Market and Sector strategies

1. 1

2. Base of the Pyramid
Sector Strategy
January 2017
22

3. Table of Contents
1. Sector Overview
2. Opportunities
3. Constraints
4. Vision & Strategy
Annexes
3

4. 1. Sector Overview
2. Opportunities
3. Constraints
4. Vision & Strategy
Annexes
4

5. 1. Sector Overview
The BoP have both the capacity and need to become
active consumers of financial services
The Customer
Source: Ethiopian Inclusive Finance Training and Research Institute (2014)
• The Base of the Pyramid (BoP) have less,
irregular and unpredictable income and are
more vulnerable to shocks
• The BoP can and do save, although savings are
irregular and uncertain
• The BoP are geographically remote and have
lower levels of literacy
• The BoP have less access to the formal financial
system and use informal alternatives
• The BoP have a need for “an amount of money”
to fulfill certain needs:
• Life cycle events
• Emergencies
• Business opportunities
• Acquire assets
Average Savings Balance:
• in cash ETB 3,311
• in kind ETB 4,279
5

6. 1. Sector Overview
Even though the BoP has a low individual income,
added up, it is a significant market segment
Source: : Ag savings, Ethiopian Inclusive Finance Training and Research Institute (2014)
Poverty lines, households and PPP rate: Simple Poverty Scorecard Ethiopia, updated (Jun
High Income
Medium Income
Base of Pyramid
MSME
Population growth 3% p/a
14.8% of households above
poverty line ETB 13.9
65.2% households below
ETB 4.47/US$ PPP
Economic growth 9% p/a
ENTITIES INCOME LEVEL
Base of Pyramid
86.7% of population
80% of households
Large
Enterprise
Due to its sheer size (20 million households), despite their low assets (ETB 7,590) 
Total assets at the BoP is ETB 151 billion (US$ 6.9 billion)
as attractive as higher segments of the pyramid.
6

7. 1. Sector Overview
However, BoP remains a largely untapped market in
Ethiopia
Source: World Bank (2014); Ethiopian Inclusive Finance Training and Research Institute (2014); FinAccess (2016)
 The figures indicate a doubling of the
financially included in Kenya over the last decade.
Banks and NBFIs overtake informal institutions.
Sub-Saharan African comparison: percentage
of adults reporting having an account at a
financial institution
Kenyan comparison: percentage of adults
reporting having an account
(formal, informal, excluded)
7

8. 1. Market Trends & Overview
Government should play a key role in developing policy
frameworks and regulations to create an enabling environment
(Best case scenario)
Regulation based on function, not institution. For example:
• E-money accounts can be issued by banks and non-banks
• Agents can be used by various types of financial service providers
• Financial consumer protection rules apply to a range of financial
service providers
8
No material differences in the regulatory treatment of
agents hired by banks and non-banks, as long as they
provide the same service and offer the same products.
Provide scope for banks and different types of non-banks
(Mobile Network Operators (MNOs) and Technology Service
Providers (TSPs)) to compete on an equal footing.
Level Playing Field
Same risks should be treated in the same way,
different risks differently
Rwanda as an example
A payment system regulation rather than separate Bank and non bank (MNO) Regulation
Source: CGAP, the Enabling Environment for Digital Financial Services, March, (2016)

9. 1. Sector Overview
Regulation impact every participant in the value chain
Source: CGAP, the Enabling Environment for Digital Financial Services, March, 2016 9
Base of Pyramid
Two
86.7% of population
80% of households
9
Financial
Service Provider
DFS
participants
Prudential
regulation of
banks and
e-money issuers
Regulatory
Environment
Agent Client
1 Agent Regulation KYC Regulation
Consumer Protection
Regulation
2 3
4
Coordinated regulation

