The Effect of Digital Financial Services on Financial Inclusion in Ethiopia

The digital economy is rapidly expanding globally, with the potential to significantly boost socio-economic development, particularly in developing countries. The banking industry is significantly investing on introducing digital financial services especially in developing countries like Ethiopia ultimately to achieve financial inclusion goals. Hence, this study was aimed to investigate the effect of digital financial services (DFS) for financial inclusion in Ethiopia. For this purpose, secondary data was collected from the National Bank of Ethiopia, the study specifically focused on seventeen commercial banks (panel units) from the year 2014/15 to 2023/24. The random effect model was applied to estimate the effect of explanatory variables on the variable of interest based on Hausman test results and after testing all possible assumptions of the model. Accordingly, the finding revealed that Mobile banking, ATMs, POS terminals, and Mobile Wallet Banking all has a positive and significant effect on the number of financial accounts in Ethiopia. These services are driving financial inclusion by increasing access to banking services and facilitating the opening of accounts. Internet banking appears to have a negative impact on the number of accounts, which might reflect limited access to or use of internet banking in Ethiopia, possibly due to issues like connectivity or low digital literacy. The authors propose that enhancing the adoption of digital financial services (DFS) in both rural and urban areas could play a crucial role in advancing financial inclusion. They argue that such an increase would directly support the financial inclusion strategies of policymakers and banking practitioners. By improving access to digital financial tools, individuals in these regions often underserved by traditional banking systems could be integrated into the formal financial sector.

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