Professional Documents
Culture Documents
117
JULY 2014
= wN?^ v
National Bank of Ethiopia
eM l
Telephone
11-5-517430
7 e
Fax
7
Name of Banks
011-5-514588
= v
Commercial Bank of Ethiopia
011 551 12 71
011 551 45 22
Develpment Bank of Ethiopia
e^i u=e v
Construction & Business Bank S.C
i =}`iM v .T
Awash International Bank S.C
i v .T
Dashen Bank S.C
u=c=> v
Bank of Abyssina S.C
v .T
Wegagen Bank S.C
Qw[ v .T
United Bank S.C
w =}`iM v .T
Nib Intenational S.C
*aT> Qw[ e^ v .T
Cooperative Bank of Oromia S.C
vd =}`iM v .T
Lion Iinternational Bank S.C
S v .T
Zemen Bank S.C
*aT> =}`iM v .T
Oromia International Bank S.C
w`H =}`iM v .T
Berhan Intenational Bank S.C
u< =}`iM v .T
Bunna International Bank S.C
v v .T
Abay Bank S.C
=e =}`iM v .T
Addis International Bank S.C
Debub Global Bank
Enat Bank
011 551 31 20
011 551 16 06
011 551 81 71
011 551 51 03
011 557 00 65
011 662 77 65
011 465 41 27
011 465 30 37
011 553 06 63
011 551 04 09
011 552 35 26
011 552 35 20
011 465 52 84
011 465 52 43
011 550 33 04
011 550 43 49
011 550 60 25
011 515 04 89
011 662 71 11
011 662 59 99
011 554 00 57
011 557 20 01
011 156 15 85
011 663 01 25
011 158 08 31
011 515 83 14
011 515 89 23
011 552 88 52
011 554 97 74
011 515 74 75
Insurance Companies Name & Address
No
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
Name of Institutions
Ethiopian Insurance Corporation
.
National Insurance Company of Ethiopia S.C.
..
Awash Insurance Compay S.C.
..
United Insurance Company S.C.
.
Africa Insurance Company S.C.
..
Nile Insurance Company S.C.
..
Nyala Insurance S.C.
..
Global Insurance Company S.C.
..
Nib Insurance Company S.C.
..
Lion Insurance Company S.C.
..
Ethio Life and General Insurance S.C.
..
Oromia Insurance Company S.C.
..
Abay Insurance S.C.
..
Berhan Insurance S.C.
.
Tsehay Insurance S.C.
..
Lucy Insurance S.C.
..
Bunna Insurance S.C.
011 551 24 00
011 551 74 99
011 466 11 29
011 465 06 60
011 557 02 09
011 557 02 05
011 465 56 56
011 663 77 16/19
011 662 45 79
011 442 60 00
011 442 57 54
011 662 66 67/69
011 662 67 07
011 156 74 00
011 156 04 83
011 553 51 29/32
011 552 81 94/96
011 618 70 00
011 663 29 36/47
011 554 96 50/52
011 550 31 38
011 554 51 31
011 895 95 80
011 553 53 00
011 553 55 50
011 467 44 31
011 467 44 23
011 1-119827
0911-214675
0910-501036
011 157 60 54
011 111 96 35
011 557 02 08
011 465 32 58
011 467 19 34
011 663 82 53
011 442 60 08
011 662 67 06
011 156 62 00
011 552 81 93
011 663 29 40
011 554 96 53
011 550 31 92
011 515 76 90
-
BIRRITU
Editorial Board Chairman:
Birritu No.117
Gebreyesus Gunte
Birritu is a quarterty
magazine published by
The National Bank of Ethiopia.
It presents in-depth articles, researches
and news on banking, insurance &
microfinance.
Members:
Address:
Birritu Editorial Office
Tel. +251 115 17 51 07
+251 115 53 00 40
P.O.Box 5550
Addis Ababa,Ethiopia
Alemayehu Kebede
Solomon Desta
Temesgen Zeleke
Fikru Gezahegn
Abel Solomon
Elias Salah
Editor-in-Chief
Elias Salah
.117
(Table of Contents)
(Pages)
Editors Note
Our esteemed readers, we are content to meet you again with 117 issue of Birritu.
