Financial Inclusion and Bank Performance: Evidence from the Banking Sector in Ethiopia

Abebe Birhanu Ayele (), Keshav Malhotra () and Manu Sharma ()
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Abebe Birhanu Ayele: Debre Markos University (Ethiopia)
Keshav Malhotra: Panjab University (India)
Manu Sharma: Panjab University (India)

Journal of Corporate Finance Research, 2025, vol. 19, issue 1, 54-69

Abstract: Evidence confirms that financial inclusion is a key enabler for economic growth and social development by deepening the financial system and reducing poverty and income inequality. However, its association with the financial performance of banks remained inconclusive. Therefore, this paper investigated the relationship between financial inclusion and the financial performance of commercial banks in Ethiopia using a sample of 16 commercial banks. The study analyzed 10 years of data spanning from 2013 – 2022 collected manually from the National Bank of Ethiopia (NBE) and annual reports of commercial banks in Ethiopia. A two-step system Generalized Method of Movement (GMM), was applied together with other linear panel data model estimators. The findings of the study have revealed that increased financial inclusion has a significant positive impact on the financial performance (ROA and ROE) of commercial banks in Ethiopia. The GMM estimation result also showed that bank performance indicators (ROA and ROE) have significant positive association with their past realizations. Concerning the effect of bank-specific control variables, the cost-efficiency ratio has a negative significant impact on banks profitability. The study recommends that banks should increase their accessibility by expanding branches and ATMs, and by providing innovative financial products to customers to enhance their profitability further.

Keywords: Financial Inclusion; GMM; Bank Performance; Ethiopia (search for similar items in EconPapers)
JEL-codes: D14 E58 G21 L25 O16 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:hig:jcorpf:v:19:y:2025:i:1:p:54-69

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