10. 1. Sector Overview
Though the informal market will remain important,
there are benefits of bringing BoP into the formal
Source: Federal Cooperative Agency (2015), NBE (2015)
Informal (Equb)
• Cash trapped
• Local, nearby and
accessible
• Social values and
commitments
• Paper based, no standard,
errors
• Limited product offering
• Less secure system
• Exorbitant interest rates
on loans
• Foregone interest on
deposits
Formal
17 Commercial Banks (138bn deposit),
5 large & 30 Private Micro Finance
Institutions (MFIs) (14.8bn deposit)
• Capitalized
• Distant, in towns or woreda
centre
• Professional values and benefits
• Regulated, compliant and
professional
• Wider product offering
• Secure system
• Responsible interest rates on
loans
• Interest earning on deposits
10
Semi-formal
17,700+ Saving and Credit
Cooperatives (SACCOs),
2.79mn members (45%
female), & saved 6.6bn ETB
• Capitalized
• Member based
• Local, nearby and
accessible
• Social values and
commitments
• Unsecured system
• Interest and dividend paid
for members’ savings

11. Source: IMF (2014); World Bank (2014)
1. Sector Overview
Mobilizing domestic savings spurs investment, which is
relatively low in Ethiopia
GTP II 2020
Target 29.6%
Compared to its Asian models, Ethiopia’s domestic savings rate is markedly lower
(savings to GDP 22.5%, surpassing GTPI target of 17.5% in 2015)
11

12. 1. Sector Overview
Expanding financial services to BoP consumers unlocks
their economic potential
Sinedu Yosef, 41, who lives in Kality (Addis
Ababa), is a single mother with two children. She
is a profitable shop owner. This was made
possible through her savings with SACCO since
2012, saving ETB 32,000 which she used in
opening a shop.
The SACCO provided savings, credit and skills
training.
• All BoP to be financially included
• The BoP comprises 87% of the
population
• 20 million households below ETB
17.7/day PPP)
Source: WISE (Women In Self Employment) newsletter summary (2015); Pande et al (2012)
• Improved livelihoods and income opportunities
• Reduced vulnerability from economic shock
• Increased ability to smoothen cash flows
• Increased bargaining power and reduced
vulnerability
Women are particularly marginalised and need
financial inclusion, which will result in:
12

13. 1. Sector Overview
2. Opportunities
3. Constraints
4. Vision & Strategy
Annexes
13

14. 2. Opportunities
Several financial products are available, but savings
are often the only product accessible by the BoP to
accumulate income
• The BoP are bankable
• Savings empower the BoP
• Savings are often the only accessible financial service
• People helping people with loans or gifts substitute formal
savings, loans or insurances
Savings
Frequent,
regular, safe &
rewarding
Insurance,
informal
e.g. Idir
Credit / micro
leasing
No access except
informal Iquib
Payments,
physical
Basic personal financial intermediation
is needed
Relevant BoP financial products
14

15. 2. Opportunities
Addressing the needs of BoP requires innovation in
financial products and channels
BoP people adopt and
use savings, credit, and
insurance services in
digital form.
Poor people conduct
a majority of
transactions (including
small in-store
purchases) digitally.
Basic connectivity
Full range of digital
financial services
Digital in-store
purchases
2015
BoP people adopt and
use digital money for
person-to-person
transfers, bill
payments, and
government transfers.
A critical mass of
mobile coverage and
penetration is among
the rural poor.
Digital remote
payments
Farmers with traditional habits do not easily change the
way they look at and deal with money
2018
Inclusive,
cash-light society
15
Source: Bill and Melinda Gates Foundation (2012)

16. 2. Opportunities
Government has set ambitious targets for access to
finance and mobile penetration under GTP II
Source: World Bank (2016): http://data.worldbank.org/indicator/IT.CEL.SETS.P2
1616
103.7 million
Subscribers
56 million
Internet
Subscribers
85%
Mobile
Network
Coverage
50 Agent/year
Agent
Expansion by
Banks (NBE)

17. 2. Opportunities
Government policy drives and dictates priorities of
Financial Institutions
Source: GoE (2016)
Increase financial inclusion of adults to 80% Branch & agent expansion with 25%/yr.
Savings to loan ratio over 100% 27% bond to loan disbursed requirement on banks
creates a liquidity crunch
17

18. 1. Sector Overview
2. Opportunities
3. Constraints
4. Vision & Strategy
Annexes
18

