The United Nations Capital Development Fund (UNCDF) has announced a programme focused on encouraging digital financial services in Ethiopia.
In partnership with the European Union and the Organisation of Africa, Caribbean and Pacific States (OACPS), the UNCDF – the UN’s capital investment agency for the world’s least developed countries – wants to help in particular women, young people and entrepreneurs that have been hit by the effects of the Covid-19 pandemic.
The programme is part of a €14.5m (£12.5m) four-year initiative signed in January aimed at using digital finance as a tool to help the response to the pandemic and economic recovery across numerous African, Caribbean and Pacific countries.
Since January, the UNCDF has been setting up the team in the country to implement the programme, Endashaw Tesfaye, a digital financial service expert for the UNCDF, told Global Government Fintech this week: “Besides hiring the team, we worked on [an] inception study report that outlines the main market constraints to the development of digital financial services in Ethiopia.”
The UNCDF will work with the National Bank of Ethiopia, Ministry of Finance, Ministry of Innovation and Technology, the private sector and others to support government efforts in expanding the digital finance ecosystem.
Low financial inclusion rate
The UNCDF’s global digital lead, François Coupienne, explained during a video launch event for the programme that it had two broad objectives. First, the adoption of policies and regulations that enable wider access and usage of inclusive digital payments. Second, the development and deployment of digital financial services by government and private providers using payment services and digital solutions that are accessible, affordable, responsible, reliable and appropriate.
Africa’s second most populous country, with a population of more than 110 million, has a low rate of financial services penetration. According to a report by the National Bank of Ethiopia, only 35 per cent of the population has a bank account, while nearly 40 per cent of all bank branches are in the capital city of Addis Ababa.
Tesfaye presented the agency’s digital financial services assessment for Ethiopia during the launch event, which was held on 17 June. He pointed out the clear need for improvement in the quality of digital infrastructure and for services to be expanded to marginalised groups. A lack of education, income and employment were deemed to be the best predictors for a lack of a formal financial services account.
For Ethiopia, Tesfaye explained, the aim of the programme is to improve financial and digital literacy, support innovation in the digital economy and expand the so-called agent network. Banks and other financial service providers sometimes employ networks of agents that act like educators presenting digital services.
“Agent networks are a critical component of the digital financial services ecosystem,” Tesfaye told Global Government Fintech. “Growing the agent network means that we will be working with the operators to encourage them to deploy agents in regions that are not yet well covered or serviced by mobile money agents.” These networks are seen as helpful in reaching customers, particularly in sparsely populated rural areas, at a lower cost than traditional branches.
Assistance for the regulator
The joint-initiative is in line with Ethiopia’s ‘Ten-Year Perspective Development Plan 2021-2030’ and is focused on priority sectors that would contribute to achieving the UN’s Sustainable Development Goals (SDG).
The comprehensive ten-year plan, which was ratified early this year, consists of ten pillars aimed at ‘enabling the country’s high-growth trajectory and position Ethiopia as an African beacon of prosperity’, prime minister Abiy Ahmed said in December 2020. The aim is to sustain the economic growth achieved under the preceding ‘Growth and Transformation Plans’, while putting more emphasis on the private sector.
Over the past decade Ethiopia’s economy has experienced an average 10 per cent annual growth, making it one of the world’s fastest-growing economies. The country aims to eradicate poverty and achieve low middle-income country status by 2025.
During the video launch event, Solomon Damtew, expert for payments oversight at the National Bank of Ethiopia, was asked by the moderator what the UNCDF and others could do to support the regulator. Damtew first pointed out that assistance was needed from the perspective of capacity building as Ethiopia had no experience in regulating third parties in digital financial services and no experience in terms of third parties’ impact on the stability of the financial sector and associated possible risks.
Damtew also emphasised the importance of digital literacy, explaining the country needed a “general change of attitude”. Of 18 million issued debit cards, only 35 per cent are active and 95 per cent of those are used for cash withdrawals only. The necessary change of attitude toward digital financial services could not only come through regulation, Damtew said, adding that assistance from the outside is needed.
WATCH ‘Launch Event – Digital Finance for the Resilience of Women and Youth in Ethiopia’ (01:33:52)