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A Multidimensional Financial Inclusion Index for Ethiopia

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  • Mohammed Jatoro Arebo
  • Filmon Hadaro Hando
  • Andualem Goshu Mekonnen

Abstract

This study develops a multi-dimensional composite index to measure financial inclusion in Ethiopia, using a two-stage Principal Component Analysis based on ten traditional and five digital indicators from 2015 to 2023. The results reveal a significant increase in Ethiopia's financial inclusion score, rising from an average of 10.89% in 2015 to 52.18% in 2023. Among the dimensions, traditional availability (0.2625) is the most influential, followed by traditional usage (0.2616), digital accessibility (0.2505), and digital availability (0.2254). Further analysis reveals that the Commercial Bank of Ethiopia alone contributes 48.99% for financial inclusion score, while five medium-sized and eleven small-sized private banks collectively account for 29.26% and 21.75%, respectively. The developed index proves to be a valuable tool for policymaking and evaluation, addressing previous limitations like arbitrary weight selection. It offers a detailed perspective on financial inclusion trends among commercial banks in Ethiopia, consistent with existing studies.

Suggested Citation

  • Mohammed Jatoro Arebo & Filmon Hadaro Hando & Andualem Goshu Mekonnen, 2025. "A Multidimensional Financial Inclusion Index for Ethiopia," Prague Economic Papers, Prague University of Economics and Business, vol. 2025(1), pages 98-136.
    • Handle: RePEc:prg:jnlpep:v:2025:y:2025:i:1:id:886:p:98-136
    DOI: 10.18267/j.pep.886
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    References listed on IDEAS

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    1. Xiuhua Wang & Jian Guan, 2017. "Financial inclusion: measurement, spatial effects and influencing factors," Applied Economics, Taylor & Francis Journals, vol. 49(18), pages 1751-1762, April.
    2. Godfrey Akileng & Gillian Mercy Lawino & Eric Nzibonera, 2018. "Evaluation of determinants of financial inclusion in Uganda," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 8(4), pages 1-4.
    3. Kim, Dai-Won & Yu, Jung-Suk & Hassan, M. Kabir, 2018. "Financial inclusion and economic growth in OIC countries," Research in International Business and Finance, Elsevier, vol. 43(C), pages 1-14.
    4. Ahamed, M. Mostak & Mallick, Sushanta K., 2019. "Is financial inclusion good for bank stability? International evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 403-427.
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    Keywords

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    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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