Abstract:

This paper is aimed to highlight the major developments in the banking sector in Ethiopia, particularly, before and after reform period. It also tried to assess the status, trends, and other issues in financial inclusion using data from the World Bank Findex Database, annual reports and prior empirical findings. Before the reform period, particularly during the Dergue regime, the banking sector was dominated state owned banks. Following the reform, domestic private investors were allowed to enter in the financial sector, and hence few privately owned financial institutions (banks and insurance companies) were established. However, public banks’ market share remained extremely high, albeit private banks’ share was markedly increased in the later stages of the reform period. The level of financial inclusion in Ethiopia is extremely low compared to other Sub-Saharan Africa economies. It has got a policy priority by the government since 2016, and hence showed significant progress in recent times. The paper also highlighted that education, financial literacy, gender, age, residence, preference for formal financial services, distance, GDP, income, religion, and trust on financial service providers, were the main determinants of financial inclusion. The performance of banks and the level of financial inclusion have been significantly improved after the financial reform. This implies that the government has to unlock the financial sector, specially the banking sector, as it will further enhance the level of financial inclusiveness. It is also recommended that banks should design and provide financial products suitable to their customers, build customers’ trust, and enhance financial literacy level.