digital financial services · proclamation no. 718/2011 2. a proclamation to provide for national...

DigitalFinancialServices

(DFS)MarketStrategy

March2017

2

1. Market Trends & Overview

2. Opportunities

3. Market System Analysis

4. Vision & Interventions

Annexes

3


2. Opportunities



Annexes

4

MarketTrends&Overview

BoP remainsalargelyuntappedmarketinEthiopia

Source:WorldBank(2014);EthiopianInclusiveFinanceTrainingandResearchInstitute(2014);FinAccess,FSDKenya (2016)

Fig.1:SubsaharanAfricancomparison:

percentageofadultsreportinghavingan

accountatafinancialinstitution

2016 42.3 17.47.232.6

0.4

32.4 25.37.833.7

0.8

21.0 32.726.815.4 4.1

15.0 41.332.14.0 7.7

2009

2013

2006

è Thefiguresindicateadoublingoffinancially

includedinKenyaoverthelastdecade.

BanksandNBFIsovertakeinformalinstitutions.

Fig2:Kenyancomparison: percentageofadults

reportinghavingananaccount

(formal,informal, excluded)

Formal prudential Formal non-prudential Formal registered Informal Excluded

5


TheBoPlivefarfromFIs&MFIbranches,makingit

unattractivetouseformalfinancialservices

BoPlives inancash-basedenvironment,

beingmoreexpensive

• BoParegeographicallyremote,havelower

levelsof(financial)literacybutneeda

portfolio offormal&informalfinancial

services

• Branchesper100Kinhabitants:2.95

• WithdrawalthroughBankTeller:82.87%

• 97%offarmers receivedpaymentincash

• BoPhaveaneedfor“anamountofmoney”

tofulfill certainneeds:

• Lifecycleevents

• Emergencies

• Business opportunities

• Acquireassets

AverageSavingsBalance

incashETB3,311

inkindETB4,279

Source:WorldBank(2014)6


AddressingtheneedsofBoP requiresinnovationin

financialchannelsandproducts

BoPpeople adoptand

usesavings, credit,and

insuranceservices in

digitalform.

Poorpeopleconduct

amajorityof

transactions(including

smallin-store

purchases) digitally.

BasicConnectivity

FullRangeofDigital

FinancialServices

DigitalIn-Store

Purchases

2015

BoPpeople adoptand

usedigitalmoneyfor

person-to-person

transfers,bill

payments, and

governmenttransfers.

Acriticalmassof

mobile coverageand

penetrationisachieved

amongruralpoor.

DigitalRemote

Payments

Source:BillandMelindaGatesFoundation,FinancialServicesforthePoor, (2012)

Farmerswithtraditionalhabitsdonoteasilychangethe

waytheylook atanddealwithmoney

2018

Inclusive,

cash-lightsociety

7


DFS isacoreenablerofadigitaleconomy,whereaccessto

financeisaprimaryarea.

8

Large

Enterprise

8

Promotion of electronic transactions to drive a cashless economy.

Twomajorareasofsupport include

- thedevelopmentofagentnetworks and

- thedigitizationofP2PP2GandG2Ppayment

Advantages to DFS

- DFSdrivessignificant

reductioninthecost

ofphysical

infrastructure

- DFScangenerate

significantcostof

fundsreduction

Theseadjacenciesenable

bankstooffercheaper

transactions.

Convenient

accessto

services

Rapidly

expanding

offering

Low-Barrier

formal

accounts

Valueproposition

forDFSbeing

providedbynon

Banks

- LowerKYCthanbank

account

- Remotesignupvia

agentsordirectlyona

mobilephone

- Transactonphone24/7

- CICOatthousandsof

points

- Datadrivencreditand

insurance

- Evolvingecosystemof

services


DFShasvariousStagesofMarketDevelopmentand

Ethiopiaisinanearlystage

Source:CGAPTheRoleofFundersinDigitalFinance:PeerExperience,March2016.Ethiopia’spositionisanestimationandnotpartof

theCGAPstudy

99

Basic

Connectivity

Enabling

Environment1Digital

Payment

Platform2

Digital

Payment

Ecosystem3

HighImpact

Digital

Financial

Service

4

Poorpeopleget

money, spendmoney

andconductfinancial

transactionsdigitally

includingbulk,many-

to-on,payasyougo

andproximity

payments

Poorpeopleadoptand

uselowcostdigital

systemsforP2P,G2P,

basictransfersand

interoperability

Enablingregulation

thatsupportpoor

peopletoopenaccount

andprovidersto

outsourcedistribution

andprotectusers.