The Editorial team as usual attempted to sort out and come up with relevant
and timely topics.
In the News column there are two news about recently issued new Directives
by NBE and report by IMF on Ethiopian Economy. The two topics selected for
the research are Saving-Growth Nexus in Ethiopia and Structural Competition
of Banking.
The Educational and informative Articles section contains article about Financial
literacy and Interview with Women affairs officer of NBE.
Finally, on the Miscellany Section we have presented the Brief Synopsis of Joseph
E. Stiglitz and a poem for Entertainment.
Dont forget the value of your feedbacks and comments that would contribute
for enriching the coming issue of Birritu. So, keep forwarding your comments
and suggestions.
.117
News
NBE Issues Two New Directives
Research Articles
.117
I. INTRODUCTION
Ibrahim Fereja
Asssistance Reserch Officer
Domestic Economic Analysis
and Publication Directorate
.117
the second period of their life when they
grow old. Thus, the volume of their savings
depends on how much they earn during
the middle age.
Empirically, the relationship between
savings and economic growth is studied
using correlation and dynamic models.
However, many recent studies focused on
the dynamic relationship of savings and
economic growth using the concept of
Granger causality. Lean and Song (2009)
have examined the short-run and longrun relationship between savings and
economic growth in China using Granger
causality test via time series annual data.
They found bi-directional causality between
gross domestic savings and economic
growth in the short-run. In the long-run, a
unidirectional causality exists running from
the gross domestic savings to economic
growth. Bassam (2010) has examined
the long run relationship between real
gross domestic product and real gross
domestic saving for Morocco (1965-2007)
and Tunisia (1961-2007). His results reveal
that in Morocco, a long-run relationship
III. METHODOLOGY
3.1. Model specification and estimation
The Granger Causality method regresses
variable X on its own lagged values (Xt-i)
and the lagged values of another variable
Y (Yt-i). Thus, serial correlation in the pair
of variables is eliminated, and all that
remains is the correlation between them.
If the coefficients of the lagged values of
Y are significant, then Y Granger causes
X. Similarly, to substantiate the reverse
possibility, one regresses Y on its own
a 112
a1 2
a1 n
X t 1
+
+
...
n
Yt 1
a 21
a n 12
an2
21
n 11
112 X t 1
+ ... + n 1
1
2 Yt 1
2
1
+
Yt n 2t
. (1)
rank 1.
Given the above equation let us test the
direction of causation between savings
and growth, we can rewrite (1) in a more
explicit form, where the assumption of cointegration has been added:
n 112 X t n 1 1
+
[ 1
n 1 2
Yt n 1 2
X t 1 1t
+
Yt 1 2 t
2 ]
1 21 = ... = 21 n 1 = 0, 2 = 0
According to Masih and Masih1996, The two
parts of the test have been labeled as the
tests of short-run and long-run Granger
causality in the literature. Long run should
not be interpreted in a temporal sense here;
deviation from equilibrium is of course
.117
3.2. The data
Different measures of savings and growth
are used. Economic growth is measured in
terms of an increase in the size of nations
economy. Abroad measure of an economys
size is its output. The most widely used
measure of economic output is the Gross
domestic product. (GDP): defined as the
market value of the goods and services
produced by the country and the data is
used from National Bank of Ethiopia data
statistics. For saving, National savings (NS):which is the sum of public and private
Mean
Median
Maximum
Minimum
Std. Dev.
