Payment Digitization for SMEs in Ethiopia: Opportunities and Barriers

By Tesfaye Mengistu

Tesfaye Mengistu is a Seasoned Business Developer with 14 years of diverse experience working with multinational firms in Technology Business Development, Technical Sales, Business Intelligence, Analytics, Contract Negotiation and Administration, International Sales and Logistics, and Product Development. Mr.Tesfaye holds a Bachelor of Science in Electrical Engineering, a Master in Business Administration and a Master of Science in Artificial Intelligence.

Small and Medium-Sized Enterprises (SMEs) make up 90% of businesses worldwide and are central to economic development in many countries. They generate jobs, improve income distribution, and alleviate poverty. Moreover, they foster innovation and play a critical role in supply chain systems, leading to rapid industrialization and trade growth.

According to reports by Federal Small and Medium Manufacturing Industries Development Agency (FSMMIDA), as of 2021, more than 19,100 SMEs are engaged in manufacturing alone nationwide. SMEs supported by FSMMIDA are operating under seven major business pillars in Ethiopia. SMEs generate the second largest employment channels for productive youth and households next to the agricultural sector and make significant contributions to the Ethiopian economy. However, they continue to face several challenges, the majority of which revolve around limited access to markets and finance.


The digital economy holds an attractive opportunity for businesses in Ethiopia to expand their reach and improve their overall financial health. Regardless, Ethiopia’s market is still dominated by direct face-to-face interaction with customers at sales locations or shops. This limited approach to sales and payment can be very challenging for SMEs’ business operations and hinders their growth potential.

As Ethiopia is increasingly utilizing electronic payment modalities like mobile banking and mobile money; SMEs in the country can leverage payment digitalization to advance their business. The key benefits of payment digitalization for Ethiopian SMEs are:

  • Reducing costs and inconveniences associated with traditional payment methods such as cash handling fees and transport expenses.
  • Focusing on core business operations and growth as streamlining payment processes reduces the time and effort required to handle payments manually.
  • Increasing sales and revenue by reaching a wider customer base beyond their local markets via E-commerce.
  • Making informed decisions about when to pay suppliers or invest in new opportunities with real-time access to financial data.
  • Providing SMEs with a digital footprint that lenders can use to assess their creditworthiness. This can help SMEs to access credit and other financial services that may have been out of reach before.
  • Increasing customer trust and loyalty by offering secure and convenient payment options. This enables SMEs to enhance their reputation and differentiate themselves from competitors.

While payment digitization offers the above benefits to SMEs in Ethiopia, several potential barriers may hinder their adoption. These barriers include:

  • Limited access to digital infrastructure (reliable internet, electricity, and mobile networks.)
  • Limited digital and financial literacy (i.e., knowledge and skills required to use technology and financial technology).
  • Complex user interface (UI/UX) of digital payment platforms.
  • Unfamiliarity with languages by which digital payment systems are operated.
  • Resistance to change.
  • Lack of trust in digital payment systems due to concerns around security and fraud.

The following recommendations can be undertaken to overcome the potential barriers to payment digitization.

  • Making digital infrastructure available throughout the country by implementing policies that improve access to the internet, electricity and devices.
  • Providing targeted government funding and support for SMEs to adopt digital payment systems.
  • Educating and training SMEs to ensure that they can effectively use digital payment platforms through government- or private-led training initiatives
  • Designing digital payment systems in user-friendly interfaces that can be operated in local languages.
  • Building trust and confidence in digital payment systems via collaboration between digital payment system providers, financial institutions, and SMEs.
  • Providing incentives such as tax breaks, subsidies, or other forms of financial assistance to SMEs that adopt digital payment systems.

In conclusion, payment digitization offers Ethiopian SMEs a wide range of benefits from enhanced sales and revenue growth to improved cash management and better access to credit, facilitating their contribution to the growth of the country’s economy. However, the potential barriers to adoption, such as limited access to digital infrastructure and complex technology design must be addressed to unlock the full potential of payment digitization for SMEs.