IDEAS home Printed from https://ideas.repec.org/a/sek/jijobm/v7y2019i1p125-143.html
   My bibliography  Save this article

Determinants of Financial Inclusion In East Africa

Author

Listed:
  • Victoria Wanjiku Wokabi

    (KCA University)

  • Olanrewaju Isola Fatoki

    (KCA University)

Abstract

There is a growing focus on financial inclusion among scholars and in policy circles. This study sought to analyse the underlying determinants of financial inclusion among five East African countries- Kenya, Uganda, Tanzania, Rwanda and Burundi. The general objective of the study was to determine the determinants of financial inclusion in East Africa. Specifically, the study examined the effect of rural population, unemployment rates, income level and interest rates on financial inclusion. Rural population was presented as the proportion of a country?s population that lives in rural areas; unemployment rate as the proportion of a country?s population that is unemployed; income as the annual growth rate in GDP per capita; and interest rate as the real interest rate per year. The study used domestic credit to private sector by banks as a measure of financial inclusion The research design used was panel data analysis with secondary data collected from the World Development Indicators database of the World Bank. The 17 year period covered by the study spanned 2000 to 2016. The data was analysed on Stata and the output from analysis provided a basis for findings and recommendations. After conducting diagnostic tests, the model adopted for the study was the fixed effects model. The study found that rural population and income are significant determinants of financial inclusion with rural population being negatively related with financial inclusion. This means that the higher the rural population of a country, the less inclusive their financial system is. Unemployment though statistically insignificant had a negative relationship with financial inclusion. Interest rates had a positive but insignificant relationship with financial inclusion. The study recommended that focused financial literacy efforts be increased in the rural areas within East Africa to promote inclusion efforts. Interest rates can be a powerful policy tool to encourage both savings and credit facility sourcing from the banking sector.

Suggested Citation

  • Victoria Wanjiku Wokabi & Olanrewaju Isola Fatoki, 2019. "Determinants of Financial Inclusion In East Africa," International Journal of Business and Management, International Institute of Social and Economic Sciences, vol. 7(1), pages 125-143, May.
    • Handle: RePEc:sek:jijobm:v:7:y:2019:i:1:p:125-143
    as