Skewness
Kurtosis
Jarque-Bera
Observations
10
Gross domestic
product
10.61585
10.31378
13.22936
8.768384
1.379959
0.503488
2.051957
3.108276
39
National saving
8.491068
8.142820
12.05941
5.773212
1.801829
0.394229
1.993002
2.658033
39
Domestic saving
7.885623
7.532329
11.58424
5.773212
1.498624
0.688898
2.715519
3.216284
39
Public saving
8.285264
8.008997
10.90917
0.955511
1.569532
-2.218581
13.62518
2.15.4470
39
Private saving
8.264541
8.075831
11.72907
6.010189
1.706769
0.345046
1.902303
2.731897
39
GDP
NS
DS
PS
PTS
Gross domestic
product(GDP)
National saving
(NS)
Domestic saving
(DS)
1.000000
0.989958
0.958615
0.517174
0.985064
0.989958
1.000000
0.977024
0.504893
0.989622
0.958615
0.977024
1.000000
0.510181
0.962995
Public saving(
PS)
0.517174
0.504893
0.510181
1.000000
0.446048
Private saving
(PTS)
0.985064
0.989622
0.962995
0.446048
1.000000
Critical value
at 5%
Augmented dickey
Critical value
fuller statistics
at 5%
with trends
LDS
0.566120
-2.941145
-2.113520
-3.533083
LNS
0.829384
-2.941145
-2.763976
-3.533083
LPS
-3.703737
-2.941145
-4.412254
-3.533083
LPTS
2.071003
-2.943427
-2.935638
-3.536601
LRGDP
1.784208
-2.941145
-1.551228
-3.536601
11
.117
Table 4: Unit root test results at first difference
variables
Augmented
dickey fuller
statistics without
trends
Augmented
dickey fuller
statistics with
trends
Critical value at
5%
Critical value at
5%
DLDS
-7.165440
-2.943427
-7.588337
-3.536601
DLNS
-7.378746
-2.943427
-7.807284
-3.536601
DLPS
-10.25169
-2.943427
-10.17205
-3.536601
DLPTS
-10.62363
-2.943427
-11.83570
-3.536601
DRGDP
-4.239593
-2.943427
-4.523439
-3.536601
Table 5: The result of Lagrangian Multiplier test in level and first difference
variable
X2
Proba.
variable
X2
Proba.
LDS
9.407526
0.0090
DLDS
3280453
0.1939
LNS
3.825606
0.1476
DLNS
2.596519
0.2730
LPS
27.99618
0.0000
DLPS
4.519909
0.1043
LPTS
5.655818
0.0591
DLPTS
3.854712
0.1455
LGDP
3.606796
0.1647
DLGDP
4.045019
0.1323
12
X2
Proba.
variable
X2
Proba.
LDS
0.297893
0.5852
DLDS
0.000320
0.9857
LNS
0.043225
0.8353
DLNS
0.036892
0.8476
LPS
0.031473
0.8591
DLPS
0.035607
0.8503
LPTS
0525086
0.4686
DLPTS
0.000809
0.9773
LGDP
0.065617
0.7978
DLGDP
0.795093
0.3725
null
alternative
Trace
Statistic
Critical
value at 5%
Max-Eigen
Statistic
Critical value
at 5%
LRGDP& LDS
r=0
r=1
19.95425
15.49471
19.75967
14.26460
LRGDP& LNS
r=0
r=1
16.40421
15.49471
15.01830
14.26460
LRGDP&LPS
r=0
r=0
r=1
r=1
23.67386
15.49471
19.45537
14.26460
25.07698
15.49471
21.17701
14.26460
LRGDP&LPTS
13
.117
4.2.4. Causality test
Vector error correction model is estimated
to examine the causal relationship between
savings and economic growth in Ethiopia.
The long run causality is checked by
using the t-ratios of the error correction
terms. They are basically the coefficient
of speed of adjustment which shows how
strongly the deviation from equilibrium
feed back into the system. The short run
causality is determined by the t-values
of the coefficients of the lagged terms of
independent variables. This procedure is
particularly attractive over the standard
vector autoregressive because it permits
14
t value
3.61112
0.43795
4.64609
-0.11009
4.57944
1.35424
4.38340
-0.36409
lags
t value
DLGDP DLDS
1 2
-2.06139(1)
DLDS DLGDP
1 2
-0.14020(2)
DLGDP DLNS
1 3
-2.12580(1)
DLNS DLGDP
1 3
-0.69860(2)
DLGDP DLPS
1 3
3.375429(3)
DLPS DLGDP
1 3
-0.85979(2)
DLGDP DLPTS
1 2
-2.12976(2)
DLPTS DLGDP
1 2
-0.42292(2)
15
.117
5.2. Recommendation
The results of the paper are unidirectional
for both long run and short run causality.
