The innovation of FinTech in Promoting Financial Inclusion in Ethiopia: Opportunities and Barriers

Posted on:Jul 6,2021


We argue that the innovation of FinTech is the key driver for promoting financial inclusion. Expanding access to financial services remains an important policy challenge in many countries, with much for governments to do. This paper investigates the role of FinTech in promoting financial inclusion; opportunities and barriers in the case of Ethiopia using the Global Findex waves of survey data for 2014 and 2017. Moreover, the paper used an extensive review of several works of literature to conceptualize the issue in the framework. The result shows even though there is a significant and double-digit growth in account ownership from 2014, yet now (2017) the largest share of the population (65%) does not have access to an account and the paper also found that women, less educated, youth, and poorer adults are less likely to own an account. We also find that lack of money, absence of financial institutions nearby, low penetration of mobile and internet use, and absence of necessary documentation are found as some of the key barriers to the innovation of FinTech as a means to promote financial inclusion. Given the opportunity of newly launched national policy and regulation, there is a need to invest in financial literacy to enable the use of FinTech products, creating a conducive environment for business firms for youths and poorer adults to take advantage of the available economy, and thereby creating inclusive economic growth is a key to overcome access to account ownership. Moreover, financial sectors need to incorporate digital innovation into their strategic plan that focuses on how they will overcome FinTech barriers.

Keywords: Digital finance, Ethiopia, financial inclusion, and FinTech

1. Introduction

The concept of FinTech (Financial Technology) is recently introduced to advance and automate the provision and use of financial services. The main aim of FinTech is to serve the population who does not have access to finance and hence contributes to the larger goal of financial inclusion. More importantly, digital transactions also aimed to reduce the cost of the transaction and bureaucracy and hence boost the quality of financial service. Many several studies argue that financial inclusion is the means for inclusive economic growth and hence addressing the unbanked population becomes a global agenda, particularly in emerging economies. For instance, Popescu (2019) stated that financial inclusion is an important engine of economic development by delivering very significant benefits to the poor and marginalized society. Similarly, Sarma (2008) argues an inclusive financial system helps to reduce the growth of informal sources of credit which are often found to be exploitative. FinTech plays a key role in financial inclusion and reducing income inequality (Demir, Pesqué-Cela, Altunbas, & Murinde, 2020). As of 2017, the global share of adults owning an account rose to 69%, an increase of seven percentage points since 2014 (Demirguc-Kunt, Klapper, Singer, Ansar, & Hess, 2018). Moreover, the finding reveals, 52% of the global adults have sent or received digital payments in the previous year, an increase from 42% in 2014.

According to a December 2019 survey by Findexable, nearly half of the world’s top 100 FinTech centers are now located in developing countries, such as Sao Paolo, Bangalore or Mumbai, ahead of traditional financial centers such as Frankfurt, Zurich or Shanghai. (

Furthermore, access to digital financial services is found as a critical tool for joining the new digital economy (Demirguc-Kunt et al., 2018) and an increase in mobile telephone by 1% results in an increase in income by 0.3% and similarly a 1% increase in financial inclusion has double the impact on income (Ghosh, 2016). Likewise, several empirical studies reveal that mobile expansion promotes financial inclusion and thereby contributes to economic growth. For example, the study by Andrianaivo & Kpodar (2012) reveals that the expansion of mobile telephone contributes to economic growth. Similarly, the study made by Norton (1992) showed that investment in telecommunication contributes to financial sector growth and thus boosts GDP growth. However, despite the importance of financial inclusion to the economy, about 1.7 billion adults at global yet remain unbanked and without an account at a financial institution even though the number reduced from 2 billion in 2014 (Demirguc-Kunt et al., 2018).

