Meti Teshome, bird story agency

When 38-year-old Konjit Alebachew lost her husband, she urgently had to find an income. Farming looked like an option. But the widow, who lives 120 kilometres from Addis Ababa, would have to raise capital.

“I started working in one of the private farms in my home town and saved a small amount from my monthly salary,” Alebachew said, describing the period five years ago, right after she lost her husband - and her three daughters lost their father. With no bank account and no financial history, she battled to manage her finances in a way that would offer her a way out of her predicament.

“We had a low-income life after my husband’s death who had been a moneymaker in our family; everything was left to me. That’s when I realized that I had to find someone or something that could facilitate financial access for me, but I don’t have a well-savings record or property to collateralize rather than bank accounts,” she said. 

Alebachew could use the money she had stashed away to sow a crop but would still need a loan to support herself and her three daughters before her first harvest.

Getting a loan would not be easy. Ethiopia's 118-year-old banking sector has failed to move with the times and according to some government figures, only 45% of the population has access to a bank account. Most Ethiopian banks still rely on physical branches to provide services.

“More than half of the total branches of financial institutions are located in the capital city or in surrounding areas, leaving rural areas underserved, which is a significant barrier for financial inclusion,” explained financial expert Tesfaye Getnet.

According to the National Bank of Ethiopia 2020/21 report, less than 300,000 people in Ethiopia have access to bank credit. This is mainly because banks’ collateral requirements deter loan seekers. 

In a country of 120 million people and where agriculture employs 85% of the total population, millions of farmers have historically had limited access to formal financial services, including credit, savings, and insurance. According to Getnet, even savings and credit cooperatives, which mostly serve rural areas, lack the capacity to fully serve the rural population.

Even though the number of adults with bank accounts has more than doubled since 2014, women are 16%  less likely than men to have an account, while adults in the poorest 40% of households face a 20% income gap. Additionally, there is a substantial education gap of 41% gap among adults with a primary education or less. According to studies in Ethiopia, 57% of men had a phone, compared to 46% of women.

However, the National Bank of Ethiopia also indicates that over five million people have taken out loans from microfinance institutions (MFIs), pointing to growing opportunities for small farmers.

“In 2020, I was able to get a small loan from Oromia Savings and Credit Share Company, now Sinqe Bank, and brought some vegetable seeds, fertilizers, and other tools that helped me start my agriculture work on a small plot of land right behind my house. Seeing the great result, I decided to focus on my own business," Alebachew revealed. 

MFIs have played a pivotal role in extending financial services to low-income individuals and small-scale entrepreneurs. These institutions provide microloans, savings accounts, and insurance products tailored to the needs of underserved communities and those who have no collateral to access bank credits. 

"In one year, I had my own vegetable shop. Back then, the only thing I had was a small plot of land that could be cultivated, but I didn’t have enough money to buy seeds. I had repaid all of my loan. Now I am preparing myself for another loan from Dashen Bank to expand my agriculture and small business,” Alebachew said. 

While Getnet sees gender disparities in financial inclusion as a challenge, with women facing barriers such as limited financial literacy and cultural norms that restrict their access to financial services, he points to the enormous changes that are being brought about by financial inclusion.

“Financial inclusion is a crucial factor in reducing poverty and promoting inclusive economic growth. It serves as a means to an end, providing substantial benefits to the poor, disadvantaged, and smallholder farmers, highlighting its importance in achieving economic equality in a country where small agriculture faces financial constraints. We are now in an era of improved and digitalized financial services. In recent years, the government, with the support of international and local financial institutions, has made significant strides in improving financial inclusion, focusing on expanding access to financial inclusion and financial services, including savings, credit, insurance, and payment systems, which is something to appreciate,” Getnet said. 

Yilebes Addis, CEO of Ethswitch S.C., which facilitates digital payments across platforms in Ethiopia, explained that there is now an increasing focus on ensuring that women are included in Ethiopia's financial system.  

“Implementing a policy and strategy to facilitate women's access to finance is a strategic approach to addressing barriers. This includes providing personalized services and products, such as financial and non-financial support, such as training," Addis said. 

A potentially huge game-changer in financial inclusion is mobile banking. In July 2023, Ethiopia unveiled the tender for a second new telecommunications license after a first license was won by regional giant Safaricom. In August Safaricom announced that mobile money transfer system, M-PESA was live in Ethiopia, where the service now competes with local service, Telebirr.

“The rapid advancement of digital technology has opened new avenues for financial inclusion in Ethiopia. Mobile banking, digital payment systems, and fintech startups are revolutionizing the way people access financial services. These digital solutions offer convenience, speed, and lower transaction costs, making financial services more accessible to a broader segment of the population,” said Ethswitch's Addis.

According to new research by GSMA, mobile money has the potential to add US$5.3 billion to Ethiopia's GDP and lift 700,000 people out of extreme poverty if 60% of adults start using mobile money by 2030. 

“Mobile money platforms like Telebirr, the introduction of M-Pesa, and the emerging of other private digital financial enablers will empower individuals in remote areas to access basic financial services, including savings, payments, microloans, and credits. Ethswitch is working with all of the financial institutions to modernize the national payments system and enhance financial inclusion,” Addis explained. 

Launched in August 2021 by Ethio Telecom, Telebirr offers digital financial services and aims to promote financial inclusion. With over 34 million subscribers, Telebirr has emerged as a leading player in Ethiopia’s digital financial landscape since its introduction. Ethio Telecom has partnered with the Commercial Bank of Ethiopia and Dashen Bank to expand its services.

Safaricom entered the Ethiopian market in September 2022 and received its mobile money license in May 2023. If Ethiopia's latest tender offer is successful, the country should have three telecom operators and more mobile money services by 2025.

Additionally, several private mobile money service providers and fintech companies are emerging in the market, set to revolutionize financial transactions for individuals and businesses across Ethiopia.

In general, Ethiopia's National Financial Inclusion Strategy (2021–2025) aims to increase financial inclusion from 46% to 70% of all adults by 2025, primarily by digital payments through mobile money services.

The strategy also aims to increase the use of digital payments from 20% in 2020 to 49% by 2025, addressing Ethiopia's lower levels of formal financial inclusion compared to its East African neighbours.

“Now things are changing; we can use our phones for everything; I have better knowledge of digital transactions; I am a customer of Telebirr; whenever I make a transaction via Telebirr, my credit rate goes up," Alebachew declared.

bird story agency