Understanding financial inclusion in East Africa: How does Tanzania compare?

Abstract

AbstractThis paper primarily aimed at examining the level, and determinants of financial inclusion in Tanzania, comparing it with other East African Region member countries using the Global Findex (2017) database. The study reports some insightful findings. The results show that, financial inclusion is less developed in Tanzania than in other East African countries contrary to expectations. According to expectations from development finance theories financial inclusion directly relates to economic development. However, Tanzania having better GDP than its neighbour countries ranks behind other countries with lower GDPs. One may say that weak financial system, inappropriate policy and poor financial instruments hamper significant effect of finance on growth. The paper argues that regardless of a significant economic growth reported in Tanzania inability of the financial system to reach majority of the population may be considered as a major reason behind the unexpected link between economic growth and financial inclusion. Furthermore, the study shows that financial inclusion is positively related to the income level and education level of the households, and negatively relates to gender. Moreover, a non‐linear relationship between age and financial inclusion is reported‐ that is the relation is positive at a certain age level, and change to negative at a higher age level.Consequently, the study recommends promoting equal participation in both labor and financial markets, and that East African's Governments to fully capture the dynamics of markets and track informal as well as formal economic activities to attract inclusive economy which will, ultimately, match with financial inclusion agenda.