Ethiopia is one of the low-income countries (LICs) with rapid economic growth while a shallow financial sector and low coverage of financial services (Zwedu, 2014). Lack of money and the absence of nearby financial institutions are found as the main determinants of financial inclusion in Ethiopia (Dinku, 2019) (Vida et al., 2020). Compared with East Africa countries (Lakew & Azadi, 2020), and the Sub-Saharan African average (Dinku, 2019) Ethiopia’s financial inclusion is not as successful and far below average. Moreover, unemployment, low income, and preference for informal savings other than formal ones are among the main obstacles to financial inclusion strategy in Ethiopia (Lakew & Azadi, 2020). Over the last decades, the development of financial sectors in Ethiopia shows very positive to create financially inclusive citizen. For instance, in 2018/19, a total of 807 new bank branches are opened and thereby increased the total number of branches by 14.5%. Likewise, MFIs, insurance companies, and Savings and Credit Cooperative Organization (SACCOs) are also highly expanding to reach the high number of the unbanked population. However, regarding its outreach to the highly increasing population, one bank branch serves about 17 thousand people and about 35% of bank branches were located in the capital city of Ethiopia, Addis Ababa (NBE, 2019b).

To overcome the challenges and fill the existing gap, the government of Ethiopia recently launched a national financial inclusion strategy to enhance the use of digital money and new financial products and hence to reach a wider population that is currently outside the modern financial services. Among the core target of the strategy is to increase account ownership from 22% in 2014 to 60% by 2020 and to rise electronic payment from 6% in 2015 to 40% in 2020 (NBE, 2019b). Hence, this study is aimed to examine the contribution of FinTech in promoting digital financial services to the large population who are unbanked. Moreover, the paper addressed the key barriers and enabling factors that influence the innovation and use of FinTech in promoting digital financial inclusion in Ethiopia.

2. Objectives

The main objective of the study is to examine the innovation of FinTech in promoting the digital financial service in Ethiopia. More specifically, the paper aims to;

  • ™Describe the present scenario of financial inclusion
  • ™Examine the potential of FinTech to reduce financial exclusion
  • ™Investigate the opportunities and barriers to accessing and usage of digital financial services

3. Research Methodology

This study article is based on desktop research to investigate the role of FinTech in promoting digital financial inclusion in the case of Ethiopia: opportunities and barriers. The paper used an extensive review of several works of literature to conceptualize the issue in the framework. The techniques include conceptual and documentary analysis of peer-reviewed journals, reports, and other authoritative documents on the innovation of FinTech in promoting digital financial inclusion. The criteria used in the selection of the articles, reports, and other important documents were simply the relevance of the articles in the provision of information useful for the main objective of the study. Conceptual analysis and document analysis were used in the study because documents come in a variety of forms, making documents a very accessible and reliable source of data. Obtaining and analyzing documents is often far more cost and time efficient compared to conducting field research or experiments. As a result, World Bank’s 2014 and 2017 Global Findex database household survey on financial inclusion was used as a data source to examine the financial inclusion scenario in Ethiopia by comparing the changes from the base year (2014). The World Bank’s Global Findex database household survey was conducted three times but the Ethiopia survey data for 2011 (the first survey data), is not available in the database.

4. Hypothesissis

H1: There is a significant and positive relationship between individual characteristics (such as age, gender, education, and income) and financial inclusion in Ethiopia
H2: There is a significant and positive relationship between enabling the use of FinTech products and financial inclusion in Ethiopia
H3: There is a significant and positive relationship between expanding the use of digital finance and financial inclusion in Ethiopia

Figure 1: Conceptual framework


Source: Adopted from different works of literature by authors

Improving access to account ownership: According to the states of (NBE, 2019a), having a bank account can be a great tool for managing finances. Account statements can help you determine how and where you are spending your money and put you on track for a reasonable savings plan. Low-income groups or those who have traditionally been more vulnerable, such as women, young people, or people who live in rural areas face the problem of access to the use of formal financial services. The findings of (Gashaw Desalegn and Gebe Yemataw, 2017) show that factors such as being a woman, living in a rural area, or having a low income and educational level may reduce the likelihood of being included in the formal financial system. Hence, identifying and overcoming the determinant factors that hinder the adult population from having access to an account is a key to move for financial inclusion.

