DETERMINANTS OF FINANCIAL INCLUSION IN EAST AFRICA

Victoria Wanjiku Wokabi,Olanrewaju Isola Fatoki

doi:10.20472/bm.2019.7.1.009

Victoria Wanjiku Wokabi, Olanrewaju Isola Fatoki

Open Access

https://doi.org/10.20472/bm.2019.7.1.009

Copy DOI

Abstract

There is a growing focus on financial inclusion among scholars and in policy circles. This study sought to analyse the underlying determinants of financial inclusion among five East African countries- Kenya, Uganda, Tanzania, Rwanda and Burundi. The general objective of the study was to determine the determinants of financial inclusion in East Africa. Specifically, the study examined the effect of rural population, unemployment rates, income level and interest rates on financial inclusion. Rural population was presented as the proportion of a country?s population that lives in rural areas; unemployment rate as the proportion of a country?s population that is unemployed; income as the annual growth rate in GDP per capita; and interest rate as the real interest rate per year. The study used domestic credit to private sector by banks as a measure of financial inclusion The research design used was panel data analysis with secondary data collected from the World Development Indicators database of the World Bank. The 17 year period covered by the study spanned 2000 to 2016. The data was analysed on Stata and the output from analysis provided a basis for findings and recommendations. After conducting diagnostic tests, the model adopted for the study was the fixed effects model. The study found that rural population and income are significant determinants of financial inclusion with rural population being negatively related with financial inclusion. This means that the higher the rural population of a country, the less inclusive their financial system is. Unemployment though statistically insignificant had a negative relationship with financial inclusion. Interest rates had a positive but insignificant relationship with financial inclusion. The study recommended that focused financial literacy efforts be increased in the rural areas within East Africa to promote inclusion efforts. Interest rates can be a powerful policy tool to encourage both savings and credit facility sourcing from the banking sector.

Highlights

The ability to concisely define financial inclusion is key to developing a framework and identifying the factors that drive it
There is no one agreed upon definition of financial inclusion as this varies depending on geographies, economic, social and financial progress of the regions in question and even the priorities of concern from both a social and economic stand-point
Regardless of motivation, all authors agree that financial inclusion is the desired outcome as the marginalised in society can access financial services at an affordable rate and minimise the ravages of poverty

Summary

Introduction

The ability to concisely define financial inclusion is key to developing a framework and identifying the factors that drive it. There is no one agreed upon definition of financial inclusion as this varies depending on geographies, economic, social and financial progress of the regions in question and even the priorities of concern from both a social and economic stand-point. Financial inclusion in the most basic of definitions means unbiased access to financial services in an indiscriminate and straightforward way at affordable costs (Cnaan, Handy & Moodithaya, 2012; Sarma, 2008). There are authors who believe that financial inclusion is a market-driven solution aimed at alleviation of poverty (Alpana, 2007). Regardless of motivation, all authors agree that financial inclusion is the desired outcome as the marginalised in society can access financial services at an affordable rate and minimise the ravages of poverty

Objectives

Methods

Findings

Discussion

Conclusion