Ethiopia’s Refreshed National Financial Inclusion Strategy Unpacked

The National Bank of Ethiopia has updated Ethiopia’s National Financial Inclusion Strategy, which was developed in 2021. While the official review and circulation to the public occurred recently, the refreshed strategy had been in development for several months.

To ensure maximum dissemination of knowledge and to cater to the interest of stakeholders, Fintech Consultant Tewodros Tassew has prepared a summary of the background, objectives, and targets of Ethiopia’s renewed financial inclusion strategy. While it is recommended that stakeholders working in the financial sector read the full strategy document, the following key takeaways offer an overview.

Background

Financial inclusion plays a vital role in ensuring that individuals and businesses have access to affordable financial products and services. In 2016, Ethiopia, acknowledging the significance of financial inclusion, developed a National Financial Inclusion Strategy (NFIS), with the implementation period ending in 2020.

Considering the emergence of new opportunities and changes within the financial sector, as well as the Homegrown Economic Reform Agenda, the National Financial Inclusion Strategy has been updated for the period of 2021–2025.

The primary reasons for this update include the rise of novel opportunities and enablers in the financial sector, the Homegrown Economic Reform Agenda, and the completion of most actions outlined in the 2016 Strategy. According to the document, the first financial inclusion strategy (NFIS-1) has achieved notable milestones, such as the amendment of Banking and Insurance Business Proclamations, the issuance of a new proclamation for movable property security rights, and the development of the National Digital Payment Strategy.

Over the last five years, Ethiopia has made significant strides in broadening the reach of transaction accounts, enhancing access to formal banking services, expanding bank branches and agent networks, increasing the digital finance presence, growing mobile money accounts, and encouraging savings within formal financial institutions.

According to the National Bank of Ethiopia, the percentage of the adult population having a bank account has reached ~45% as of 2020. This substantial increase, from 22% in 2014 and 35% in 2017, falls short of the National Financial Inclusion Strategy’s target to achieve 60% by 2020.

The updated National Financial Inclusion Strategy seeks to build upon the successes of the 2016 Strategy and harness new opportunities to further enhance financial inclusion in Ethiopia. It envisions fostering a financially inclusive Ethiopia, ensuring that no one is left behind in terms of financial access. The realization of this vision is anticipated to contribute to achieving sustainable development goals, creating jobs, spurring economic growth, reducing poverty, and bolstering capabilities for digital innovation.

By working together towards the common goal of promoting financial inclusion, Ethiopia aims to create a more inclusive financial system that benefits all its citizens

Approach

Seeking to enhance financial inclusion in Ethiopia, the Strategy outlines four strategic priorities: digital financial inclusion, financial inclusion for underserved areas, financial inclusion for women, and the promotion of Sharia-compliant financial products.

The strategy aims to ensure widespread access to basic financial services throughout the country. To achieve these priorities, it outlines specific programs and actions, such as promoting digital payments via mobile money, extending traditional financial infrastructure to reach underserved areas, and adopting a gender-intentional approach to financial inclusion, which encompasses expanding payment schemes and encouraging women’s enrollment in financial institutions.

The strategy employs a three-step approach to financial inclusion:

1. Advancing Scale for Financial Inclusion

This step concentrates on achieving scale in basic financial inclusion and transforming financially excluded individuals, particularly women and the rural poor, into first-time users of financial services. The strategy highlights the expansion of mobile money and transaction-enabling accounts as an entry point for financial inclusion, supported by financial access points through agent networks. Additionally, the strategy acknowledges Ethiopia’s potential to quickly expand digital payments and mobile money by learning from experiences in other Sub-Saharan African and Asian countries.

2. Deepening financial inclusion

The strategy for deepening financial inclusion entails broadening the range of financial services accessible to newly included individuals beyond digital transactions and mobile money. This expansion encompasses productive credit, conventional and interest-free savings, and micro-insurance. The rollout is designed with a focus on gender intentionality, addressing the needs of the rural poor, and integrating Sharia-compliant products and services.