Enabling use of FinTech products: Payment systems provide the basic infrastructure for money to flow through any economy and are therefore vital to financial inclusion, economic development, and the functioning of the real economy. In many developing countries, inefficient traditional payment systems have frequently been a major barrier to economic activity (Douglas W. Arner, 2018). According to the descriptions of Klapper & Singer (2017) and BIS (2020) report, even if FinTech is a relatively new concept, innovation has been shaping the evolution of payment services over time and has served as a driver of payment system reform. Moreover, the findings of Lakew & Azadi (2020) acknowledged the role of FinTech innovation (e.g electronic money, especially mobile money) in facilitating access to and usage of transaction accounts. Likewise, the findings of Baza & Rao (2017) also emphasizes the importance of enhancing existing digital payment infrastructures and adopting new delivery models to broaden the reach of traditional payment instruments and products. According to the annual report of (NBE, 2019a) the proper implementation of the recently launched “Home Grown Economic Reform Program” is expected to contribute towards developing a modern, vibrant, competitive, and sound financial system, and enhanced access to financial and financial inclusion which will ultimately lead to poverty reduction, inclusive economic growth. Mobile money service currently exists in over 89 developing countries including Ethiopia and is growing rapidly (Scharwatt, Katakam, Frydrych, Murphy, & Naghavi, 2014). Therefore, enabling the use of FinTech products and enhancing digital infrastructure will ensure access to tailored financial products and services needed by low-income individuals in particular and society in general conveniently.

Expanding the use of FinTech products:  Empowering access, enabling, and expanding the usage infrastructure could enhance the financial safety net and provide additional financial resources to support growth through financial inclusions (Arner, Buckley, Zetzsche, & Veidt, 2020). Moreover, the findings of Hasan & Batra (2018) and NBE (2019a) argue that the implementation of digitalization improves access to finance and financial inclusion for a wider population which is currently outside the reach of modern financial services. Moving from cash to digital yields three main types of benefits: reducing leakage, eliminating fraudulent payments and tax evasion, and reducing the costs of payment processing (Zins & Weill, 2016) in the case of the government. Several scholars such as Olivia et al. (2019), Ayele (2015), and Demir et al. (2020) conducted studies about FinTech implementations in developing countries and their result shows that a large share of government payment transactions to and from individuals and businesses and between government entities are transacted in cash or by check when payments are measured by volume or by the number of transactions.

5. Empirical Reviews

In recent years, financial inclusion was given significant attention from policymakers regarding the role it plays in sustaining employment, economic growth, and financial stability. Improved access to finance creates an environment conducive to new firm entry, innovation, and growth. Expanding access to financial services remains an important policy challenge in many countries, with much for governments to do. Government policies in the financial sector should focus on reforming institutions, developing infrastructures to take advantage of technological advances, encouraging competition, and providing the right incentives through prudential regulations. In recent decades, a rapidly growing literature across the globe continues to emphasize the positive significance of financial inclusion for inclusive economic growth and poverty reduction of the economy. Several scholars’ findings made arguments on the role of FinTech in promoting digital finance to reach a wide range of the population.

5.1. Financial inclusion and FinTech: Why it matters?

Financial inclusion means access to and effective use of financial services by adults (Demirguc-Kunt, Klapper, Singer, & Oudheusden, 2015). Through improving access to an account, financial inclusion plays a key role in reducing income inequalities and poverty. For instance, the empirical study made by Beck, Demirgüç-Kunt, & Levine (2007) reveals that countries with strong financial development experience reduced income inequalities and quicker declines in the share of the population living on less than $ 1 a day. Likewise, the research finding by Swamy (2010) reveals providing access to finance particularly for the poor is considered a pre-requisite for poverty reduction, inclusive growth, and economic development. Moreover, financial inclusion is found as a building block for both poverty reduction and opportunities for economic growth (Demirguc-Kunt et al., 2018) and is considered as a pre-condition for economic growth (Mohan, 2006).

Financial inclusion considered as a critical tool in promoting the growth and welfare of poor people (Demirguc-Kunt, Klapper, & Randall, 2014) and also enables people to safeguard against natural and man-made disasters, smooth income trends, to obtain credit to grow businesses, and save for family celebrations and other life events (Ernst and Young, 2017). Additionally, Popescu (2019) finding depicts that low-income households and small family businesses demand financial inclusion for a series of financial services such as saving, credit, transfer, remittances, and payment services. Rapid advances in FinTech are transforming the global economic and financial landscape and hence can support growth and poverty reduction by strengthening financial development, inclusion, and efficiency. FinTech solutions ease usage and reduce transaction costs and hence contribute to financial inclusion (Gomber, Koch, & Siering, 2017), and increasing FinTechs are also seen as key enablers of financial inclusion ( Demirguc-Kunt et al., 2018 and Demir, Pesqué-Cela, Altunbas, & Murinde, 2020). Increasing penetration of mobile technology will offer unprecedented opportunities to overcome barriers to financial inclusion (Arner, Buckley, & Zetzsche, 2018). Similarly, the use of FinTech products such as mobile financial services is the main pillars to bring the remaining under-banked into the formal financial system and, ultimately, to achieve more equitable growth (Demirguc-Kunt et al., 2018).