Poorpeopleadoptand

usedigitalfinanceto

moveoutofpovertyand

stayoutofpovertyCriticalmassof

mobilecoverage

andpenetration

among therural

poor

Kenya

Tanzania

Bangladesh

Uganda

Indonesia

Nigeria

Pakistan

Ethiopia

India


Financial inclusion,throughdigitalfinancialservices,

resultsinreducedvulnerabilityandimprovedresilience

MsTsigereda,46,fromLibo Kemkem

Amhara,receiveselectronicProductive

SafetyNetProgramme(PSNP)paymentsfor

twoyearsnowatYifag.

“NowIcanaccessthemoneywithmyfinger

andnooneelse.Ihavebeenabletosave

someandItrustit”

Source:EFIPproject(2014)

Digital financial services totargetunbanked

EthiopianswithafocusonBOP

(87%ofthepopulation)

10

Womenareparticularly marginalised.

Financial inclusionwillresult in

• Accesstoresourcesandassets

• Opportunitiestoearnaliving

• Increasedbargainingpowerandreduced

vulnerability

- Improvedlivelihood&income opportunities

(fromsavings&increased returnoninvestment)

- Reducedvulnerability fromeconomicshock

- Increasedability tosmoothencashflows

Financialinclusionwillresult in:


IntheEthiopiancontextBanksandMFIsaremeanttolead

byregulation,butarenotcurrentlydrivingDFS

Source:www.nbe.gov.et 11

Large

Enterprise

11

Banks andMFIs have generally been overly cautious and slow in rolling out agent networks, despite the fact

that they can more easily chart an incremental path anchored on purposeful business expansion strategies

with a clear business case.

Managing indirect channels over which they have less than full control does not come naturally

to bankers.

Poor incentivesweakening supply-side deployments• Banks have been reluctant to develop extensive agent networks

• Banks reluctant to make investment in new developments

• Some TSPs made investment, did all the work but were limited by the regulation.

RegulationofMobileandAgent

BankingServices

1. DirectiveNo.FIS/01/2012

2. CircularFIS/01/2014

1. PROCLAMATIONNo.718/2011

2. APROCLAMATIONTOPROVIDE

FORNATIONALPAYMENT

SYSTEM

BANKINGBUSINESS

PROCLAMATION

PNO.592/2008


NBEallowsTSPstoonlyprovidetheirtechnologytoFIona

leasebasis,ortransferthetechnologyoveradefined

periodoftime.

1212

BasicRegulatoryEnablersinDFS

BroadConsensusaboutshortlistof

mostcriticaltopics

MainIssues

E-money issuance à

Agents à

AML/CFT à

Competition à

Consumer protection à

Ø Non bank players

permitted?

Ø Bank and non bank agents?

Ø Tiered, risk based KYC

structures?

Ø Different types of

institutions?

Ø Tailored to specific risks?

Source:CGAP,theEnablingEnvironmentforDigitalFinancialServices,March,2016 ,DFSmarketassessmentbyIgnacioMas

N.B.

Despite the hype, many telcos have struggled to create viable mobile money propositions.

Where it has been successful, the market has usually been takenby the largest operator.


DFS marketinEthiopiahasyettomoveinadecisiveway

havingaclearroadmap

13

Increasing the knowledge and capacity of government/public institutions

particularly regulators and policy technocrats can chart the course

In line with seizing the broader purpose of DFS, there is a need to reset some

of the basic assumptions on which DFS policy is premised.

13

A review is required to assess the laws, regulations, directives, and circulars

guidelines.

Itisimportanttodrawclearlinesbetweenpayment,e-moneyanddeposits

Payment ElectronicMoney Deposit

Definition Transferbetweentwo

parties

Specialtypeofrepayable

fundswithtransactionfocus

“repayablefunds”

Intermediation

Whocanissue? Paymentserviceproviders E-moneyinstitutions;

regulatedfinancialinstitutions

Regulatedfinancial

institutions

Prudential Requirements Low Medium High

DepositInsurance NA Inmost casesNot Typically Yes

Legislative gaps need to be identified to foster harmonization


AhealthyDFSEcosystemrequiresspecializedplayers

complementingeachother

Source:ClientSurveyMckinsey, (2011)1414

Digital

Finance+

Readiness

1

2

34

5

6

DimensionstoAssessReadinessforDFSBuilding full DFS systems requires a very

broad range of competencies, and

involves components with very different

economic characteristics.

