Imagine Tigist, a mother of four in a rural village in Ethiopia, safely saving her income through her mobile phone instead of hiding cash under her mattress, or Henok, a young entrepreneur, accessing digitally enabled microloans to expand his local shop. Picture Feven, a farmer, seamlessly receiving government subsidies and paying for agricultural supplies electronically. These scenarios represent the transformative power of digital financial services (DFS) and the potential benefits of financial inclusion for underserved rural communities and vulnerable groups like women and small business owners.

Driven by the Digital Ethiopia 2025 Strategy, the journey towards financial inclusion is gaining momentum in Ethiopia. A review of the World Bank’s Global Findex 2022 data about financial inclusion in Ethiopia reveals that despite progress, challenges such as gender disparities and limited access to formal financial services persist. Mobile money adoption is low compared to other countries in the region. However, recent regulatory changes and expanding network coverage show potential for growth.

To address the challenges and ensure inclusivity for Ethiopia's citizens, collaboration and innovation must thrive and should be guided by policy and regulation development. Multi-stakeholder engagement is also crucial to ensuring that strategies are holistic and inclusive. Aligned with this vision, UNCDF and its partners, the European Union (EU) and the Organization of African, Caribbean and Pacific States (OACPS), under the DFS4Resilience Programme, convened ecosystem players in a working group, now an association called, ‘Ethiopia Digital Financial Service Providers Association’, (EDFSPA) to contribute to efforts towards advancing the government's digital goals.

The EDFSPA, comprised of ecosystem players, including payment providers and issuers, fintechs, banks, and microfinance institutions, undertook a series of impactful initiatives in 2023. A key activity on its calendar was the mixer series. These mixers were not just industry gatherings but also catalysts for change, bringing together key stakeholders and experts to discuss critical issues in DFS. These included:

• How user-friendly DFS products and services could be developed and tailored to the needs of underserved and vulnerable communities?
• How Ethiopians could be empowered to understand and utilize DFS safely and effectively?
• How a regulatory environment that fosters innovation while protecting consumers could be developed.

Building on the strides made in 2023, EDFSPA is now rolling out its 2024 Mixer Series with a renewed commitment to achieving strategic and impactful outcomes. Here is a look at the key themes explored and the actionable steps agreed on during the 2023 mixers.

Mixer 1: Leveling the Playing Field in the Payment Space

The inaugural mixer addressed the need for a level playing field in the digital payment landscape. Discussions centered on fostering healthy competition and ensuring that both established players and new entrants have opportunities to thrive. The commitment is to work with the government and other stakeholders to nurture a healthy ecosystem where a wide range of innovative service offerings will be available even in the country's most remote corners. So that a small business owner in a rural area can accept digital payments from customers across the country, or a farmer can pay for supplies electronically. EDFSPA board member, Yoseph Kibret remarked, "The discussions on levelling the payment space was eye-opening. It's not just about competition; it's about fostering an environment where innovation thrives."

Mixer 2: Promoting Innovation and Inclusion via Shariah-Compliant Digital Financial Services

Imagine a mobile banking platform that adheres to Shariah principles, allowing previously unbanked Ethiopians to save securely, access microloans, and conduct everyday transactions in accordance with their faith. This mixer explored the transformative power of inclusive DFS in fostering financial inclusion and empowering Ethiopians to participate fully in the digital economy.

Participants emphasized the importance of aligning financial services with cultural and religious norms, empowering Ethiopians to participate fully in the digital economy. They explained this would create a more accessible and equitable economic system that resonates with a broader range of Ethiopians.

Mixer 3: Revolutionizing Access to Capital for MSMEs: Consumer Protection and Regulatory Implications of Digital Lending.

Micro, Small, and Medium Enterprises (MSMEs) were the focus of the 3rd mixer, with discussions on access to capital and regulatory implications. Participants agreed on the need for responsible lending practices that benefit both lenders and borrowers, fostering a thriving and inclusive digital financial ecosystem. The mixer emphasized the pivotal role of DFS in fueling the growth of MSMEs while safeguarding the interests of consumers. A clear example cited is how MSMEs can drive innovation and job creation by being empowered to access digital loans. At the same time, robust safeguards are in place to protect them from over-indebtedness. Participants agreed that fostering a well-regulated digital lending ecosystem is an essential aspiration for the future.

Mixer 4: The Ethiopian Payment Landscape: Opportunities and Challenges for Operators.

The 2023 DFSPA mixer series concluded with a crucial discussion on Ethiopia's payment landscape, focusing on mobile money expansion. Participants explored growth opportunities, emphasizing the need to expand agent networks, promote financial literacy for mobile money usage, and foster innovation in mobile payment solutions. Interoperability was highlighted as key to enhancing efficiency and convenience for users, especially in rural areas, potentially bringing a significant portion of the unbanked population into the formal financial system.

While acknowledging these opportunities, the mixer also addressed challenges such as cybersecurity threats. Participants stressed the importance of collaboration between operators, regulators, and consumers to mitigate these risks and build trust in the system. A clear and supportive regulatory framework is also essential for responsible growth in the digital payment sector. Expanding internet and mobile network coverage, particularly in rural areas, ensures nationwide access to digital payment services.

What Next for 2024?

The 2023 DFSPA mixer series was a significant step towards contributing to a more inclusive financial future for Ethiopia. As EDFSPA prepares to roll out its 2024 activities, it is committed to translating the key takeaways from these discussions into actionable steps. The goal is to ensure that the transformative power of an inclusive digital economy is felt by Ethiopians across the nation, empowering them to contribute to Ethiopia's continued growth and prosperity.