Ethiopian Business Review

Financial Institutions and Network Penetration in Ethiopia from 2008 - 2013

Since the establishment of the Bank of Abyssinia (a one million shilling venture between the Ethiopian government and the Central Bank of Egypt, which was owned by the British government) in 1905, provision of modern financial services have seen ups and downs in the country. After the liberalization of the financial sector in the early 90s, the sector has shown better performance. Especially, in the last six years the sector seems to be in a massive expansion phase. From June 2008 to June 2013, the number of bank branches has more than tripled while the number of banks operating in the economy has increased by around 73Pct. Yet this number cannot show the whole picture. Still the country is among the most unbanked nations in the world. A single branch serves more than 50 thousand citizens, capitalization and diversified, technologically advanced, new products are still insignificant, often directed and dictated by the National Bank. The percentage of the population that uses modern financial products is still in single digits.

The same is true for the insurance industry. The sector has shown significant growth in the last couple of years, the industry’s gross premium reaching ETB 4.8 billion in June 2013 after registering an annual average growth of more than 20Pct in the last six years. Yet this is insignificant even by African standards. The country’s insurance density (premium/population) is still less than USD four while the sub-Saharan average is more than USD 60 and that of Africa is USD 400. There are only 15 insurance companies for the more than 90 million strong population in Ethiopia where as more than 43 licensed insurance companies operate in Kenya with half the population size of Ethiopia. The insurance penetration level (premium/GDP) of Ethiopia still stands at less than one Pct.

Financial liberalization still lingering in the air, it may take some years for the financial industry of the country to catch up with its African peers. But recent developments, though in part reflection of the sector’s growth from a low base, are impressive. When taking in to account the highly regulated nature of the industry, the achievements of the sector become more vivid.

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