Interoperability has usually been taken to

be a “second generation” issue, rather

than a core enabler of a branchless

banking/mobile money market.

- This has tended to reinforce the feeling

that mobile money may be a “natural

monopoly.”

For most countries, DFS is largely about

making payments.

- Most digital accounts are empty: the

electronic store-of-value proposition does

not seem so compelling to people.


2. Opportunities



Annexes

15

Opportunities

EventhoughtheBoPhasalowindividual income,

addedup,itisasignificantmarketsegment

Source:Worldbank (2014),EthiopianInclusiveFinanceTrainingandResearchInstitute(2014)

Poverty lines,HH’sandPPPrate:SimplePovertyScorecardEthiopia(Jun2016);PPIEthiopiabasedon2010dataupdatedforJune,2016.16

Duetoitssheersize(20millionHHs),despitetheirlowassets(ETB7590) è

TotalassetsattheBoPisETB151billion(US$6.9billion),asattractiveas

highersegmentsofthepyramid.

Only22%ofadult

population(and21%

women)haveaccessto

formalfinancial services

HighIncome

MediumIncome

BaseofPyramid

MSME

Populationgrowth3%p/a

14.8%HHabovepovertylineETB13.9

65.2%HHbelow

ETB4.47/US$PPP

Economicgrowth9%p/a

ENTITIES INCOMELEVEL

BaseofPyramid

86.7%ofpopulation

80%ofhouseholds

Large

Enterprise

16

Opportunity

Thereisalargepotentialtostimulatechange,and

manyactorsarealreadyinvolved

Activestakeholdersinvolvedinthesector

Regulatory(Macro)

Coordinating effortsofNBE,GoE

AgentandMobile bankingregulation2012

DonorCommunity,Telco&TSP(Meso)

WorldBank/DfID

• WEDP/SMEdevelopment funds

• SupportNationalFinancial Inclusion Strategy

Alsoincludes:

UNCDF,ILO,IFAD,CIDA,IFC,BMGF

USAid,IFC,KFW,SNVandothers

ETC,TechnologyServiceProviders

e.g.M-Birr,Belcash,Kefiya FinancialTechnology

.

FinancialInstitutions(Micro)

Privatefinancialtechnology growsorenters

market- FIsfeelpressuretoact

è DFSmarkethasyettomoveinadecisiveway

17Source:EthiopianGovernmentGTPII(2016);EthiopianGovernmentNFIS(2015)

Aclearneedforfinancial servicesthat

extendbeyondbranches

GTPII&NationalFinancialInclusionStrategy(NFIS)

Opportunity

Governmenthassetambitioustargetsforaccesstofinance

andmobilepenetrationunderGTPII

Source:WB,2015(http://data.worldbank.org/indicator/IT.CEL.SETS.P2)1818

103.7

million

Subscribers

56 million

Internet

Subscribers

85%

Mobile

Network

Coverage

50

Agent/year

Agent

Expansion

byBanks

(NBE)

Encouragingunderlyingconditions

50% Youth literacy rate

43% Mobile phoneownership

Improved mobile network allowing

for digitizing additional payment

streams.

HugeG2P payments

PSNP Rural and Urban

14 million HHs

GTPIIPlansfor2020


2. Opportunities



Annexes

19

SectorConstraints

Knowledge,technologyandpolicyarekeyissuesin

DFS

Noforeigninvestment

allowedinthesector(lackof

innovationandfunding

Limitedoutreachdue

tonewtechnology

andbusinessmodelsSupport Functions

Rules

Account

Service

Provider

BOP

(women)

Infrastructure

&Technology

BDSServices

Related

Services

Market

Informationand

knowledgeResearch&

DevelopmentAssociations

Marketing

&Promotion

Cultural

Norms

Savings

Norms

Standards

Policyand

Regulations

Minimalinnovation

&capacity

LowDFSknowledgeLackofBDSservices:business

plandevelopment,strategy,

productdevelopment, trainings

LimitedTechnology

ServiceProviders&

Project

Management

Savingsin-kind,cashandinformal(iqub)