19. Limited knowledge of the DFS market by policy makers and regulators
Policy & Regulation
for FIs, TSPs and Telco
High transaction
costs
for both
financial institutions
& BOP
Lack of market information on DFS and access to financing (A2F), as well as a gap
between demand and supply in the financial services
Banks: low savings, high transaction costs, and account maintenance, is not
sustainable with branch banking
BoP: high transaction costs for the rural population as geographically remote and
branches of FIs are concentrated in densely populated urban areas
3. Constraints
High transaction costs, and lack of enabling policies in
the BoP, present two challenges to accessing this
market
Please see Annex for BoP Sector Profile
Restrictive and risk aversive regulations targeting institutions and not systems. (Not
focusing on payment systems, but rather than on financial institutions)
19

20. 3. Constraints
Triggering market system change for financial services
at the BoP is challenging
Without catalytic systemic action, most of Ethiopia will
continue to be financially excluded
Facilitation role
The financial sector is generally inactive due
to limited competition and revenue from
few large traders
Culture of aid
An economic culture that emphasises
subsidies and public intervention constrains
promotion of a private sector
Receptiveness for innovation
Limited knowledge is exchanged across
multiple markets and viable partners are
few, which limits the scope for facilitation
Economies of scale
Widespread market gaps make short-term
results unachievable; programme scale is
more difficult with few viable partners
20

21. 1. Sector Overview
2. Opportunities
3. Constraints
4. Vision & Strategy
Annexes
21

22.  350,00 new accounts
 75% of new accounts are for
women
Please see Annex for Theory of Change
80% of the BoP are financially included by FIs, which provide appropriate products and services through
innovative solutions resulting in more accounts with more deposits, leading to increased assets and
higher income for the BoP
Regulation:
Enabling environment
FIs expand the BoP
client base
 29.6% savings to GDP
 80% of adult population
are financially included
4. Vision
Including the excluded
National Targets: EP Targets: by 2020
Increased BoP financially
included
Increased amount
of savings
22
Supply:
Easy access to financial services
(Digital finance services)

23. 4. Strategy
A two-pronged approach addressing both the regulatory
environment and supply of financial services for BoP
Digital financial services
Promoting cost effective channels through mobile or agents will
include a large portion of the unbanked population in the financial
system
Policy and regulation
Addressing regulatory and policy issues by developing knowledge
and market information on DFS and raising the awareness of the
policy makers and regulators.
2
Improved and
enabling DFS policies
& regulatory
environment
Financial inclusion
for the BoP
with increased
number of accounts
and savings
1
Please see Annex for Theory of Change 23

