DFI Training

1. Digital Finance
for
Financial Inclusion
Perspective, Development &
Practices-
Ethiopian Context
February 26-28, 2024
1
,
Ethiopian
Institute of
Financial
Studies
(EIFS)
የኢትዮጵያ ብሔራዊ ባንክ
National Bank of Ethiopia

2. Training Rules
2
Feel free to raise questions , comments
and share your experiences

3. 3
Digital Financial inclusion:
• Why do we need it?
• Background (theoretical &
practical)
• Context – why it matters?
• Framework (legal and regulatory)
• How it operates – Practical experiences
• Challenges and problems
• Next steps
Financial Inclusion: In general
• Hard facts, figures and theories
• Why do we need it?
• Background (theoretical &
practical)
• Context (global, Sub-Sahara African,
Ethiopia)
• Access points,
• Usage of financial products and
services,
• Deepening/depth of financial inclusion
• Key challenges and problems
• Next steps
1
2
Structure of the
training
3
Alignment of policies with practices and
figure out any practical and potential gaps

4. Objectives of the Training
• To understand
• What FI in general is,
• How it operates, and
• The relevance it has for Ethiopia
• (helps to create an inclusive system that serves all members of the society
(particularly the excluded and underserved)
• To explore/understand
• What digital FI is all about
• Why it matters for Ethiopia and
• the practical reality on the ground:-
• How it takes over the legacy/inherited system to accelerate
FI as well as main stream financial operations in Ethiopia
4

5. Methodology
• Presentation, questions and answers
• Group discussion
• Practical cases –General and Institutional perspectives
5

6. a) The most neglected population
• Above average and
average population
composition
• These segments of
the society are
well taken care of
by Banks
• Large in number
• The most
neglected
• Unserved /
undersertved
• Financially
excluded
Top
Middle
Segments
Lower
segments
1. Background
(Theoretical and
practical)
What is going on
in the sector?
The lower segment is the focus of FI

7. b) Inefficiency:-
• FI is low in Ethiopia:-
– 55% of adults are excluded
– Around 30 million adults have no even a
basic saving account)
• Lower FI would mean financial institutions
unable to reach out millions of adults, which is
inefficiency
• So, when we talk about Financial exclusion,
we are talking about the inefficiency of the
finance sector, at least from the FI
perspective, which can be explained in terms
of:-
– access points, P&S, lack of awareness & trust
• We have to explore means and ways to bridge
this gap?
Cont’d

8. c) The poor finance the rich paradox
• Banks collect money from millions of poor
and rural adults in the form of saving
• However, Provide credit only to
– 300K people
– 40% is taken by around 1,000 borrowers
• This means that the poor finances the rich
• However, Banks never or don’t want to
provide credit to the poor:-
– (farmers, women, MSMEs, individuals,
cooperatives)
– They are millions in size
• This is because they don’t have collateral,
credit history, risk management capability,
accounting record etc. and considered highly
risky
• As a result, FI in Ethiopia is low as compared
with peers
• Should we reverse this practice or allow the
system to continue?
Cont’d

9. c) Financial rights of citizens
• The right refers to:
– The right to know – P&S available
– The right to choose
– The right to use
– The right to complain if interest is
affected
• In the 21st century one cannot live
without money
• This is not the era of barter or animal
money
• One to have his lively hood needs
money as a medium of exchange
• The approach to get money could be
extremely different
9
Cont’d

10. d) Poverty alleviation
– Poverty alleviation is the primary goal
of FI
i) What is poverty
– the state of being inferior in
quality or insufficient in amount.
(Oxford Dictionary)
– Lack of access to basic necessities
(food, cloth, shelter)
» e.g. “The poverty of
imagination“
– the condition in which people or
communities lack the financial
resources and essentials for a
minimum standard of living
10
Cont’d

11. • Cont’d
ii)Types of poverty
– Absolut vs. relative
• Absolut Poverty : lacks basic needs
food, clothing, and housing
• Relative Poverty: have some money
but still not enough to afford anything
above the basics
– Primary vs. secondary
• Primary poverty: cannot afford basic
needs such as food, clothing, and
housing
• Secondary poverty: people can afford
the basic needs of life, but they choose
to spend their income on non-essential

12. – Urban vs. rural
• Urban poverty: Stem from weak or
hazardous living conditions related to
sanitation, employment, and personal
security.
• Rural poverty: stem from limited access
to markets, education, quality
infrastructure, employment
opportunities, health, and financial
products
Note:
– Insufficient income is at the root of every
type of poverty
– In general terms poverty excludes people
from what constitutes normal daily life:
Cont’d

13. iii) Measure of poverty
• Income
– Household level
– Individual level(salary/wage)
• Consumption
– Basic products and services
– Calories per day
» Men = 2500
» Women = 2000
» Ethiopian average 1500
• Multidimensional (partly SDG goals)
– Education
– Health and nutrition
– Water and sanitary
– Housing construction materials
– living standard
• Cont’d

17. d/ The Growth-Poverty-Inequality Nexus:
Growth
Inequality
Poverty
17
Source:-AT 17.12 (InclusiveGrowth)

18. i) Inequality?
18
• Capitalism:
• The view that capitalism settles down to a
fairly equal distribution of wealth has been
shattered
• Survival of the fittest (the rich becomes more
richer and the poor becomes more poorer)
• This raises questions about the
• inequality;
• inclusive growth, and
• Which definitely leads to poverty.
Source:-AT 17.12 (InclusiveGrowth)

19. ii) Poverty?
19
• Poverty traps the ability to :-
• Accumulate physical or human capital;
• Adopt technology; and
• Promote investments
• This means it has serious impact on growth and development
• Causes market failure:
• Definition: Market failed to reallocate resources based on DD and SS
• If market fails, what should be done? – Government intervention
• Rational:
• To fill the gap and ensure social welfare: As Ethiopia cannot
shoulder the impact of market failure for:
• Infrastructure (School, Health, security, road & bridge, water,
electricity, other public goods, etc.) cannot be available.
• The private sector is not willing to step in as it is not short
term investment in nature
• In the case of finance sector:
• Credit rationing:
• Information asymmetry, moral hazard, Collateral requirements
• Risk and lack of insurance:
• the poor cannot undertake risky activities

20. Market failure –:
-
- Mismatch between DD and SS
- Two types: the market completely fail to supply, or supplying but
not enough
- Applicability:
Case 1:
• If amount of loan on offer
(quantity) is low, Interest rate is
(price) will be high (Q1 and P1)
Cased 2:
• If amount of loan on offer
(quantity) is high, Interest rate is
(price) will be low(Q2 and P2)
Q1
Q2
P1
P2

21. Effects of poverty
• Creates institutional failure
• Corruption
• Education
• Malnutrition
• Housing and homelessness
• Insufficient access to health care-
Poor health
• Crime, civil conflict, and
victimization
• Family problems
• Sanitation and clean water
• Child mortality (5.9% or 59/100)
• Poor basic infrastructure
• Climate change – Global warming
• Coping with mental health
challenges
• Exploitation of people
• Inability to work
• Inadequate child care
• Depression
• Market failure
Can Ethiopia shoulder the cost of Poverty?