    Download full text from publisher

    File URL: https://iises.net/international-journal-of-business-management/publication-detail-17420
    Download Restriction: no
    File URL: https://iises.net/international-journal-of-business-management/publication-detail-17420?download=9
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Allen, Franklin & Demirguc-Kunt, Asli & Klapper, Leora & Martinez Peria, Maria Soledad, 2016. "The foundations of financial inclusion: Understanding ownership and use of formal accounts," Journal of Financial Intermediation, Elsevier, vol. 27(C), pages 1-30.
    2. Dean Karlan & Jonathan Zinman, 2010. "Expanding Credit Access: Using Randomized Supply Decisions to Estimate the Impacts," The Review of Financial Studies, Society for Financial Studies, vol. 23(1), pages 433-464, January.
    3. Benston, George J & Smith, Clifford W, Jr, 1976. "A Transactions Cost Approach to the Theory of Financial Intermediation," Journal of Finance, American Finance Association, vol. 31(2), pages 215-231, May.
    4. Franklin Allen & Elena Carletti & Robert Cull & Jun ‘QJ’ Qian & Lemma Senbet & Patricio Valenzuela, 2014. "The African Financial Development and Financial Inclusion Gaps," Journal of African Economies, Centre for the Study of African Economies, vol. 23(5), pages 614-642.
    5. Cruz, Daniela & López, Jesús & Valenzuela, César, 2017. "La inclusión financiera de pequeños productores rurales en Honduras," Libros de la CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 42126.
    6. -, 2017. "Financial inclusion of small rural producers," Libros de la CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 42639 edited by Eclac.
    7. Mandira Sarma, 2008. "Index of Financial Inclusion," Working Papers id:1575, eSocialSciences.
    8. Mandira Sarma, "undated". "Index of Financial Inclusion," Indian Council for Research on International Economic Relations, New Delhi Working Papers 215, Indian Council for Research on International Economic Relations, New Delhi, India.
    9. Bendig, Mirko & Giesbert, Lena & Steiner, Susan, 2009. "Savings, Credit and Insurance: Household Demand for Formal Financial Services in Rural Ghana," GIGA Working Papers 94, GIGA German Institute of Global and Area Studies.
    10. Thorsten Beck & Martin Brown, 2011. "Which Households Use Banks? Evidence from the Transition Economies," Working Papers 2011-01, Swiss National Bank.
    11. Luebker, Malte., 2008. "Employment, unemployment and informality in Zimbabwe : concepts and data for coherent policy-making," ILO Working Papers 994206943402676, International Labour Organization.
    12. Vasilis Sarafidis & Tom Wansbeek, 2012. "Cross-Sectional Dependence in Panel Data Analysis," Econometric Reviews, Taylor & Francis Journals, vol. 31(5), pages 483-531, September.
    13. Russell, Helen & Maître, Bertrand & Donnelly, Nora, 2011. "Financial Exclusion and Over-indebtedness in Irish Households," Research Series, Economic and Social Research Institute (ESRI), number BKMNEXT184, June.
    14. Nerlove,Marc, 2005. "Essays in Panel Data Econometrics," Cambridge Books, Cambridge University Press, number 9780521022460.
    15. Mandira Sarma, 2008. "Index of Financial Inclusion," Finance Working Papers 22259, East Asian Bureau of Economic Research.
    16. Brigit Helms, 2006. "Access for All : Building Inclusive Financial Systems," World Bank Publications - Books, The World Bank Group, number 6973, December.
    17. repec:ilo:ilowps:420694 is not listed on IDEAS
    18. David Tuesta & Gloria Sorensen & Adriana Haring & Noelia Camara, 2015. "Financial inclusion and its determinants: the case of Argentina," Working Papers 1503, BBVA Bank, Economic Research Department.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Okonkwo Jisike J & Nwanna Ifeanyi O., 2021. "Financial Inclusion and Economic Growth in Nigeria: An Empirical Study," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 5(1), pages 300-305, January.
    2. Shani Bashiru & Alhassan Bunyaminu & Ibrahim Nandom Yakubu & Mamdouh Abdulaziz Saleh Al-Faryan, 2023. "Drivers of Financial Inclusion: Insights from Sub-Saharan Africa," Economies, MDPI, vol. 11(5), pages 1-11, May.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Anh L.N. Ngo, 2019. "Index of Financial Inclusion and the Determinants: An Investigation in Asia," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(12), pages 1368-1382, December.
    2. Josephat Lotto, 2022. "Understanding financial inclusion in East Africa: How does Tanzania compare?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 1075-1084, January.
    3. Fareeha Adil & Abdul Jalil, 2020. "Determining the Financial Inclusion Output of Banking Sector of Pakistan—Supply-Side Analysis," Economies, MDPI, vol. 8(2), pages 1-20, May.
    4. Mohamed Noureldin Sayed & Amir Shusha, 2019. "Determinants of Financial Inclusion in Egypt," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(12), pages 1383-1404, December.
    5. Vanesa Pesqué‐Cela & Lihui Tian & Deming Luo & Damian Tobin & Gerhard Kling, 2021. "Defining and measuring financial inclusion: A systematic review and confirmatory factor analysis," Journal of International Development, John Wiley & Sons, Ltd., vol. 33(2), pages 316-341, March.
    6. Franklin Allen & Elena Carletti & Robert Cull & Jun QJ Qian & Lemma Senbet & Patricio Valenzuela, 2021. "Improving Access to Banking: Evidence from Kenya [A matter of experience? Understanding the decline in group lending]," Review of Finance, European Finance Association, vol. 25(2), pages 403-447.
    7. Amponsah, Mary & Agbola, Frank W. & Mahmood, Amir, 2021. "The impact of informality on inclusive growth in Sub-Saharan Africa: Does financial inclusion matter?," Journal of Policy Modeling, Elsevier, vol. 43(6), pages 1259-1286.
    8. Noelia Cámara & David Tuesta, 2018. "Measuring financial inclusion: a multidimensional index," IFC Bulletins chapters, in: Bank for International Settlements (ed.), The role of data in supporting financial inclusion policy, volume 47, Bank for International Settlements.
    9. Bao Zhu & Shiting Zhai & Jing He, 2018. "Is the Development of China’s Financial Inclusion Sustainable? Evidence from a Perspective of Balance," Sustainability, MDPI, vol. 10(4), pages 1-16, April.
    10. Guillermo Boitano & Deybi Franco Abanto, 2020. "Challenges of financial inclusion policies in Peru," Revista Finanzas y Politica Economica, Universidad Católica de Colombia, vol. 12(1), pages 89-117, June.
    11. Maëlle Della Peruta, 2015. "Mobile Money Adoption and Financial Inclusion Objectives: A Macroeconomic Approach through a Cluster Analysis," GREDEG Working Papers 2015-49, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    12. Hewa Wellalage, Nirosha & Hunjra, Ahmed Imran & Manita, Riadh & Locke, Stuart M., 2021. "Information communication technology and financial inclusion of innovative entrepreneurs," Technological Forecasting and Social Change, Elsevier, vol. 163(C).
    13. Idrees Liaqat & Yongqiang Gao & Faheem Ur Rehman & Zoltán Lakner & Judit Oláh, 2022. "National Culture and Financial Inclusion: Evidence from Belt and Road Economies," Sustainability, MDPI, vol. 14(6), pages 1-21, March.
    14. Dai-Won Kim & Jung-Suk Yu & M. Kabir Hassan, 2018. "The Influence Of Religion And Social Inequality On Financial Inclusion," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 65(01), pages 193-216, July.
    15. Olaniyi Evans, 2016. "The Effectiveness of Monetary Policy in Africa: Modeling the Impact of Financial Inclusion," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 20(3), pages 327-337, Summer.
    16. Valeria Venturelli & Alessia Pedrazzoli & Giovanni Gallo, 2020. "Birds of a Feather Flock Together: The Inclusive Effect of Similarity Patterns in Equity Crowdfunding," Sustainability, MDPI, vol. 12(9), pages 1-24, April.
    17. Amit Pandey & Ravi Kiran & Rakesh Kumar Sharma, 2023. "Investigating the Determinants of Financial Inclusion in BRICS Economies: Panel Data Analysis Using Fixed-Effect and Cross-Section Random Effect," Sustainability, MDPI, vol. 15(2), pages 1-21, January.
    18. Taoyong Su & Yuzhu Yu & Yongheng Chen & Jian Zhang, 2019. "The Experience, Dilemma, and Solutions of Sustainable Development of Inclusive Finance in Rural China: Based on the Perspective of Synergy," Sustainability, MDPI, vol. 11(21), pages 1-18, October.
    19. Muri Wole Adedokun & Mehmet Ağa, 2023. "Financial inclusion: A pathway to economic growth in Sub‐Saharan African economies," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 2712-2728, July.
    20. Md. Qamruzzaman & Jianguo Wei, 2019. "Financial Innovation and Financial Inclusion Nexus in South Asian Countries: Evidence from Symmetric and Asymmetric Panel Investigation," IJFS, MDPI, vol. 7(4), pages 1-27, October.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sek:jijobm:v:7:y:2019:i:1:p:125-143. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klara Cermakova (email available below). General contact details of provider: https://ijobm.iises.net/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.