Remittances through formal and alternative channels and its effect on financial inclusion in Kenya

Festus Mithi Wanjohi,Salome Mwongeli Musau,Emmanuel Kwesi Arthur

doi:10.20525/ijrbs.v9i7.956

Abstract

In the current dynamic world, those with no or little access to key financial products and services suffer a great deal of disservice. This study examines the effect of remittance channels (commercial banks and alternative sources) have on financial inclusion and then check the moderating effect of money remittance regulation on the relationship between the remittance channels and financial inclusion in Kenya. It uses the World Bank and Central Bank of Kenya’s dataset on remittances and financial inclusion covering the period from 2009 to 2018. We estimate our model using the Ordinary Least Square assumptions to find the association. We find that remittances from alternative channels other than commercial banks influence financial inclusion in Kenya. We further notice that the money remittance regulations have no moderating effect on the relationship between remittance channels and financial inclusion in Kenya. Our results suggest that commercial banks are not able to appropriately sell their products and services to remittance-receiving households while fintech and other internet remitting service providers seem to roll on products and services that enhance the use of savings and credit facilities. We suggest that more avenues and policies should be enacted to foster the use of alternative sources while improving structures within commercial banks to empower financial inclusion in Kenya

Highlights

While many developing countries depend on remittances for economic development, the global remittances in this COVID season continues to decrease
We find that remittances from alternative channels other than commercial banks influences financial inclusion in Kenya
Our second objective examined the extent to which money remittance regulations moderates the interaction between remittance channels and financial inclusion in Kenya

Summary

Introduction

While many developing countries depend on remittances for economic development, the global remittances in this COVID season continues to decrease. The Central Bank of Kenya (2019) data on remittance flows to Kenya in the third quarter of 2020 stood at U $ 2.013 billion. These amounts flow through formal channels and are influenced by several factors including transfer methods, available payment system channels, number of competitors, payment locations, exchange rates, and the amount of legal and regulatory restrictions on foreign currency exchange (Orozco & Yansura, 2016). Countries that do not restrict the movement of remittances are more likely to attract inflows which encourage the setting up of more robust channels for remitting money. Countries with well-developed banking sector opens up formal channels of remitting money back home

Objectives

Results

Conclusion