Ethiopia stands at the threshold of a financial revolution. Ambitious reforms, skyrocketing mobile money adoption, and the entry of foreign banks have signaled the dawn of a modern, competitive banking sector. Yet, in the heart of the country’s economic engine—its rural communities and among its women—formal banking remains an aspiration more than a reality. According to a report by Backbase, “Banking in Ethiopia 2025: the opportunity, the barriers, and the road to growth,” only 37% of rural adults and 38% of women possess a formal financial account.

While the sound of digital progress echoes through Addis Ababa’s fintech hubs, millions of Ethiopians remain on the outside, managing their money through traditional, informal channels rather than mobile apps or bank branches. This dichotomy points not only to the challenges faced by the country’s most underserved groups, but also to immense opportunities for banks willing to innovate with empathy and insight.

For most Ethiopians, the journey toward a cashless, inclusive future starts with deeply rooted behaviors. Decades of self-reliance have shaped a financial landscape where saving and borrowing are managed within the community rather than the financial system. Saving often takes the form of “equb” (traditional community savings circles), informal savings groups, or simply storing cash at home. The majority still prefer trusted people over a distant institution.

This reliance on informal finance can be explained by a combination of limited trust in banks, perceptions of complexity, and logistical difficulties. Many rural residents remain far from the nearest branch or agent, and the documentation required to open even a basic account feels daunting. As a result, while banks and mobile payment providers have expanded rapidly in urban areas, their services have yet to win over most rural households.

Women—often responsible for household budgeting and small business activities—face additional hurdles. Despite their central roles in the economy, most financial products do not reflect the complex, day-to-day realities of Ethiopian women’s lives. Flexible savings accounts or microloans for women entrepreneurs remain rare, further entrenching the reliance on informal tools and practices.

One major barrier to broader adoption of formal accounts is trust. Many rural Ethiopians view banks with caution, citing transparency concerns and past negative experiences. Banking products are often described as difficult to understand, with hidden costs and rigid requirements. These perceptions deter adults who already feel uncertain about their ability to maintain steady balances or comply with complicated paperwork.

A lack of identification documents further excludes many women and rural dwellers. Even when accounts are available in principle, the requirement for government-issued ID and other records presents a formidable barrier. According to the report, accessibility—both physical and procedural—remains the single biggest obstacle.

Digital financial tools, though on the rise, have not yet reached their potential in these communities. Smartphones are not always affordable or readily available, particularly outside urban centers. For those who do have mobile access, digital savings tools are often perceived as confusing or unreliable, compounding the reluctance to move away from tried-and-true methods rooted in face-to-face trust.

Borrowing, like saving, mostly happens through networks of family and friends. According to the Backbase report, the vast majority of loans originate within personal relationships, as formal financial institutions require stringent collateral and offer products perceived as inflexible or irrelevant. When households need funds for emergencies, school fees, or input purchases, it is often the community that provides.

Remittances—a lifeline in many rural and regional economies—are also overwhelmingly conducted in person. Cash changes hands in town, at the market, or through the intermediation of a trusted local agent. While digital transfer services are available and growing, high transaction fees, patchy rural delivery, and lack of interoperability between providers have kept most Ethiopians tied to familiar, physical channels. For digital channels to thrive, the report argues, they must offer not just speed and affordability but intuitive, user-friendly design in local languages.

Experts and advocates see an urgent need for a shift in how banks engage Ethiopia’s vast underserved majority. The report highlights the concept of “composable banking,” which calls for modular, adaptive products tailored to individual behaviors, aspirations, and barriers. In practice, this means designing customer journeys that begin in the realities of rural life and women’s economic activities, not merely retrofitting urban-centered products.

For example, microloans tailored to daily or seasonal cash flows, wallet-based tools for managing irregular daily expenses, and savings features accessible by feature phone voice commands could offer real, meaningful alternatives. Reducing the bureaucratic burden—by allowing for varied forms of identification and streamlined onboarding—could further draw millions into formal finance.