“Digital Literacy” Generation Y Dissatisfaction with traditional service providers strengthens the acceptance of fintech innovations. This attitude is particularly strong among young people. According to a survey, 33% of people under the age of 30 feel they don’t need a bank, 71% say they would rather go to the dentist than listen to a bank’s suggestion, 73% are more excited about new financial services than a non-traditional financial service provider from companies such as Amazon, Apple, and Google (Scratch 2014). Non-banking customers Access to financial services has become a necessary condition for participation in economic and social life. Yet in many countries, many have difficulty accessing adequate financial services. The most common causes of financial exclusion include poverty and the fact that financial institutions and service providers are too far from home (World Bank 2015). Exclusion from the financial system is not just affecting the developing world. The solutions offered by fintech companies can be a breakthrough in overcoming all this. For those who are being pushed out of the banking system, advances in technology can provide solutions, such as mobile-based cash payment accounts, digital payment solutions, and remittance solutions. Data from the World Bank (World Bank 2015) highlight that mobile devices and mobile phone-based solutions play a critical role among those without a banking connection. In Africa, where only 25% of the adult population has a bank account, 12% of the population, roughly 64 million people, have mobile phone-based cash payment accounts. In several African countries, such as Côte d’Ivoire, Somalia, or Tanzania, 175 percent of the population’s fintech responses to greater changed consumer expectations use a mobile financial account as a bank account (World Bank 2015).

6. Results & Discussion

In the following section 6.1, we provide descriptive analyses on the present scenario of financial inclusion in Ethiopia. Thereafter, the use of FinTech products in promoting financial inclusion detailed is presented in section 6.2. In a third step, the available opportunities and key barriers to digital finance are dealt with in sections 6.3 and 6.4 respectively.

6.1 Present status of Ethiopia’s financial inclusion from 2014-2017

Despite the importance of financial inclusion for inclusive economic growth, Ethiopia fails behind in the status of financial inclusion with the majority of the population (65%) lacks access to an account when compared with some of the neighboring countries. This is also supported by Zins & Weill (2016) finding showed the financial sectors and the penetration of financial services is shallow and yet poor in Ethiopia. As a result, the government of Ethiopia launched National Financial Inclusion Strategy (NFIS) in October 2017 tasked to measure national financial inclusion progress periodically with the effort to enhance financial inclusion (NBE, 2017). The core target of the strategy is to increase account ownership from 22% in 2014 to 60% by 2020 and to rise electronic payment from 6% in 2015 to 40% in 2020 with the focus on digital financial services as a way to drive financial inclusion. However, the target is more ambitious and is not expected to be achieved considering the previous years’ increment records and diminishing economic growth as the result of COVID-19 impact, political instability, ethnic conflicts, high unemployment, rising inflation, etc. The present status of Ethiopia’s financial inclusion is summarized in the following figures based on some of the selected measurements.

Double-digit growth in account ownership – the percentage of adults with an account rose to 35% in 2017, a rise from 22% in 2014 (Figure2). Moreover, adults save at financial institutions rise to 26% in 2017 as compared to 14% in 2014, and borrowing from financial institutions rose to 11% in 2017 from 7% in 2014. Despite the improvements over the last three years, Ethiopia still lags behind its neighboring countries and the SSA countries on average. In Kenya, for example, 82% of adults have an account, while in Rwanda, account ownership stands at 50%, and in SSA in the region overall, 43% of adults have an account. Additionally, Ethiopia is an outlier among its peers when it comes to access to and usage of digital financial services. Kenya’s achievement in both access to an account and digital financial inclusion is exemplary in East Africa. While digital financial services are a key for the digital economy (Demirguc-Kunt et al., 2018) and both increases in mobile telephone and financial inclusion have a positive impact on income (Ghosh, 2016).