22. Growth?
22
• Poverty has a significant negative effect on growth
• poverty deters investment, especially when
financial development is limited (300K issues)
• Study indicates that a 10 pp increase in poverty
headcount reduces growth by about 1 percentage
point
Source:-AT 17.12 (InclusiveGrowth)

23. Inclusive Growth- Theory of change
Benefit- sharing:
Poverty, Income Distribution,
reduced Inequality
Participation:
Job opportunities,
Productive employment
Opportunity:
Access to basic services
Empowerment:
Governance, Public
sector accountability
Inclusive Growth
23
Source:-AT 17.12 (InclusiveGrowth)
This confirms the importance of growth for poverty reduction
The issue is how can we bring Growth?

24. g) Theory of Money – (Five Generation)
i) Barter (problem of double coincidence)
ii) Animal money (divisibility (when divided it lose its
intrinsic value) , transport, storage problems)
iii) Metallic ( heaviness, transportability)
iv) Paper money (Initially with gold reserve)
– Has no intrinsic value by itself – but legal tender /fiat
money/payable to the bearer on demand
» Theory of IFB – Money cannot create money
without having real economic transaction- Interest
is Haram)
– Commonly accepted as a medium of exchanges
– Fungible – easily convertible in to another same form
without losing its value or purchasing power
– store of value:-
» What does the money you have in your pocket
represent?
» Bad money drives good money out of circulation
» Bad notes are therefore collected and destructed
– More of physical interaction and transaction 24
Cont’d
We are in the era of
digital money. How
do we get there?

25. v/ Plastic money – Polymer bank note
(Debit/Credit card)
Meaning
Plastic bank cards
Why we use plastic
money
• Easy to carry
• Easy to operate
• More secured
than cash
• Multiple
functions
Disadvantage
• Loss
• Cannot be accepted
everywhere
• Restricted spending
• Hidden fees
Birth of plastic
money
Began in 1951
by New York
based banks-
Franklin
National Bank
Advantage
• It can pay from ATM
• It can enable
payment through
POS devices

26. Vi/ Digital money ( like MM)
– Emerging out to overcome the problems
observed in physical cash/ paper money
such as:
» Printing cost
» Transportation and storage cost
» Shortage in case of gap of reorder level
» Collection of bad notes
» Destruction
» Chemical issues when distracted Vs.
Green eco.
– Logical interaction / transaction vs.
physical or cash based
• One generation of money emerging out to resolve
problems preceding to it.
26
Cont’d
Digital Money
Digital Finance
Digital FI

27. VII/ Central Bank Digital Currency (CBDC)
CBDC and
• A digital form of country/ fiat money issued and regulated by the central
bank
• Advantages
• Reduce transaction cost
– faster, cheaper, real-time and reducing settlement times
• Reduce production cost
– Vs. with traditional money printing,
– streamline human resource requirements, and
– optimize the entire process of money management through digital means.
• Greater monetary policy control
– Greater control over of money supply, liquidity and Inflation
– Improving economic stability.
– Central banks may have more direct control over the money supply and better
insights into economic transactions,

28. Cont’d
• Enhance competition and financial innovation
• encourage innovation
• incentivize advancements in financial technology,
• digitization of financial services and products.
• influence consumer preferences and behaviors, potentially
impacting the use of traditional money.
• Programmable payments
• support government programs in subsidy payments –
Direct to the beneficiary,
• reduces the misuse of social benefit programs and other
subsides as it ensures the correct usage of money transfer.
• Security and transparency
• real-time monitoring of transactions,
• establishment of transaction thresholds, and
• automated reporting of suspicious activities.

29. Challenges
• Technological Infrastructure
• Cyber security Concerns
• Regulatory and Legal Frameworks

31. e) FI access points: Shift in approaches from Branch
based model to Branchless model (DFS)
Financial
Inclusion
Branch based Model
(Brick and Mortar)
Branchless Model
(ICT Model)
Bricks & Mortar Approach
- Expanding braches, agents, Opening No frill
accounts (Zero balance accounts), relaxed KYC
norms
ICT (Information & Communication Technology)
Approach
– Base Branch acts as a focal point for agents
– Agents:-
– are engaged by the Bank/technology
providers
– contact the customers for enrollment and
issue biometric smart cards.
– use laptops and POS devises in off line
mode.
– Apply relaxed KYC norms
2
5
3
7
Source:- Pakistan school Internet
Governance (2018)Summary

32. f) Digital era
• It seems every thing is gradually changed
to digital
– Robotic tech – tends to replace human
beings
– Artificial intelligence- For example Google
mapping, Traffic management, text to model
conversion
– Social media: Facebook, Twitter, Whats up,
Instagram, LinkedIn, tik-tok and YouTube
– Cloning
– Etc…
• Therefore, finance follows the pattern
– Physical access points are taken over by
digital means
» Branch vs. ATM, POS, MM, MB, IB, CB
etc…
» Example: Ethiotelecom has no banking
branch
Cont’d

33. g) Approach to Poverty alleviation –Financing
perspective
- Historical background-
• Whether we follow cash transaction or
digital, the ultimate goal is to alleviate
poverty through efficiency
– In FI perspective- offer affordable P&S to the
excluded
• Approaches:
• Credit cooperatives (Bangladesh case)
• Saving and credit cooperatives
• MFIs –Institution concept
• Financial inclusion
• What next ? 33
Cont’d

34. Financial Inclusion:
• Definition,
• Global, Sub Sahara African &
Ethiopian status
FI- Broader and
Ethiopian Context
b

35. i. Definition of FI
FI, What is
it?
• 1st divide the society into two:-
• Those who have account in the financial system and those who
don’t have
• The concern of FI is on those who don’t have account in the FIs
• The simplest definition is therefore:-
• Include the excluded/ Adults to have at least one basic financial
services
• This requires at least three strategic interventions
Expand
Access
points
Physical proximity to regulated financial Infrastructure
- Branches, Agents, ATM, POS, Internet Banking,
Mobile Banking, Card banking etc…
Promote
Usage
Actual usage of products and services
• Saving, Credit, Transfer/remittance,
Payment, Insurance, pension
• Suitable (Innovative and affordable) P&S 35
What the poor needs is:-
• Micro saving
• micro credit
• Micro insurance
• Micro pension
• Micro payment

36. Cont’d
Ensure
Sustainability
Ensured through:
• Financial Education (Build knowledge and skill to
enable the excluded use products, services and
infrastructure)
• Financial Consumers Protection (trust and
confidence of the public
• Commitment of key stakeholders
Therefore, FI = f(Access + Usage + Sustainability)
If one of these pillars are missing, definitely FI will not be achieved
36

37. 37
ii. Possible
Impact of FI
 promotes investment at all level,
(equitable productive credit)
 Creates job opportunity,
 Inclusive growth,
 Poverty reduction,
 Builds self reliant society,
 Supports SDGs, and
 Enables stability:
- Financial sector stability
- Economic stability
- Social stability
- political stability

38. Source: Global (FINDEX 2017 Global Survey)
iii) Global Level of inclusion (Account ownership)
3
8
Is it development that
leads FI or Is it FI that
leads Development ?
Discuss

39. Cont’d
Since 2011, financial inclusion has improved worldwide.
LOW INCOME
COUNTRIES
39
• In 2017, 31% or 2.1 Billion
adults were unbanked
• Around 1.1 billion were
women
• Therefore, FI is a Global
agenda
• Supported by almost all
international financial
institutions, development
partners, NGOs and other
organizations
2014 2017
51%
62%
69%
23%
Of adults in LOW
INCOME
countries had at
least one
account
35%
Of adults in LOW
INCOME
countries had at
least one
account

