Selam, Ethiopia

That morning in September 1974, Addis Ababa was on the edge.

Soldiers in faded olive-green uniforms, many barely out of their teens, manned roadblocks across the city.

For weeks, the capital had simmered with protest.

Students, workers, and junior officers were demanding an end to Emperor Haile Selassie's 44-year rule.

Inside the imperial palace, a frail Selassie was escorted into a blue Volkswagen Beetle by his own military.

Then, quietly driven away from power.

By afternoon, the radio confirmed it: The emperor had fallen.

Behind the coup was a militant socialist group called the Derg.

Rooted in Marxist-Leninist ideals, the Derg believed private capital couldn't be trusted and that the state, not the market, should decide where money and resources flowed.

When they took power, two principles shaped their rule:

• Foreign influence was a threat

• State control was the path to equity

The financial sector was the first to fall in line.

Foreign banks were pushed out, local ones were nationalized, and almost overnight, the state became the sole lender, regulator, and gatekeeper of credit.

The Derg fell in 1991, but their economic playbook lived on.

In 1994, Ethiopia allowed private domestic banks to return.

Still, for nearly fifty years, the financial system remained sealed off from the world.

That isolation came at a price.

The economy needed capital to grow, but couldn’t raise enough of it at home.

Domestic banks were thinly capitalized, running mostly on deposits.

And as trade deficits widened, foreign exchange reserves were stretched thin.

In 2019, Ethiopia began to rethink the walls it had built.

Under pressure to attract capital and backed by the IMF’s Homegrown Economic Reform Agenda, the government moved to open up.

The shift culminated in Proclamation No. 1360/2024, the law that reopened Ethiopia’s banking sector to foreign players for the first time in fifty years.

On June 25, 2025, the central bank made it official, and applications are now open.

Foreign banks can enter Ethiopia as:

• Subsidiaries

• Branches or rep offices (one, not both)

• Equity investors (30% individual cap, 40% total)

• Or, rarely, through full takeovers with regulatory approval

The goal?

Bring in fresh capital, ease Ethiopia’s chronic forex shortages, modernize the sector, and finally connect Ethiopia’s 120 million people to a stronger, more open financial system.

The race is on, but it won’t be a sprint.

Today, the banking sector is still dominated by a few major players:

• The state-owned Commercial Bank of Ethiopia holds 49.5% of total assets and 48.7% of deposits.

• And the five largest private banks together account for just 28% of assets.

Already, regional giants like Kenya’s KCB Group and South Africa’s Standard Bank want in, hoping to shake up a system that’s barely moved in decades.

But Ethiopia is a market that needs groundwork, patience, and deep adaptation.

And for banks used to mature systems, that may be harder than it sounds.

Here are two things I think matter most for any bank serious about making this work.

1.) A marathon. Not a Sprint

Ethiopia’s population is often pitched as its greatest asset.

I’ve made that pitch myself.

With almost 130 million people and a median age of 19, it’s Africa’s second most populated country after Nigeria.

On paper, that’s a banker’s dream.

But does population alone create a market?

Population was one of the loudest refrains of the “Africa Rising” story.

A young, fast-growing continent was supposed to drive the next wave of global growth.

The assumption was that size and demographics would automatically translate into opportunity.

But that hasn’t checked out (yet).

While we’ve had a few wins, many startups are barely surviving.

Multinationals that once rushed in, like Bayer, Nestlé, and Unilever, are now scaling back.

And they all say the same thing: Africa has many people, but there’s no enabling environment to serve them.

• In 2023, Ethiopia's gross national income per capita was just $1,020, according to the World Bank.

• About 35% of people live on less than $1.25 a day.

• And with 84% of the population in rural areas, it’s one of the least urbanized countries in the world.

That mix of low income and low density shapes which financial services are viable there.

Think wallets, utility payments, microloans, and cash-in cash-out networks that meet people where they are.

Achieving true financial inclusion in Ethiopia will require a different type of bank.

This bank is great at retail.

But not retail as in shiny branches and sleek apps.

Retail as in agent networks, cash-in cash-out points, basic wallets, and utility payment rails.

It knows how to build trust offline and serve customers with little to no formal financial history.

And it can withstand the thin margins and the long runway it takes to actually bank the unbanked.

But it won’t do it alone.

It will partner with telcos, local fintechs, and cooperatives - players that already anchor Ethiopia’s financial infrastructure and have earned both reach and trust.

2.) Think like a builder. Act like a banker

If you ask me, the most valuable layer of Ethiopia’s banking system right now isn’t customer-facing. It’s foundational.

Before you can sell a product, you need to build the ground it stands on.

According to the World Bank, 50% of Ethiopia’s population is unbanked.

That’s over 100 million people who’ve never saved, borrowed, or transacted with a bank, online or offline.

It’s more troubling when you zoom in on credit.

While private sector lending has grown in the last five years, credit is still locked up at the top.

• Just 0.5% of borrowers (those with loans above ETB 10 million ($183,000) )hold nearly 74% of all credit

• The remaining 99.5% split what’s left: less than 26%

• Most of that credit goes to government, manufacturing, trade, services, and exports

• Household lending only crossed 10% in 2023 , so retail lending remains neglected.

There’s clearly a big opportunity in lending to both individuals and small businesses.

But any bank entering this market will find the infrastructure missing - not because it collapsed, but because it was never built.

They’ walking into:

• Weak credit bureaus - so there’s no proper way to size borrower risk at scale

• Patchy or non-existent financial records from small businesses

• Limited collateral frameworks

• Agent networks that are urban heavy

• And digital payments that haven’t scaled, making loan disbursement and collection harder.

If your playbook depends on plugging into a mature system and layering on products, you’re early.

Ethiopia isn’t ready for the wave of aggressive bankers and digital lenders lining up at the gates.

In Kenya, we’ve seen how the movie goes.

The rise of mobile money fueled a credit boom.

But years later, defaults have spiked, recovery went rogue, and lenders are bleeding.

The regulatory clampdown we’re seeing now was always coming.

The lesson is not that credit is risky, although it is.

It’s that sequencing matters.

What Ethiopia needs right now are builders. Not just bankers.

Institutions ready to get in the trenches.

Those with conviction and ready to do the hard, slow work of scaffolding a financial system nearly from scratch.

Think less Standard Bank, more Equity Bank in its early days.

The ones who will digitize income flows, lay down rural agent networks, build alternative credit rails, and track behavior over time to create the trust that lending runs on.

And there’s a massive upside to doing this.

The ones who build these will own more than market share.

They’ll own the rails, the data, and the trust, and these foundations compound over time.

See what Equity Bank became by cracking last-mile banking for the Kenyan mass market. Or how Safaricom, East Africa’s biggest telco, turned payments into a platform other players now build on.

In Ethiopia, it’s still day one.

And I believe whoever solves the hard problems first will shape the entire market architecture, which is where real economic power lies.