The State of Financial Inclusion in Ethiopia

Access to finance has been increasing consistently over the years in Ethiopia. The percentage of adults with an account reached 46% in 2022. Insufficient funds, distance from service points, and lack of documentation are the main reasons for not owning an account.

A report by the United Nations Capital Development Fund(UNCDF ) assessing the state of financial inclusion in Ethiopia reveals that access to finance is increasing in the country. However, meaningful usage lags behind and it is exhibited in the low financial health of customers. 

Access to Finance

Access to finance has been increasing consistently over the years in Ethiopia. The percentage of adults with an account reached 46% in 2022. Insufficient funds, distance from service points, and lack of documentation are the main reasons for not owning an account. Not having an account because somebody in the family has one is also a key barrier.

The gender gap in financial institution account ownership in Ethiopia is widening and has reached 17 percentage points in 2022. 55% of male adults own an account at a financial institution compared to 38% of women.

Unlike several Sub-Saharan African countries where account ownership is mainly driven by mobile money accounts, Ethiopia’s account ownership is majorly accounted for by financial institution accounts. The adoption of mobile money remained relatively low in the country during the reported period. The low uptake of digital and mobile internet-enabled devices is a constraint to the growth of digital financial services. 

Usage

Among adults with an account, 28% of them reported having an inactive account, with percentages being slightly higher for men than for women. Saving clubs (Ekub) or people outside the family are the most popular way of saving, followed by accounts with financial institution. In 2022, close to half of Ethiopian adults that had an account with a financial institution and one-third of adults with a mobile money account used it for savings.

When it comes to borrowing, the majority of adults in Ethiopia still borrow from family and friends. Only 5% of adults who borrowed in 2022 took a loan from a financial institution. 

For financial institutions, Ethiopia shows a much more profound gap (18 percentage points) between savings and borrowing than other countries. More people saved than borrowed using formal financial institutions.

Ethiopia remains a cash-based society and the use of digital payments is low. The share of adults making or receiving a digital payment reached 20% in 2022, below the average for Sub-Saharan Africa. 

Financial Health

Current data indicate low levels of financial health in Ethiopia with persistent gender gaps. 

The measurement of financial health is determined by several key factors. These factors include the ability to meet current and ongoing financial commitments, the ability to cope with income or expense shock, the feeling of being in control of finances, the ability to meet future financial goals, and the ability to pursue opportunities.

In 2022, 45% of women and 39% of men were very worried about not having money to pay for monthly expenses or bills. 

64% of surveyed adults put being unable to pay for medical costs in case of a serious illness or accident as their most worrying financial issue. 58% of Ethiopians were very worried about not having enough money for retirement. Only 8% of adults saved for it.

53% of women, 46% of men, and 45% of youth stated it would be possible but very difficult to come up with emergency funds in 30 days. The most cited source of emergency funds for adults is family or friends (29%), followed by sale of assets (26%) and additional work (19%). Only 9% of adults would rely on savings, while 4% said they would access a loan from a bank, employer, or private lender.

The report concludes bringing together the public and private sectors, civil society, industry and consumer groups, and the international community can help Ethiopia develop more pertinent and sustainable solutions to achieving financial well-being. 

Read the full report here.

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