Financial Inclusion in Tanzania Determinants, Barriers, and Impact

Abstract

Financial inclusion is vital in economic development as it empowers families and communities to meet basic needs, such as nutritious food, clean water, housing, education, and healthcare. Financial inclusion is also a tool for hedging against extreme weather events, disasters, and health crises such as the COVID-19 pandemic. Moreover, access to financial services has the potential to alleviate poverty, reduce income inequality, and stimulate economic growth and development. However, there is limited literature regarding the impact of financial inclusion at the household level. According to the latest World Bank Global Findex, the number of financially included adults has risen substantially in Tanzania due to the introduction of mobile money and baking financial inclusion. Based on Tanzania World Bank's Global Findex micro-data set for 2011, 2014, and 2017 surveys, this study uses the ordered probit regression model with endogenous treatment assignment to evaluate factors influencing financial inclusion and estimate the impact of financial inclusion on income in Tanzania. The available literature guided us in selecting the independent variables to include in the financial inclusion and impact models. The applied model allows for correcting for self-selection bias and endogenous effects associated with financial inclusion and income. Self-selection bias can occur when individuals choose whether to participate in a program based on their socioeconomic and demographic circumstances. Due to self-selection, participants often differ from nonparticipants in ways significant to the research, leading to a biased sample, which affects the generalizability of the research results. The results show that formal education and lack of money are the most crucial factor influencing financial inclusion and exclusion. Moving from financial exclusion to inclusion increased the probability of being in the higher income brackets. Personal finance education programs geared towards the most vulnerable groups would improve financial inclusion and income in Tanzania. Results from this study indicate that financial inclusion has a positive impact on income, and thus, it is crucial to enhance the scope coverage via more extensive and swift channels, such as mobile money and baking. Enhanced financial inclusion in Tanzania will lead to higher and quicker integration of the excluded community members into formal financial systems, thereby maximizing the effects of financial inclusion on the poor and the country's economic growth.