Figure 2: Account ownership, access to and usage of digital financial services (% age 15+)

Source: Own compilation based on data from the Global Findex database 2014 and 2017

H1: There is a significant and positive relationship between individual characteristics (such as age, gender, education, and income) and financial inclusion in Ethiopia
Based on several research works, we assume that females, youth (15 age and lower), lower educational status (primary education or less), and poorer adults have less access to financial account compared with their counterparts.

The gender gap is widening – Account ownership among men has nearly doubled in three years, but for women, it has increased by only eight percentage points. In 2017, 41% of men have an account, compared to 29% of women, whereas in 2014 account ownership was essentially even, with 23% of men and 21% of women with an account (Figure 3). Likewise, females also fall behind males in digital payment and saving at the financial. Moreover, the changes from the base year (2014) for men for most of the indicators are higher than that of women. Therefore, we can say that women have significantly lower access to existing financial services, and the gender gap is highly widening.

Figure 3: Financial inclusion gender gap is widening (% age 15+)

Source: Own compilation based on data from the Global Findex database 2014 and 2017


Figure 4: Wealthier adults compared with poorer ones’ gap are widening (% age 15+)

Source: Own compilation based on data from the Global Findex database 2017


Figure 5: Access to Account status; education and age gap (% age 15+)

Source: Own compilation based on data from the Global Findex database 2014 and 2017

Income inequality – Among adults in the richest 60% of households within Ethiopia, 43% have an account as compared to 22% account ownership among the poorest 40% of adults (Figure 4). Similarly, the gap is almost double when compared with some of the indicators such as access to mobile phones, access to the internet, digital payment, and saving at the financial institution. In general, wealthier adults are twice as likely as poorer ones to have an account and income inequality has a huge impact. This finding supports the finding by Lakew & Azadi (2020) stated that unemployment and low income are among the main obstacles to financial inclusion strategy in Ethiopia. Lack of money is found as the main determinants of financial inclusion in Ethiopia (Dinku, 2019).
Differences in age group and educational status– According to the latest data available, about 38% of adults aged 25 and older have a financial account compared to about 28% of younger adults with a 10% gap (Figure 5). Similarly, Figure 5 shows that individuals with more education, in particular secondary or beyond (65%), have significantly higher financial inclusion rates as compared with individuals having primary education or less (30%). Hence, unbanked adults tend to have low educational attainment and this finding is consistent with the Demirguc-Kunt et al., (2018) global survey result on financial inclusion in which the majority share of the unbanked global population have primary education or less. More interestingly, in both cases, financial inclusion shows an increment on average by 15 percentage for both age group and education compared with the base year of 2014 data. However, the gap between age group and educational status continued this is mainly the difference in unemployment among age group and for those with lower education levels as the finding by Oshora et al., (2021) shows that economic growth of the country is correlated in opposite direction with unemployment. In general, women, less educated, youth, and poorer adults are less likely to own an account.

6.2 Enhancing the use of FinTech to promote financial inclusion

H2: There is a significant and positive relationship between enabling the use of FinTech products and financial inclusion in Ethiopia
For effective and efficient financial services, the internet and mobile banking are other technology-based financial services that nearly started functioning in Ethiopia. Particularly mobile banking is very crucial as it reaches people from where they are and also reduces time, transport, and other transactions related costs. Despite that Ethiopia is among the lowest smartphone ownership in the world (Poushter, 2016) and also far lower compared with the SSA countries in the use of FinTech as an opportunity for financial inclusion. Limited infrastructures mainly IT and energy plus the limited technical capacity are the main hindrances to financial inclusion. FinTech plays a key role in financial inclusion and reducing income inequality (Demir et al., 2020).
Ethiopia is rated as a country with very low levels of financial inclusion (Cusack, Solomon, 2020). Lack of access to digital infrastructure is a key challenge for the use of FinTech products in Ethiopia. Comparing with SSA on average, Ethiopia’s financial inclusion fails behind mainly in the use of digital finance (Figure 6). For instance, digital payment for utility bills is null in Ethiopia compared with 7.7% of SSA. Likewise, Ethiopia’s use of mobile money accounts for 0.3% while 20.9% for SSA. Additionally, Ethiopia making or receiving digital payments (11.9%), and use of mobile phone or the internet to access an account (0.4%) is significantly lower than that of the SSA which accounts for 34.4 and 20.8% respectively.

