The Impact of Financial Services Access on Household Entrepreneurship in Ethiopia

Abstract

This paper analyzes the influence of financial accessibility on entrepreneurship in small business ownership in Ethiopia, using data from the World Bank’s Ethiopia Socioeconomic Survey of 2018-2019. The analysis seeks to find out whether different financial services, including using ATM cards, online banking, mobile banking, and agent banking influence household business ownership. The methods used in this study include descriptive statistics, as well as binary logistic regression analysis. The analysis of results reveals that urban location, proximity to financial institutions, and interest-free banking have a significant positive association with entrepreneurship, whereas interest-free banking has a significant negative association. Variables, including other measures of financial access, such as ATMs, mobile, online, and agents, have insignificant positive relationships. The results imply that financial inclusion does not essentially influence entrepreneurship but depends upon the functional form of financial services, either as a facilitator or as a barrier to entrepreneurship in different contexts. From this study, it is clear that for Ethiopia to grow in terms of entrepreneurship, a combination of infrastructure development in financial sectors, as well as improvement in financial literacy, and an overhaul of interest-free banking to accommodate small to micro-enterprises, is necessary for Ethiopia to grow in this sector.