Culturalrulesand

normsonwomen

utilisingtheservices

Limitedcapacity,

professionalism,innovation&

fundingofFIAssociation

Lackofsuitable

marketing&channels

20

Criticalconstraint

KYC

FIbranchdesignstandards,andother

requirementssetby theNBEtobe

metiscostlyandrestrictive

LackofproportionalityKYCexcluding

peoplewithoutIDs

MarketConstraints

Itisunsustainabletooperatebranchesinruralareas

fortheBoP

Technology

• Highcostofopeningandoperatingbankbranchesinruralareas

• Ruraltransactionsareoflowvaluethoughhighvolume

Henceitisunsustainabletooperatebranchesinruralareas

Infrastructure

(Branch)

SupportFunctions

• Inadequatefront- (e.g.tellers,agents)andback- office(e.g.core

bankingsystems)technology

• Lackofinvestmentcapitalfortechnology/noappetitetoinnovate

• LackoftechnicalandITskillstoupgradeorusesystemsand

technology

Research&

Development

Infrastructure

(Telco)

• Networkcoverageimprovedsubstantiallyover2015/16however

reliabilityisstillchallenginginruralareas

• Lackofinnovationinreachingtheruralpoorwithsavings

products,dueto lackofincentivesandcompetition

• Lackofinnovationdueto limitedcompetitionandrestricted

foreignownership, limitingproductinnovationandincentivefor

increaseoutreach21

MarketConstraints

KnowledgeandmarketinformationlimitsDFSeco-

system

• Lackofdemandsidemarketinformation

(e.g.informationontransactiontypes,pricepoints,usecases)Market

Information

SupportFunctions

Finance

DFSTraining&

Knowledge

• LackofgeneralunderstandingofDFSeco-system

(e.g.agents,management,productuptake,marketinformation,

technology)

• Toachieverequireddensityofagentsinthemarket,substantial

investmentinagentnetwork isneeded

22

Marketing&

Promotion

• BoP haslimitedinformationandknowledgeoftheofferof

productsandservicesofFIs

MarketConstraints

Regulationconstrainstheenvironmentforgrowth

ofDFS

Regulation

Rules

Norms

• Restrictionsinforeignownership,resultsinlessinnovationandless

capital

• TechnologyandagentownershiprestrictedtoFIsonly

• Noclearroad-mapforDFSecosystem

• Savingpracticesorientedoninformallocalproviderse.g.Iqib,but

carriesmoreriskandislimitedintermsoflongtermsavingsand

assetaccumulation.

23


2. Opportunities



Annexes

24

Increased financial inclusion

(withboth increased savings and

account holders)

Technical/Technology

innovation insettingagentlinks(Mobilewallets,SAACOs,

MFIs)

Policy andregulationcreating

anenablingenvironment

BetterKnowledgeandMarketinformation

STRATEGY

80% of BOP are financially included with appropriate products & services through innovativesolutions, namely digital financial services

DFS:MarketVision

Increased income

and improved

livelihood

Reduction ofvulnerabilityand increasedresilience

Financial servicesaremore

efficient andcost effective

Womeneconomic

empowerment

25

Active

Pipeline

Intervention

Constraint

P

A

CONSTRAIN

S&INTERVENTIO

NS

InformalRules

Marketing&

Promotion

Policyandregulation

Infrastructure(Agentnetwork)

Infrastructu

re(Telco)

Technology

MarketInformation

DFSKnowledge

Association

FIN01:SAB

andMBP

FIN16:Transaction

poolassessment

FIN17:Community

ofpractice

Limited

outreach

LowDFS

Knowledge

Unfavourablepolicies

andregulationsforDFS

implementers

FIN14:SharedCoreBanking

SystemsforMFIs

Lackofautomation

inMFIs

FIN18:Road-mapfor

DFS

DFSMarket

(Technology)ServiceProvider

FinancialInstitutions

SupportFunctions

Rules

Sector-

specific

Standards

A

A

A

A

Blue circle in support functions and rules indicate critical constraints.Colour code in support function and rules relate to respective colours in strategy boxes.