3. Advancing Financial Education and Consumer Protection-Cross Cutting Enablers

This step outlines how the lack of capability and trust in formal financial institutions among adults in Ethiopia leads to heavy reliance on expensive, inefficient, unsustainable, and risky informal financial sectors. To address this issue, specific programs with defined approaches and targets are needed to build the capabilities of adults and increase their trust in formal financial institutions. The strategy recognizes existing national frameworks, such as the Financial Consumers Protection Framework, the National Digital Payments Strategy, the National Financial Education Strategy, and the Rural Financial Intermediation Program III. It aligns its plan of action with these strategies for effective implementation.

The implementation plan covers 200+ granular actions that will be implemented over a five-year horizon, 2021–2025.

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Target

The strategy employs a three-tiered approach to define targets and indicators for both the demand and supply sides of financial inclusion. These tiers consist of Overall Target, Headline Target, and Supporting Targets.

The demand-side targets feature an overall goal of increasing formal financial account ownership among adults from 45% to 70% by 2025, along with specific headline and supporting targets for digital payments, financial inclusion in underserved areas, women, Sharia-compliant products, and savings mobilization.

The headline targets on the demand side are as follows:

• Drive digital payments by scaling mobile money: increase the digital payment usage rate from 20% of all adults (2020) to 49% by 2025;
• Drive financial inclusion in underserved areas: halve the ownership gap between the emerging regions’ average and the national level by 2025;
• Drive financial inclusion for women: halve the gender gap in account ownership from its current estimated 19% (2020) to 10% by 2025, stopping it from growing by 2023 at the latest, while maintaining the current near-equal account usage rates;
• Drive sharia-compliant financial products and services: increase the scale of sharia-compliant account ownership from 12% to 18% by 2025.
• Maximize savings mobilization: increase the percentage of adults who report using formal savings from 30% in 2020 to 40% by 2025; and

The supply-side targets feature an overall goal of increasing transaction accounts per 100 adults to 337 by 2025, along with specific headline and supporting targets for digital accounts, transaction accounts, women, savings accounts, MSME credit access, micro-insurance policies, Sharia-compliant accounts, and financial product awareness.

The headline targets on the supply side are as follows:

• Increase digital accounts per 100 adults to 120 by the end of 2025 from 25 in 2020;
• Reduce the transaction account gap between regions to half by 2025 compared to the national average.
• Increase transaction account per 100 women to 135 by 2025 from 49 in 2020;
• Increase the number of saving accounts per 100 adults to 217 by the end of 2025, up from 134 in 2020.
• Increase MSME’s access to credit to 10% of the private sector loan by 2025 from what it was 5% in 2020.
• Increase the number of microinsurance policies to 500,000 by the end of 2025;
• Increase sharia-compliant transaction accounts to 10 million from 5.4 million in 2020; and
• Increase the number of adults by 10 million in 2025 who are aware of financial products and services.

The headline target of the refreshed Financial Inclusion Strategy is to have 70% of adults have a bank account by 2025, up from 45% as of 2020.

Implementing the strategy will be led by the National Bank of Ethiopia, while the governance structure includes the National Council for Financial Inclusion (NCFI) as the main decision-making body accountable to the Office of the Prime Minister for financial inclusion progress in Ethiopia. Additionally, a Financial Inclusion Steering Committee (FISC) is expected to play an advisory role while a new Regional Council for Financial Inclusion (RCFI) and a Regional Financial Inclusion Task Force are planned to be established.

The Financial Inclusion Secretariat (FIS) continues to have the central project management role and responsibility for coordinating, monitoring, and evaluating the entire progress of the strategy’s implementation.

The implementation of the plan will require collaboration and coordination among all stakeholders to ensure that the actions are carried out effectively and efficiently. By working together towards the common goal of promoting financial inclusion, Ethiopia aims to create a more inclusive financial system that benefits all its citizens.

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