Figure 6: Mobile account & Digital payments (% age 15+)

Source: Own compilation based on data from the 2017 Global Findex database

6.3 Expanding the use of FinTech products to promote financial inclusion

H3: There is a significant and positive relationship between expanding the use of digital finance and financial inclusion in Ethiopia

FinTech is a new emerging industry that applies technology to improve financial activities. Now a day, the use of smartphones for mobile banking and internet banking are highly practicing to make financial services more accessible to the general public. To sustain in highly increasing financial sector competition, several financial institutions are using FinTech solutions and technologies to improve and develop their services. On the other hand, people with low-income levels and rural people where network coverage is not accessible are not considered in the implementation of technology-based financial service since both the use of mobile and internet banking requires high cost for the acquisition of smartphone and service charge of mobile data. Besides, Ethiopia has among the lowest smartphone ownership rates (4%) in the world similar to other countries such as Tanzania (11%) and Uganda (4%) while South Korea (88%) leads the highest ownership rate (Poushter, 2016). Moreover, in a country where more than 80% of the population lives in rural areas in a scattered manner with a very limited technology literacy rate and a country with about 86 individual languages are among serious and complicated challenges to achieve the intended objectives of serving the large group of unbanked population with FinTech product in a convenient manner.

The government of Ethiopia and Chinese e-commerce giant, Alibaba Group signed a memorandum of understanding (MoU) agreeing to establish an Electronic World Trade Platform (eWTP) hub in Ethiopia (FinTech Addis, 2020). As of June 30, 2018, the Commercial Bank operates a total of 1,708 ATM terminals with basic services such as cash withdrawal, checking account balance, and processing money transfers but it does not provide deposit service. However, the Commercial Bank of Ethiopia (CBE), the state-owned bank, most recently introduced an automated teller machine (ATM) that allows customers to deposit money in their accounts which is a progressing step for digital financial services. The FinTech sector is one of the biggest industries with a key impact on the development nature of emerging countries to enhance financial inclusion. In Ethiopia where only 35% of people own financial accounts, there is a need for increased financial inclusion. For instance, among the very few FinTech products applicable in Ethiopia, HelloCash is one of the digital business platforms that allow their customers to send/transfer money, receive money, pay for goods and services, buy airtime (top-up), international remittance using their mobile phones and/or the HelloCash agent network. One of the unique features of the HelloCash mobile money service is the shared infrastructure feature, allowing multiple banks and MFI’s to serve each other’s customers. Since it was launched in February 2015 by Lion International Bank S.C. and Somali Micro Finance Institute S.C., in partnership with Belcash, HelloCash mobile money platform provides financial services to all Ethiopians through their mobile phones. At present, HelloCash is the largest financial service network in Ethiopia with 9,900 agents, 1,500 daily new customers joining the network, and a total of over 1.5 million customers across the country.

6.4 Significant opportunity for DFS and FinTech in Ethiopia

Digital technologies offer affordable ways for the financially excluded—the majority of whom are women, youth, poorer, and less or not educated. Wide-ranging benefits of fintech include increasing access to financial services and financial inclusion; deepening financial markets; and improving cross-border payments and remittance transfer systems. Some of the key opportunities are;

New government regulations – The National Bank of Ethiopia (NBE) has issued the new directive titled “Licensing and Authorization of Payment Instrument Issuer Directive No. ONPS/01/2020” that allows FinTech companies such as telecommunication companies, to offer basic financial services and related services, including mobile money in the Ethiopian market. Hence, it is a huge boost for the development of FinTech and financial inclusion and could lead to a scale-up of mobile money services for the largest unbanked population. Moreover, the ambitious target set in the National Financial Inclusion Strategy (NFIS) is one of the key opportunities that shows government commitment for a move towards digital finance. Ethiopia NFIS highlights digitalizing financial services as a way to drive financial inclusion, with an ambitious target to increase adult uptake of electronic payments from 6% in 2015 to 40% in 2020 (NBE, 2017).