StringentKYC(know

yourcustomer)

policy/procedure

FIN21:TieredKYC

A

P

4.Strategy

AsnapshotofEPinitiativesDigitalfinance

servicesmarket

(technology&infrastructurefocus)

SAB

agencybanking

Studytourfor

policymakers

MBP

Mobilepayments

Transactionpool

Community of

practice

SharedMFIcorebanking

system

26

Digitalfinance

servicesmarket

(Policyandregulationfocus)

DFSroad-map

Coordinationwith

WB

DFSassessment by

IgnacioMas

More

interventions

RiskBasedKYC

Intervention1

FIN01:SAB(SACCOAgencybanking)

InterventionStoryline

Partners

Objective:PromoteruralagentsandlinkFI’swithSACCO’s

Outcome: 15,000additionalclients(75%women)inSACCOs in2017

Innovation

Amhara CreditandSavings

Institution(ACSI)

KifiyaFinancialTechnology (KFT)

SACCO’s inNorthGonder area

Technicalinnovation insettinguptheagentlinkageforACSIandthe

CoreBankingSysteminSACCOs

Thecommercialproposition forclientsneartheSACCO includes Fis

products

Theimproved low-costoutreachforACSI

Toincreaseoutreachtotheunbanked ruralpopulation (BoP, particularlywomen)andprovide themwithaccessto

financialservices, primarily savingsandcredits.Thisisachievedbytwosystems:

1) SACCOs asagentsoftheFIbyutilisingMobileFinanceServices (MFS)platformthatallowsruralunbanked to

saveanduseotherservicesoftheFIsintheirownSACCO

2) Alightcorebanking systemwillbedeployed ataSACCOs toimproveSACCOs administrationleadingtobetter

quality, transparencyandefficiencyatSACCOlevel

Thetechnology improvesSACCOs ability toofferefficientandreliableservices totheirmembersfromitselfand

fromtheFI.Thetrustbuilding betweenbothcould leadtoalendingrelationshipwithSACCOs leadingto

capitalisation.

27

Intervention2

FIN01:MobileBillPayment(MBP)


Partners

Objective:Developurbandeploymentofagents

Outcome: 20,000mobile accountholders bySeptember2017

300,000 mobileaccountholders bySeptember2018

Innovation

Inurbanareas,suchasAddisAbaba,theunbankedpopulation remains20-30%,despitethewidespreadnumber

ofbranches.

The34utilitybillpaymentcentres(Lehulu Centers)haveastableandgrowingclientbaseofonemillion

households. EPsupports therolloutofmobilebill paymenttothesehouseholds. Asadditional productsare

added, thisevolvesinabroadagentandmobile paymentservicewithmobilewallettransactionstoopen-loop

mobilewallet,expandingtoperi-urban andruralareas,hencegreateroutreach.

KifiyaFinancialTechnology (KFT)Technicalinnovation insettingupthemobilewallet,agent

transactionsandagentmanagement

Commercialinnovation insustainingtheagentnetworkandmaking

consumers usemobilewallet

28

Intervention3

Fin16:Transactionpoolsstudy


Partners

Objective:MarketinformationtopromoteinvestmentsinDFS

Outcome: 1)Improvedunderstandingofthetransactionpoolsinthesupplyside

2)Stocktakingondemandside(customer)onTransactionPoolsandidentifying

painpointsandpricepointsforDFS

3)Future(investment)opportunitiesforFI’s

4)MarketinformationcompletedbyApril2017

Innovation

Supplyanddemandsidemarketinformationcouldinformbusinesscasesoftheprivateplayersonthe

opportunityandcanunleashinvestmentsinthesector.

NationalBankofEthiopia(NBE)

CentralStatisticsAgency

PrivateBanks

Microfinance Institutions

Techproviders

Improvedpractice inmarketassessmentandbetter

Disseminationofdataonthemarket

29

Intervention4

FIN17:Communityofpractice


Partners

Objective:KnowledgeandunderstandingonDFSecosystem

Outcome: KnowledgeonDFSwithkeystakeholderssuchasNationalBankofEthiopia(NBE), Agricultural

TransformationAgency(ATA),MinistryofCommunicationandInformationTechnology(MCIT),

MinistryofFinanceandEconomicDevelopment (MoFED),privateplayers

InstitutionalizedcompetencecenterbySeptember2017

Innovation

DFSisnottakingoff,despitethelargeopportunityandregulation.Overcomingthelackofunderstanding

withkeystakeholdersonthecomplexityofaDFSecosystemandembeddingthisinaknowledgecentre

(NBE,AEMFIorAddisAbabaUniversity).Thisleveragesonanon-line12weekcourseonDFI.