24. Cotton
Labour
Apparel
13K Jobs; 10K Income
28K Jobs
Calculated with Apparel
Market
Low labour
supply
Pre-employment
skills pilot
Low labour
supply
Labour system in
industrial parks
Poor gender
support
Social
sustainability
Poor HR
Better HR system in
factory
Poor mgt by
supervisors
Supervisor training
service
Low
accessory
supply
SME cluster
Lack of
Ethiopian
design
Fashion incubator
programme
Lack of eco
industrial
strategy
Green
industrialisation
Low
investment
Don’t get left
behind
Low
investment
Buyer-led
investment
P
Poor sector
coordination
and strategy
Industry
coordination forum
CTA 02 CTA 08 CTA 17 CTA 07 CTA TBD
CTA 10 CTA 12 CTA 13 CTA 16 CTA 11 CTA 14
Poor quality
seed
Seed multiplication
pilot
Poor quality
seed
Seed multiplication
scale-up
No national
policy
National cotton
strategy
Low lint
cotton
production
Contract farming
with textile
industry
Lack of
finance
Finance system for
cotton producers &
textile industry
Low seed
variety
ARC capacity
building
CTA 01 CTA 04 CTA 03 CTA 09 CTA TBD CTA TBD
Livestock
March 2017
PORTFOLIO SUMMARY
Processing
Inputs
Export
Constraints Intervention
Leather
Products
Financial
Capability
Private
Capital
SME
Projected
Results
10K Jobs
TBD
TBD
60K Income
3K Jobs
TBD
GBP 89M Investment
GBP 72M Investment
TBD
Tanning
4K Jobs
Digital
Finance
TBD
Active: scale up
Active: Pilot
Active: wind down
Closed
Pipeline
High post-
harvest loss
Tomato
processing:
Meki Union
High post-
harvest loss
Tomato
processing:
Mulualem Farm
Poor
business
services
Advisory service
Poor
business
services
Private Capital
Advisory Finance
Services (PCAF)
Low
awareness
PCAF: Workshops
Lack of
linkage
Investment linkage
platform
Poor
marketing &
supply chain
Export promotion
& supply chain
Low
investment
Investment
facilitation services
Low
technical
know-how
Footwear
manufacturing:
high-end market
Poor vet
service
Improving
veterinary services
Poor quality
seedlings
Seedlings business
pilot
Poor quality
inputs
Seedlings business
scale-up
Poor quality
seed
OPV seed
promotion
Poor int.
market
linkage
Export facilitation
service for farms
Poor
financial
literacy
Financial education
& capability
Poor
financial
literacy
Financial education
via public agency
Lack of
credit
SME finance
project (SMEFP),
WEDP
Low fin for
climate
smart agro
Greening rural
finance
Lack of
collateral
SME guarantee
fund
Lack of
credit
Farmer union
advisory service
EIC’s low HR
capacity
Young professional
development
Low FDI in
priority
sectors
FIN TBD
Poor
finishing of
leather
Improve finishing
through chemical
companies
Poor green
practice
Green leather
production &
marketing
Lack of
finance
RHS credit line
Poor green
practice
Waterless chrome
tanning
Poor quality
raw hides &
skins
TBD
Poor
finishing of
leather
Intra-tannery
partnerships
Limited
outreach
Mobile bill
payments
Limited
outreach
SAACO agency
banking
Low DFS
knowledge
Transaction pool
Low DFS
knowledge
Community of
practice
Lack of
automation
in MFIs
Core banking
system
Unfavourable
policy &
regulations
Roadmap for DFS
FAV 01-A FAV 01-B
FIN 03 FIN 07 FIN 07 FIN 19
LAL 06 LAL 07 LAL 09
LAL 08
FAV 02 FAV 06 FAV TBD
FAV 03
FIN 02 FIN 10
FIN 06 FIN 12 FIN 08
FIN 15 FIN TBD
LAL 05 LAL 10 LAL 11 LAL TBD LAL 04 LAL TBD
FIN 01-B FIN 01-A FIN 16 FIN 17 FIN 14 FIN 18
Cotton,Apparel,TextileInvestmentFruitsandVegetableBaseofPyramid
Investment
Promotion
FIN 05
Code | Status
LeatherandLivestock
Poor sector
coordination
and strategy
National Apparel
Investment Plan
8K Jobs
CTA 15
Low linkage
amid SME’S
and Buyers
All Africa Leather
Fair
LAL 03
Poor
marketing
system
FAV Produce
Marketing
FAV TBD
Low domestic
FIN mgt
capacity
CFO Training
FIN 20
Stringent
KYC system
Tiered KYC
system
FIN 21
Limited
deposit
mobilization
MFI Marketing
FIN 22
Other BOP Interventions
Low labour
supply
E-labour market
place
CTA TBD

25. 1. Sector Overview
2. Opportunities
3. Constraints
4. Vision & Strategy
Annexes
25

26. Annex
Financial sector profile
Micro (core market)
• Transition away from direct support for micro level players as financial markets develop
• Focus on micro-level work, although macro and meso are also important to market development
• FIs face competing priorities and will often invest where they see less risk or higher returns instead of serving poor
clients, rural consumers, or small businesses
• Where poverty is high and inclusion low, opportunity costs of reaching marginalised consumers are lower because the
up-market pie is so small
Commercial banks
• Highly profitable with more than 50% (approx.) origins from trade services
• 18 banks (2 public); total capital ETB 30.2billion
• Bank branches / 100K: 2.95 (2,502 branches, high expansion); ATMs / 100K: 0.463
• Commercial Bank of Ethiopia: 35% of bank capital and 1170 branches
• Branch growth is high over recent years
Micro-finance institutions
• 35 MFIs reaching 3.5 million clients, of which 46% are women
• 5 large, regional government affiliated MFIs cater for 95% of the clients (3.1million clients), total deposit 13bn
(+41%/year), loan portfolio 18bn (+23%/ year), and total assets 26.7bn (April 2015)
SACCOs (Savings and Credit Cooperatives)
• 18000+ SACCOs covering about all kebeles and 48% urban, lend ETB 245 million to 529,000 BoP-members of which
47% are women
Informal sector
• Iquib and Idir serve about 80% of the adult population; informal moneylending is expensive but used
Remittances
• Remittance USD 2 Billion per year, of which half arrives through formal channels
26

