Title page 1

Contents 5

Abbreviations 9

Acknowledgements 9

Overview 10

The dynamics of financial inclusion 13

Transitioning from being unbanked to banked 17

Narrowing the gender gap 20

Expanding financial inclusion: broader policy options 23

Chapter one: Introduction 26

Chapter two: Understanding the dynamics: going beyond bank account ownership 32

Measuring financial inclusion 33

GLOBAL FINDEX INDICATORS: FINANCIAL ACCESS AND USE 34

INDEX OF FINANCIAL INCLUSION 35

Evolution of financial inclusion 39

GROWTH IN ACCOUNT OWNERSHIP 39

THE RISE OF FORMAL SAVINGS AND STAGNATION IN FORMAL BORROWING 42

SPATIAL-TEMPORAL EVOLUTION OF INDEX OF FINANCIAL INCLUSION 45

Chapter three: Pathways to financial inclusion 48

Correlates of financia linclusion 52

Entering the financial system: Gateway technology and financial knowledge as pillars 57

Opportunities to boost financial inclusion 65

Chapter four: Gender gap in financial inclusion: trend, explanation, and bridging the divide 70

Explaining the gender gap 74

Bridging the gender gap and fostering financial inclusion 76

Chapter five: Summary and priority policy actions 82

References 86

Annex 1. Additional Information on Measurements and Scores 91

ENUMERATION AREA LEVEL FINANCIAL KNOWLEDGE SCORE 91

Annex 2. Additional Descriptive Statistics 92

Annex 3. Additional Regression Results 95

Annex 4. Additional Figures 104

Tables 8

TABLE O.1. Decomposition of the gender gaps in account ownership 22

TABLE 1. Profile of individual respondents, over time 51

TABLE 2. Account ownership transition matrix 58

TABLE 3. Fairlie decomposition of the gender gaps in account ownership 80

TABLE 4. Oaxaca-Blinder decomposition of the gender gaps in financial inclusion index 80

Figures 6

FIGURE O.1. Account ownership grew, but lags compared to regional and global comparators, 2011-2023 13

FIGURE O.2. Education correlates with owning an account, over time 14

FIGURE O.3. The poor in rural areas remains behind 14

FIGURE O.4. The persistence of gaps of account ownership differs by gender and age group 15

FIGURE O.5. The share of adults saving formally increased, over time 16

FIGURE O.6. Formal borrowing is decreasing over time regardless of place of residence 16

FIGURE O.7. Movement into banked status from 2019 to 2022 17

FIGURE O.8. Movement from saving informally into saving formally between 2019 and 2022 17

FIGURE O.9. Account ownership trajectories and individual characteristics 18

FIGURE O.10. Account ownership trajectories and financial knowledge 18

FIGURE O.11. Banks are the main financial access points for new entrants 19

FIGURE O.12. Payments are through cash, 2022 19

FIGURE O.13. Gender gap on account ownership in Rural-Urban context, over time 20

FIGURE O.14. What drives the gender gap? Socioeconomic status in 2022 20

FIGURE 1. Account ownership grew, but ranks lowest compared to neighboring countries, 2011-2023 39

FIGURE 2a. Account ownership at individual and household level, over time 40

FIGURE 2b. Account ownership by place of residence, over time 40

FIGURE 3a. Rural-Urban gap in account ownership, by wealth, over time 41

FIGURE 3b. Account ownership by gender, over time 41

FIGURE 4a. Account ownership by age, over time 42

FIGURE 4b. Account ownership by education, over time 42

FIGURE 5a. Saving at formal institutions by place of residence, over time 43

FIGURE 5b. Gender gap in saving at formal institutions, over time 43

FIGURE 5c. Saving frequency, over time 43

FIGURE 6a. Household access to credit by place of residence and wealth, over time 44

FIGURE 6b. Source of loan by place of residence and wealth, over time 44

FIGURE 7a. Evolution of index of financial inclusion (IFI), over time 46

FIGURE 7b. Evolution of level of financial inclusion, over time 46

FIGURE 7c. Distribution of financial inclusion index, over time 46

FIGURE 7d. Distribution of financial inclusion index at woreda level, over time 46

FIGURE 7e. Distribution of financial inclusion index in rural areas, over time 47

FIGURE 7f. Distribution of financial inclusion index in urban areas, over time 47

