ADDIS ABABA UNIVERSITY: SCHOOL OF COMMERCE

Assessment of Financial Inclusion Gaps in Access and Usage of Mobile

A Research Proposal Submitted to Addis Ababa University; School of Commerce in Partial

By: Fanuel Tsegaye GSE/7781/11

Advisor: Dr. Tewodros

November 2020
Addis Ababa

1. Background of the Study

Besides its clear nomenclature, financial inclusion, as defined by the World Bank Group (WBG) is an
individual’s or a business’ access to useful and affordable financial products and services like
transactions, payments, savings, credit, and insurance that will meet their needs in a responsible and
sustainable manner. [ CITATION Wor181 \l 1033 ]

Financial inclusion has been broadly recognized as critical in reducing poverty and achieving
inclusive economic growth. Financial inclusion is not an end in itself, but a means to an end. Greater
access to financial services for both individuals and firms may help reduce income inequality and
accelerate economic growth.[CITATION Dem15 \l 1033 ]

1.2. Dimensions of Financial Inclusion

Financial inclusion by itself is a multi-faceted and broad concept with a number of nuanced
components which can be seen from different dimensions which are discussed briefly below.

Access – reflect the depth of outreach of financial services, such as the penetration of bank branches
or point of sale (POS) devices in rural areas, or demand-side barriers that customers face to access
financial institutions, such as cost or information.[ CITATION Wor12 \l 1033 ]

Usage – measure how clients use financial services, such as the regularity and duration of the
financial product/service over time (e.g. average savings balances, number of transactions per
account, number of electronic payments made).[ CITATION Wor12 \l 1033 ]

Quality – describes whether financial products and services match clients’ needs, the range of options
available to customers, and clients’ awareness and understanding of financial products. [ CITATION
Wor12 \l 1033 ]

Financial inclusion data may also be distinguished based on data source, namely: supply-side
(collected from financial institutions or other providers) and demand-side (household or individual
level studies of the consumer). Both play important roles in measuring financial inclusion, which will
be discussed in the next section.

1.3. Financial inclusion in Ethiopia – Insights from Global Findex 2018

However, financial inclusion in Ethiopia is steadily increasing through the years. According to a
report of a 2014 World Bank Group (WBG) survey – The Global Findex Database, 2014, only 22% of
adults ≥ 15 years old owned a bank account [CITATION Dem15 \l 1033 ] while this number grew to
35% by the year 2017 as reported by a later version of the study – The Global Findex Database, 2018
[ CITATION Dem18 \l 1033 ]. This progress remarked as “an encouraging development” in
Ethiopia’s National Digital Payments Strategy (NDPS).

It is however important to raise some of the key insights of the later study that captures a clear
disparity in account ownership in the country. While a general increase of 13% in financial inclusion
is recorded in the survey the reality is that account ownership has risen by 18% among men since
2014, roughly twice the size of the increase among women.[CITATION Dem18 \p 19 \l 1033 ].

This is an alarming development as in 2014 the study found no gender gap among account holders.
Since then Ethiopia have seen big growth in account ownership — but more among men than among
women. As a result, it now has a double-digit (12%) gender gap in account ownership.[CITATION
Dem18 \p 24,25 \l 1033 ]

Another key gap indicated in the study is among the economic status of bank account-holders. In most
developing economies the gap in account ownership between richer and poorer adults reaches double
digits. Sizable gaps also exist in economies like Ethiopia where the gap is at 21%. Which means, put
differently, wealthier adults are about twice as likely as poorer ones to have an account.[CITATION
Dem18 \p 26 \l 1033 ]

In prospect, gender and income are not the only ethnological characteristics that appear to matter for
the likelihood of owning an account. Grouping people by age, education level, employment status, or
rural residence can also reveal important differences in account ownership.

1.4. Mobile Money and Digital Financial Inclusion

Mobile money or mobile money service also referred to as digital financial service is broadly an
alternate financial technology tool that gives individuals access to financial services such as
transactions and payments performed from or via a mobile device instead of using traditional financial
alternatives like cash, credit/debit cards, or checks.[CITATION mobilemoneytheeconomicsofmpesa \l
1033 ]
The main idea of mobile money is that it is an electronic money that is primarily digital, has mobility
and portability qualities. It differs from other forms of electronic payment (such as credit cards, debit
cards, smart cards, and so on) in that it can mimic the basic characteristics of traditional money, such
as liquidity and acceptance.[CITATION Cer11 \l 1033 ]

Mobile payment systems came to light with the advent of the internet boom of the 2000s with its
earliest patent filing being in December of 2000 by researchers in the United States. [ CITATION
Hui02 \l 1033 ]

Mobile money has sparked interest in part because it is largely seen as a viable means of providing
financial services to millions of individuals throughout the world. Mobile money could transform
financial inclusion. In addition to extending financial services to the poor, mobile money is expected
to improve productivity by increasing the efficiency and lowering the cost of transactions, improving
security, generating new employment opportunities, and creating a platform on which other
businesses can grow.[CITATION Don12 \l 1033 ]

1.5. Mobile Money in Ethiopia

Mobile money is a relatively new phenomenon in Ethiopia. The first mobile money regulation was
issued in December 2012 and it allowed banks and MFIs to offer the service. The first mobile money
service – M-BIRR was launched as a pilot by the Government of Ethiopia (GoE) in 2013 and
officially launched in 2015.[ CITATION GSM21 \l 1033 ]