DigitalFrontiersInstitute

AssociationofEthiopiaMFI(AEMFI)


PrivateFI’s

Broaderunderstandingtheopportunity/ecosystem

forbusinessandtechnical innovationinDFS

EstablishedCommunityofPracticeinthemarket

30

Intervention5

FINTBD:DFSRoad-map


Partners

CoordinatingeffortsincreatingtheDFSEcosystembyvariousstakeholders

Outcome: Readinessassessment bySeptember2017

RoadmapforDFSinEthiopiabySeptember2017

TrainingandexposureonDFSenablingpolicyforpolicymakers

Innovation

31

DFSisnottakingoff,despitethelargeopportunityandregulation.Tocreate therightDFSecosystemthere

isaneedtounbundlerolesandresponsibilities ofvariousstakeholdersandcoordinateeffortsbetween

different(government)stakeholders.

AlignedwiththeNationalFinancial InclusionStrategy,theinterventioncreatesaroadmapto“makeDFS

happen”.


Banks

Microfinance Institutions

Techproviders

Worldbankandotherdonors

Collaboratedefforts,betterunderstandingoftherequired

ecosystem,clear rolesandresponsibilities

Intervention6

FINTBD:TieredKYC/RiskBasedKYC


Partners

IntroduceproportionalityKYCforfinancialinclusiononpeoplewithoutID

Outcome: - NBErevisingtheConsumerDueDiligenceDirectiveandrelatedsupervision toallowbankstoconduct

riskbasedKYCforprospectiveclientswithoutID.

- ApartnerFIpiloting riskbasedKYC.

- Amarketserviceprovidersupporting banks todevelop/deploy risk basedKYCmechanism/technology

Innovation

32

Majorityofthelabourforceengagedintheinformaleconomyarenotregistered,hencearewithoutIDs.IDs

areprimarilyusedbyFIstocarryoutidentificationofclients intheirKYCprocedures.Asaresultpeople

withoutsomeformofIDareautomaticallyexcluded fromfinancial service.Thisinterventionaimsto

introduceariskbasedKYCproceduretobefollowedbyFIs,allowing themtoprovidefinancial service to

prospectiveclientswithoutID.


AddisInternationalBank&/orCBE

Marketservice provider

FederalFinancial Intelligence

Centre

RiskbasedproportionalityKYCallowingFIstoproperlyidentify

andprofileclientswithoutrelyingonthirdpartyIDs

Intervention7

FINTBD:DepositmobilisationforMFI


Partners

IntroduceenhancedmarketingandbrandingforMFIstostrengthendepositmobilisation

Outcome: - Business caseformarketingbrandingandbranchupgradeforMFIs

- ApartnerMFIpilotingmarketingandbranding.

- AmarketserviceprovidersupportsMFItodevelop/deploy brandingandmarketing

Innovation

33

TodemonstratethatMFIscanuseacommercialapproachtomobilisemoredeposits byimproving theirmarketing

strategyandinvestingincommunications.Thetargetgroupincludes thebetter-off,urbangeneralpublic oreven

corporates.EPpartnerswithamarketingcompanythathasexperiencewithmarketingforbanks.Brandbuilding is

notaone-offactivitybuyaprocesswhichcontinues throughoutthelifeoftheinstitution sotheMFIshould

prepareacomprehensive, proactivebrandbuilding planbased aroundtheinputs.

Marketingserviceprovider

MFI

Marketingandotherpromotionalactivities lead toahigher

shareofdepositsforMFIs

34

Sequenceofinterventions

Interventions

Year(EC)

2008 2009 2010 2011 2012

Fin16:Transactionpools study


FINTBD:DFSRoad-map

Moreinterventionsbasedon road-map

FIN01:SAB(SACCOAgencybanking)

FIN01:MobileBillPayment(MBP)

FIN14:SharedcorebankingsystemforMFIs

FINTBD: RiskBasedKYC

FINTBD: marketingforMFIs

KeyMilestonesforE.C2009(DigitalFinancialServicesMarket)