Both in the long run and short run
unidirectional causality runs only from
gross domestic product to savings. So, the
paper leads to recommend that aggressive
growth enhancing policy should be
directed towards increasing individual
income so as to create surplus that in turn
increases saving. That is, growth should
be enhanced to scale up saving. Although
VI. References
Aylit, T. (2003). The Relationship between Savings and Growth in South Africa: An Empirical
study. University of Witwatersrand
Bassam, AbuAl-Foul (2010) The Causal Relation between Savings and Economic Growth:
Some Evidence from MENA Countries, Being a Paper Presented at the 30th MEEA Meeting in
Atlanta, January
Dawit, S. (2005). Causal Relationship between Economic Growth and Gross Domestic Savings:
Case of Ethiopia, Department of Economics, Addis Ababa University.
Jappelli, T. and M. Pagano (1994). The Determinants of Saving: Lessons from Italy, Paper
presented at the Inter-America Development Bank Conference, on Determinants of Domestic
Savings in Latin America, Bogota, Colombia.
Johansen, S. (1988), Statistical Analysis of Co-integrating Vectors, Journal of
Economic Dynamics and Control, 12: pp. 231-54.
16
17
.117
Structure Competition of
Banking Industry in Ethiopia
Zemzem Ahmed
Back ground
Banking occupies one of the most important
positions in the modern economic world. It
is necessary for trade and industry. Hence it
is one of the great agencies of commerce.
Although banking in one form or another
has been in existence from very early times,
modern banking is of recent origin. It is one
of the results of the Industrial Revolution
and the child of economic necessity. Its
presence is very helpful to the economic
activity and industrial progress of a country.
In Ethiopia the birth of modern banking
traces back to the imperial era, Bank of
Abyssinia being the first modern bank in
Ethiopia. The industry has passed through
different political and economic situations
which have played a great role in giving
different features and shaping the industry.
Shortly summarizing the history of modern
banking in different era; during the imperial
era different banks were allowed to function
in the country i.e. both domestic and foreign
banks, but after the socialist regime took
over the power in 1974 it nationalized all
private banks and restricted the entry of any
18
Gashaw Dessalegn
Literature review
Theoretical literature review
In assessing competition, there are two
famous approaches known as structural
and non-structural approaches. The
structural method has its roots in the theory
of industrial organization that measures
competitiveness following the StructureConduct-Performance (SCP) paradigm and
the alternative efficiency hypothesis (EH).
The SCP paradigm, having its origin in the
19
.117
On the other hand, the EH, which stems
from Demsetz (1973) and Peltzman (1977)
as cited in Hamza (2010) postulates that,
the most efficient firms increase in size and
therefore, in market share at the cost of less
efficient banks because of their ability to
generate higher profits, leading to higher
market concentration. However, various
researches suggest that, the number of
banks and the concentration index are
not sufficient to assess the degree of
competition. Some researchers noted the
fact that a higher level of efficiency for
banks can increase profits is not necessarily
related to market concentration. The oneway causality from market structure
to market performance implies a
positive link between market structure and
profitability which may be not a correct
signal of the SCP hypothesis.
As noted by Kalle Ahi (2012) numerous
papers exist which have investigated
the trade-off between competition and
concentration in line with SCP and EH
and have generally found that there is no
evidence that banking sector concentration
is negatively related with the level of
competition.
The recognition of these shortcomings in
the structural stream gave birth for other
three non-structural models of competitive
behavior. The model by Iwata (1974),
Bresnahan (1982) and Lau(1982), allow for
20
Empirical literature
Several empirical studies have used the
method of Panzar and Rosse to assess the
degree of competition in banking industry.
Most of results reveal that, the degree of
competition in many countries lies under
Countries
Years
Results
Hamza (2010)
Tunisia
1999-2008
MC
Nepal
2001-2009
MC
Czech
2001-2009
MC
Adam Mugume
Uganda
1995-2005
MC
1986-2005
MC
1993-2010
Spanish
Central and Eastern
European (CEE) Loan
Markets
Hong Kong
1992-2002
PC
101 countries
1987-2004
1993-2002
21
.117
3.2. Methodology
To analyze the competitive structure of
Ethiopian banking sector we applied both
structural and non structural methods.
