Navigating the Digital Landscape: Digital Innovation Readiness in Ethiopia's Financial Sector

Digital innovation is critical for financial institutions seeking to remain competitive in today's fast-evolving technological landscape. However, firms in developing countries, like Ethiopia, face significant challenges in preparing for such innovations. This study assessed the readiness of financial institutions in Ethiopia for digital innovation and examined the impact it has on their effectiveness in implementing innovation. Primary data was collected from banks, insurance companies, and microfinance institutions, and analyzed using multiple regression and t-tests of equality between two means. The findings revealed that the overall readiness level of Ethiopian financial institutions is unsatisfactory, regardless of the type of financial institution. Additionally, managers generally perceive their organizations as more prepared for digital transformation than their employees do. These results highlight the need for Ethiopian financial institutions to address internal perception gaps and to improve readiness in underperforming areas to foster a unified approach to innovation. Moreover, policymakers are suggested to prioritize strengthening digital infrastructure, enacting supportive regulatory frameworks, and promoting financial sector digitalization through incentives.