Moreover, the transition cannot be merely technological; it must be rooted in trust-building and financial education. Banks need to invest in community partnerships, transparent communication, and persistent outreach to demonstrate value, build confidence, and foster digital literacy.

Ethiopia’s banking sector is in the midst of a transformation that could be world-leading. The National Digital Payments Strategy, new fintech partnerships, and regulatory reforms have set ambitious targets: raising banking account penetration from 46% in 2022 to 70% in 2025, and surging digital payment adoption.

But numbers alone do not tell the whole story.

The success of Ethiopia’s financial revolution will ultimately be measured not in mobile wallets opened or apps downloaded, but in the everyday choices of rural families and women entrepreneurs. True inclusion means financial tools that empower users, reflect their needs, and support their ambitions.

For banks and innovators, the message is clear: The next chapter of growth—and the real impact—lies not just in reaching more Ethiopians, but in truly serving them. The challenge and opportunity are great. With composable, context-driven services and a renewed commitment to trust, Ethiopia’s financial institutions have a rare chance to redefine what banking means for all its people.

As foreign aid recedes and Africa strives for economic self-determination, a surge of new thinking is transforming Ethiopia’s approach to financing national development. The recently released Mo Ibrahim Foundation report, “Financing The Africa We Want,” makes the case that the continent must maximize domestic resources—and in Ethiopia, much of that potential lies untapped within the tax system. Increasingly, Ethiopian policymakers, inspired by continental debates and global best practices, are turning their attention to modern technology as the key to a tax revolution.

The Mo Ibrahim Foundation sets the context bluntly: “The end of traditional aid is neither unexpected, nor the end of the world for our continent… The responsibility for delivering this vision belongs to us, not to any partner. The good news is we have the resources to make this a reality.” For Ethiopia, whose development agenda hinges on the realization of the African Union’s “Agenda 2063: The Africa We Want,” this means leveraging technology to boost tax collection, close revenue gaps, and fund national priorities from education to infrastructure.

Historically, Ethiopia’s tax-to-GDP ratio has lagged behind emerging-market peers, hovering below the African average. With external public debt rising and aid flows shrinking, the government faces mounting pressure to increase domestic revenue. According to the Foundation’s findings, Africa overall collects just 14% of its GDP in taxes, the lowest of any region in the world—a critical weakness when contrasted with the rapidly growing population and ambitious public investment targets.

For Ethiopia, the stakes are higher still: an expanding social safety net, the need to modernize basic infrastructure, and growing demands for public health and climate adaptation all rely on predictable, sustainable financing. Yet tax evasion, a large informal sector, and outdated tax administration have undercut the country’s revenue base.

In response, Ethiopia is increasingly embracing digital transformation in its tax system—a move directly aligned with the Mo Ibrahim Foundation’s call for leveraging new technologies to maximize domestic resources. Ministry of Revenue, with support from regional partners, has begun to roll out a range of digital innovations: such as E-filing and E-payment Systems, Mobile Money Integration and Digital ID and Biometric Registration.

One of the report’s critical focuses is on formalizing Africa’s vast informal sector, which accounts for an estimated 60-80% of employment in Ethiopia. Through digital tools like e-invoicing, point-of-sale (POS) devices, and simplified mobile registration, the government is gradually drawing small businesses into the formal tax net. These tools make tax registration less daunting for market traders and entrepreneurs, while analytics capabilities help tax authorities identify and integrate missed segments—without relying solely on in-person audits.

The adoption of data analytics and artificial intelligence by Ethiopian authorities is beginning to close historical loopholes. By cross-referencing digital payment records, bank accounts, and import/export data, officials can more efficiently identify under-reporting and illicit financial flows. According to the Mo Ibrahim Foundation, Africa as a whole loses around $90 billion a year to capital flight and tax evasion—more than it receives in aid. Ethiopia’s new digital ecosystem, if fully realized, could claw back a major portion of these lost resources.

