10 January 2018

Ethiopia: Inclusion Strategy Incentivizes Financial Outreach

People in the financial sector expecting the newly unveiled Financial Inclusion Strategy to further facilitate and incentivize financial outreach efforts in the private sector.

Some months ago, Ethiopia, through the National Bank, has launched a National Financial Inclusion Strategy that aims to provide universal financial access through innovative and convenient channels.

The Strategy highlights that the financial sector has expanded considerably and the country has taken great strides to develop an inclusive and modern financial sector, although there is a room for many improvements to allow full financial inclusion and reduce the number of people unbanked and underbanked.

One of the potential benefits the Inclusion Strategy will bring for the banking sector, according to Robel Alemayehu, Director of e-Banking at Dashen Bank SC, is that it will incentivize/encourage the private banking sector to undertake their own financial inclusion effort not only as managing national agenda, but as financial value and profit making mechanism.

Citing Dashen Bank, he states that the Financial Inclusion Strategy allows for the private banking sector to expand financial outreach without incurring cost of setting up physical branches. "One of the main challenges for the banking sector is setting up physical branches, and to that end, we in Dashen Bank are focusing on what we call alternative channels, which concur with the national Inclusion Strategy."

He adds that the Strategy is well prepared in many ways, whether in terms of legal framework, and in giving the banking sector space to maneuver compared to the 2012 Agency Banking Directive. "In preparing the Strategy, which involved the likes of World Bank, IMF, DfID, I think they have come to understood branch based expansion is not effective or feasible."

Financial inclusion is about converting cash-based system to an electronic value system. He continued to say that as Dashen Bank, we have a virtual card initiative - it is basically the buying and selling of goods through mobile phones - and this is one of the financial inclusion project of our bank.

Micro Finance Institutions (MFIs) have an important role in helping deepen financial inclusion, especially in case of developing countries, due to their widespread reach, especially in serving under-served rural areas, low income families.

In regards to this, Serekeberhan Zeray, Deputy General Manager of Addis Credit & Saving S.C, said that as an MFI, they provide different tailor-made loan sizes (financial products) to low income individuals in particular. He adds that as an institution that mainly operates in Addis and some Special Oromia zones, it works to address the rural community from its Addis Ababa branches whilst also providing tailor-made loan types spread in seven sectors, in the shape of micro-loans, small business loans, and short term loans.

"One of Company's aims is to give financial loan (support) to newly graduated young people to help them transform their knowledge and skill into practical work by providing them loan size on each sector based on the real-time market demand.

According to him, the fact that the loan guarantee policy is loose helps in making finance accessible to low-income sect of the public, like youth and women. Education documents like Degrees and Diplomas are used as loan guarantees, without the need for collateral, which makes it easier for low income people. Also, household items like TVs, refrigerators can be used as insurances to offer easier access to women.

All this have culminated in easier financial access to youth and women; where through the revolving youth fund project, for instance, up to one million birr were given to youth associations involved in manufacturing, construction services and so on, Sereke notes. "Young people are getting up to one million birr without being asked to submit house or cars as collateral."

The Deputy General Manager also talked about works that the Institution is doing with other public MFIs. "If we take the commercial banks, there are many initiatives they have undertaken to improve their services one of which is the use of core banking. Similarly, there is a plan to link all the public MFIs with core banking, so that any individual member of any of the public MFIs can get financial access from any corner of the country."

The Institution has also dabbled in mobile and agent banking along with other MFIs, through a platform called 'M-Birr' - a platform which replaces cash transaction from the convenience of mobile phone at anytime from anywhere. He says that such type of technologies and financial channels easily provide financial access whilst minimize costs.

For Serekeberhan, such alternative delivery channels for financial inclusion should be encouraged in the financial sector in order to foster financial inclusion in the country. He believes that there is growth in financial inclusion in the country compared to yesteryear due to government's policies, the involvement of the private sector in the banking and MFI sector, and some of the provisions that came out.

He also believes that despite the improvements in using modern technologies, and in expanding accessibility and financial literacy, there are still some way to go especially considering the growing population, growing demand and technological innovation. "We need to actively work on financial accessibility by designing and implementing various systems, structures and financial channels."

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