FIGURE 7g. Evolution of financial inclusion across regions, over time 47

FIGURE 8a. Correlates of account ownership in 2019 and 2022 52

FIGURE 8b. Correlates of account ownership by place of residence, 2019 and 2022 53

FIGURE 9a. Education effect of account ownership by gender in 2019 54

FIGURE 9b. Education effect of account ownership by gender in 2022 54

FIGURE 10a. Mobile phone ownership effect on account ownership by gender in 2019 55

FIGURE 10b. Mobile phone ownership effect on account ownership by gender in 2022 55

FIGURE 11a. Proximity to financial institution and account ownership by gender in 2019 56

FIGURE 11b. Distance to nearest financial institution (Median) 56

FIGURE 12a. Account ownership trajectories and individual characteristics 60

FIGURE 12b. Account ownership trajectories and financial knowledge 60

FIGURE 12c. Account ownership trajectories by region 61

FIGURE 13a. Age and sex are associates with entering the financial system 62

FIGURE 13b. Education matters to escape from being unbanked 62

FIGURE 14. Mobile ownership plays a great role to accelerate financial inclusion 62

FIGURE 15a. Financial knowledge facilitates the move towards financial inclusion 63

FIGURE 15b. Financial knowledge gap between urban and rural areas in 2019 63

FIGURE 16. Proximity to formal financial institutions matters to escape unbanked 64

FIGURE 17. New entrants have a low-level financial inclusion 65

FIGURE 18a. Banks are the main get way to the financial system 66

FIGURE 18b. Saving is a commonly used product by new entrants 66

FIGURE 19a. Households and individuals receive payments through cash, 2022 67

FIGURE 19b. Account holders hardly use digital mechanisms to make payments, 2022 67

FIGURE 20. Gender gap in financial inclusion level increased, over time 72

FIGURE 21. Gender gap on account ownership in Rural-Urban context, over time 73

FIGURE 22. Gender gap in account ownership region context, over time 73

FIGURE 23a. Lacks education, by gender, over time 74

FIGURE 23b. Employed adult by gender, over time 74

FIGURE 23c. Mobile use, by gender, over time 74

FIGURE 24a. Financial knowledge distribution, by gender, 2019 75

FIGURE 24b. Financial knowledge distribution, by gender, 2022 75

FIGURE 25a. Counterfactual density estimation, 2019 81

FIGURE 25b. Counterfactual density estimation, 2022 81

Boxes 8

BOX 1. The National Financial Inclusion Strategy 28

BOX 2. Definitions and Measures of variables 36

BOX 3. Estimated models to examine the correlates of financial inclusion 50

BOX 4. Robustness check 56

BOX 5. Transition matrix, financial knowledge index, and model estimation 58

BOX 6. Comparison between those who remained unbanked and those able to enter the financial system 60

BOX 7. Decomposition analysis combining with 2SLS regression method 77

Annex Tables 8

TABLE A.1. Account ownership by region, gender and place of residence, 2019 and 2022 92

TABLE A.2. Account owning individuals and financial institutions by region, gender and place of residence, 2022 93

TABLE A.3. Individual and household saving behavior by region, gender, place of residence, 2019 and 2022 93

TABLE A.4. Access to loan and source of loan by region, place of residence and wealth, 2019 and 2022 94

TABLE A.5. Estimates for probit model on account ownership 95

TABLE A.6. Estimates for probit model on account ownership for urban-dominated regions and other regions 96

TABLE A.7. Estimates for ordered logit model on level of financial inclusion 97

TABLE A.8. Linear regression estimated results on a z-score of financial inclusion index 99

TABLE A.9. Estimates for logit regression on moving out of financial exclusion 100

TABLE A.10. Estimates for decomposition analysis on gender gaps in account ownership, 2019 101

TABLE A.11. Estimates for decomposition analysis on gender gaps in account ownership, 2022 102

TABLE A.12. Estimates for Oaxaca-Blinder decomposition analysis on gender gaps in financial inclusion, over time 103

Annex Figures 7

FIGURE A.1. Account ownership, by wealth, over time 104

FIGURE A.2. Use of financial services by account holders, over time 104

FIGURE A.3. Mobile phone penetration by gender, location, over time 104

FIGURE A.4. Usage of financial institutions, over time 104

FIGURE A.5. Usage of financial institutions by place of residence, over time 105

FIGURE A.6. Age and gender effect on account ownership in 2019 105

FIGURE A.7. Age and gender effect on account ownership in 2022 105