35

InterventionsE.C. Q2 Q3 Q4

Oct- Dec Jan- Mar Apr-Jun Jul-Sept

Revise sectorstrategy;withfocusonDFSwork

Update DFSmarketstrategy

Priority 1:Governmentdelivery

FINTBD:StrategyonDFSEnablingEnvironment

Consultationwithstakeholderonintervention idea

CN andIGdeveloped

Intervention launched

Priority2:Knowledge and Information

FIN16:Transactionpoolassessment

Market assessmentcompleteandsharedwithstakeholders

Review interventiontoassesseffectivenessandnextcourseofaction


DFS courseends

Studytour forregulators

Review interventiontoassesseffectivenessandnextcourseofaction

KeyMilestonesforE.C2009(DigitalFinancialServicesMarket)

36

InterventionsQ1 Q2 Q3 Q4

Oct- Dec Jan- Mar Apr-Jun Jul-Sept

Priority 3:Businessinnovations

FIN10:Mobile billpayment(MBP)

Monitor interventionprogressandreview,basedonreviewredesignorwind

down

FIN10:SAACOagencybanking (SAB)

Monitor interventionprogressandreview,basedonreviewredesignorwind

down

FIN14:SharedMFICoreBankingSystem

Feasibility studycompleted

ET Inclusivestartstheprocessofmobilizingcapital


2. Opportunities



Annexes

37


TheoryofChange

Source:38

Large

Enterprise

38

Trainingandexposurevisit forGov’tpolicy

makers 80%ofhouseholdsProvideTAtodevelopDFSroadmap%of

households

Gov’tPolicymakersenlightenedtotheDFS

marketandlearnhowpolicy canbeused to

harmonizeandpromotefinancialinclusion

Aclearroadmapputinplacetoprovide

directionforadoptingDFSforaccessto

financeinEthiopia

Developaclear,pragmaticandflexibleregulation

thatwouldenableandfosterahealthyenvironment

forfinancial inclusion tosucceed

DFSmarkettransformingaccesstofinance

TheBoP havingaccesstodigitalaccounts

Inte

rven

tio

n

INTERVENTIONS

Imp

ac

tS

ys

tem

le

ve

l o

utc

om

es

2014 2020

Strategy

DFSsupportsprivateplayersandimprovesbroad

knowledgeonDFSandthemarketopportunity

Business

innovations

DFSeco-system

Bringing350Kpeopleinthe

financialsystem

Enhancedecosystemand

diversity ofprivateplayers

1000agentpoints inSACCOs

ImprovedSACCOoperation

ThroughMBP20KaccountsopenedinAddisAbaba

Privateplayersupport

Allstakeholdersknowledgeandinformation

DFSCommunity ofPracticeoperationalandinstitutionalised

Mobilewalletinuseby50K

OverallDFSmarketassessment

Demandsidesurveyontransactionpools

Moremarketinformation

25%ofpopulation adopt

mobilewallets

39

Annex

FinancialSectorProfile

MICRO (CoreMarket)

• Transitionawayfromdirectsupportformicrolevelplayersasfinancialmarketsdevelop

• Focusonmicro-levelwork,althoughmacroandmesoarealsoimportanttomarketdevelopment

• FIsfacecompeting prioritiesandwillofteninvestwheretheysee lessriskorhigherreturnsinsteadofservingpoor

clients, ruralconsumersorsmallbusinesses

• Wherepovertyishighandinclusionlow,opportunitycostsofreachingmarginalisedconsumersarelowerbecausethe

up-marketpie issosmall

Commercialbanks

• Highlyprofitable(RoE)ofmorethan50%(approx.)originsfromtradeservices.

• 18banks(2public);totalcapitalETB30.2billion

• Bankbranches/100K:2.95(2,502branches,highexpansion);ATMs/100K:0.463

• CommercialBankofEthiopia(CBE)35%ofbankcapitaland1170branches

• Branchgrowthishighoverrecentyears

MFIs

• 35MFIsreaching3.5millionclients,ofwhich46%women

• 5large,regionalgovernmentaffiliatedonescaterfor95%oftheclients(3.1millionclients),totaldeposit13bn

(+41%/year),loanportfolio18bn(+23%/year)totalassets26.7bn(April2015)

SACCOs(SavingsandCreditCooperatives)

• 18000+SACCOscoveringaboutallkebeles,48%Urban,lendETB245Mioto529,000BoP-membersofwhich47%

women

Informalsector

• IquibandIdirserveabout80%oftheadultpopulation;informalmoneylendingisexpensivebutused

