Developments in the Banking Sector and Financial Inclusion in Ethiopia

Abstract

This paper aimed to highlight developments in the banking sector and to assess the status, trends and determinants of financial inclusion in Ethiopia. The study used data from the World Bank Findex Database, Commercial Bank of Ethiopia, Development Bank of Ethiopia and National Bank of Ethiopia annual reports. The Ethiopian banking sector, once dominated by public banks before the reform, showed a new era following the 1994 reform. The reform paved the way for the licensing of some private commercial banks. As a result, the market share of public banks declined significantly after the reform and vice versa for private banks. The level of financial inclusiveness in Ethiopia is extremely low even though the government has given a policy priority since 2016 onwards. Gender, age, education, financial literacy, residence, income, religion, preferring formal financial services, distance, GDP and trust in financial service providers were found to be the main financial inclusion determinants. Given that financial inclusion has been greatly improved after the financial reform, the government has to unlock the banking sector to foreign investors as it will further enhance the level of financial inclusiveness. Banks should also provide innovative financial products to customers.