40. Iv) Sub-Saharan Africa & Ethiopia
79%
66% 68%
52% 49%
55%
46%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Kenya Uganda Ghana Tanzania Zambia Sub-saharan Ethiopia
Level of Financial Inlcusion-2021 Findex

41. 41
Summary
Day 1
• Background (Theoretical / practical )
• Population pyramid
• Inefficiency
• The poor finance the rich paradox
• Failure to observe Financial rights of
the citizen
• Poverty alleviation
• Digital era – legacy system vs. Digital
• theory of money etc..
• Digital era
• Bricks and mortar
• Poverty alleviation approaches (4
generation)
• Aggressive agent expansion
• Context definition
• What financial inclusion is
• Global perspective
• Sub-Saharan-African perspective

42. 42
Day -2

43. V) Growth in Financial Inclusion - Comparison with
peers (Growth potential)
County 2014 2021 Growth %
Kenya 75% 79% 4%
Uganda 49% 66% 17%
Ghana 41% 68% 27%
Tanzania 40% 52% 12%
Zambia 36% 49% 13%
SSA Average) 34% 55% 19%
Ethiopia 22% 46% 24%
Source: Global Findex, 2021
43

44. 22%
35%
45%
0
5
10
15
20
25
30
35
40
45
50
1 2 3
2014 2017 2020
v) Ethiopian Context
a) Financial inclusion in Ethiopia has been improving. However,
there are greater opportunity for growth
Good improvement but there are greater
opportunities for growth as well
• In 2021 54%
Ethiopian adults were
excluded from financial
transactions
• Therefore, FI is a
national agenda

45. 45
b) Demographic
• Population 100+ million
• 2nd populous country in Africa
• 80% are dependent on agriculture (high
vulnerability for natural risks)
• Adults are estimated to be 57 million
(2021/2022)
- 55% (31 million) are financially
excluded
- This is the problem statement
- Why and what is missing?
• 70% are below the age of 30-young
generation
- employment issue (Priority agenda
of the Government)
- Opportunity for technology adaptation
• 23 + million are under poverty level
- Poverty alleviation (priority agenda
of the government of Ethiopia)

46. 46
Cont’d
• 10 million are under PSNP (Self reliant society)
• Women constitutes 49% of the composition of the
population
• However, the gap between men and women FI is
around 19%
• High regional diversity in the level of FI
• Ranges from 78% to 6%
• There are severely underserved regions as
well
• Low level of up take in Sharia compliant financial
products and services
• 33% are Muslim community in Ethiopia (CSA)
• Only 6 million IFA In June 2022
Issue: Is there any thing that FI has to do with
these? We will explore

47. 47
c) Individuals
• Strong saving / borrowing culture in
Ethiopia but, informal sector dominates.
- 62% adults saves but only 30% are with
Regulated Financial Institutions
- 41% of adults borrowed, but only
11% from regulated financial
institutions
• Three points to consider:-
- Most adults are excluded from
formal financial services
- The informal market is dominating, which is
proved to be:- Inefficient, Expensive (Loan
Shark), Not sustainable, and Risky
- Wastage of national financial resources
- Pillow banking doesn’t
bring any Added value

48. 48
#1
Discussion
Question
(Business
Opportunity)
The informal sector dominates the
financial transaction in terms of
deposit and credit. And yet, it has a
number of disadvantages.
How can we transform the informal
financial sector to formal?
Discuss and Reflect!

49. 49
Possible
answers'
- 1st identify the informal /Semi-
informal sector
- Excluded adults
- Iddir
- Equib/Table Banking
- Non-financial coops
- borrowing from
friends, family etc…
- 2nd Identify issues why they are
dominating
- Access issues in particular agents
- Products and services
issues
- Awareness for better
opportunities
- Trust and confidence
( እድሬ ይቀብረኛል)
(ሰውን ሰው ያደረገው ዕቁብ ነው)
Possible Answers

50. 50
d) MSMEs (Agric,
Industry &
Services)
(Issues from the
WB)
i/ Definition
• MSMEs is cross sectorial:
– Agriculture, industry, services
– It doesn't have commonly agreed
definition across sectors and across
countries
– What is medium in industry could be
large for agriculture or services sector
– What is small in developed countries
could be medium/large in developing
countries
– Therefore, the definition depends on
the level of socio-economic
development a country achieved

51. 51
Cont’d
ii/ MSMEs should be promoted at least for three
clear reasons:-
– Creates greater opportunity for jobs and
employment
– Supports development agenda of the
country
– Technology transfer
iii/ Challenges:
- Shares only 5% of private sector
loan
- Much more likely to be rejected for
loan, and are less likely to
have external financing.
- This is partly due to lack of credit
information, risk mgt, accounting records,
lack of collateral and are considered risky.
Source: WB

52. 52
e) Support the
transformation of
the agriculture
sector at the HH
level
• Problem statement
- Low productivity
- Wastage of produces during
harvesting (40%) – Due to traditional
harvesting system
• Agriculture shares less than 5% of the private
sector loan
• The issue is –
- How can we bring our (finance) perspective
into the agric sector context?
• Agriculture is all about input:
– Sustainable Credit is critically essential to
promote:
- Mechanization,
- improved seeds,
- Pest control, and
- the use of adequate fertilizer, which
are critical, among others, to increase
production and productivity in the
agric sector
• Increase in production and productivity would
support SDG - Goal 1 (No Poverty), and
- Goal 2 (Zero hunger)
Note:
10% increase in agricultural
productivity, reduces poverty by 7%
Source: WB, Workshop on ESS
dissemination
Contribution to:
• GDP 40%
• Export 80%
• Employment 75%
Therefore, remains a critical
part of the Ethiopian
economy

53. 53
• Ethiopia should think
- beyond the national demand in
agriculture products
- Neighboring countries don't have
much opportunity for agriculture as
compared with Ethiopia.
- Therefore, Ethiopia needs to think to
supply the food demand of these
countries as well.
- Ethiopia also Leeds Affric in live
stock population. However, the
productivity and quality of products are
not up to the expected standard
The way
forward

54. 54
f) Payment in
cash
dominates
Before cash
less we need
to be paper
less
• Only 20% of payments are carried out through digital
means, but digital payments are emerging out
• Cash is still king and is inefficient by its nature
• Shift to DFS
– Transform Cash to Cash Lite/Cashless economy
leveraging on:
- “Digital Ethiopia 2025” (MiNT)
- National Digital Payment Strategy (NDPS) -
2021-2023, (NBE)
- Expansion of enhanced telecom
services including providing
financial services
- Allowing Non- Bank Payment Instrument Issuer
(PII)
- Allowing foreign participants –Safaricom
Ethiopia
- Foreign banks are allowed to come to operate in
Ethiopia – more of tech supported operation

55. #3
Discussion
question
We are going to the international
competitiveness in the banking
operation. What is our competitive
advantage if foreign banks are
allowed to operate in Ethiopia.
Hint: First identify at least 5 factors
of competitiveness and discuss?
What possible solutions can you provide?

