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NBE unveils national strategy to spearhead inclusive finance

NBE unveils national strategy to spearhead inclusive finance

Cash, cheque payments to be digitized

A new financial inclusion national strategy has been devised with a view to reaching out a vast majority of unbanked communities across the country.

Launching the strategy early this week, Teklewold Atnafu, governor of the National Bank of Ethiopia (NBE), said that one of the major targets of the strategy is increasing the number of account holders at regulated financial institutions. Accordingly, as of 2015, the number of account holders transacting via financial institutions or mobile money providers was estimated at 22 percent. The financial inclusion strategy aims to raise that figure to 60 percent by 2020.

Moreover, the strategy underscores that branches of banks or micro finance institutions serving 80 percent of adults should be located no farther than 5 km from each other. Distance of financial institutions came only second to insufficient funding as the major barriers of financial inclusion in a survey by the World Bank Group, according to the governor. However, it doesn’t say how many kilometers they travel to access financial services. The World Bank survey indicated that 78 percent of adults in Ethiopia perceived that there is lack of sufficient funds. Another 12 percent perceived that the remoteness of regulated financial institutions is a barrier for them to open bank accounts, access loans or save money.

It is also targeted to raise the current 14 percent saving accounts to 40 percent by 2020. In addition to that, the six percent adults that currently use electronic payment mechanisms is expected to exponentially increase to 40 percent during the same period. Insurance policy holders will reach five percent as opposed to the existing one percent.

The overall number of people who will know how to open a bank account by the end of 2020 is estimated to be 80 percent against the current 14 percent. All in all, the strategy is set to mainstream micro, small and medium enterprises, households and agriculture as central focus for financial inclusion to expand.

Doing all that, according to the NBE governor, requires expanding financial and other infrastructure. The modern payment system the country envisages to put in place, according to Teklewold, entails provision of improved credit facilities, expansion of inter-operable access points such as agents, Automated Teller Machines (ATMs), Point of Sales (PoS), mobile, internet and card banking and the like. The governor stated that all government payments will be made through financial institutions and digitized to significantly reduce cash- and cheque account-centered transactions in the years to come.

Temesgen Zeleke, head of the newly established financial inclusion secretariat, told The Reporter that there is a huge untapped informal sector where massive savings and credits are transacting. Hence, the national strategy would compete against these modes of informal financial sectors. He argues the targets set are likely to be achieved though they happen to be ambitious.    

Eyob Tesfaye (PhD) is one of the seasoned macro-economists in the country, and currently country director of the United Nations Capital Development Fund (UNCDF) for Ethiopia. Eyob told The Reporter that the strategy came at a time where economic activities require such a bold and a milestone move. According to Eyob, financial inclusion, among other things, will catalyze economic activities to help mobilization of savings. Once bank savings and credits are well faceted with the inflow of remittances, they would eventually help to create more jobs and reduce income inequalities. That, however, requires setting up financial infrastructure and digitization, Eyob said.

Generally, the national financial inclusion strategy has identified four major barriers to tackle. In addition to the poor financial infrastructure, scarce supply of suitable financial products, services and access points, barriers such as inadequate financial consumer protection and low level of financial awareness and capabilities are also on the agenda to be tackled with.

UNCDF is entrusted with providing programs that link remittances with credits and other financial services together with SMEs, cash crops and institutional capacity building support to countries of interest.