There are two frequently used indices of
market concentration. The first is the k
bank concentration ratio which takes the
market shares of the k largest banks in the
market. This index is based on the idea that
the behavior of a market is dominated by a
small number of large banks. This study uses
one bank (Commercial Bank of Ethiopia)
and five big banks (Commercial Bank of
Ethiopia, Construction & Business Bank,
Awash International Bank S.C, Dashen Bank
S.C, Bank of Abyssinia S.C) concentration
ratio.
The second measure is the HirschmanHerfindahl index (HHI), the sum of squared
market shares of all banks operating in the
market. HHI captures the number of firms
in the industry which is not considered in
k-bank concentration ratio. Generally,
increasing HHI indicates a decrease in
market competition and increase in the
market power of larger firms. The HHI is
computed as,
22
=
Where, RT is the ratio of total revenue to
total assets. This dependent variable now
includes non-interest revenues. The H
statistic equals b + c + d. We will test again
(1)
(2)
whether H = 1 and whether H = 0 (F-tests). In
what follows we refer to H2 as the H-statistic
based on model (2).
23
.117
Equilibrium test I
The PR-model is only valid if the market
is in equilibrium. The test for long-run
=
=
Following Claessans and Laeven (2004) and
Casu and Giradone (2006) the measure of
ROA and ROE is calculated as ln(ROA) and ln
ROE. We define the equilibrium E-statistic as
b + c + d. We test whether E = 0, again using
an F-test. If rejected, the market is assumed
not to be in equilibrium. We refer to E1 as
the E-statistic based on model (3) and to E2
as the E- statistic based on model (4).
Empirical Analysis and Results
The descriptive statistics of variables has
been summarized and some interesting
reservations exist in Ethiopian banking
industry. There is significant difference
between mean and median statistics which
is the result of high degree of domination
of large banks specifically the Commercial
Bank of Ethiopia during the years of sample
24
(4)
period, the result of concentration ratio also
confirms this.
Bank Concentration Ratio
Ethiopias banking system is highly
concentrated.
Concentrated
banking
systems are not necessarily uncompetitive
actually for example, in open systems,
the threat of entry can restrain incumbents
from overcharging (Claessens and Laeven
2004; Demirg-Kunt, Laeven, and Levine
2004). But concentration does often go
hand in hand with market power, especially
when contestability is weak. Indeed,
economic theory provides conflicting
predictions about the relationship between
the concentration and the competitiveness
of the banking industry and banking system
fragility.
No.
Banks
of
8
8
8
8
9
9
10
12
14
15
16
17
CR1
0.807843
0.772222
0.73773
0.715021
0.689791
0.657553
0.644358
0.612049
0.581104
0.590749
0.625667
0.641376
0.67295521
Asset
CR5
0.951213
0.930211
0.916629
0.90132
0.896104
0.876837
0.863047
0.842031
0.818684
0.806295
0.823848
0.821249
0.87062241
CR1
0.728203
0.669982
0.596539
0.55716
0.497481
0.380012
0.372612
0.486552
0.481175
0.491979
0.530557
0.591847
0.532008
Loan
CR5
0.937923
0.915123
0.876011
0.850358
0.829549
0.780849
0.762426
0.798012
0.777595
0.769161
0.779464
0.797865
0.822861
CR1
0.819916
0.787984
0.750252
0.729593
0.686718
0.667182
0.640078
0.611386
0.578061
0.598149
0.628613
0.656858
0.679566
Deposit
CR5
0.95932
0.944697
0.93099
0.920135
0.895354
0.883136
0.869714
0.852316
0.832322
0.820782
0.833453
0.833285
0.881292
Authors Computation
The Ethiopian banking industry is generally
characterized by the dominant position
of the one large bank. The share of this
bank in the overall assets of the banking
industry was 80.78 percent in 2001. Since
then, the structure of the banking sector
has evolved significantly to 64.1 percent in
2012. As already noted, a key feature of the
Ethiopian banking sector is the degree of
concentration on all asset, loan and deposit
sides, reflecting both the structure of the
economy and the size of the banking system.