56. i) Opening the market
• We are going to the international
competitiveness
• What is our commutative advantage
• We don't have adequate capital
• We don't have advanced technology
• We don’t have adequate knowledge & skills
• Low level of RM capability
• Governance capacity
• Adherence to International principles (BASEL, IAIS,CGAP,
CPMI)
• Let us build in what we have- Customers (very loyal)

57. 57
g) Link to SDG
• Financial inclusion is enabler for 10/17 SDG goals [UNSGSA-Annual
Report to the Secretary General September 2016]
• FI creates economic empowerment

58. k) Policy Consideration of FI
• When drafting financial sector policies and
strategies, at least four factors have to be
considered- IPIS:-
• Inclusion
– Access, usage, sustainability and quality
• Protection
– FCP, Trust confidence, cyber security, fraud etc…)
• Integrity
– AML, FATF, ESAAMLG as well as internal fraudulent / abusive
transactions
• Stability
– Micro, macro, Financial sector stability (Safe and Sound) –
Model
• The take away is: Every institution should formulate
a plan of action to promote FI

59. • Monitory policy refers to money supply and IR
• Their transmission becomes more effective if FI operates well
• Studies indicate that if many people are excluded, monetary
Policy transmission is difficult, if not impossible
• This is partly due to:
– the dominance of the informal financial transaction
– The formal system cannot influence the informal transaction
• In some cases, money outside the bank exceeds money within the
bank
• And yet, interest rate policy has little or no effect under such
circumstances
•Model
l) Role of FI in Monetary Policy Transmission

60. j) FI as a Business model
• The finance sector is busy in picking low hanging fruits (Banks
provide loan only to 300K and only 1000 takes 40% of the loan)
• Lost opportunity :- high hanging fruits remain untouched for
many years now and are huge
• This requires long ladder that enable us reach out the fruits or
we need to have long stick to pick – This is what FI plan to do
• Or else, the opportunity spoils as the fruits do and the poverty
cycle continues

61. • Definition:
– increase the depth of FI to enhance the welfare of poor
and low-income households in low- and middle-income
countries
• In the short term
• More of social responsibility (cost outweighs benefit-
but it pays back later)
• In the medium to long term
• Rich out the high hanging fruits and realize the potential
opportunities
• Change the financial life of the excluded through promoting:
– Saving, credit, insurance, payment, individual and household
financial budget, retirement plan etc…
• Ensure inclusive growth:
– Build stable and self reliant society, and
– Get out of poverty
m) Theory of change/outcome of FI

62. 62
Inclusive
finance
Inclusive
growth
Enabler
of
Stability
-Financial
-Economic
-Social
-Political
h) To support and sustain stability

63. #4
Discussion
Question
Why FI matters for Ethiopia?

64. Likely answers
 Bridging the income inequality/gap
 Brings about inclusive growth
 Reduce poverty
 Promote the agaric sector (arable and pastoralists)
 Promote the MSMEs/Cooperative sector
 Promotes productive credit and investment at all level
 Creates Job and employment opportunity
 Bridges the Rural urban gap and create self reliant society
 Reduce gender and regional gaps in financial inclusion,
 Ensure financial rights of the citizen(right to Know, right to choose, right to use,
right to complain)
 Reduce the risk of Money Laundering (transactions are easily
traceable)
 Promotes sharia compliant financial products and services
 Helps to achieve SDG
 Stability (financial, economic, social, political)
 Proper monitory policy transmission as it can complement stability
 Etc…

65. How can we go about it?Develop strategy and implement
• Steps for the Development of NFIS
– Define problem statement
• Low level of FI in Ethiopia
– Baseline:-
• identify where we are in terms of national and peer status
– Identify strategic issues/Priority
– Sort out the approach as to how the strategy could be developed
– Define mission and vision statements (where do we want to
take it 5 years from mow and beyond)
– Formulate programs (SMART)
– Set targets (Achievable)
– Define activities (implementable)
65

66. BASELINE:
Understanding the
current status
2

67. Ethiopia one of SSA's relative growth
leaders in transactions accounts in
the past 4 years
Despite growth, access has
potential to duplicate to reach
peers
a) Transaction
account:-
Registered
significant
improvements
During the
strategic period
But, still has
apparent
Potential to
grow and
match peers
Growth of transaction accounts
per 100 adults indexed to 2016
Transaction accounts
per 100 adults
Kenya (2019)
406
Pakistan (2020)
77
S.Africa (2019)
199
Indonesia (2019)
312
Ethiopia (2020)
1591
Indonesia (2019)
2.1x
S.Africa (2019)
0.9x
Pakistan (2019)
1.4x
Ethiopia (2020)
1.8x
Kenya (2019)
1.4x

68. b) Strong opportunity to
enhance financial
inclusion through
AGENT NETWORK
Agent network coverage
at 77/100k adults
Growth potential:
10x to Kenya’s 701
30x to Ghana’s 2135
Agents per 100K adults
701
Ethiopia
Uganda
Kenya
Ghana
Rwanda
92%
87% 85%
41%
57%
36%
91%
37% 65%
35%
67%
47%
54%
37%
46%
77

69. c) Strong opportunity to
enhance financial
inclusion across DIGITAL
COVERAGE
DIGITAL COVERAGE
A strong driver of financial
inclusion with potential for
growth
Digital payment adoption
is at 20% in Ethiopia
Growth potential:
> 4x to reach to
Kenya’s 85%
& Ghana’s 87%
Mobile money usage is at 9% in
Ethiopia;
Growth Opportunities:
5x to Kenya’s 46%
7x to Ghana’s 67%
Rwanda
(2019)
Ghana
(2018)
Number of mobile money accounts,
debit cards & credit cards
per 100 adults
64%
Kenya
(2019)
13%
36%
Ethiopia
(2020)
11%
89%
8%
92%
Uganda
(2019)
87%
2%
15%
85%
41%
57%
India
(2019)
4%
36%
60%
Indonesi
a (2019)
Mobile money
Credit cards Debit cards
53%
91%
9% 37%
33%
Ethiopia
(2020)
63%
Indonesia
(2019)
65%
Rwanda
(2019)
35%
Uganda
(2019)
67%
Ghana
(2018)
47%
54%
37%
63%
India
(2019)
46%
Kenya
(2019)
Mobile money accounts Non-mobile money accounts

70. • Gender ownership gap Requires adjustment
• Reduce by double to reach to Kenya and Ghana I.e.
from 19PP to 8PP
GENDER COVERAGE
A key enabler for wider,
gender-intentional
economic development
Savings and credit numbers also showing
opportunity for improvement
0pp
-10pp
20pp
10pp
30pp
9pp
Ethiopia
(2020)
Bangladesh
(2017)
Pakistan
(2017)
India
(2017)
Nigeria
(2017)
Uganda
(2017)
Tanzania
(2017)
Kenya
(2017)
8pp
13pp
Ghana
(2017)
S Africa
(2017)
-2pp
Indonesia
(2017)
19pp
29pp 28pp
24pp
8pp
6pp
-5pp
Credit
Financial Inclusion men vs. women in Ethiopia
Savings
Account
ownership
-19pp
-20pp
-4pp
Male
Female
d) Strong opportunity to
enhance financial
inclusion across GENDER
COVERAGE

71. The gap b/n Urban and Rural requires
adjustment
Opportunity to drive financial inclusion by
focusing on rural account ownership…
REGIONAL COVERAGE
Offers a targeted approach
to driving financial inclusion
The gap b/n Regions …potentially starting with the
least included / underserved areas
% adults reporting formal account ownership
-41pp.
Addis Ababa
Dire Dawa
Afar
Somali
-69pp.
e) Strong opportunity to
enhance financial
inclusion across
REGIONAL COVERAGE
National average for financial
inclusion is around 18PP
Rural FI
Urban FI

72. #5
Discussion
Question
Deep dive-What are the
strategic issues of FI in
Ethiopia?