However, the report makes clear that boosting tax collection is not only about technology. Trust in government, responsive service delivery, and public transparency are essential. “Ownership comes with responsibility and accountability,” Dr. Mo Ibrahim notes in his foreword. A survey cited in the report found that half of Africa’s citizens would accept higher taxes if government services improved—highlighting the link between effective tax collection, good governance, and public legitimacy.

By harnessing new technologies, Ethiopia stands to sharply increase its tax revenue, enabling greater investment in roads, schools, health care, and climate resilience. Progressive taxes on wealth and property, efficiently collected through digitized registries, offer a pathway to not only closing the country’s fiscal gap but also reducing inequality.

Moreover, technological modernization makes Ethiopia—and Africa as a whole—a more attractive destination for private and foreign investors, who value transparency and predictable regulatory frameworks. As the Mo Ibrahim Foundation report emphasizes, “Africa must own and define its financial agenda, grounded in governance, accountability, and regional integration.”

There are still roadblocks. Rural connectivity deficits, limited digital literacy, and resistance to formalization persist, and Ethiopia must continue investing in both digital infrastructure and taxpayer education. However, the current trajectory is unmistakable: with political will and technological innovation aligning, Ethiopia could become a leading example of how African nations can finance their own development—not out of necessity, but as an expression of sovereignty and ambition.

As donors step back, Ethiopia’s pivot toward digital tax collection offers a template for other African economies. The future, as outlined by “Financing The Africa We Want,” starts not with handouts, but with homegrown, technology-driven solutions that put Africans in charge of Africa’s destiny.

Ethiopia’s House of People’s Representatives has unanimously approved the long-awaited Startup Proclamation, a landmark law aimed at fostering an innovation-driven ecosystem and creating sustainable employment opportunities across the country. The new legislation, which came into force on July 17, 2025, provides a comprehensive framework to simplify the process of starting, running, scaling, and closing startup businesses.

The Startup Proclamation marks a major milestone for Ethiopia’s emerging entrepreneurial landscape, which has long operated in a fragmented regulatory environment. Developed through extensive consultations led by the Standing Committee on Human Resource Development, Employment and Technology Affairs, the law is expected to catalyze economic growth by supporting startups that drive technological progress and job creation in the production of goods and services.

Under the new law, startups are defined as businesses established under the decree that have been operating for no longer than five years and possess a “startup account.” Businesses older than five years but still pursuing innovation are eligible to obtain an “innovative business account.” This classification facilitates targeted support and regulatory incentives for different stages of enterprise growth.

To oversee implementation, the Proclamation establishes the National Council of Startups, chaired by the Minister of Innovation and Technology with the Entrepreneurship Commission Commissioner serving as Secretary. The Council’s mandate is to nurture an enabling environment by coordinating policies that promote innovation, technological development, and job creation.

Among its key functions, the Council will manage an “Innovation Fund” designed to provide financing for startups and innovative enterprises. The fund supports activities such as scholarship programs for entrepreneurs, exemptions or reductions in startup licensing and intellectual property registration fees, and incentives for ecosystem developers. Sources of the fund include government budget allocations, loans, donations, and grants.

To qualify as a startup, businesses must demonstrate innovative or disruptive capabilities in products, processes, or services, possess growth potential and scalable business models, and have at least 25% ownership by the founding entrepreneur. Such enterprises must also fall within the micro, small, or medium enterprise categories and be no older than five years.

Innovative businesses, meanwhile, must similarly exhibit disruptive innovations and scalability but can be older than five years. Both categories benefit from tax incentives, including exemptions from income tax and value-added tax during pre-registration periods, extended tax reporting deadlines, and facilitation of customs operations as authorized economic operators.

Additional support measures include intellectual property registration assistance locally and internationally, with associated costs covered by the Innovation Fund. Startups enjoy relief from statutory pension and health plan contributions, which are also funded by the Innovation Fund, as well as collateral incentives such as guarantees covering up to 80% of borrowed capital. The legal framework also provides access to regulatory sandboxes to test innovative products or services under relaxed oversight.