Remittances

• Remittance USD2Billionp/a,ofwhichhalfarrivesthroughformalchannels40

Annex

FinancialSectorProfile

MESO(SupportFunctions)

• Limitedprofessional skill development institutes

• Fewserviceproviders existinthemarketbutservice isdefragmented

• HighcultureofaidandFIsarereluctanttopayforsupport services

• Lessdeveloped, andinneedofheavysupport: nationalpaymentssystemsandcreditbureausthough

existarenotyetwell-functioning

• Manysystemsmustbebuiltfromscratch,butwiththebenefitoflearningfrommistakesinothermarkets

MACRO(RulesandRegulation)

• Restrictedforeigninvestmentpolicy forfinancialsectorresultsinlowcompetitivepressureandlow

innovation

• Reliablefinancial institutions, nobankruptcy inthefinancialsectortodate

• LimitedknowledgeandawarenessoftheDFSmarketbytheregulators

• Limitedmarketinformationonaccesstofinanceandtherelatedgapbetweendemandandsupply

• Strongregulation,howeverlackingcompetenciesininnovativesegmentsandnotproactive

41

Annex

MarketStrategiesandInterventions

Category Specific Risk Impact Probability Mitigation Monitoring

Business environment

High inflationand

negativeinterestrates

makingformalsaving

withFIsunattractivefor

thepoor

Medium Medium Focusonadditionalbenefitof

savingsinformalinstitutions

(includingsafety,

diversification)

Regularlymonitorthe

incentive fortargetgroup

tosaveinformal

institutions,including

savingsratesandinflation

Financial risk

Costtoprovide formal

ruralfinancialservices

toohighforFIs

High Medium Exploreinnovative low

cost/affordablesolutionsto

strengthenbusinesscase.Cost

shareinitialinvestmentsto

provebusiness.

Regularmeetingswith

stakeholdersandbudget

review.

Regulation Lackof regulationor

speedofimplementation

ofnewregulations

slowingdown

innovations

High Medium Theprojectwouldworkwith

theFIsandNBEto expeditethe

process

Managed relationshipswith

industryassociationsand

theregulator

Project risk Inability ofaselected

partner(s)tocontinue

withpilotdue tovarious

reasons

Medium Low Selectpartnerswho havethe

rightincentiveandcapacity

(includinghumanresource,

financial)

Regular partnermeetings

andreviewperformance

report

42

Annex

Abbreviations

Abbreviations

ACSI AmharaCreditandSaving Institution

FEM Financial EducationalMarketing

DFI DigitalFrontiersInstitute (http://www.digitalfrontiersinstitute.org )

FI FinancialInstitution

GoE GovernmentofEthiopia

KFT Kifiya FinancialTechnology

MFI MicrofinanceInstitution

MFS MobileFinancial Services

NBE NationalBankofEthiopia

SAB SACCO AgentBanking

SACCO Saving andCreditCooperative

TSP TechnologyServiceProvider

43

Reference

BillandMelinda GatesFoundation, EthiopianFinancialInclusionProject(2014)

BMGFFinancial ServicesforthePoorStrategy(2012)

EthiopianGovernment,NationalFinancialInclusion Strategy(2015)

WB,2015(http://data.worldbank.org/indicator/IT.CEL.SETS.P2)

ClientSurveyMckinsey,(2011)

CGAP,theEnablingEnvironmentforDigitalFinancialServices,March,2016

Ethiopian Government,The GrowthandTransformation PlanII

EthiopianInclusiveFinanceTrainingandResearchInstitute,(2014)

CGAPTheRoleofFundersinDigitalFinance:PeerExperience,March2016

FederalCooperativeAgency,(2014)

Financial SectorDeepening Kenya(2016)

Pandeetal,(2012)

WorldBank, GlobalFindex(2014)

Annex

References

44

ThankYou

ENTERPRISEPARTNERS

Bole,adjacenttoMillenniumHall,behindReliance

Hotel;Bel AmourBuilding,2nd - 5th floors

Phone: +251-116-186-601

Fax: +251-116-672-588

P.O.Box 27374/1000

AddisAbaba,Ethiopia

E-mail: [email protected]

Web www.enterprisepartners.org

Followuson:

@EP_Ethiopia

Enterprisepartners1

www.enterprisepartners.org

45

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