected from 150,000 individuals. Random sampling was used to select national representatives and data was collected through structured surveys. To analyse the Financial Inclusion status, the author used three indicators: formal account ownership, formal saving, and credit use.

According to the findings of the study, financial inclusion in Ethiopia is very low when compared with other neighbouring countries like Kenya and Tanzania. Only 35% of the adult population have  bank or other formal financial institution accounts, and less than  5% of the adult population have  a mobile bank account.  Men are ahead of women in accessing financial services including account ownership, credit services and other financial services. access to financial services is limited for women by their low level of financial literacy, lack of money, and limited  participation in formal employment. Moreover, women are found to spend their entire earnings on household consumption.

Education  also has  a significant impact on financial inclusions. Educated individuals have more opportunity to access financial services and adopt financial instruments than uneducated/illiterate people. Age is another significant variable that impacts financial inclusion. only 43.2% of the population aged above 15 years of age have accounts in formal banks or other alternative financial institutions. As the age of the individual increases, the probability of formal account ownership increases; however, old age individuals have limited financial access. The reason is that as individuals age, their engagement in the labour force decreases and they don’t want to travel for the deposit or withdrawal of money from the financial institutions.

Thus, the author indicated that women are the most excluded group from financial services and as a result any policy that aims at financial inclusion should  target these groups. concerned authorities should  design policies and programs that improve women’s participation in formal employment, education, and income generating activities so that they  can access  financial services.