A Partial Fulfillment of The Requirements for The Msc. In Corporate Finance: Specialty In Investment Management
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Date
2025-09
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Addis Ababa University
Abstract
This study investigates the impact of Ethiopia’s 2020 currency notes reform on formal financial participation within the country’s banking sector. Utilizing a
quantitative research approach, the analysis leverages panel data from eleven commercial banks covering the period 2014/15 to 2023/24. The research employs
both descriptive statistics and an Interrupted Time Series (ITS) econometric framework to assess immediate and sustained changes in key indicators that are
bank deposits, active account ownership, and mobile banking adoption following the reform. The findings reveal a statistically significant immediate surge in formal
financial participation, as measured by a composite index standardized from these multiple indicators, and a pronounced acceleration in its growth rate postreform.
Results highlight that, compared to similar reforms in India and Nigeria; Ethiopia’s policy not only compelled shortterm
formalization but also fostered enduring behavioral shifts towards the formal financial system. The study further identifies a
substitution effect between telecomled mobile money platforms and traditional banking services, signaling the evolving dynamics of digital finance in Ethiopia.
Policy recommendations emphasize the need for sustained public awareness, digital infrastructure investment, and regulatory frameworks that foster synergy
between banks and nonbank financial service providers. Overall, the research demonstrates that welldesigned currency reforms, when paired with supportive
policies and robust implementation, can serve as effective catalysts for broadening formal financial participation and strengthening economic resilience in developing
economies.
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Keywords
Bank deposits, banking sector Ethiopia, currency notes reform, digital finance, economic resilience, financial participation, formal financial system, Interrupted Time Series (ITS), mobile banking adoption