73. g) Strategic
Issues
1. Absence of FI Dataset (SS side, DD side)-
Strategic Enabler
2. Low level of Digital payments – 20%
3. The existence of severely underserved
regions (ranging b/n 6%-72%)
4. Boarder gap b/n men and women FI -19%
5. High saving culture but low level of
financial saving (62% saves but only 31%
through regulated financial Ints.)
6. low level of credit penetration particularity
for agric sector, MSMEs, Cooperatives
(42% but only 11% from regulated
financial institutions)
7. low level of insurance uptake: There are
huge opportunities for micro insurance
(Mainstream and takaful)
problem statement:-
Low level of FI – only
45%

74. 8. Absence of private pension schemes
9. Low level of sharia compliant financial
products and services as compared with the
size of the Muslim community (33%- CSA)
10. Low level of capablity-55% do not know where
to go to open account
11. Low level of confidence on financial sector and
strong on the informal sector such as Idder and
Equib
12. Regulatory and policy barriers-
• promoting saving while inflation is
growing
• Stability vs. FI (trade off or
complementarity)
Cont’d
To resolve these
issues NFIS-II has
been formulated and
approved by the
COM. The
implementation is
going well.

75. NFIS-II
VISION, MISSION
& APPROACHES
3

76. UNIVERSAL:
No one should be left behind
To be achieved through
Prompting:
• Suitable and affordable P&S
• Building financial
infrastructure
• The aim is to improve financial life of
the excluded.
SUSTAINABLE:
Active transaction accounts with
continuous usage fostered by economical
and socially sustainable financial scale-up
and deepening.
Financially
inclusive
Ethiopia

77. access & usage to
financial services
SCALE UP
access to reach the
majority of the
population
DEEPENING
Ensure 70% of adults are included by 2025
CROSS CUTTING
Financial Education
and Financial
Consumers protection

78. PROGRAMS and
TARGETS
4
Eleven (11) Programs,
formulated with detailed
context, to address key
opportunities, and respective
targets

79. a) 5 PROGRAMS – Under SCAL UP Approach
Scale up financial
inclusion by leveraging
the power of:-
2. Drive digital payments by
scaling mobile money
3. Drive financial inclusion in
severely underserved areas
4. Drive financial inclusion for
women
5. Drive Sharia Compliant
financial infrastructure
1. Enhance FI data Collection
and Analytics

80. b) 5 PROGRAMS Under DEEPENING Approach
Deepen financial inclusion by driving savings
mobilization, increasing access to finance, and
developing a micro-insurance system
6. Lay foundations for
deepening of innovative
financial services and
create momentum
7. Maximize savings
mobilization
8. Expand access to financing/
credit (HH, MSMEs, Cooperatives..)
9. Develop a strong micro-
insurance system
10. Drive Sharia Compliant
products and Services

81. 81
Discussion
Question # 2
what are the triggering /
motivating factors for saving?

82. 82
Possible
Answerers
• Interest:- Inflation is around 30%.
Interest cannot be the real motive for
saving
• Security:- As keeping money at
home/pillow banking is risky
• Credit:
• Link: Enabler to digital payments and
other services
• Purpose : to acquire property,
education, children school etc., to start
new business , expansion of business
Savings with inbuilt OD facility
up to certain amount can be
offered. Birr ----- upfront

83. c) Cross Cutting programs
Scale up and deepen financial inclusion by driving financial
education and consumers protection to targeted group
across all programs
11. Driving Financial
Education and
Financial Consumers
protection
CROSS
CUTTIN

84. Why supervision and regulation?
• Model- Balance sheet approach
• The main theme is to protect the interests
of the:
• depositors (Bank and MFIs) and
• policy holders(Insurers)
• What if the interests of depositors are not
protected?

85. Approach Strategic priority Indicator
Baseline
(2020)
Target
(2025) Source±
Scaling
1. Overall financial
inclusion target
% of adults reporting
owning a formal financial
account
45% 70% Global
Findex◊
2. Drive digital
payments by
scaling mobile
money
% of adults reporting using digital
payments in the past year
20% 49% Global
Findex◊
3. Drive financial
inclusion in
severely
underserved
regions
Percentage point gap in adults
reporting formal account ownership
(including mobile wallets) between
underserved regions and country
average inclusion level
TBDƵ TBD (50%
of
baseline
gap)
LSMS
financial
inclusion
module
4. Drive financial
inclusion for
women
Percentage point gender gap in
adults reporting formal account
ownership (including mobile
wallets)
19pp. 10pp. Global
Findex◊
5. Drive Sharia
Compliant
financial
infrastructure
Number of Muslim adults reporting
having transaction account
12% 18% LSMS
financial
inclusion
module
d) Overall financial inclusion target & headline targets:
Increase inclusion from 45% to 70%

86. Approa
ch Strategic priority Indicator
Baseline
(2020)
Target
(2025) Source±
Deepening
6. Maximize
savings
mobilization
% of adults reporting
using formal savings in
the past year
30% 40% Global
Findex◊
7. Expand access
to financing
MSME (Agric, Service,
Industry) credit volume
as a % of private sector
credit
5% 15% NBE
supply-
side data
8. Develop a
strong micro-
insurance
system
# of smallholder crop and
livestock farmers insured
TBDƵ 500K NBE
supply-
side data
Cont’d
Note: Besides these major lead indicators and targets, there are indicators and targets based
on supply side data that will be used to monitor progresses.

87. 87
• 250+ Activities are assorted across 48
Actions
• Each activity charted with
• specific steps, and
• intended output to collectively
build towards the financial
inclusion targets
Implementation
Activities (250+)
Actions
(48)
Program and
Targets (11)
Approach (3)
6 Strategic issues
(12)
The flow -High Lebel Map -NFIS-II

88. Progress against targets - June 30, 2023
Exceeded target
On track to reach
target
Improved, but not on
track to reach target
No
improvement/dec
line
17
# of Interest free
accounts (In mils.)
Access points per
100k adults - Overall
Bank branches per
100k adults
MFI branches per
100k adults
Insurance branches
per 100k adults
POS devices per
100k adults
ATMs per 100k
adults
Agents per 100k
adults
Access
points
Indicators
476
19.
8
1.9
1.3
21.
1
418
13.
8
15
279
14.1
8.7
1.3
21.8
227.5
12.2
Transa
ction
accoun
ts &
usage
Indicators Target
June 2023
Actual
June 2023
357.7
# Transaction. A/cs per
100 adults – Overall
# of deposit A/cs
per 100 adults
# of mobile money
A/cs per 100 adults
# of Insurance
policies per 100
adults
# of credit A/cs per
100 adults
MSME loan as % of
private sector loan
Agric. loan as % of
private sector loan
Insura
nce
Credit
Transac
tions
235.6
122.1
2.4
11.4
8.5
3.5
85
3.2
11.7
12
8
Note: Targets are taken from NFIS-II
12
13
14
15
16
17
1
2
3
4
5
6
7
8
9
10
11
3
Target
June 2023
Actual
June 2023
a) Main headline targets achieved and in progress
% of complaints
resolved 72%
71
# of adults aware
of financial
transactions (in
mils.)
2 2.4
Interes
t free
A/c
FECP
Note: Digital money includes Mobile money,
Mobile banking, Internet banking and Debit cards
Key
244
159