Traditionally, research and public policy
concerns about concentration in product
markets have focused on the social loss
associated with the exercise of market
power at high levels of concentration. The
higher prices in concentrated markets bring
about restriction of output relative to the
competitive level and thereby misallocated
resources (Berger and Hannan, 1998).
In addition to the traditionally recognized
higher prices and reduced output from
25
.117
4.2. Hirschman-Herfindahl Index
While one-bank and five bank concentration
ratios provide useful information about the
market structure, these measures do not
take into account the number of banks
operating in the banking sector. As is well
known, the number of market participants
in the industry has a direct bearing on
issues of concentration and competition.
Another widely used measure of market
concentration which overcomes this
problem is the Herfindahl-Hirschman Index
Herfindahl-Hirschman Index
Year
No. Banks
Asset
Laon
Deposit
2001
0.658703
0.54281
0.677954
2002
0.604717
0.466977
0.62871
2003
0.555624
0.382634
0.573879
2004
0.524342
0.342885
0.54485
2005
0.490519
0.288387
0.487646
2006
0.450343
0.205383
0.463361
2007
10
0.434221
0.198669
0.430251
2008
12
0.3965
0.275847
0.396669
2009
14
0.36215
0.267325
0.360558
2010
15
0.370225
0.273946
0.379267
2011
16
0.408788
0.308847
0.413075
2012
17
0.425123
0.369536
0.444819
0.473438
0.326937
0.48342
Average
Authors Computation
The HHI for asset was 0.6587 in 2001 and
decreased to 0.4251 in 2012. Similar is the
evidence for total loan and deposit. The
values of HHI for all major indicators of
the banking sector are very high over the
26
27
.117
Table 4 Competitive environment test (GLS Estimation)
Constant
Lnpf
Lnpl
Lnpk
Lnscale
Lncapast
Lnbr
Dummy
R-squared
Chi2(7)
Prob>chi2
H0 : H=0
H0 : H=1
H-statistic
2008-2012
-0.3106194 (0.74)
0.4855484**(3.29)
0.0225151(0.1)
-0.060157(-0.56)
0.1082831(1.52)
-0.1063185 (-0.63)
0.7154753***(4.1)
0.8682
Chi2(6)=367.03
0.0000
Chi2(1)=4.38 Reject
Chi2(1)= 6.65
Reject
0.447907
Authors Computation
We estimated the model for the entire
period, 2001-2012 and for one sub-period,
2008-2012 to investigate the effect of
newly entering banks to the industry. Table
4 reports our econometric results. The Wald
test in this table rejects the hypothesis
for the market structure of monopoly or
perfect competition at 1% significance
level; this allows us to conclude that total
bank interest revenues appear to be earned
in conditions of monopolistic competition.
The H-statistic of 0.66 would suggest that
the banking industry in Ethiopia operates
in monopolistic competitive environment
during the full sample period (2001-2012).
The model seems to be relatively precisely
estimated with a number of statistically
significant variables. The positive value
of H statistic indicates that the industry is
characterized by monopolistic competition
28
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model for both interest based market
and total revenue based market. The
results from PR model estimate indicate
monopolistic competition in Ethiopian
banking industry. The rejection of
monopoly market competition and perfect
competition confirms it. The test results
indicate that the market is equilibrium in
the long run. The value of H-statistic in total
revenue based market is lower than that for
interest income based market suggesting
that there is lower competition among
banks in non-interest based or fee based
market. The banks managers can develop
their strategies accordingly.
In addition, the result shows the larger banks
are better able to generate more revenue.
The results are robust to different model
specifications and different estimation
techniques. The effort of the government
on the promotion of competition has
helped change the banking market
structure from monopoly to monopolistic
competition. Indeed, before 1990s, the
Ethiopian banking system was dominated
by a few government banks that had
monopoly power in the market but after
the 1991 reform, we observe a change in
the structure of the banking market, where
competition among banks has started
playing a fundamental role.
The PR result supports that the non
structural argument that concentration is
not a proxy for market structure, there is
30
31
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By: Frezer Ayalew, NBE.
