Financial inclusion along the Rural-Urban Continuum: Empirical evidence from a decomposition analysis in Kenya between 2012 and 2021

People in extremely rural areas may face substantially higher levels of financial exclusion than rural averages suggest. Formulating efficient policy measures hence requires a more nuanced understanding of spatial differences in financial inclusion beyond mere averages of rural–urban differences. This study is the first to investigate inequality of financial inclusion along a rural–urban continuum. Using two nationally representative surveys from Kenya collected in 2012 and 2021, we first quantify the overall levels of spatial inequality for both conventional and digital financial inclusion. To do so, we calculate concentration indices (CIs) and make pairwise comparisons between the most rural and most urban areas. We then investigate the spatial inequality across 12 variables, which were previously identified to be important determinants of financial inclusion. Lastly, we estimate which variables are the most important contributors to spatial inequality. We find that both conventional and digital financial inclusion are statistically significantly concentrated among more urban areas compared to more rural areas. These inequality estimates are similar for both types of financial inclusion and persistent over time. Average rural–urban differences are substantially lower than differences between the most urban and most rural quintile of the continuum. Important determinants of both financial inclusion types, such as education, wealth, mobile phone ownership, and trust exhibit persistent and high levels of spatial inequality. Congruently, we find that to decrease spatial inequality in financial inclusion, policy makers should prioritize decreasing spatial inequality of all four aforementioned variables. Researchers should consider the degree of rurality on a continuum rather than a binary rural–urban definition. Results are robust against different econometric strategies, different measurements of inequality, and different specifications of both financial inclusion and the rural–urban continuum.