By Abel Taddele

I recently returned from a benchmarking visit to India, where I had the opportunity to look beyond the country’s well-known technology hubs and engage with its rural financial landscape. Although I had previously observed India’s financial services sector, this visit offered a fresh opportunity to reflect on what Ethiopia can learn from India’s experience.

The observations may not be new to all readers, but they are worth documenting. What stood out most was that India’s progress in financial inclusion is not only a story of technology. It is also a story of deliberate policy choices, institutional coordination and market-shaping interventions. As Ethiopia advances its own digital transformation and financial inclusion agenda, there are valuable lessons to draw from how India has brought hundreds of millions of people into the formal financial system.

This reflection focuses on the policy and institutional architecture I observed. I hope to follow up with further reflections on payments, digital ID, product innovation and digital public infrastructure.

Policy as an Enabler, Not a Gatekeeper

One of the institutions I had the opportunity to visit was the Reserve Bank of India (RBI). Our discussions with RBI officials highlighted India’s significant progress in expanding account ownership, increasing access and usage, strengthening alternative delivery channels such as business correspondents, improving service quality and enhancing grievance-handling mechanisms within financial institutions.

The most striking takeaway from the visit was that financial inclusion in India is not treated as a peripheral development objective or a corporate social responsibility initiative. It is embedded in the core mandate of the financial system and viewed as part of broader financial stability and market development.

The RBI appears to operate with a dual mandate in practice: safeguarding the integrity of the financial system while actively enabling access. Through Priority Sector Lending, the central bank does not simply encourage banks to lend to farmers, micro and small enterprises, and other underserved segments. It mandates, codifies and monitors this lending. Similarly, through differentiated banking licences, India has enabled specialised institutions, including Small Finance Banks, to serve segments that are often excluded by traditional banking models.

For Ethiopia, the lesson is not to copy these instruments directly, but to understand the market logic behind them. Inclusion is more likely to grow when it is market-executed but policy-enabled. The National Bank of Ethiopia has already made important progress in digital payment reforms. The next opportunity is to further embed inclusion into supervisory priorities, making access, usage and quality of financial services part of how market performance is understood.

The Institutional Backbone of Rural Finance

If the RBI provides the regulatory backbone, the National Bank for Agriculture and Rural Development (NABARD) provides the development muscle. NABARD shows that rural finance cannot operate in isolation. It must be connected to capacity building, refinancing, risk-sharing and long-term market development.

The scale of India’s Self-Help Group-Bank Linkage Programme is particularly relevant for Ethiopia. It demonstrates how community-based finance, when supported by a strong apex institution and linked to formal financial institutions, can evolve into a mainstream financial channel.

From a market systems development perspective, the key lesson is that rural finance requires more than direct lending. It requires functioning supporting systems, appropriate incentives, capable institutions and risk-sharing mechanisms that enable commercial actors to serve rural markets sustainably.
In Ethiopia, institutions such as the Development Bank of Ethiopia could play a more catalytic role by positioning themselves not only as direct lenders, but also as refinancers, risk-sharing partners and market enablers for rural and agricultural finance.

Three Strategic Lessons for Ethiopia

Reflecting on the Indian experience, three policy and market systems lessons stand out for Ethiopia’s next phase of financial sector development.

First, institutional clarity matters. Ethiopia needs a clear division of roles between regulatory oversight, development finance leadership, refinancing, capacity building and market facilitation. The National Agri-Finance Roadmap, recently launched by the National Bank of Ethiopia and the Ministry of Agriculture, is an important step in this direction.

Second, inclusion should be treated as a core market performance metric. 

Access to finance should not remain a side project for development partners or a separate reporting line. It should be part of how the health, reach and relevance of the financial system are assessed.

Third, ecosystem thinking is essential. Credit expansion will not succeed without complementary systems such as digital ID, interoperable payments, reliable data, agricultural insurance and effective consumer protection. These are not separate silos. They are the rails, safeguards and incentives that allow inclusive finance to grow sustainably.

India’s journey is not a perfect template for Ethiopia. The two countries differ in scale, institutional capacity, fiscal space and market structure. But the underlying logic is highly relevant: financial inclusion requires intentional market-shaping.
As Ethiopia develops the next chapter of its financial sector strategy, the challenge is not to replicate India’s instruments. It is to adapt the principles behind them: align incentives, build institutional depth, strengthen supporting systems and treat inclusion as a core function of a modern financial market.