Nigeria has long been known as the “Giant of Africa,” but it’s a title that could well belong to Ethiopia, whose potential to be an economic giant on the continent has been largely untapped. That’s changing: Ethiopia is in the midst of an exciting transformation as economic reforms have opened the country to collaboration, innovation, and investment from foreign and private entities. These shifts signal promising changes for the 130 million people in Ethiopia, the second-most populous country in Africa, where many lack equitable access to financial services and digital tools that can help them secure financial stability.

While this is a unique moment in Ethiopia’s economic history, the path to long-term financial prosperity and resilience for the millions of informal and small businesses at the backbone of its economy will rely on three essential elements — as other nations following similar trajectories have demonstrated:

1. A regulatory environment that enables financial inclusion

In recent years, there has been a positive shift in the Ethiopian government’s economic priorities, pivoting from a restricted economy to a regulatory framework that welcomes foreign investment in sectors such as banking and telecommunications. While Ethiopia has long been viewed as a huge market with significant untapped economic potential, its restrictive regulatory environment was not particularly attractive to investors, new actors, and, in many ways, hindered innovation. Now, we’re seeing more players attracted to the market, and an ecosystem encouraged and motivated to test new approaches to serving Ethiopia’s population with both financial services and tailored support.

Crucially, this shift is driven not just by a change in regulations but also by the government’s clear and active intent to prioritize financial inclusion as the bedrock of economic development. Financial institutions have historically served large businesses and salaried workers, leaving the majority of the population without adequate financial products and services. Nearly 80 percent of Ethiopia’s population resides in rural areas and is not sufficiently served by the financial system as it stands today. Regulators are now implementing policies and initiatives for financial institutions to dedicate portions of their lending and other services specifically for underserved customers.

2. Entrepreneurial local service providers committed to long-term impact

A positive regulatory environment encourages innovation, but to turn that intent into action requires entrepreneurial and innovative local service providers at the forefront — those willing and motivated to do the work to build the rails, the products, and services. We need daring, entrepreneurial innovators who test, iterate, pivot, and learn from failures in order to accelerate financial inclusion. And we need providers who are committed to long-term impact and have a deep understanding of the market they’re trying to reach, as well as the business and political environment.

When we think of companies succeeding in this space and gaining momentum, they are largely companies that have been physically present in Ethiopia, trying new solutions, adapting as they build, and most importantly, learning from their failures. Companies like our partner Kifiya have been doing this work in Ethiopia for over a decade, working to create and roll out digital lending solutions for multiple partners and banks. Ethiopia also has a large diaspora in many countries around the world, so we’ve seen how entrepreneurs benefit from interaction and exposure to models, approaches, and services that exist in other places.

3. Resources, from financing and technical expertise to convening power

Lastly, international organizations and providers have tremendous potential and opportunity to support the transformation taking place in various ways. There’s no single path to successful delivery in any country, and no single entity — whether public or private sector — can do it on its own. International organizations like Accion can bring different tools and capabilities to the table that can catalyze the ecosystem, including:

• Financial backing: Funding is needed to enable the testing and learning of new solutions, especially in early days. Service providers need runway to try different approaches, introduce new products, and see what does and doesn’t work without the short-term tension with profitability. By bringing financial backing to the table — whether through direct investment or leveraging third-party capital — international organizations like Accion can fuel this work.
• Technical expertise: From leveraging alternative data to embedding financial services into existing business interactions, innovations have long existed in neighboring African countries and other continents. Technical expertise in these areas can be applied in Ethiopia, but it’s critical to consider the local context. The Center for Financial Inclusion surveyed 20,000 micro and small enterprises to better understand their needs. They learned that MSEs in Addis Ababa lag behind those in Delhi, Jakarta, and Lagos in their use of digital technologies, largely due to poor internet connectivity and the need for capacity building. Further, we’ve seen in our work that adapting our approach to suit the local context is essential. In a partnership to help women farmers in India and Kenya invest in productive assets, we piloted asset financing models and saw varying successes in the solutions depending on the market.
• Convening power: In Ethiopia, as in any country, this work requires many diverse actors to come together and apply different techniques and learnings. An international organization’s ability to convene and connect ecosystem players can ensure the sustainability and scalability of initiatives, working to ensure that impact continues beyond grant funding and partnerships.

With the right regulations, committed and innovative local providers, and resources, we can unlock innovation in financial and non-financial products and services to better meet the needs of microentrepreneurs in Ethiopia. What is true of Ethiopia is also true for the rest of the world: We need these same tools at our disposal to successfully build solutions for the underserved in any region. 

Accion Advisory combines decades of on-the-ground experience with insights into new technologies to help our partners become more sustainable and scalable. We work with a variety of organizations focused on serving the financial needs of low-income people and businesses in emerging markets. Learn more about our work here.