Microfinance Institutions Supervision
Director(NBE)
1. Introduction:
Financial inclusion, being an important
means to tackle poverty and inequality in
a given society, has become a hot topic in
the international arena. Financial inclusion,
among others, creates a formal mechanism
to make savings in a manner that smoothes
consumption and manages risks in a manner
that protects asset depletion and further
damage to the well being of those people.
The two main pillars that make financial
inclusion a reality in a given jurisdiction
include: access to different financial services
that meet the needs of customers at an
affordable price, and regular and enhanced
utilization of these services by the public.
In this regard, access to financial services
extends well beyond the provision of credit
to availability of well tailored saving and
investment products, insurance (both life
and general), access to appropriately priced
money transfer services or remittances etc.
On the other hand, in order to harness
the potential benefit of these accessible
services and achieve the desired impact to
32
2. Background:
According to Central Statistics Agency
(CSA), Ethiopia has got a total population
of over 81.8 million in the year 2011 of
which approximately 17% live in urban
areas.1 In addition, Ethiopia has over 80
languages with 200 dialects2. The main
objective of the Ethiopian Government is
to achieve broad based, accelerated and
sustained economic growth and eradicate
poverty in the country. The government
has set a vision of being a middle income
country by 2025. The current development
plan under implementation (i.e. Growth
and Transformation Plan [GTP], which
runs from 2010/11 to 2014/15) envisages
an accessible, efficient and competitive
financial system across the country.
The formal financial system in Ethiopia
constitutes
commercial
banks,
development
finance
institution,
microfinance institutions and insurance
companies. More recently, capital goods
finance business or finance lease has been
included to the countrys financial system
and to this end new lease companies are
joining the market accordingly. As of March
31, 2014, there were 16 private and 2 state
owned commercial banks, 1 state owned
development bank, 1 state owned and
16 private insurance companies and 31
microfinance institutions (of which 10 are
majority-owned by regional governments)3.
In addition, a large number of financial
1
Central Statistics Agency (CSA) ,
Federal Democratic Republic of Ethiopia
2
Ethiopian Tour , 2012
3 National Bank of Ethiopia (NBE), unpublished
report 2014.
33
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cooperatives are found in different parts
of the country, providing financial services
to their members. Despite the increasing
number of financial institutions and also
branch offices, Ethiopia, similar to other
developing countries, remains as one of
the least banked nations in the world.
For instance, during the start of GTP
implementation period, it was estimated
that only 20% of households have bank
accounts, though significant improvements
have been made in this regard since then.
For instance, Ethiopia has taken major steps
to improve access to finance in recent years.
This is demonstrated by the increasing
level of branch expansion (whereby one
bank branch serves 41,626 people as of
March, 2014) and the strong presence of
microfinance institutions in urban and rural
areas of the country. In addition, Ethiopia
has been engaged in undertaking various
financial inclusion initiatives that have the
potential to improve access to finance for
its citizens. Some of these interventions
include:
modernization of the national payments
and settlement system;
establishment and implementation of
modern and state of the art credit
reference bureau (a bureau that
in-house bank and microfinance
borrowers data under one database);
34
regulatory framework;
introduction of regulatory framework for
interest free banking;
development of regulatory and
supervisory framework for micro
insurance.
introduction of capital goods finance/
lease companies to the financial
system etc
Thus, implementation of these initiatives
will definitely have positive impact on
improving the level of access to finance in
the country. However, these initiatives will
be more effective in achieving the ultimate
goal of financial inclusion if they integrate
with financial education and literacy
program at national level.
So far, little work has been done on the
issue of financial literacy in a manner that is
coordinated and broad based. In addition,
the few financial education and literacy
initiatives (mostly donor driven ones) have
proven to be unsustainable and limited
in scope. Moreover, these uncoordinated
initiatives, despite some signs of success,
have resulted in duplication of effort and
are not always aligned with the national
financial sector strategy.
3. The Need for Financial Education and
Literacy:
The level of financial knowledge and skills
among the majority of people, particularly
those living in the developing world is
very low. Thus, these people (including
their businesses) who are with low level
of financial literacy participate less in the
formal financial system and are unable to
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surveyed (36 developed countries6) have
already launched National strategy or are in
the process of launching such strategies.