The Proclamation requires startups and innovative businesses to meet growth and employment targets, maintain accurate accounting practices, and report any changes affecting their status. Non-compliance may lead to withdrawal of startup benefits and account confiscation. The National Council of Startups is tasked with conducting assessments of supported businesses every three years.

This legislation is seen as a vital step in Ethiopia’s broader economic development strategy. By formally recognizing and regulating startups, the country aims to unleash the potential of its youthful and creative population, stimulate private sector-led growth, and enhance competitiveness.

Previously, Ethiopia’s startup ecosystem has faced challenges including regulatory ambiguities, difficulties accessing finance, and limited coordination among government agencies. The new Proclamation addresses these gaps by clarifying definitions, streamlining procedures, and institutionalizing support mechanisms.

Stakeholders also anticipate that the law will encourage increased investment, foster public-private partnerships, and align with Ethiopia’s Digital Transformation Strategy and other initiatives aimed at positioning the country as a regional innovation hub.

The Ethiopian Statistical Service (ESS) has announced that a comprehensive nationwide Economic Establishment Census will be launched in September, aiming to deliver a detailed picture of the country’s business landscape. This landmark census will categorize and analyze economic activities across micro, small, medium, and large industries, covering formal and informal sectors.

Beker Shale (PhD), Director General of ESS, outlined that this census forms a critical component of the agency’s Statistical Development Program for 2016-2018 Ethiopian Calendar (EC). His office has been overseeing a range of major statistical surveys, including the Ethiopian Population and Health Survey—which has already been completed—the ongoing Agricultural Census, and the National Integrated Household Survey, which is nearing completion.

Beker explained that the upcoming Economic Establishment Census will use a hybrid methodology tailored to Ethiopia’s diverse landscape. In rural areas, where economic activities are more dispersed, a sample survey approach will be applied. Conversely, in urban centers with greater density and business variety, the census will be conducted comprehensively. This design reflects internationally accepted statistical research principles and aims to capture an accurate scope of formal and informal economic actors.

“The data generated through this census will be an essential resource for policy formulation, planning, and strategy development across economic sectors,” Beker said during the launch of the census’s pre-implementation preparatory phase. He emphasized the vital role reliable data plays in evidence-based policymaking and the scaling of Ethiopia’s economic ambitions.

Senior Economist Zelalem Getachew, addressing the same forum, described the census as a milestone for Ethiopia’s economic development agenda. “Without precise and disaggregated data regarding the size, distribution, and characteristics of businesses across the country, formulating policies that foster growth, channel investment, and combat unemployment is extremely difficult,” Zelalem noted.

He further stressed that the census is crucial in normalizing and formally recognizing the informal sector’s contribution to livelihoods and the economy at large. “This information enables policymakers to design interventions that promote a resilient and inclusive economic environment,” he added.

The census also holds significant potential for the investment community. For both domestic and foreign investors, detailed, up-to-date information on the geographic and size distribution of businesses reduces uncertainty and aids in identifying promising market opportunities, according to experts.

In anticipation of the census launch early next fiscal year, the ESS has called upon all relevant stakeholders nationwide to prepare for this extensive data collection effort. The statistical agency’s call underscores the collaborative nature of the census, which will rely on participation from government entities, private enterprises, and local communities alike.

Ethiopia’s economy continues to recover and expand steadily after recent shocks, growing by 8.1% in 2024, with services, agriculture, and industry all contributing to this performance. However, reliable, up-to-date economic data have been identified as crucial to sustaining this trajectory amid evolving development needs.

By painting a comprehensive and current picture of Ethiopia’s economic establishments, the upcoming census is expected to inform vital decisions that will help accelerate the country’s industrialization and business growth goals. This initiative dovetails with Ethiopia’s broader economic strategy to harness demographic dividends, boost employment, and foster private sector-led development.

The ESS’s commitment to using internationally sound methodologies for this census reflects Ethiopia’s drive to expand its collection and use of robust national statistics — a foundation for informed governance and progressive economic policymaking.