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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
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    References listed on IDEAS

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