<p>Digital Financial Services (DFS) are a critical enabler of financial inclusion in developing countries. For Ethiopia’s smallholder farmers, who form the backbone of the agricultural sector, access to finance is crucial for enhancing productivity, mitigating risk, and improving livelihoods. This paper investigates the role of DFS in empowering smallholder farmers in Addis Ababa and Shaggar cities, exploring the opportunities and challenges surrounding its implementation through a survey and key informant interviews. While DFS holds immense potential, its benefits are constrained by significant barriers. Principal Component Analysis (PCA) revealed that four factors, DFS Impact, DFS Use and Awareness, Financial and Digital Literacy, and DFS Adoption, collectively explain 60% of smallholders’ perceptions. These findings underscore that structural deficiencies, regulatory gaps, and socio-economic factors like limited financial literacy and trust in digital platforms hinder widespread adoption. Although the ongoing IMF reform aims to introduce new tax measures, DFS must remain exempt to ensure continued progress in financial inclusion and accessibility for marginalized communities. Realizing the transformative potential of DFS for Ethiopia’s agricultural sector requires targeted policy interventions, concerted capacity-building efforts, and strategic infrastructure development. Addressing these multifaceted challenges is essential to unlock the full capacity of DFS to boost productivity and enhance the livelihoods of smallholder farmers.</p>