Measures and Distribution of Financial Inclusion in Kenya

Abstract

This paper interrogates various measures and definitions of financial inclusion (FI) and their cumulative distribution in Kenya. Lack of a substantive and reliable measure of FI hampers the formulation of evidence based policy interventions. The paper presents three measures of FI founded on formal usage of; transactionary, credit, savings/investments and insurance/pension products. The first measure is focused on the use of atleast one formal financial product from each category, the second measure develops a composite measure (index of Financial Inclusion (IFI)) aggregated from the single measures and lastly a use case measure based on the needs framework. From the single product measure; transactionary, credit, savings and insurance, uptake in 2019 averaged 79 percent, 17 percent, 53 percent and 29 percent respectively. The cumulative distribution curves revealed a strong stochastic dominance by the Nairobi sub region. A ranking of the sub regions using the IFI placed Nairobi sub region on top followed by Central and Mombasa in that order. Upper Eastern, North Eastern and North Rift sub regions took the bottom three positions. The paper recommends a sustained campaign to boost the uptake of financial services from the formal strand and particularly credit and insurance whose uptake is relatively low. The study also recommends a shift from the conventional measurement of FI based on product usage to the needs based framework founded on the use case to assess efficacy of formal financial solutions to manage liquidity, mitigate risks and manage future goals. JEL Classification Numbers: C43, C81, G02, G21, G23 Keywords: Financial Inclusion, stochastic dominance, sub region DOI : 10.7176/EJBM/11-22-07 Publication date : August 31 st 2019