Market opportunity – Investment in the Ethiopian financial market is attractive because of the existence of a high unbanked adult population mainly rural people. In urban areas, there is a lack of urgency about switching to mobile platforms because ATMs are prevalent. Most of the rural people, firms including the government offices are using the traditional way of saving and payment systems and there is a high demand for convenient use of financial services.
Financial inclusion as global agenda – Ethiopia is one of the 25 countries identified by WBG’s where 73% of all financially excluded people live as part of the World Bank’s comprehensive Financial Inclusion Support Framework (FISF). Moreover, global investment in financial technology increased more than 2,200% from $930 million in 2008 to more than $22 billion in 2015 (FinTech Addis, 2020). This is a huge boost for the development of digital finance mainly for the developing countries with the largest share of the unbanked adult population.

Banking Sector is Innovating on Digital – The banking sector, while closed to foreign ownership, is promoting agent banking with mobile technology in several languages conveniently to their users. Some of the agent banking products offered by various financial institutions such as HelloCash, M-BIRR, Kifiya, YenePay, and CBE Birr provide financial services in several languages. Customers are thereby enabled to perform everyday transactions, such as paying bills, airtime top-up, money transfers, account management, cash-deposit and cash-withdrawal at agent outlet.

6.5 Key Barriers for financial inclusion in Ethiopia

Based on the Global Findex 2017 survey result, of the total unbanked surveyed adults in Ethiopia, 85% reported insufficient funds or lack of money as a reason for not opening an account followed by distance (cited by 20% adults), lack of documentation (cited by 11% of adults), and due to someone in the family have an account (cited by 8% of the adults) surveyed (Figure 7). This result argues with the finding of Baza & Rao (2017) as indicated that lack of money, distance, fixed cost, and documentation is found as the most important barriers to financial inclusion in Ethiopia. The absence of nearby financial institutions are found to the main determinants of financial inclusion in Ethiopia (Dinku, 2019). Unemployment and low income are among the main obstacles to financial inclusion strategy in Ethiopia (Lakew & Azadi, 2020). Likewise, the findings of Hasan & Batra (2018), Cámara & David (2015), and Lakew & Azadi (2020) reveals distance as a problem for lack of access to an account, and living in a rural area makes it more difficult to access financial services. On the other hand, the findings of Cámara & David (2015) shows that distance, cost of financial services, documentary requirements (ID, wages, paperwork, etc.), lack of trust in financial institutions, lack of money, religious reasons, and joint use of financial services are the reasons for not having a bank account.

Some of the other key barriers are;

Strict financial regulations: The strict central bank regulations and dominance of state-owned banks with little competition are among several challenges affecting the implementation of financial inclusion. For example, before launching the new regulation, the regulation prohibiting only banks and MFIs for monetary transactions limited fintech operations to partnerships with banks or microfinance institutions, while fintech firms need the freedom of being able to operate without a banking partner. However, the bank recently issued new directives entitled “Licensing and Authorization of Payment Instrument Issuer Directive No. ONPS/01/2020” (NBE, 2020) to overcome the existing problem.

Connectivity barriers: Ethio Telecom is the monopoly telecom service provider in Ethiopia and also is a backbone for technology-related services as it provides the telecom infrastructure for all banks, FinTech, and government institutions. However, due to lack of competition, Ethiopia is one of the last countries to have a monopoly national telecommunications operator with a 100% market share and as a result falls behind neighboring African countries such as Kenya, Egypt, and Sudan in service delivery. According to the UN International Telecommunication Union’s (ITU’s) 2017 ICT Development Index (IDI), Ethiopia’s service is ranked 170 in the world out of 176 countries (ITU, 2017). Moreover, as of 2015, Ethiopia is one of the lowest rate (4%) of smartphone ownership in Africa; South Africa had the highest rate (37%) (ITU, 2017). Despite the increment in coverage, as of 31 December 2020, Ethio telecom reported there are only 44.5 million data and 23.8 Million internet users. Moreover, Physical barriers such as access to bank branches and ATMs are one of the major problems in improving financial inclusion (Baza & Rao, 2017).

