Financial inclusion and its demand-side determinants: Evidence from Ethiopia

Financial inclusion is one of the development priorities of the Ethiopian Government. However, factors, which might affect it are not explored adequately with appropriate methods. To examine the relationship between financial inclusion and its demand-side determinants, we applied a simple probit model and two probit models with sample selection to the 2018/19 Ethiopia Socioeconomic Survey (ESS4). Our simple probit model estimation results show that male, older, non-Muslim, married, more educated, richest, mobile users or people who are aware of how to open a bank account are more likely to have a formal account than their counterparts. However, being from a rural area or from a larger household size reduces the likelihood of having an account. Results from the probit selection model show that rural residents, employed, richer people, or people who are out of labor force are more likely to use their account to save money than their counterparts. Furthermore, the third model shows that being non-Muslim, married, widowed, or poorer reduces the likelihood of account use than their counterparts. Thus, policies should target the most vulnerable groups of the society. Especially, rural households, women, the Muslim population, the poor, less educated people, and the young should be the focus of financial inclusion endeavors of the Government. Parallel to these policy measures, awareness of opening bank account and financial education programs should be promoted.