27. Annex
Financial sector profile
MESO (support functions)
• Limited professional skill development institutes
• Few service providers exist in the market but service is defragmented
• High culture of aid and FIs are reluctant to pay for support services
• Less developed and in need of heavy support: although national payment systems and credit bureaus
exist, they are not yet well-functioning
• Many systems must be built from scratch, but have the benefit of learning from mistakes in other markets
MACRO (rules and regulations)
• Restrictive foreign investment policy for financial sector results in low competitive pressure and low
innovation
• Reliable FIs; no bankruptcy in the financial sector to date
• Limited knowledge and awareness of the DFS market by the regulators
• Limited market information on access to finance and the related gap between demand and supply
• Strong regulation, however there is a lack of competency in innovative segments and not proactive
27

28. Constraints
INTERVENTIONS
IGAs/Women-owned SMEs
Women have increased self-
esteem and decision making power
Impact
Systemlevel
outcomes
Annex
Theory of Change
High cost of
opening FI
branches in
rural areas
Rural
transactions are
low value and
high volume
Inadequate
front and back
office
technology
Limited innovation in reaching rural poor with savings
products
Challenge of
reaching the
last mile
population
Availability of informal
alternatives
Social pressure to spend
Lack of information and access
to formal savings options
Low financial literacy and
capability Low capacity
of FI staff
FI staff lack
incentive
Perception: ‘poor can't save’
The poor and their money Formal financial service providers
Irregular and inconsistent
income
High need for a lump sum
Increased savings
Enabling policy & regulation fostering a healthy
environment for financial inclusion
Improved outreach of financial institutions through efficient delivery channels
Increased usage of financial services by poor households
Increased number of savings accounts opened
Banks have increased funds to lend
Better participation in formal economy
Financial service providers designed appropriate
products and services
THE POOR HAVE ACCES TO A LUMP SUM
28
Policy & regulation
Limited knowledge and
understanding of DFS
Policy & regulation constrain
DFS advancement
Limited market information on
A2F and DFS market
Regulation & policy limiting
innovation of account
providersForeign investment restriction
limiting capital investment in
the finance sector
Increased financial independence
More spending on products & services that
increase welfare & productivity of family

29. References
Bill and Melinda Gates Foundation, Financial Services for the Poor (2012)
Ethiopian Government, The Growth and Transformation Plan II
Ethiopian Inclusive Finance Training and Research Institute, house (2014)
Federal Cooperative Agency, presentation at Haromaya University (2014)
FinAccess, House Hold Survey FSD Kenya (2016)
IMF, Country Report (2014)
NBE, Annual Report (2015)
Pande et al, Gender Quotas and Female Leadership: A Review. World Development Report (2012)
WISE (Women In Self Employment) newsletter summary (2015)
World Bank, Financial Literacy & Education Russia Trust Fund (2013) A toolkit for the evaluation of
financial capability programs in low and middle-income countries
World Bank, Country Report (2014)
World Bank, Findex (2014)
World Bank. (2016). Mobile cellular subscriptions (per 100 people). Retrieved September 14, 2016, from
http://data.worldbank.org/indicator/IT.CEL.SETS.P2
Annex
References
29

30. Acronyms and abbreviations
A2F Access to financing
DFS Digital Financial Service
ETB Ethiopian Birr
EP Enterprise Partners
FI Financial Institution
IGA Income generating activity
MBP Mobile Bill Payment
MFI Microfinance Institution
MNO Mobile Network Operator
NBE National Bank of Ethiopia
PPP Purchasing power parity
SAB SACCO Agent Banking
SACCO Saving and Credit Cooperative
TSP Technology Service Provider
Annex
Acronyms and abbreviations
30

31. Thank you
ENTERPRISE PARTNERS
Bole, adjacent to Millennium Hall, behind Reliance
Hotel; Bel Amour Building, 2nd - 5th floors
Phone: +251-116-186-601
Fax: +251-116-672-588
P. O. Box 27374/1000
Addis Ababa, Ethiopia
E-mail: info@enterprisepartners.org
Web www.enterprisepartners.org
Follow us on:
@EP_Ethiopia
Enterprisepartners1
www.enterprisepartners.org
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