A Multidimensional Financial Inclusion Index for Ethiopia

This study develops amulti-dimensional composite index tomeasure financial inclusion in Ethiopia, using atwo-stage Principal Component Analysis based onten traditional and five digital indicators from 2015 to2023. Theresults reveal asignificant increase inEthiopia’s financial inclusion score, rising from anaverage of10.89% in2015 to52.18% in2023. Among thedimensions, traditional availability (0.2625) is themost influential, followed by traditional usage (0.2616), digital accessibility (0.2505), and digital availability (0.2254). Further analysis reveals that theCommercial Bank ofEthiopia 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. Thedeveloped index proves tobe avaluable tool for policymaking and evaluation, addressing previous limitations like arbitrary weight selection. Itoffers adetailed perspective onfinancial inclusion trends among commercial banks inEthiopia, consistent with existing studies.