The distributional impact of access to finance on poverty: evidence from selected countries in Sub-Saharan Africa

This paper uses pooled household-level data from thirteen Sub-Saharan African (SSA) countries conducted between 2014 and 2018 to examine the impact of access to finance on household wealth. The few studies that investigated this relationship in the past apply a linear estimation, and thus inadvertently assume a uniformly distributed effect across all levels of poverty. This study examines the heterogeneous impact of access to finance along the entire wealth distribution line using a Re-centered Influence Function (RIF) regression model. We adopt a unique approach to this research problem by constructing an asset-based wealth-index for each country, and use it as a proxy for poverty, and thus get around the problem of non-reported and bracket income. Further, to eliminate potential endogeneity, an instrumental variable quantile approach is implemented. Results indicate that the unconditional effect of access to finance on poverty is non-homogenous. The effect is higher at higher quantiles of wealth and very low at the bottom of the wealth index, suggesting that the extension of formal financial services disproportionately benefits wealthier households more than the very-poor categories.