Mobile money is regulated by the National Bank of Ethiopia (the central bank), which issues
directives and licenses to financial institutions. The first regulation on mobile money was issued in
December 2012 with the mobile and agent banking directive No. FIS/01/2012. [ CITATION
GSM21 \l 1033 ]

As of December 2019, there were 10 mobile money services provided by 18 financial institutions and
10 million registered mobile money accounts.[ CITATION GSM21 \l 1033 ]

As of December 2020, the four most prominent and leading Mobile Money services in Ethiopia are:
CBE Birr (provided by the state-owned Commercial Bank of Ethiopia) with above 3 Million
registered customers, M-BIRR (provided by six MFIs) Above 2.2 Million registered customers,
HelloCash (provided by three banks and one MFI) Above 1.3 Million registered customers, and
Amole Mobile Money (provided by Dashen Bank S.C.) [ CITATION GSM21 \l 1033 ] with 1.9
Million registered users. [ CITATION GSM21 \l 1033 ]

1.6. Key Stakeholders in Mobile Money Services

The mobile money ecosystem utilizes many key stakeholders with different roles for its successful
implementation in a country.

The first stakeholder is the Regulatory Agency that develops the framework, establishes policies and
guidelines, and grants licenses to operators. The National Bank of Ethiopia (NBE) is the regulatory
agency in the case of Ethiopia.[ CITATION GSM21 \l 1033 ]

The second is the Telecom Service Provider also known as Mobile Network Operator (MNO). By
definition, mobile money services assign and use a unique identifier for an individual in the form of a
SIM (Subscriber Identity Module) card and the network infrastructure to send and receive
transaction/payment information. These SIM cards and network infrastructure are provided thus by
the MNO. ethio telecom is the MNO for all mobile money services in Ethiopia as it is the only
company in the country that is in the business.[ CITATION GSM21 \l 1033 ]

The third key stakeholder is the Financial Service Provider (FSP) i.e. a bank or a microfinance
institution (MFI), that under a license from the regulatory agency is allowed to provide mobile money
service. The actual financial service for example entering a specified amount of money into the
receiver’s account/wallet after decreasing the same amount from the sender’s account would be its
role. Various banks and MFIs have their own mobile money services in which they play the role of
the FSP like Dashen Bank and mobile money service Amole.[ CITATION GSM21 \l 1033 ]

The fourth stakeholder is the Technology Service Provider (TSP) - is a financial technology (fintech)
company that develops, provides, and supports the technology systems used for delivering mobile
money services. The role of a TechSP will vary depending on its contract with a bank or MFI. Some
TechSPs will have a broader role in the delivery of mobile money services; a partnership model could
include involvement in operations, marketing, and business development. As with the FSPs,
numerous TSP companies are conducting business in Ethiopia like Dashen’s Amole was powered by
a firm called Moneta Technologies PLC.[ CITATION GSM21 \l 1033 ]

Customers, Agents, and Merchants constitute the last stakeholders in the mobile money ecosystem.
Customers are individuals who use mobile money services. They are required to have a mobile phone,
a SIM card, and a valid ID to register for a mobile money account or a SIM card in their own
name. [ CITATION GSM21 \l 1033 ]
Agents are small and mid-size retail shops that sign an agency agreement with the service provider
and offer mobile money services to customers at their location. Agents receive commission payments
from the service providers.[ CITATION GSM21 \l 1033 ]

Merchants are shops that are registered for a mobile money business account and accept mobile
money as payment for goods and services.[ CITATION GSM21 \l 1033 ]

1.7. telebirr

telebirr is a mobile money service developed by Huawei that is owned and was launched by ethio-
telecom. It facilitates the delivery of cashless transactions. The platform deployed currently has the
capacity of processing up to 100 transactions per second (TPS) and can be scaled up to 1000 TPS in
the future according to Huawei. The service is accessible via SMS, USSD, and smartphone
applications and works in five languages.

2. Statement of Problem

As briefly discussed in the previous section, the survey conducted on financial inclusion by the world
bank (i.e. Global Findex 2018), identified major gaps that this study wants investigate their existence
among the users of telebirr. This study’s approach into these gaps in two-faced.

Firstly, this study aims to determine who benefits – or does not – from the financial inclusion that
telebirr enables. This question entails studies on the supply side data that will be gathered from
telebirr and further questionnaires answered by telebirr users to identify the socio-economic
characteristics of telebirr customers. Groupings based on gender, economic status, literacy level and
employment status will be made. Based on the data gathered, inferences will be made to the existence
of gaps wherever there are disparities among access levels of groups.

The study will therefore try to provide insights on access levels of various groupings and recommend
areas where further actions shall have better yield in the fight to achieve higher rates of financial
inclusion in the country.

Secondly, the study will try and describe how customers use telebirr. This section will try to find
answers on what are the ratios of active users to the inactive ones. Besides that, it will also try to
identify major use cases of telebirr customers. What service is actively used and what is not? How
regularly some services are used and how much money is transacted in each of the services?

telebirr as mentioned above is a relatively new digital financial service compared to the rest of the
mobile money services in the country. However, it has already surpassed the rest in number of
customers reaching 10 million subscribers[ CITATION Teg21 \l 1033 ]. These two facts create the
following opportunities; One, because it is new, no adequate research has been done on telebirr to
date and this study will try to fill the gap in literature on that topic. Two – since it has the largest
number of customers and is the most widely adopted mobile money service in the country, the study
will have a significant practicality in informing decision makers of where the financial inclusivity of
telebirr falls short and provide recommendations in improving it.