89. 74.1
93.8
145.5
203.9
67.3
65.4
190.0
271.0
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
400.0
450.0
500.0
June 2020 June 2021 June 2022 June 2023
#of
access
points (In
million)
# of
Transactio
n
accounts
(In
million)
Access points
and Transaction
accounts:
Three years
growth trend-
there is strong
correlation b/n
Access points
and transaction
accounts

90. Day 3
Digital Financial Inclusion (DFI)

91. Digital Financial Inclusion (DFI)
Content:
• Customer value proposition
• DFS ecosystem - Integration
• Universal advantages of DFS- Generic
• Practical challenges – Ethiopia case
• NDPS to max the advantage & min the challenges
• Use cases - Generic
91

92. a) What are the customers value proposition?
• Customers don’t want to come to the bank counter
physically to:
– Deposit
– Take Credit
– Effect payment
– Transact insurance
– Others (interest protection, education etc..)
• Transforming these products and services into
digital means
• The irony / challenge is:
– leave alone DFS, millions and millions of adults are excluded from
convectional financial services.

93. Providers
• Banks
• MFIs
• PIIs ((such as gas
stations and super-
markets)
• Other FIs (posta, tele,
SACCOs)
• Licensed non-banks
(Fintech)
Users
• Consumers
• Merchants/Businesses/
• Governments
• NGOs
Use cases
• Storing funds
• Buying
• Sending / receiving
• credit
• Saving
• Insuring assets and risks
DFS Interfaces to users
• Network providers
• Agents
• Processors
(aggregators- like
supper agents)
Services
• Transaction A/c
• Payment services
• Digital Saving
• Digital Loans/credit
• Investment services
• Insurance
b) The DFS ecosystem - Integration
Infrastructure readiness –DFS
enablers
• Payment system,
• communication network
• Energy availability
• ID system
Enabling environment (standard
setting , regulatory and
supervisory)
• Regulatory
• Financial inclusion
• Standards bodies
• Industry groups

94. i) Alignment with the global trend – Catch up with peers
• The world is intensively and extensively going digital
in almost all respects
• Digital health/medicine
• Digital education
• Digital books
• Digital commerce
• Digital war (Russia on US flight stack)
• Artificial intelligence
• Digital finance
» National /International:
» Remittances
» e-commerce
» payments and receipts
c) Generic advantage

95. ii) To max broader benefits of DFSs
• lower transaction costs – Due to scale/low of large
number
» As scale achieved, transaction costs per unit will become
lower – helps to offer suitable affordable P&S
» This will attract more inclusion
• Increase speed – real time payment and receipts
• Ensure security and transparency compared with cash,
• Allow for more tailored financial services that serve
the poor at scale.
» P&S can be designed to the best interest of the
customers or group of customers
• Respond to supply-side barriers to access to financial
services,
» such as branch opening and operation costs
• Respond to demand-side barriers,
» geographical barriers.
• Store huge data – possibility for credit scoring

96. iii) The Covid-19 pandemic
• Has changed our:
– way of living
– Our way of travelling
– Our way of transacting through physical interactions
– Etc…
• Therefore, it gives further opportunity to amplify and
expanding DFS. This is because:-
– it significantly reduces physical contacts in retail and financial transactions
and
– It helps government respond more quickly to extend liquidity to firms and
people most at risk. E.g. G2P
• DFS - particularly through the use of mobile money
– permits remote payments and transactions,
– enables the social distancing recommended to reduce contagion.
– Enables payment from home: - bills , goods and services, transfer
etc…
– enables a rapid financial assistance such as PSNP in the case of
Ethiopia

97. iv) Influence and Enhances other ancillary and related
technological developments
• Telecom network
• Electricity grid
• Digital ID continues to ease ‘know your
customer’ requirements
• Allows DFS to provide data access from
different public and private systems to
improve the speed, and reduce the cost, of
providing DFS without compromising safety
and reliability.

98. v) Control Leakage,
• Digital payments can easily be tracked and reduced
leakage E.g – Indian Case
• Annual social fund transfer was around USD
114 billion
• As they started Hadahar (National ID system)
and through account payments around the
budget reduced to USD 90 billion (saving of
around USD 24 billion)
• Intended beneficiaries receive the full
value of funds they are due.

99. vi) Impact
Source:- Pakistan school Internet Governance (2018)Summary
promote local
Economic
Development as well
as job creation
Reducing the cost
of banking for
existing customers
through mobile
solutions
Targeting the
poor and low
income
To promote FI
Promoting enabling
regulatory and
consumers protection
Increasing the
economic size of
formal financial
sector

100. vii) DFS status of Ethiopia y-o-y basis
Indicators Granular data Per 100 adults
June 2022 June 2023 Growth June 2022 June 2023
# Mobile money A/c -banks 22,364,379 33,887,898 51.5% 40.7 59.5
# Mobile money A/c-MFIs 222,067 930,211 318.9% 0.4 1.6
# Mobile money A/c-Telebir 20,956,246 34,774,678 65.9% 38.1 61.0
Sub-total 43,542,692 69,592,787 59.8% 79.2 122.1
# Mobile banking A/c 16,339,333 27,348,841 67.4% 29.7 48.0
# Internet Banking A/c 4,382,674 6,775,817 54.6% 8.0 11.9
# Debit cards 30,667,514 38,403,675 25.2% 55.8 67.4
Sub-Total 51,389,521 72,528,333 41.1% 93.4 127.2
Total 94,932,213 142,121,120 49.7% 172.6 249.3

101. Indicators Granular data Per 100K adults
June 2022 June 2023 Growth June 2022 June 2023
# of Branches 10,712 13,189 23.1% 19.5 23.1
# Agents-Banks 82,424 118,798 44.1% 149.9 208.4
# Agents-Telebirr 74,452 114,238 53.4% 135.4 200.4
# Agents-MFIs 1,227 2,498 103.6% 2.2 4.4
# Agents-Insurance 2,504 2,716 8.5% 4.6 4.8
Sub-Total 160,607 238,250 44.1% 149.9 418.0
# POS 6,902 7,858 13.9% 12.5 13.8
# ATMs 11,760 12,016 2.2% 21.4 21.1
Total Access points 189,981 271,313 42.8% 345.4 476.0
viii) # of Access points- y-o-y basis

102. #7
Discussion
Question
Identify and discuss at least three
practical challenges observed
around DFS in Ethiopia
– 1st identify types of DFS
– 2nd indicate at least three
practical challenges observed in
these services
– Propose possible solutions