Digital literacy – Fintech can enable banking for the unbanked, but awareness and financial literacy is an issue (for a deep analysis see Sági et al., 2020). Investment in financial literacy will enhance the use of smartphones for financial services, especially for the large share of rural people and less educated people. As of 2017, 70% of the adult having primary education or less, and 68% of rural adults do not yet have access to a financial account. Hence, this shows that there is a high demand gap that needs to be addressed. However, a high percentage of the population living in rural areas (>80%) and the low penetration of 3G coverage (<20%), will present challenges (IFC, 2018). Moreover, unlike many African economies, ownership, and usage of mobile-enabled financial services extremely low in Ethiopia.

Figure 7: Barriers for not having an account at a financial institution (% of adults age 15+)


Source: Own compilation based on data from the 2017 Global Findex database

Conclusion and Policy Implications

This paper aimed to examine the innovation of FinTech for the well-being of creating a financially inclusive society, in the case of Ethiopia. As of 2017, about 35 percent of adult Ethiopians had an account at a formal financial institution, up from 22 percent in 2014 which shows a significant 13 percentage increase in account ownership. Despite general improvements in account ownership across the nation, yet now the largest share of the population (65%) does not have access to an account. More noticed, the finding shows there is a significant difference in access to financial account gap among gender, age, wealth, and educated adults people. Accordingly, the result depicts financial inclusion is higher among males, adults, and among those who are more educated and wealthier. Lack of money, distance to the nearest financial institution, lack of necessary documentation, and because someone in the family has an account are identified as among the top reasons for being unbanked. Therefore, reducing the highly increasing unemployment and inflation, scaling up the highly diminishing economic growth and investment, and enabling a conducive environment for business firms, and hence ensuring inclusive economic growth should be a top priority for the policymakers to reduce the existing gaps in account ownership.

The key to success is for the local regulator to respond effectively to the emergence of new technologies, the needs of startups developing them, to apply flexible, expert regulation to new services, and to bridge the potential lack of relevant regulation through communication, creating a favorable environment for the growth of FinTech businesses and investment in local businesses.

It all sounds simple, but it is very difficult to implement well. While a financial supervisory body operates more like a large company and is accustomed to the established institutional environment, a startup planning to achieve a breakthrough in a few months cannot wait for responses at the pace of the corporate cycle. The need for responsiveness of startups is a major challenge for these bodies. And what does the startup do to keep from going bankrupt? It will go into a better regulatory environment and there will bring its developments to market.

More importantly, expanding telecom infrastructure to rural areas, offering financial literacy through various development partners and all other stakeholders, leveraging, digitalizing, and linking Savings and Credit Cooperative Organizations (SACCOs) and MFIs within each other and with commercial banks across the country to serve as agent’s networks are among several means to overcome the connectivity, access to financial services, and digital literacy problems and thereby broaden financial inclusion. Furthermore, the central bank needs to encourage the entry of new financial institutions and most importantly would be committed to avail the necessary infrastructure that promotes a move from traditional to technology-based financial services. Besides, it is good news for the citizens of Ethiopia that will hopefully benefit from a wider range of services that the government shows interest to open the financial sector for foreign financial institutions and FinTech companies. Moreover, in addition to the government commitment to promoting digital finance, the financial sectors need to incorporate digital innovation into their strategic plan to overcome FinTech barriers. Besides, financial sectors should work together to support and build a digital environment in the financial sectors. By 2025, due to the spread of mobile technologies, developing countries could catch up with the current level of financial inclusion of developed countries. Thus, for those excluded from the banking system, mobile payment accounts, digital payment solutions and remittance solutions provide cheap access to basic financial services.


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Betgilu Oshora
Doctoral School of Economics & Regional Sciences, Szent István University, Gödöllô

Nuru Siraj
Doctoral School of Economics & Regional Sciences, Szent István University, Gödöllô, Hungary

Tiblets Nguse
Doctoral School of Economics & Regional Sciences, Szent István University, Gödöllô,

Zoltán Zéman
Faculty of Economics and Social Sciences Szent István University, Gödöllô, Hungary, Pater K.str.1. H-2100

Mária Fekete-Farkas
Faculty of Economics and Social Sciences, Szent István University, Gödöllô, Hungary, Pater K.str.1. H-2100

István Zsombor Hágen
Faculty of Economics and Social Sciences, Szent István University, Gyöngyös Campus, Hungary, 3200 Gyöngyös
Mátrai u. 36.