Promoting Financial Inclusion as a means towards womenâs Economic Empowerment in EthiopiaÂ
Financial inclusion is all about the accessibility and availability of formal financial services, including bank deposits, credits, insurance, and all other financial services, for individuals participating in the economy. Financial Inclusion is 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.
Despite this reform, women’s access to the financial sector is found to be very limited when compared to men. The microfinance service is aimed at providing micro-level loans to the poorest members of the community who can’t afford the collateral requirements otherwise. Microfinance is the main facilitator of womenâs economic empowerment because it increases womenâs income generation and control over that income and enhances their knowledge, skills, and business experience.Â
Why Financial Inclusion and How to Implement it?
(Mossie, 2022)Studies indicated thatMen, Men are ahead of women in accessing financial services including account ownership, credit services, and other financial services. Financial inclusion in Ethiopia is very low when compared with other neighbouring countries like Kenya and Tanzania, whereby 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.(Mossie, 2022) Men are ahead of women in accessing financial services including account ownership, credit services and other financial services. There are various factors contributing to women’s low access to financial services, and this includes, women’s low level of financial literacy, lack of money, and limited participation in formal employment. Education also has a significant impact on financial inclusions.Â
Educated individuals have more opportunity to access financial services and adopt financial instruments than uneducated/illiterate people, however as womenâs access toe education is very low in Ethiopia their financial inclusion is also affected thereby. 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.(Mossie, 2022) 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.Moreover, women are found to spend their entire earnings on household consumption rather than saving and investing.Â
Underserved population and womenâs financial inclusion in Ethiopia:Â
According to the latest Findex data (2021) about half of unbanked people are women in poor households in rural areas or out of the workforce. Whether they work in the home or outside of it, whether they are employed or self-employed, financial inclusion provides women the tools for accumulating assets, generating income, managing financial risks, and fully participating in the economy. While financial inclusion is expanding globally, the gender gap in access to financial services and products persists. To close the gender gap in financial inclusion and improve womenâs meaningful use of financial services, there is a clear need for financial service providers to transition toward gender-aware strategies to build tailored products that create opportunities for women and lower barriers in their lives.Â
Yet, the real question remains: What services do female customers value, prioritise and need?Â
Gender financial inclusion can help reduce poverty by increasing women’s income, improving family well-being, and boosting household savings levels. Additionally, it promotes entrepreneurship, agriculture, and inclusive economic development. Despite this recognition, the gender gap in financial inclusion persists in developing countries, including sub-Saharan Africa. Exclusion of women from financial services has been reported by a number of studies that have found that women are more excluded than men both at individual levels and firm levels and in this the gender gap not only affects women but also the whole nation by declining economic growth. On its own, financial inclusion will not result in gender equality. However, only with equal access to the full range of needs-based financial services â savings, credit, insurance, payments â and the accompanying financial education, do women stand a chance of social and economic empowerment.
Financial Service Facts in Ethiopia:
Among various facets of financial services, microfinance plays a key role in alleviating poverty as it helps to improve livelihoods, reduce vulnerability, and foster social as well as economic empowerment. Microfinancing is the program that aims to address the low-income earning community through the provision of credit, saving, money transfer and insurance services.(Alam and Azad, 2021) When Microfinance is properly implemented, it increases income, enhances education and health status, improves housing conditions, empowers the poor, and provides confidence and social pride. Having access to financial services not only provides a coping mechanism for unforeseen risks but also enhances womenâs productivity and sustains their living standards. Access to the service brought a personal change in savings, increased employment opportunities, housing conditions, and basic social services after receiving the credit from microfinance(Chirkos, 2014). Â
Changes in the participantsâ life standards were demonstrated by access to education, health care, housing, clothing, and nutritional foods. In short, the study indicated that the overall quality of life improved as their income increased. However,there are various challenges in relation to womenâs access to services. Regardless of the fact that microfinance targets the low-income earning community, its success history indicates that it is most efficacious in urban areas where investment opportunities are wide, borrowing demands are high, income generation is diverse, and the cost of reaching the clients is very minimal(Beyene and Dinbabo, 2019). On the other hand, the initial target community, particularly those in rural areas, urban slums, and the very poor, has limited access to the services.Â