In addition, countries such as Indonesia
can be considered as good role model
for implementation of national financial
education and literacy programs.
To
this end, Indonesia has endorsed legal
framework on financial education, has
included important stakeholders by
establishing special taskforce on financial
education and has achieved important
milestone in improving the financial
literacy level of its population and the level
of financial inclusion in the country with a
composite financial inclusion index of 40 %
(World Bank 2011)
The main challenge in successfully
implementing a national financial education
strategy is to appoint a lead organization. A
lead organization needs to provide a focus,
momentum and an effective coordination
and ensure that the agreed strategy is
implemented and is also kept under review.
Accordingly, the National Bank of Ethiopia,
which is the regulatory body of the
financial system and the one responsible
for ensuring financial inclusion is in the best
position to assume this role (at least in the
initial years). In addition, the fact that the
central bank is a public sector organization
that is independent from the financial
service industry provides it more credibility
and unique insight in financial inclusion
and consumer protection issues.
36
37
.117
Bibliography:
Growth and Transformation Plan 2010/11-2014/15, Federal Democratic Republic of Ethiopia,
Ministry of Finance and Economic Development, November, 2010.
Central Statistics Agency - www.csa.gov.et
Ethiopian Tour, www.ethiopiantour.com
Financial Inclusion:
Gateway or Poverty and Unemployment, Dr. Masroor Ahmad Beg Zakir Husain College,
University of Delhi
Grifoni, A. and F. Messy (2012), Current Status of National Strategies for Financial Education: A
Comparative Analysis and relevant Practices. OECD Working Papers on Finance, Insurance and
Private Pensions No. 16, OECD Publishing.
Guideline For National Strategy on Financial Education (AFI Consumer Empowerment and
Market Conduct Working Group, draft revised, 2012)
Sustaining Small and Medium Enterprises through Financial Service Utilization: Does Financial
Literacy Matter
Various proclamations, regulations and directives and reports of the National Bank.
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Miscellany Section
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Name of Company
Waliya Capital Goods Finance Business S.Co
Oromia Capital Goods Finance Business S.Co
Addis Capital Goods Finance Business S.Co
Debub Capital Goods Finance Business S.Co
Kaza Capital Goods Finance Business S.Co
Address
Bahirdar
Addis Ababa
Addis Ababa
Hawasa
Mekelle
Phone
058-2206780
0115-571159
0111-567026
0462208091
0344409306
44
Fax
251-0115571152
251-0111573124
251-0462202052
251-0344406099
Name of Institutions
Telephone No.
FaxNo.
058-2201652, 0918340256
251-058 2201733
034-4409306, 0914702214
251-034 4406099
046-2202053, 0462207384
251-046 220-20-52
0118952389/90/91, 0911240437
251-011 6293346
046-2200850, 0462206151,
0916836687 (GM)
251-046 2204704
6532052, 0113204732
0911296401 (GM)
0114162621, 0114162210
0911223679 (GM)
10
1572720, 111512/13
0911406174 (GM)
0113484152, 0113482183
0911318625 (GM)
251-011 4162501
251-011 - 4654088
251-011 1573124
251-011 5504941
251-011 3206452
0911-67-38-22/0113384133
057-7750666, 057-7752042
251-057 7751734
251-057 - 7750060
0461105952/3831/5663
0913252247 (GM)
251-046 1101534
6615398/6635801/0913460432(GM)
251-011 6186140
0251129702/1127072/1119246/47
0911353890 (GM)
251-025 1120246
251-011 - 6183383
6636947, 0911169263
(Finance GM)
251-011 - 6630294
0112787390/2782252/0910-27-52-34
025-6663745, 025-6664078
251-025 - 6661628
0116296976, 0118237179
0115526205
251-011 - 5512763
047-5511271, 0917823153
251-047 5510892
51-02-77
01155491585540390
0915766908(GM)
16
27
0257752122257-756976/77
0915768505 (GM)
0257752099
0257752916
0116622780, 0911625576
251-011 - 6614804
0914788554, 0344450064/32
0116638094, 0911686947