103. 1. General Considerations: Risks posed by DFS
• data privacy concerns exposes consumers for unauthorized
disclosure,
• misuse of personal data, and discrimination
• Fraud
• Unequal access to technology and the ‘digital divide’ can
exclude the poor, particularly women,
• Potentially exposes to predatory lending and over-
indebtedness. (Emerging cases in Ethiopia)
» Brazil Cr. Card IR 480%, digital cr. Is started in Ethiopia (2.6 mil.)
• For the broader financial system, DFS presents
» Cyber-security and operational risks from activities, such as
hacking.
» Trust will be threatened
» pre-paid cards and other tools that may enable individuals to
circumvent AML controls. (causes Black listing)
» risks at the level of individual institution or infrastructure could
spill over to the broader economy (Contagious effect) and pose
macro-financial risks.
4. Challenges - Possible answers:

104. Federal Police Warns Increase
in Mobile Baking Fraud
A drastic surge in mobile banking fraud is putting a record
number of users at risk, Federal Police Crime Investigation
Bureau said.
In the last two months, there were 204 court cases involving
mobile banking fraud, with the average figure reaching 22 a
day, according to investigations working at the Bureau
Financial Education
Do people know how
self protect from these
scams?
FCP / MC
Are procedures for
redress and assistance in
place? Are liabilities
clear in contracts?
Integrity
Are mechanisms to
prevent stolen money
to circulate
adequate?
Are capital provisions
adequate considering
fraud losses
institutions have? Are
operational limits
adequate?
scams?

105. Challenges and risks
Types of DFS Practical challenges Possible solutions
ATM/Debit
card
• Network connectivity
• Some times debit a/c but fail to dispense cash
• Charge Birr 3.5 per mill
• Limite amount of withdrawal
• Shift ATMS to
regional states
POS Devises • Network connectivity
• Not real time
• Takes 2-3 weeks to settle
• Suppliers are not willing to transact with
• Shit POS devices
to rural Ethiopia
USSD • Failure to operate
• No cash delivery and only A/C to A/c transfer
• Intermittent network
• Roll out to
regional states
Mobile
money
• Take over the position of POS devices as it is real
time
• Gradually displaced POS devices
• M-Pessa – Family name comes first (Cultural issue)
• Fraudulent transaction
• Shit POS devices
to rural Ethiopia
• Roll out to
regional states
Agents • Not yet developed well
• No model
• No guarantee for sustainability
• Expand the
services to
regional states
QR code • Not yet well developed (Scan and pay- 24/7) • Speed it up

106. Your PIN is your
secret
!!!

107. • Basic transaction- Cash in Cash out
• Balance enquiry and mini statement
• Customer onboarding
• Bill and utility payment
• Government and private partnership
• Loan repayments
• Social payments
vii) Agents use cases – Products and services
offering trend

108. viv) Why should we care about Agents- Rationale
• They increase financial inclusion
• The increase access to DFS
• They are physical transaction points
• They are more convene for FSPs than branches
• They are more convenient for consumers than
branches
• They partially offer a variety of services
• They can be scaled to rural areas

109. 5. National Digital Payment Strategy (2021-2023)
• NDPS is one of the basic enablers for DFS
– To minimize the risk, threats and challenges (actual and
potential)
– To maximize the opportunity and strength
– To mitigate constraints within the eco system and outside
– It leads the direction and the path to the envisioned goal;
• Imagine where we:-
– Were three years ago
– Where are now
– Where we will be in the next 3 to 5 years
• If we don’t know where to reach, it doesn't matter
which way we are taking. Because, every way takes us
any where
• We don’t want to be everywhere? Can we be?
• We need to be somewhere- so we have to know how to get there
– So we need strategy

110. Instruction:
If you were asked to rank among the strategic factors
for the choice of DFS, how would you react?
• 10 is given to the best rank
• 5 is given to average/moderate rank
• 1 is given to the least rank
• Choose the first 5 factors that you give the
highest priority
1. Innovation
2. Financial inclusion
3. Cash-lite economy
4. Transparency and traceability
5. Market productivity
6. Convenience and speed
7. Leveling gender imbalance
8. Lower transaction costs
9. Security and data
10. Protection
11. Economic growth
Discussion
Question
Identifying
strategic issues and
sorting priority

111. Interviewees prioritized 3 elements to incorporate into NDPS
vision statement: innovative, inclusive & cash-lite
• Innovation – Creating an enabling
environment for local innovation to flourish
and effectively access international resources
• Financial inclusion – responsibly
extending accessibility and usage of financial
services to currently excluded segments with
particular focus on leveling regional and gender
gap
• Cash-lite economy – creating incentives
for faster, easier and secure financial
transactions to significantly reduce reliance on
cash and move to digital
4
Ranking in terms of priority of the
elements to be included in the vision
statement1
8
7
7
Innovation
Financial inclusion
Cash-lite economy
Transparency and
traceability
6
Market productivity 6
Convenience and speed 5
Level gender imbalance 5
Lower transaction costs 5
Security and data
protection
4
Economic growth 2
Scores1 from
discussions
Prioritized focus areas
1. Scores are based on the number of meetings the
elements were prioritized
Visi
on

112. NDPS- Four strategic pillars
(imperative for a successful National Digital Payments Strategy)
1
Vision
Strategic
Pillars
Enablers
Invest in capacity building across the digital payment ecosystem
Build a robust governance and implementation roadmap and monitor success of
key performance indicators
Develop a
reliable and
interoperable
infrastructure
Champion
adoption of
inclusive
digital
payments
Build
robust
and
consistent
regulatory
framework
Create
enabling
environment
for
innovation
Commit to an efficient, reliable and safe national payment system
Build a secure, competitive, efficient,
innovative & responsible payment ecosystem
to support a cash-lite and financially
inclusive economy
Active and on-going coordination with policies

113. Establish full
interoperability
across payment
channels
Infrastructure | 9 actions identified across 2
segments
1
Increase access
points of digital
infrastructure
1. Address technical issues for ATM and POS
2. Expand ATM and POS access points
3. Review business cases to expand agents
4. Increase telecommunications reach through
network and devices
1. Establish ACH for electronic fund transfers
2. Expand interoperability to all players and
platforms
3. Develop a payment gateway
4. Establish real time payments (RTP)
5. Standardize bank instruments

114. Adoption | 13 actions identified across 4 segments
Prioritize scalable
use cases
1. Digitize G2P and P2G payments and collections
2. Digitize PSNP payments
3. Digitize tourism transactions in and out of Ethiopia
4. Digitize payments in agriculture
5. Digitize cross-border remittance
6. Implement cash handling fees to financial
institutions: Withdrawal is up to 50K only
1. Launch an awareness program targeting digital platforms
2. Incorporate digital payment content into financial
literacy programs
1. Capture gender disaggregated data to inform
responsible and intentional decision making
2. Launch services and solutions targeting financially
excluded segments
3. Encourage multi-language availability
4. 13
Develop incentivizes
Create awareness &
literacy programs
Facilitate and
encourage inclusion
1. Impose limits for cash transactions
2. Create tax incentives for electronically paid taxes

115. Regulation | The issuance of 2 new directives is a
strategic step forward, and this strategy builds on that
1
Payment instrument
issuers’ directive
• Allows for Mobile Network Operators and
Fintechs to issue electronic money
• Provides for a tiered KYC approach for
customers
• Allows for limited payment instrument issuers
(such as gas stations and super-markets)
Use of Agents
Directive
• Allows agent network management for Mobile
Network Operator & Fintechs
• Allows for agents, super agents and sub-agents
Provides for agent non-exclusivity
• Allows for outsourcing agent network
management (including training, recruiting,
managing), marketing & branding, to third
party by a financial institution