Even though microfinance targets the low-income earning community, their successful history indicates that it is most efficacious in urban areas where investment opportunities are wide, the borrowing demands are high, income generation is diverse, and the cost of reaching the clients is very minimal(Beyene and Dinbabo, 2019). On the other hand, the initial target community, particularly those in the rural areas and urban slums, and the very poor have limited access to the services. This and other related factors gave birth to Village Savings and Loans. The Village Savings and Loans model ( VSL) is a self-managed and self-capitalised microfinance methodology providing savings, insurance, and credit services for the community out of reach of the formal institutions.(Beyene and Dinbabo, 2019)
Underserved population and womenâs financial inclusion in Ethiopia:Â
According to the latest Findex data (2021) about half of unbanked people are women in poor households in rural areas or out of the workforce. Whether they work in the home or outside of it, whether they are employed or self-employed, financial inclusion provides women the tools for accumulating assets, generating income, managing financial risks, and fully participating in the economy. While financial inclusion is expanding globally, the gender gap in access to financial services and products persists. To close the gender gap in financial inclusion and improve womenâs meaningful use of financial services, there is a clear need for financial service providers to transition toward gender-aware strategies to build tailored products that create opportunities for women and lower barriers in their lives.Â
Yet, the real question remains: What services do female customers value, prioritise and need?Â
Gender financial inclusion can help reduce poverty by increasing women’s income, improving family well-being, and boosting household savings levels. Additionally, it promotes entrepreneurship, agriculture, and inclusive economic development. Despite this recognition, the gender gap in financial inclusion persists in developing countries, including sub-Saharan Africa. Exclusion of women from financial services has been reported by a number of studies that have found that women are more excluded than men both at individual levels and firm levels and in this the gender gap not only affects women but also the whole nation by declining economic growth. On its own, financial inclusion will not result in gender equality. However, only with equal access to the full range of needs-based financial services â savings, credit, insurance, payments â and the accompanying financial education, do women stand a chance of social and economic empowerment.
5 facts about financial inclusion in EthiopiaKey Points
- Women are the most excluded group from financial services due to low level of financial literacy, lack of money, and limited participation in formal employment.
- Access to financial service through microfinancemicro finance has a positivehas positive impact on saving habits of women, increased employment opportunities, housing conditions, and basic social services.
- Ethiopian micro financial institutions are succeeding in improving the lives of poor women, and poor households are transformed from a survival way of life into a planned one as they start to afford better nutrition, housing, health, and education.
- Age, prior work experience, number of households earning income, and number of dependents in the household have a significant impact on womenâs participation in Village Savings and Loans.
- Women with access to financial services are more likely to maximisemaximize the profit  than those with financial access constraints.
Conclusion
Generally, access to finance playsplay a significant role by facilitating job creation, wealth, and innovation. Ethiopia also recognised the need and implementation of financial inclusion positive economic impact through its various national policies and institutional reforms. Despite this, there are many determinants that hinder womenâs access to and benefit from the sector. Accordingly, much is left to be done in addressing various factors that operate against womenâs access to finance and benefit from the services, including reconsideration of micro finance distribution to the rural areas, interest rate, repayment schedules and awareness raising on financial management.
How to promote financial inclusion for women economic empowerment? 5 points are recommendRecommendation
- Any policy reform that aims at financial inclusion should target women and design policies and programs that improve womenâs participation in formal employment, education, and income generating activities so that they can access financial services.
- Financial institutions should increase the grace and long-term loan return period. To expand the ASCI into rural areas, the government should build infrastructure and it should incorporate participant business skills in their training manuals.
- Interest rate imposed by credit service providersprovides shall be reduced, financial service shall be diversified to poor women and recipients of the microfinance service shall be provided with adequate training regarding financial management and risks.Â
- Regular, timely and needs based capacity building should be provided for women participants in the Village Saving L. Secondly, linkage should be created between the VSL and microfinance institutions to facilitate members’ interest in expanding their small business.
- Linkage should be created between the VSL and microfinance institutions to facilitate members’ interest in expanding their small business.
Reference
- Alam, P. and Azad, I. (2021) Impact of Microfinance on Income and Employment of Women in Jigjiga, Ethiopia, International Journal of Economics and Business Administration, IX (1) pp. 373-381.
- Beyene, N.L. and Dinbabo, M.F. (2019) âAn Empirical Evaluation of the Link between Women Participation in Village Savings and Loans Association (VSLA) and Poverty Reduction in Ethiopiaâ, Journal of Reviews on Global Economics, 8, pp. 566â580
- Chirkos, A.Y. (2014) The Impact of Microfinance on Living Standards, Empowerment and Poverty Alleviation of the Poor People in Ethiopia, A Case Study in ACSI, Research Journal of Finance and Accounting www.iiste.org ISSN. 5 (13), pp.43-66.
- Mossie, W.A. (2022) âUnderstanding financial inclusion in Ethiopiaâ, Cogent Economics and Finance, 10(1).