Ethiopia: A first look at the financial inclusion landscape

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Ethiopia is the tenth largest country in Africa by size, and the second most populous country in Africa after Nigeria. In 2013, Ethiopia’s GNI per capita was $470, much lower than the Sub-Saharan Africa average of $1,615.[1] Poverty levels are high, and the Human Development Index (HDI) ranking was 173 out of 187 countries in 2012.[2] Ethiopia also has one of the lowest financial access rates in Sub-Saharan Africa, where only 14 percent of adults have access to credit.[3] However, Ethiopia is the fastest growing non-oil economy in Africa and has been active in promoting economic growth. In 2010, the Ministry of Finance established a five-year growth plan called the Growth and Transformation Plan (GTP), with poverty reduction as a core objective and rapid economic growth as a key strategy. The GTP outlines investment opportunities in the agricultural and industrial sectors, along with plans to build basic infrastructure in important industrial zones. Improving the financial sector is also one of the objectives of GTP, which includes modernization of the national payment system. Ethiopia’s Maya Declaration outlines the goal of strengthening the financial sector with the aim of establishing an accessible, effective and competitive financial system across the country.[4]

o    Current Status of the MIX Ethiopia Financial Inclusion Data Workbook

The MIX Ethiopia Financial Inclusion Data Workbook contains access points of public and private banks, insurance companies, and mobile money, as well as demand side indicators such as population and employment rate. This initial version of the workbook provides valuable insights into the general financial access trend at the national level and helps to identify the data gaps. We can see from Figure 1 that population and financial access points are concentrated in the midland; Tigray, Amhara, Oromia, Addis Ababa, and SNNPR. The five big MFIs (OMO, ADCSI, ACSI, OCSSCO, and DECSI) also operate in these five regions of Ethiopia. Insurance companies are also concentrated in urban areas; While only 10-15% of the entire Ethiopian population is urban, 90% of insurance premiums are generated from Addis Ababa.[5]

According to AgriFin, the ratio of the rural population to a commercial bank or MFI branch is 125,158 people, and only one percent of rural population has bank accounts.[6] Therefore, it will be critical for Ethiopia to form policies that encourage establishment of financial services in the rural areas; agriculture plays an important role in the Ethiopian economy, contributing 45% of the GDP and 80% of both employment and exports.[7] Commercial banks and MFIs recognize this opportunity and are working on reaching the underserved areas; the partnership between the five big MFIs and M-BIRR shows good potential in furthering outreach of the microfinance sector. Commercial banks, notably Dashen Bank and United Bank S.C., are working on establishing agent banking, building on existing mobile banking technology.[8] The untapped rural customer base means business opportunity for the financial operators, and these efforts to deepen collaboration across institutions has strong potential to increase the level of financial inclusion at the national level. It will also contribute to making progress under Ethiopia’s five-year Growth and Transformation Plan that will conclude in 2015. As MIX fills in the currently missing datasets including SACCO and MFI information, a more comprehensive financial landscape of Ethiopia will emerge, especially regarding financial institutions that are more focused on serving the rural population.

Figure 1. Concentration of Total Population and Financial Access Points

o    A nascent mobile money industry has huge growth potential

Despite the data gaps, MIX’s initial analysis of the financial inclusion landscape shows a promising environment for growing Ethiopia’s nascent mobile money sector. Mobile money development in Ethiopia is relatively small compared to some African countries (See Figure 2) and is closely regulated by the government.  Currently M-BIRR is the only provider in Ethiopia. M-BIRR services include deposits, withdrawals, money transfers, top up, bill payments, purchases of goods, loan repayments, balance checks, and more. The potential for growth, however, is huge, as the number of mobile phone users increased from 2.5 million to 18 million between 2009 and 2012.[9] Currently there are only 27 M-BIRR agent locations throughout the country, in partnership with the five big MFIs in the country. M-BIRR website states that the M-BIRR service providers (the five MFIs) have a combined 800 branches throughout Ethiopia and plan to have between 3,000 and 6,000 agents in the future.[10]

Figure 2: Mobile money in Ethiopia vs. Some African countries

Stay tuned for the second iteration of the Ethiopia workbook; As MIX identifies and fills in the data gaps with the support from our local stakeholders, we will illustrate a more comprehensive financial landscape of Ethiopia, which in turn can support better informed policy makers and financial service