116. Regulation | 6 actions identified
across 2 segments
1
Reform
regulations
Build regulatory
capacity
• Strengthen regulation and
oversight capacity
• Monitor implementation of new agent directive
• Monitor non-bank financial institution participation in
mobile money services
• Monitor implementation of new KYC clauses
• Strengthen financial consumer protection
• Create legislation to accept e-receipts as proof of
payment

117. Innovation | 3 actions identified across 2
segments
1
Create a
framework
that enables
innovation
Unlock potential of
players in
innovation and
technology
• Clarify roles and responsibilities for Fintech
• Reduce restrictions for foreign participation in
Fintech
• Set up a risk controlled innovation and
technology developing framework

118. #9
Discussion question
Use case is a specific situation in which a
product or service could potentially be used.
Identify General use cases for DFS and discuss
118

119. Possible answers
• Generic
– Speed
– Cost
– Transparency / no more leakages
– convenience
– Security
• Payments:
– G2P (salary, pension, PSNP, other humanitarian assistances etc.
– G2B (payments to suppliers, transfers etc..)
– B2G (corporate taxes, fees, charges etc..)
– B2B ( payment for supplies, transfer etc…))
– B2P ( wages, salaries any benefits and transfer etc…)
– P2G (Bills - water, electricity, telephone; private tax, fees, charges, fines etc…)
– P2B (payment for services, supplies etc…)
– P2P ( remittance, loan, etc…)
• Global order (all payments effected through Digital means) E.g. remittance,
ecommerce, cross boarder payments
• Financial inclusion
• Ease of fraud detection
• Ease of KYC
• Customers education
• Ease of credit underwriting

120. 6. Legal and Regulatory framework
• Proclamation
• A PROCLAMATION TO PROVIDE FOR NATIONAL PAYMENT SYSTEM
No. 718/2011
• NATIONAL PAYMENT SYSTEM (AMENDMENT) PROCLAMTION No.
1282/2023
• Directives
• Payment Instrument Issuers Directive No. ONPS/01/2020
• Payment Systems Operators Directive No. ONPS/02/2020
• Different agents directives issued by BSD, ISD, MFISD
120

121. a) Issues identified in the Directives
• Valid business license requirement to be an agent
– In rural Ethiopia potential agents cannot produce valid business licence
– This requirement automatically rejects rural communities from having access to financial services
through agents who are most needed
• Proof of criminal record requirement
– Agents are required to have “no criminal records” in matters related to finance or fraud. However,
producing such clearance is very difficult especially outside the capital and becoming one of the
restraining factors for the expansion of agents particularly in rural areas, which can possibly be
replaced by other alternatives.
• Daily electronic account balance limit
– The electronic account balance limit is Birr 30,000/75,000
– This has been reported to be low to effect certain higher value payments to merchants,
humanitarian programs, hospitals, pharmacies, universities, schools, taxes, fees, insurance
premiums, loan repayments, fund raisings etc.
• Restricting electronic accounts only to agents, merchants & natural persons
– other type of organizational set up that could make payment and receipts through
electronic accounts like ministries, agencies, authorities, municipals, etc. are technically
excluded from owning electronic accounts.

122. • Lack of risk based and proportional KYC requirements
– For Birr 1million and for 100 Birr the KYC requirement should not be the same
– Has to be reviewed in proportion to the level of risk one brings into the pool
• Difficult requirements to open electronic accounts
– The directive requires submission of photo, introduction by others, and detail profile
for online registration
– Technically difficult for many potential customers to shot a photo, upload and open
account
– Becoming more serious in rural Ethiopia where people use featured apparatus (Not
Smart phone)
• Prohibition of agents to open regular accounts to customers
– In specific terms, this predominantly deprives the rural communities
not to use agents to open regular account for such customers in a
situation where there is no branch network
– Note that:- 38% Woredas in Ethiopia don’t have any branch services.
– The use of agents serves for at least basic account opening is
imperative

123. • Restricting agency service only to a designated geographic location
– The Directive explicitly limit operation areas for agents only to some designated geographic location.
– However, experiences show that agents will be more effective if they follow a mobile operation
mode especially in rural areas where dominantly transactions are run weekly on a fixed local market
dates than locations.
• Restriction of agency services only to those with on-going business
– Agents are required to have an on-going business.
– This prevents potential agents like elderlies, religious and cultural leaders, unemployed
graduates, youthes etc… from serving as full time agents, even though they can fulfil
other requirements of the licensing process.
– This can be compared with banks that particularly send their sales personnel door to
door to induce account opening.
• Lack of affirmative measures to incentivize women agents
– The Directive doesn’t take into account the possibilities to recruit more
women agents.
– However, evidences show that female agents
• improve the acquisition and retention of customers and
• the work of agency is also reported to be more appealing to them as they can easily
target and induce women customers who are half of the potential customer base
and largely excluded from financial inclusion as compared with men.
– Male agents are is some culture not allowed to talk to a women who is
married
– Women agents are more appropriate to overcome such predicament

124. c) Possible reasons for FIs not to transform digitally
and adopt technology
Poor understanding of:-
• Changing clients’
expectations, and
• Hyper competition:
Ddisrupt the
competitive advantage
held by industry leaders
Lack of institutional
commitment and
focus
Limited
understanding or
experience of digital
transformation
Limited resources for
digital transformation
Low to moderate
technical skills
Limited external
support to
transform
Fear of the
unknown and
facing huge
losses.

125. High time to critically
think and change
fundamentally
• This is high time to think:
• Critically,
• Logically, and
• strategically
• To be innovative, bring cultural
shift in the use of DFS from
both DD side and SS side.

126. Layers of inter dependence
NFIS
2021-2025
NFES
NDPS
FSR
MOA
10-yr plan
HGER
PAJC
NEP 2.01
National Digital
Transformation1,2
Telco Sector
Reform1
SOE Reform /
privatization
10-yr NPP
National ID
Program
WEDP2
SMEFP
PEPE
Regional
Development Plans
EDBR
National
Gender Strategy
HSTP II
FSD
RUFIP III
Legend
Government-led
Development partnership
A1: Drive
digital
payments
by scaling
mobile
money
A3: Drive
financial
inclusion for
women
B0-3
deepen
savings,
credit,
insurance
A2: Drive
financial
inclusion in
severely
underserv
ed areas
2. Major
Linkages
1. Direct
Integration
3. Constraints
& Enablers
1
2
3
Layers of
interdependency
Promote
Sharia
Compliant FI
FISF3

127. Stakeholders had a
unanimous view…
3
'The (10 year prospective)
plan assumed a digital
financial sector… it must
happen'
'The end game of this
bank is to
create a cashless
society'
'The world is going
digital and we
need to get
on-board' …that
Digital
Payment
Strategy is
a national
priority for
Ethiopia
'how much longer will we
have to carry cash in
plastic bags'
'እስከመች በፌስታል ብር
ተሸክመን '
Source: Stakeholder
consultation
'This is a critical
strategy… '

128. Final remarks
• Ensure:-
– Responsible transformation to DFS
– Responsible lending
– Responsible borrowing
– Responsible spending
– Responsible repayment
– Responsible FI

129. Thank you
!!!!